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EXHIBIT 10.5    
  

PRODUCTION SHARING CONTRACT  

 YAPEN—DATED SEPTEMBER 27, 1999  

 
PRODUCTION SHARING CONTRACT

Between

PERUSAHAAN PERTAMBANGAN MINYAK

DAN GAS BUMI NEGARA

(PERTAMINA)

and

APEX (YAPEN) LTD.  

 Contract Area: YAPEN BLOCK  

 
 

TABLE OF CONTENTS    
  

	Section
	 	Title
	 	Page

	I	 	SCOPE AND DEFINITIONS	 	01
	II	 	TERM	 	03
	III	 	EXCLUSION OF AREAS	 	04
	IV	 	WORK PROGRAM AND EXPENDITURES	 	04
	V	 	RIGHTS AND OBLIGATIONS OF THE PARTIES	 	06
	VI	 	RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION	 	11
	VII	 	VALUATION OF CRUDE OIL	 	12
	VIII	 	COMPENSATION, PRODUCTION BONUS AND EQUIPMENT AND SERVICES ASSISTANCE	 	14
	IX	 	PAYMENTS	 	15
	X	 	TITLE TO EQUIPMENT	 	15
	XI	 	CONSULTATION AND ARBITRATION	 	15
	XII	 	EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL	 	16
	XIII	 	TERMINATION	 	16
	XIV	 	BOOKS, ACCOUNTS, AND AUDITS	 	17
	XV	 	OTHER PROVISIONS	 	18
	XVI	 	PARTICIPATION	 	19
	XVII	 	EFFECTIVENESS	 	20

Exhibits 

	EXHIBIT "A" DESCRIPTION OF CONTRACT AREA	 	A-1
	EXHIBIT "B" MAP OF CONTRACT AREA	 	B-1
	EXHIBIT "C" ACCOUNTING PROCEDURE	 	C-1
	EXHIBIT "D" MEMORANDUM ON PARTICIPATION	 	D-1

(ii)

  

PRODUCTION SHARING CONTRACT

BETWEEN

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

(PERTAMINA)

and

APEX (YAPEN) LTD.,  

    THIS CONTRACT, made and entered into on this ......... day of .............. 1998 by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA, a State
Enterprise, established on the basis of Law No. 8/1971, hereinafter called "PERTAMINA", party of the first part, and APEX (YAPEN) LTD., a corporation organized and existing under the
laws of British Virgin Islands, hereinafter called "CONTRACTOR", party of the second part, both hereinafter sometimes referred to either individually as the "Party" or collectively as the "Parties". 

    WITNESSETH 

    WHEREAS,
all mineral oil and gas existing within the statutory mining territory of Indonesia are national riches controlled by the State; and 

    WHEREAS,
PERTAMINA has an exclusive "Authority to Mine" for mineral oil and gas throughout the area described in Exhibit "A" and outlined on the map which is Exhibit "B", both
attached hereto and made a part hereof, which area is hereinafter referred to as the "Contract Area"; and 

    WHEREAS,
PERTAMINA wishes to promote the development of the Contract Area and CONTRACTOR wishes to assist PERTAMINA in accelerating the exploration, and development of the resources
within the Contract Area; and 

    WHEREAS,
CONTRACTOR has the financial ability, technical competence and professional skills necessary to carry out the Petroleum Operations hereinafter described; and 

    WHEREAS,
the Contract Area has been designated by PERTAMINA as an area eligible for the 1993 Petroleum Incentive Package for reasons of its current geological risk and infrastructure
remoteness aspects; and 

    WHEREAS,
in accordance with Law No. 44 Prp/1960 and Law No. 8/1971 cooperative agreements in the form of a Production Sharing Contract may be entered into in the sector
of oil and gas between PERTAMINA and another party° 

    NOW
THEREFORE, in consideration of the mutual covenants herein contained, it is hereby agreed as follows: 

 
 

SECTION I    
    
    SCOPE AND DEFINITIONS    
  

	1.1	 	SCOPE
	

 	
 	

This Contract is a Production Sharing Contract. In accordance with the provisions herein contained, PERTAMINA shall have and be responsible for the management of the operations contemplated hereunder.
	

 	
 	

CONTRACTOR shall be responsible to PERTAMINA for the execution of such operation in accordance with the provisions of this Contract, and is hereby appointed and constituted the exclusive company to conduct Petroleum Operations.

1

 

	

 	
 	

CONTRACTOR shall provide all the financial and technical assistance for such operations. CONTRACTOR shall carry the risk of Operating Costs required in carrying out operations and shall therefore have an economic interest in the development of the
Petroleum deposits in the Contract Area. Such costs shall be included in Operating Costs recoverable as provided in Section VI.
	

 	
 	

Except as may otherwise be provided in this Contract, in the Accounting Procedure attached hereto, or by written agreement of PERTAMINA, CONTRACTOR will not incur interest expenses to finance its operations hereunder.
	

 	
 	

During the term of this Contract the total production of Crude Oil achieved in the conduct of such operations shall be divided in accordance with the provisions of Section VI hereof.
	

1.2	
 	

DEFINITIONS
	

 	
 	

In the text of this Contract, the words and terms defined in Article 1 of Law No. 44 Prp/1960 shall have the meaning in accordance with such definitions.
	

 	
 	

1.2.1	
 	

Affiliated Company or Affiliate means a company or other entity that controls, or is controlled by a Party to this Contract, or a company or other entity which controls or is controlled by a company or other entity which controls a Party to this
Contract, it being understood that control shall mean ownership by one company or entity at least 50% of (a) the voting stock, if the other entity is a corporation issuing stock or (b) the controlling rights or interests, if the other
entity is not a corporation.
	

 	
 	

1.2.2	
 	

Barrel means a quantity or unit of oil, forty-two (42) United States gallons at the temperature of sixty (160) degrees Fahrenheit.
	

 	
 	

1.2.3	
 	

Barrel of Oil Equivalent (BOE) means six thousand (6,000) standard cubic feet of Natural Gas based on the gas having a calorific value of one thousand (1,000) British Thermal Units per cubic foot (BTU/ft3).
	

 	
 	

1.2.4	
 	

Budget of Operating Costs means cost estimates of all items included in the Work Program.
	

 	
 	

1.2.5	
 	

Calendar Year or Year means a period of twelve (12) months commencing with January 1 and ending on the following December 31, according to the Gregorian calendar.
	

 	
 	

1.2.6	
 	

Contract Year means a period of twelve (12) consecutive months according to the Gregorian calendar counted from the Effective Date of this Contract or from the anniversary of such Effective Date.
	

 	
 	

1.2.7	
 	

Contract Area means the area within the statutory mining territory of Indonesia covered by the "Authority to Mine" which is the subject of this Contract, which Contract Area is described and outlined in Exhibits "A" and "B" attached hereto and made
part hereof.
	

 	
 	

1.2.8	
 	

Crude Oil means crude mineral oil, asphalt, ozokerite and all kinds of hydrocarbons and bitumens, both in solid and in liquid form, in their natural state or obtained from Natural Gas by condensation or extraction.
	

 	
 	

1.2.9	
 	

Effective Date means the date of the approval of this Contract by the Government of the Republic of Indonesia in accordance with the provisions of the applicable law.

2

 

	

 	
 	

1.2.10	
 	

Force Majeure means delays or default in performance under this Contract caused by circumstances beyond the control and without the fault or negligence of PERTAMINA and/or CONTRACTOR that may affect economically or otherwise the continuing of
operations under this Contract, including but not restricted to Acts of God or the public enemy, perils of navigation, fire, hostilities, war (declared or undeclared), blockade, labor disturbances, strikes, riots, insurrections, civil commotion,
quarantine restrictions, epidemics, storm, earthquakes, or accidents.
	

 	
 	

1.2.11	
 	

Foreign Exchange means currency other than that of the Republic of Indonesia but acceptable to PERTAMINA and to the Republic of Indonesia and to CONTRACTOR.
	

 	
 	

1.2.12	
 	

Indonesian Income Tax Law means the current Tax Code including all the appropriate regulations.
	

 	
 	

1.2.13	
 	

Natural Gas means all associated and/or non associated gaseous hydrocarbons produced from wells, including wet mineral gas, dry mineral gas, casing-head gas and residue gas remaining after the extraction of liquid hydrocarbons from wet
gas.
	

 	
 	

1.2.14	
 	

Operating Costs means expenditures made and obligations incurred in carrying out Petroleum Operations hereunder determined in accordance with the Accounting Procedure attached hereto and made a part hereof as Exhibit "C".
	

 	
 	

1.2.15	
 	

Petroleum means oil and gas, hereinafter called Crude Oil and Natural Gas as defined in Law No.44 Prp/1960.
	

 	
 	

1.2.16	
 	

Petroleum Operations means all exploration, development, extraction, producing, transportation, marketing, abandonment and site restoration operations authorized or contemplated under this Contract.
	

 	
 	

1.2.17	
 	

Point of Export means the outlet flange of the loading arm after final sales meter at the export terminal, or some other point(s) mutually agreed by the Parties.
	

 	
 	

1.2.18	
 	

Work Program means a statement itemizing the Petroleum Operations to be carried out in the Contract Area as set forth in Section IV.
	

 	
 	

 	
 	

 

 
 

SECTION II    
    
    TERM    
  

	

2.1	
 	

The term of this Contract shall be thirty (30) years as from the Effective Date.
	

2.2	
 	

At the end of the initial six (6) years as from the Effective Date CONTRACTOR shall have the option to request PERTAMINA for a four (4) years extension, and the approval of such request shall not be unreasonably withheld.
	

2.3	
 	

If at the end of the initial six (6) years as from the Effective Date or the extension thereto no Petroleum in commercial quantities is discovered in the Contract Area, then without prejudice to Section XIII, this Contract shall
automatically terminate in its entirety.
	

2.4	
 	

If Petroleum is discovered in any portion of the Contract Area within the initial six (6) years period, or the extension thereto, which in the judgment of PERTAMINA and CONTRACTOR can be produced commercially, based on consideration of all
pertinent operating and financial data, then as to that particular portion of the Contract Area development will commence.
	

 	
 	

In other portions of the Contract Area exploration may continue concurrently without prejudice to the provisions of Section III regarding the exclusion of areas.
	

 	
 	

 	
 	

 

3

 
 
 

SECTION III    
    
    EXCLUSION OF AREAS    
  

	

3.1	
 	

On or before the end of the initial three (3) years period as from the Effective Date, CONTRACTOR shall relinquish twenty-five percent (25%) of the original Contract Area.
	

3.2	
 	

On or before the end of the sixth (6th) Contract Year, CONTRACTOR shall relinquish an additional area equal to twenty-five percent (25%) of the original total Contract Area.
	

3.3	
 	

On or before the end of the tenth (10th) Contract Year CONTRACTOR shall relinquish an additional area so that the area retained thereafter shall not be in excess of one thousand nine hundred (1,900) square kilometers, or twenty percent (20%) of the
original total Contract Area, whichever is less.
	

3.4	
 	

CONTRACTOR's obligations to relinquish parts of the original Contract Area under the preceding provisions shall not apply to any part of the Contract Area corresponding to the surface area of any field in which Petroleum has been
discovered.
	

3.5	
 	

With regard to the remaining portion of the Contract Area left after the mandatory relinquishment as set forth in clauses 3.1, 3.2 and 3.3 above, PERTAMINA and CONTRACTOR shall maintain a reasonable exploration effort. In respect of any part of such
remaining unexplored portion of the Contract Area for which CONTRACTOR does not during two (2) consecutive Year submit an exploration program, PERTAMINA may by written notice to CONTRACTOR require CONTRACTOR either to submit an exploration
program or to relinquish such part of the Contract Area.
	

3.6	
 	

Upon thirty (30) days written notice to PERTAMINA prior to the end of the second Contract Year and prior to the end of any succeeding Contract Year, CONTRACTOR shall have the right to relinquish any portion of the Contract Area, and such portion
shall then be credited to that portion of the Contract Area which CONTRACTOR is next required to relinquish under the provisions of clauses 3.1,3.2, and 3.3. hereof.
	

3.7	
 	

CONTRACTOR shall advise PERTAMINA in advance of the date of relinquishment of the portion to be relinquished° For the purpose of such relinquishment, CONTRACTOR and PERTAMINA shall consult with each other regarding the shape and size of each
individual portion of the areas being relinquished; provided, however, that so far as reasonably possible, such portion shall each be of sufficient size and convenient shape to enable Petroleum Operations to be conducted thereon.
	

 	
 	

 	
 	

 

 
 

SECTION IV    
    
    WORK PROGRAM AND EXPENDITURES    
  

	

4.1	
 	

CONTRACTOR shall commence Petroleum Operations hereunder not later than six (6) months after the Effective Date.

4

 

	

4.2	
 	

The amount to be spent and the program to be carried out by CONTRACTOR in conducting exploration operations pursuant to the terms of this Contract during the first six (6) Contract Years after the Effective Date and in conducting Petroleum
Operations pursuant to the terms of this Contract during the next four (4) Contract Years shall in the aggregate be not less than hereafter specified for each of the Contract Years as follows:
	

 	
 	

 	
 	

 

	Contract Year
	 	Work Program
	 	Amount

	

First	
 	

G&G Studies & Seismic Reprocessing	
 	

Five Hundred Thousand United States Dollars (US$500,000)
	

Second	
 	

Shoot 1,000 Km

New Seismic	
 	

One Million Five Hundred Thousand United States Dollars (US$1,500,000)
	

Third	
 	

Drill One Well	
 	

Three Million United States Dollars (US$3,000,000)
	

Fourth	
 	

G&G Studies	
 	

Five Hundred Thousand United States Dollars (US$500,000)
	

Fifth	
 	

Shoot 1,000 Km

New' Seismic	
 	

One Million Five Hundred Thousand United States Dollars

(US$1,500,000)
	

Sixth	
 	

Drill One Well	
 	

Four Million United States Dollars (US$4,000,000)
	

Seventh	
 	

Evaluate Well Results	
 	

One Million United States Dollars (US$1,000,000)
	

Eighth	
 	

Drill One Well	
 	

Four Million United States Dollars (US$4,000,000)
	

Ninth	
 	

Evaluate Well Results	
 	

One Million United States Dollars (US$1,000,000)
	

Tenth	
 	

G&G Studies	
 	

One Million United States Dollars (US$1,000,000)
	

 	
 	

TOTAL	
 	

Eighteen Million United States Dollars (US$18,000,000)

	

 	
 	

CONTRACTOR shall carry out Petroleum Operations during the first three (3) Contract Years, during which period CONTRACTOR shall spend at least Five Million United States Dollars (US$ 5,000,000), called the firm commitment.
	

 	
 	

If during any Contract Year CONTRACTOR should spend less than the amount of money required to be so expended, an amount equal to such under expenditure may, with PERTAMINA's consent, be carried forward and added to the amount to be expended in the
following Contract Year without prejudice to CONTRACTOR's rights hereunder.
	

 	
 	

If during any Contract Year CONTRACTOR should expend more than the amount of money required to be so expended, the excess may be subtracted from the amount of money to be so expended by CONTRACTOR during the succeeding Contract Years.
	

4.3	
 	

At least three (3) months prior to the beginning of each Calendar Year or at such other time as otherwise mutually agreed by the Parties, CONTRACTOR shall prepare and submit for approval to PERTAMINA a Work Program and Budget of Operating Costs
for the Contract Area setting forth the Petroleum Operations which CONTRACTOR proposes to carry out during the ensuing Calendar Year.

5

 

	

4.4	
 	

Should PERTAMINA wish to propose a revision as to certain specific features of said Work Program and Budget of Operations Costs, it shall within thirty (30) days after receipt thereof so notify CONTRACTOR specifying in reasonable detail its
reasons therefor. Promptly thereafter, the Parties will meet and endeavor to agree on the revisions proposed by PERTAMINA. In any event, any portion of the Work Program as to which PERTAMINA has not proposed a revision shall insofar as possible be
carried out as prescribed herein.
	

4.5	
 	

It is recognized by the Parties that the details of a Work Program may require changes in the light of existing circumstances and nothing herein contained shall limit the right of CONTRACTOR to make such changes, provided they do not change the
general objective of the Work Program, nor increase the expenditures in the approved Budget of Operating Costs.
	

4.6	
 	

It is further recognized that in the event of emergencies or extraordinary circumstances requiring immediate actions, either Party may take all actions it deems proper or advisable to protect their interests and those of their respective employees
and any costs so incurred shall be included in the Operating Costs.
	

4.7	
 	

PERTAMINA agrees that the approval of a proposed Work Program and Budget of Operating Costs will not be unreasonably withheld.
	

 	
 	

 	
 	

 

 
 

SECTION V    
    
    RIGHTS AND OBLIGATIONS OF THE PARTIES    
  

	

5.1	
 	

Subject to the provisions of paragraphs 5.2.6 and 5.2.7 of Subsection 5.2
	

5.2	
 	

CONTRACTOR shall:
	

 	
 	

5.2.1	
 	

advance all necessary funds and purchase or lease all equipment, supplies and materials required to be purchased or leased with Foreign Exchange pursuant to the Work Program;
	

 	
 	

5.2.2	
 	

furnish all technical aid, including foreign personnel, required for the performance of the Work Program, payment whereof requires Foreign Exchange;
	

 	
 	

5.2.3	
 	

furnish such other funds for the performance of the Work Program that requires payment in Foreign Exchange, including payment to foreign third parties who perform service as a contractor;
	

 	
 	

5.2.4	
 	

be responsible for the preparation and execution of the Work Program, which shall be implemented in a workmanlike manner and by appropriate scientific methods;
	

 	
 	

5.2.5	
 	

(a)	
 	

conduct an environmental baseline assessment at the beginning of CONTRACTOR's activities;
	

 	
 	

 	
 	

(b)	
 	

take the necessary precautions for protection of ecological systems, navigation and fishing and shall prevent extensive pollution of the area, sea or rivers and other as the result of operations undertaken under the Work Program;

6

 

	

 	
 	

 	
 	

(c)	
 	

after the Contract expiration or termination, or relinquishment of part of the Contract Area, or abandonment of any field, remove all equipment and installations from the area in a manner acceptable to PERTAMINA, and perform all necessary site
restoration activities in accordance with the applicable Government regulations to prevent hazards to human life and property of others or environment; provided however, if PERTAMINA takes over any area or field prior to its abandonment, CONTRACTOR
shall be released from its obligation to remove the equipment and installations and perform the necessary site restoration activities of the field in such area. In such event all the accumulated funds reserved for the removal and restoration
operations shall be transferred to PERTAMINA;
	

 	
 	

 	
 	

(d)	
 	

include in the annual Budget of Operating Costs, estimates of the anticipated abandonment and site restoration costs for each exploratory well in the Work Program. All expenditures incurred by CONTRACTOR in the abandonment of all such wells and
restoration of their drill sites shall be treated as Operating Costs in accordance with the Accounting Procedure attached hereto as Exhibit "C";
	

 	
 	

 	
 	

(e)	
 	

include with requisite plan of development for each commercial discovery, an abandonment and site restoration program together with a funding procedure for such program. The amount of monies estimated to be required for this program shall be
determined each year in conjunction with the Budget of Operating Costs for the plan of development and all such estimates shall be treated as Operating Costs in accordance with the Accounting Procedure attached hereto as Exhibit "C";
	

 	
 	

5.2.6	
 	

have the right to sell, assign, transfer, convey or otherwise dispose of all or any part of its rights and interests under this Contract to any Affiliated Company without the prior written consent of PERTAMINA, provided that PERTAMINA shall be
notified in writing of the same beforehand and further provided that any assignee whom such rights and interests are assigned to under any clause of this Contract shall not hold more than one Technical Assistance Contract or Production Sharing
Contract at any given time;
	

 	
 	

5.2.7	
 	

have the right to sell, assign, transfer, convey or otherwise dispose of all or any part of its rights and interests under this Contract to parties other than Affiliated Companies with the prior written consent of PERTAMINA and the Government of the
Republic of Indonesia, which consent shall not be unreasonably withheld, also provided that any assignee whom such rights and interests are assigned to under any clause of this Contract shall not hold more than one Technical Assistance Contract or
Production Sharing Contract at any given time; except during the first three (3) Contract Years, CONTRACTOR shall hold more dominant participating interest than any other participant and shall hold operatorship of this Contract;
	

 	
 	

5.2.8	
 	

retain control of all leased property paid for with Foreign Exchange and brought into Indonesia, and be entitled to freely remove the same therefrom;
	

 	
 	

5.2.9	
 	

have the right of ingress to and egress from the Contract Area and to and from facilities wherever located at all times;
	

 	
 	

5.2.10	
 	

have the right to use, and have access to, and PERTAMINA shall furnish all geological, geophysical, drilling, well, production and other information held by PERTAMINA or by any other governmental agency relating to the Contract Area including well
location maps;
	

 	
 	

5.2.11	
 	

submit to PERTAMINA copies of all such original geological, geophysical, drilling, well, production and other data and reports as it may compile during the term hereof;

7

 

	

 	
 	

5.2.12	
 	

prepare and carry out plans and programs for industrial training and education of Indonesians for all job classifications with respect to operations contemplated hereunder;
	

 	
 	

5.2.13	
 	

have the right during the term hereof to freely lift, dispose of and export its share of Crude Oil, and retain abroad the proceeds obtained therefrom;
	

 	
 	

5.2.14	
 	

appoint an authorized representative with respect to this Contract, who shall have an office in Jakarta;
	

 	
 	

5.2.15	
 	

after commercial production commences, fulfill its obligation towards the supply of the domestic market in Indonesia. CONTRACTOR agrees to sell and deliver to PERTAMINA a portion of the share of the Crude Oil to which CONTRACTOR is entitled pursuant
to clauses 6.1.3 and 6.3.1 calculated for each Year as follows:
	

 	
 	

 	
 	

(a)	
 	

multiply the total quantity of Crude Oil produced from Contract Area by a fraction the numerator of which is the total quantity of Crude Oil to be supplied and the denominator is the entire Indonesian production of Crude Oil of all petroleum
companies;
	

 	
 	

 	
 	

(b)	
 	

compute twenty-five percent (25%) of total quantity of Crude Oil produced from the Contract Area;
	

 	
 	

 	
 	

(c)	
 	

multiply the lower quantity computed, either under (a) or (b) by the resultant percentage of CONTRACTOR's entitlement as provided under clause 6.1.3 hereof;
	

 	
 	

 	
 	

The quantity of Crude Oil computed under (c) shall be the maximum quantity to be supplied by CONTRACTOR in any Year pursuant to this paragraph, and deficiencies, if any, shall not be carried forward to any subsequent Year; provided that if for
any Year the recoverable Operating Costs exceed the difference of total sales proceeds from Crude Oil produced and saved hereunder minus the First Tranche Petroleum as provided under Section VI hereof, CONTRACTOR shall be relieved from this
supply obligation for such Year.
	

 	
 	

 	
 	

The price at which such Crude Oil shall be delivered and sold under this clause 5.2.15 shall be twenty-five percent (25%) of the price as determined under clause 6.1.2 hereof, CONTRACTOR shall not be obligated to transport such Crude Oil
beyond the Point of Export but upon request CONTRACTOR shall assist in arranging transportation and such assistance shall be without costs or risk to CONTRACTOR.
	

 	
 	

 	
 	

Notwithstanding the foregoing, for the period of five (5) consecutive years (meaning sixty (60) months) starting the month of the first delivery of Crude Oil produced and saved from each field in the Contract Area, the fee per Barrel for
the quantity of Crude Oil supplied to the domestic market from each such field shall be equal to the price determined in accordance with Section VI hereof for Crude Oil from such field taken for the recovery of Operating Costs. The proceeds in
excess of the aforesaid twenty-five percent (25%) shall preferably be used to assist financing of continued exploration efforts by CONTRACTOR in the Contract Area or in other areas of the Republic of Indonesia if such opportunity exists. In case no
such opportunity can be demonstrated to exist in accordance with good oil field practices, CONTRACTOR shall be free to use such proceeds at its own discretion;
	

 	
 	

5.2.16	
 	

give preference to such goods and services which are produced in Indonesia or rendered by Indonesian nationals, provided such goods and services are offered at equally advantageous conditions with regard to quality, price, availability at the time
and in the quantities required;

8

 

	

 	
 	

5.2.17	
 	

severally be subject to and pay to the Government of the Republic of Indonesia the income tax including the final tax on profits after tax deduction imposed on it pursuant to Indonesian Income Tax Law and its implementing regulations and comply with
the requirements of the tax law in particular with respect to filing of returns, assessment of tax, and keeping and showing of books and records;
	

 	
 	

5.2.18	
 	

comply with all applicable laws of Indonesia. It is also understood that the execution of the Work Program shall be exercised so as not to conflict with obligations imposed on the Government of the Republic of Indonesia by international
laws;
	

 	
 	

5.2.19	
 	

not disclose geological, geophysical, petrophysical, engineering, well logs and completion, status reports and any other data as CONTRACTOR may compile during the term hereof to third parties without PERTAMINA's written consent. This clause shall
survive after the life of this Contract.
	

5.3	
 	

PERTAMINA shall:
	

 	
 	

5.3.1	
 	

have and be responsible for the management of the operation contemplated hereunder, however, PERTAMINA shall assist and consult with CONTRACTOR with a view to the fact that CONTRACTOR is responsible for the Work Program;
	

 	
 	

5.3.2	
 	

except with respect to CONTRACTOR's obligation to pay the income tax and the final tax on profits after tax deduction as set forth in clause 5.2.17 of this Section V, assume and discharge all other Indonesian taxes of" CONTRACTOR including
value added tax, transfer tax, import and export duties on materials, equipment and supplies brought into Indonesia by CONTRACTOR, its contractors and subcontractors; exactions in respect of property, capital, net worth, operations, remittances or
transactions including any tax or levy on or in connection with operations performed hereunder by CONTRACTOR. PERTAMINA shall not be obliged to pay CONTRACTOR's income tax including the final tax on profits after tax deduction nor taxes on tobaccos,
liquor and personnel income tax; and income tax and other taxes not listed above of contractors and subcontractors.
	

 	
 	

 	
 	

The obligations of PERTAMINA hereunder shall be deemed to have been complied with by the delivery to CONTRACTOR within one hundred and twenty (120) days after the end of each Calendar Year, of documentary proof in accordance with the Indonesian
fiscal laws that liability for the above mentioned taxes has been satisfied, except that with respect to any of such liabilities which CONTRACTOR may be obliged to pay directly, PERTAMINA shall reimburse it only out of its share of production
hereunder within sixty (60) days after receipt of invoice therefor. PERTAMINA should be consulted prior to payment of such taxes by CONTRACTOR or by any other party on CONTRACTOR's behalf.
	

 	
 	

5.3.3	
 	

otherwise assist and expedite CONTRACTOR's execution of the Work Program by providing facilities, supplies and personnel including, but not limited to, supplying or otherwise making available all necessary visas, work permits, transportation,
security protection and rights of way and easements as may be requested by CONTRACTOR and made available from the resources under PERTAMINA's control. In the event such facilities, supplies or personnel are not readily available, then PERTAMINA shall
promptly secure the use of such facilities, supplies and personnel from alternative sources. Expenses thus incurred by PERTAMINA at CONTRACTOR's request shall be reimbursed to PERTAMINA by CONTRACTOR and included in the Operating Costs. Such
reimbursement will be made in United States Dollars computed at the Bank Indonesia middle rate of exchange at the time of conversion.

9

 

	

 	
 	

 	
 	

CONTRACTOR shall advance to PERTAMINA before the beginning of each annual Work Program a minimum amount of seventy-five thousand United States Dollars (US$ 75,000.00) for the purpose of enabling PERTAMINA to meet Rupiah expenditures incurred pursuant
to this clause 5.3.3.
	

 	
 	

 	
 	

If at any time during the annual Work Program period the minimum amount advanced under this clause 5.3.3 has been fully expended, separate additional advance payment as may be necessary to provide for the Rupiah expenses estimated to be incurred
by PERTAMINA during the balance of such annual Work Program period will be made. If any amount advanced hereunder is not expended by PERTAMINA by the end of an annual Work Program period, such unexpended amount shall be credited against the minimum
amount to be advanced pursuant to this clause 5.3.3 for the succeeding annual Work Program period;
	

 	
 	

5.3.4	
 	

ensure that at all times during the tern1 hereof sufficient Rupiah funds shall be available to cover the Rupiah expenditure necessary for the execution of the Work Program;
	

 	
 	

5.3.5	
 	

have title to all original data resulting from the Petroleum Operations including but not limited to geological, geophysical, petrophysical, engineering, well logs and completion, status reports and any other data as CONTRACTOR may compile during the
term hereof; provided, however, that all such data shall not be disclosed to third parties without informing CONTRACTOR and giving CONTRACTOR the opportunity to discuss the disclosure of such data if CONTRACTOR so desires. CONTRACTOR may retain
copies of such data which should not be disclosed to third parties without PERTAMINA's consent pursuant to clause 5.2.19;
	

 	
 	

5.3.6	
 	

to the extent that it does not interfere with CONTRACTOR's performance of the Petroleum Operations, use the equipment which becomes its property by virtue of this Contract, solely for the Petroleum Operations envisaged under this Contract, and if
PERTAMINA wishes to use such equipment for any alternative purpose, then PERTAMINA shall first consult and agree upon such use with CONTRACTOR.
	

 	
 	

 	
 	

 	
 	

 

10

  

 
 

SECTION VI
  
    RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION    
  

	6.1	 	CRUDE OIL
	

 	
 	

6.1.1	
 	

CONTRACTOR is authorized by PERTAMINA and obligated to market all Crude Oil produced and saved from the Contract Area subject to the provision hereinafter set forth.
	

 	
 	

6.1.2	
 	

CONTRACTOR will recover all Operating Costs out of the sales proceeds or other disposition of the required quantity of Crude Oil equal in value to such Operating Costs which is produced and saved hereunder and not used in Petroleum Operations. Except
as provided in clauses 7.1.4 and 7.1.5, CONTRACTOR shall be entitled to take and receive and freely export such Crude Oil. For purposes of determining the quantity of Crude Oil delivered to CONTRACTOR required to recover said Operating Costs, the
weighted average price of all Crude Oil produced and sold from the Contract Area during the Calendar Year will be used, excluding however deliveries made pursuant to clause 5.2.15. If, in any Calendar Year, the Operating Costs exceed the value
of the Crude Oil produced and saved hereunder and not used in Petroleum Operations, then the unrecovered excess shall be recovered in succeeding Years.
	

 	
 	

6.1.3	
 	

Of the Crude Oil remaining after deducting Operating Costs, the Parties shall be entitled to take and receive each Year, respectively thirty seven point five zero zero zero percent (37.5000%) for PERTAMINA and sixty two point five zero zero zero
percent (62.5000%) for CONTRACTOR.
	

 	
 	

6.1.4	
 	

Title to CONTRACTOR's portion of Crude Oil under clauses 6.1.3 and 6.3.1 as well as to such portion of Crude Oil exported and sold to recover Operating Costs shall pass to CONTRACTOR at the Point of Export, or, in the case of oil delivered to
PERTAMINA pursuant to clauses 5.2.15 or otherwise, at the point of delivery°
	

 	
 	

6.1.5	
 	

CONTRACTOR will use its reasonable efforts to market the Crude Oil to the extent markets are available. Either Party shall be entitled to take and receive their respective portion in kind.
	

 	
 	

6.1.6	
 	

If PERTAMINA elects to take any of its portion of Crude Oil in kind, it shall so advise CONTRACTOR in writing not less than ninety (90) days prior to the commencement of each semester of each Calendar Year specifying the quantity which it elects
to take in kind, such notice to be effective for the ensuing semester of each Calendar year, provided however, that such election shall not interfere with the proper performance of any Crude Oil sales agreement for Petroleum produced within the
Contract Area which CONTRACTOR has executed prior to the notice of such election.
	

 	
 	

 	
 	

Failure to give such notice shall be conclusively deemed to evidence the election not to take in kind. Any sale of PERTAMINA's portion of Crude Oil shall not be for a term of more than one Calendar Year without PERTAMINA's consent.
	

6.2	
 	

NATURAL GAS
	

 	
 	

6.2.1	
 	

Any Natural Gas produced from the Contract Area to the extent not used in Petroleum Operations hereunder, may be flared if the processing and utilization thereof is not economical. Such flaring shall be permitted to the extent that gas is not
required to effectuate the maximum economic recovery of Petroleum by secondary recovery operations, including repressuring and recycling.

11

 

	

 	
 	

6.2.2	
 	

Should PERTAMINA and CONTRACTOR consider that the processing and utilization of Natural Gas is economical and choose to participate in the processing and utilization thereof, in addition to that used in secondary recovery operations, then the
construction and installation of facilities for such processing and utilization shall be carried out pursuant to an approved Work Program. It is hereby agreed that all costs and revenues derived from such processing, utilization and sale of Natural
Gas, shall be treated on a basis equivalent to that provided for herein concerning Petroleum Operations and disposition of Crude Oil except of the Natural Gas, or the propane and butane fractions extracted from Natural Gas but not spiked in Crude Oil,
 remaining after deducting Operating Costs associated with the Natural Gas operations as stipulated in Exhibit "C", and the Parties shall be entitled to take and receive each Year as follows: PERTAMINA twenty-eight point five seven one four percent
(28.5714%); and CONTRACTOR seventy one point four two eight six percent (71.4286%).
	

 	
 	

6.2.3	
 	

In the event, however, CONTRACTOR considers that the processing and utilization of Natural Gas is not economical, then PERTAMINA may choose to take and utilize such Natural Gas that would otherwise be flared, all costs of taking and handling to be
for the sole account and risks of PERTAMINA.
	

6.3	
 	

FIRST TRANCHE PETROLEUM
	

 	
 	

6.3.1	
 	

Notwithstanding anything to the contrary elsewhere contained in this Contract, the Parties shall be entitled to first take and receive each Year a quantity of Petroleum of fifteen percent (15%) of the Petroleum production of each such Year, called
the "First Tranche Petroleum" before any deduction for recovery, Operating Costs and handling of production as provided under this Section VI.
	

 	
 	

6.3.2	
 	

Such First Tranche Petroleum for each Calendar Year is further shared for Crude Oil between PERTAMINA and CONTRACTOR in accordance with the sharing splits provided under clause 6.1.3.
	

 	
 	

6.3.3	
 	

For Natural Gas, such First Tranche Petroleum is shared between PERTAMINA and CONTRACTOR in accordance with the sharing split provided under clause 6.2.2.

 
 

SECTION VII
  
    VALUATION OF CRUDE OIL    
  

	7.1	 	Crude Oil sold to third parties shall be valued as follows:
	

 	
 	

7.1.1	
 	

All Crude Oil taken by CONTRACTOR including its share and the share for the recovery of Operating Costs and sold to third parties shall be valued at the net realized price f.o.b. Indonesia received by CONTRACTOR for such Crude Oil.
	

 	
 	

7.1.2	
 	

All of PERTAMINA's Crude Oil taken by CONTRACTOR and sold to third parties shall be valued at the net realized price f.o.b. Indonesia received by CONTRACTOR for such Crude Oil.
	

 	
 	

7.1.3	
 	

PERTAMINA shall be duly advised before the sales referred to in clauses 7.1.1 and 7.1.2 of this subsection are made.

12

 

	

 	
 	

7.1.4	
 	

Subject to any existing Crude Oil sales agreement, if a more favorable net realized price is available to PERTAMINA for the Crude Oil as referred to in clauses 7.1.1 and 7.1.2 of this subsection, except CONTRACTOR's portion of Crude Oil, then
PERTAMINA shall so advise CONTRACTOR in writing not less than ninety (90) days prior to the commencement of the deliveries under PERTAMINA's proposed sales contract. Forty- five (45) days prior to the start of such deliveries, CONTRACTOR
shall notify PERTAMINA regarding CONTRACTOR's intention to meet the more favorable net realized price in relation to the quantity and period of delivery concerned in said proposed sales contract. In the absence of such notice PERTAMINA shall market
said Crude Oil.
	

 	
 	

7.1.5	
 	

PERTAMINA's marketing of such Crude Oil as referred to in clause 7.1.4 shall continue until forty-five (45) days after PERTAMINA's net realized price on said Crude Oil becomes less favorable. CONTRACTOR's obligation to market said Crude Oil
shall not apply until after PERTAMINA has given CONTRACTOR at least forty-five (45) days advance notice of its desire to discontinue such sales. As long as PERTAMINA is marketing the Crude Oil referred to above, it shall account to CONTRACTOR,
on the basis of the more favorable net realized price.
	

 	
 	

7.1.6	
 	

Without prejudice to any of the provisions of Section V1 and Section VII, CONTRACTOR may at its option transfer to PERTAMINA during any Calendar Year the right to market any Crude Oil which is in excess of CONTRACTOR's normal and contractual
requirements provided that the price is not less than the net realized price from the Contract Area.
	

 	
 	

 	
 	

PERTAMINA's request stating the quantity and expected loading date must be submitted in writing at least thirty (30) days prior to lifting said Crude Oil. Such lifting must not interfere with CONTRACTOR's scheduled tanker movements. PERTAMINA
shall account to CONTRACTOR in respect of any sale made by it hereunder.
	

 	
 	

7.1.7	
 	

PERTAMINA shall have the option, in any Year in which the quantity of Petroleum to which it is entitled pursuant to clauses 6.1.3 and 6.3.1 hereof is less than fifty percent (50%) of the total Petroleum production by ninety (90) days written
notice in advance of that Year, to market for the account of CONTRACTOR, at the price provided for in Section VII hereof for the recovery of Operating Costs, a quantity of Petroleum which together with PERTAMINA's entitlement under clauses 6.1.3
and 6.3.1 equals fifty percent (50%) of the total Petroleum produced and saved from the Contract Area.
	

7.2	
 	

Crude Oil sold to other than third parties shall be valued as follows:
	

 	
 	

7.2.1	
 	

by using the weighted average per unit price received by CONTRACTOR and PERTAMINA from sales to third parties (excluding, however, commissions and brokerages paid in relation to such third party sales) during the three (3) months preceding such
sale adjusted as necessary for quality, grade and gravity: or
	

 	
 	

7.2.2	
 	

if no such third party sales have been made during such period of time, then on the basis used to value Indonesian Crude Oil of similar quality, grade and gravity and taking into consideration any special circumstances with respect to sales of such
Indonesian Crude Oil.
	

7.3	
 	

Third party sales referred to in this Section VII shall mean sales by CONTRACTOR to purchasers independent of CONTRACTOR, that are purchasers with whom (at the time the sale is made) CONTRACTOR has no contractual interest involving directly or
indirectly any joint interest.

13

 

	

7.4	
 	

Commissions or brokerages incurred in connection with sales to third parties, if any, shall not exceed the customary and prevailing rate.
	

7.5	
 	

During any given Calendar Year, the handling of production (i.e. the implementation of the provisions of Section VI hereof) and the proceeds thereof shall be provisionally dealt with on the basis of the relevant Work Program and Budget of
Operating Costs based upon estimates of quantities of Petroleum to be produced, of internal consumption in Indonesia, of marketing possibilities, of prices and other sale conditions as well as of may other relevant factor.
	

 	
 	

Within thirty (30) days after the end of said given Year, adjustment and cash settlements between the Parties shall be made on the basis of the actual quantities, amounts and prices involved, in order to comply with the provisions of this
Contract.
	

7.6	
 	

In the event the Petroleum Operations involve the segregation of Crude Oil of different quality and/or grade and if the Parties do not otherwise mutually agree:
	

 	
 	

7.6.1	
 	

any and all provisions of this Contract concerning evaluation of Crude Oil shall separately apply to each segregated Crude Oil;
	

 	
 	

7.6.2	
 	

each Crude Oil produced and segregated in given Year shall contribute to:

	

 	
 	

(a)	
 	

the "required quantity" destined in such Year to the recovery of all Operating Costs pursuant to clause 6.1.2 hereof;
	

 	
 	

(b)	
 	

the "required quantity" of Crude Oil to which a Party is entitled in such Year pursuant to clauses 6.1.3 and 6.3.1. hereof;
	

 	
 	

(c)	
 	

the "required quantity" of Crude Oil which CONTRACTOR agrees to sell and deliver in such Year for domestic consumption in Indonesia pursuant to clause 5.2.15 hereof, out of the share of Crude Oil to which is it entitled pursuant to clauses 6.1.3 and
6.3.1;

with
quantities, each of which shall bear to the respective "required quantity" referred to in paragraphs (a), (b), or (c) above, the same proportion as the quantity of such Crude Oil produced
and segregated in such given Year bears to the total quantity of Crude Oil produced in such Year from the Contract Area. 

 
 

SECTION VIII
  
    COMPENSATION, ASSISTANCE, AND PRODUCTION BONUS    
  

	8.1	 	CONTRACTOR shall pay to PERTAMINA as compensation for information now held by PERTAMINA the sum of Two Hundred Thousand United States Dollars (US$ 200,000) after approval of this Contract by the Government of the Republic
of Indonesia in accordance with the provisions of applicable law. Such payment shall be made within thirty (30) days after the Effective Date.
	

8.2	
 	

CONTRACTOR shall within thirty (30) days after PERTAMINA's request during the first Contract Year provide PERTAMINA with equipment or services not exceeding One Hundred Thousand United States Dollars (US$ 100,000) in value for exploration and
production activities in Indonesia's petroleum industry.
	

8.3	
 	

CONTRACTOR shall pay to PERTAMINA the sum of Five Hundred Thousand United States Dollars (US$ 500,000) within thirty (30) days after cumulative Crude Oil production from the Contract Area has reached twenty five million (25,000,000) Barrels of
Oil Equivalent (BOE); and

14

 

	

 	
 	

CONTRACTOR shall pay to PERTAMINA the sum of One Million United States Dollars (US$ 1,000,000) within thirty (30) days after cumulative Crude Oil production from the Contract Area has reached fifty million (50,000,000) Barrels of Oil Equivalent
(BOE); and
	

 	
 	

CONTRACTOR shall pay to PERTAMINA the sum of Two Million Five Hundred Thousand United States Dollars (US$ 2,500,000) within thirty (30) days after cumulative Crude Oil production from the Contract Area has reached seventy five million
(75,000,000) Barrels of Oil Equivalent (BOE).
	

8.4	
 	

The compensation for information, equipment or service, and bonus payments respectively in clauses 8.1, 8.2 and 8.3 hereof shall be solely borne by CONTRACTOR and shall not be included in the Operating Costs.

 
 

SECTION IX
  
    PAYMENTS    
  

	9.1	 	All payments which this Contract obligates CONTRACTOR to make to PERTAMINA or the Government of the Republic of Indonesia shall be made in United States Dollars currency at a bank to be designated by each of them and agreed
upon by Bank Indonesia or at CONTRACTOR's election, other currency acceptable to them, except that CONTRACTOR may make such payments in Indonesian Rupiahs to the extent that such currencies are realized as a result of the domestic sale of Crude Oil
or Natural Gas or Petroleum products, if any.
	

9.2	
 	

All payments due to CONTRACTOR shall be made in United States Dollars or at PERTAMINA's election, other currencies acceptable to CONTRACTOR at a bank to be designated by CONTRACTOR.
	

9.3	
 	

Any payments required to be made pursuant to this Contract shall be made within thirty (30) days following the end of the month in which the obligation to make such payments occurs.

 
 

SECTION X
  
    TITLE TO EQUIPMENT    
  

	10.1	 	Equipment purchased by CONTRACTOR pursuant to the Work Program becomes the property of PERTAMINA (in case of import, when landed at the Indonesian ports of import) and will be used in Petroleum Operations
hereunder.
	

10.2	
 	

The provisions of clause 10.1 of this Section X shall not apply to leased equipment belonging to third parties who perform service as a contractor, which equipment may be freely exported from Indonesia.

 
 

SECTION XI
  
    CONSULTATION AND ARBITRATION    
  

	11.1	 	Periodically, PERTAMINA and CONTRACTOR shall meet to discuss the conduct of the Petroleum Operations envisaged under this Contract and will make every effort to settle amicably any problem arising therefrom.

15

 

	

11.2	
 	

Disputes, if any, arising between PERTAMINA and CONTRACTOR relating to this Contract or the interpretation and performance of any of the clauses of this Contract, and which cannot be settled amicably, shall be submitted to the decision of
arbitration. PERTAMINA on the one hand and CONTRACTOR on the other hand shall each appoint one arbitrator and so advise the other Party and these two arbitrators will appoint a third. If either Party fails to appoint an arbitrator within thirty
(30) days after receipt of a written request to do so, such arbitrator shall, at the request of the other Party if the Parties do not otherwise agree, be appointed by the President of the International Chamber of Commerce. If the first two
arbitrators appointed as aforesaid fail to agree on a third within thirty (30) days following the appointment of the second arbitrator, the third arbitrator shall, if the Parties do not otherwise agree, be appointed, at the request of either
Party, by the President of the International Chamber of Commerce. If an arbitrator fails or is unable to act, his successor will be appointed in the same manner as the arbitrator whom he succeeds.
	

11.3	
 	

The decision of a majority of the arbitrators shall be final and binding upon the Parties.
	

11.4	
 	

Arbitration shall be conducted in the English language at a place to be agreed upon by both Parties and in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

 
 

SECTION XII
  
    EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL    
  

	12.1	 	CONTRACTOR agrees to employ qualified Indonesian personnel and after commercial production commences will undertake the schooling and training of Indonesian personnel for labor and staff positions including administrative
and executive management positions. At such time, CONTRACTOR shall also consider with PERTAMINA a program of assistance for training of PERTAMINA's personnel.
	

12.2	
 	

Costs and expenses of training Indonesian personnel for its own employment shall be included in Operating Costs. Costs and expenses for a program of training for PERTAMINA's personnel shall be borne on a basis to be agreed by PERTAMINA and
CONTRACTOR.

 
 

SECTION XIII
  
    TERMINATION    
  

	13.1	 	This Contract cannot be terminated by CONTRACTOR during the first three (3) Contract Year as from the Effective Date, except by provisions as stipulated in subsections 13.3 and 13.5 hereunder.
	

13.2	
 	

At any time following the end of the third (3rd) Contract Year as from the Effective Date, if in the opinion of CONTRACTOR circumstances do not warrant continuation of the Petroleum Operations, CONTRACTOR may, by giving written notice to that effect
to PERTAMINA and after consultation with PERTAMINA, relinquish its rights and be relieved of its obligations pursuant to this Contract, except such rights and obligations as related to the period prior to such relinquishment.

16

 

	

13.3	
 	

If during the first three (3) Contract Years, CONTRACTOR has not completed the Work Program and has spent less than the amount required to be so expended pursuant to subsection 4.2 and after consultation with PERTAMINA, CONTRACTOR elects to
relinquish its rights and be relieved of its further obligations under this Contract, CONTRACTOR shall transfer the remaining amount of the initial three (3) Contract Years firm expenditures commitment to PERTAMINA.
	

13.4	
 	

If at the end of the sixth (6th) Contract Year, CONTRACTOR has failed to perform as a reasonable and prudent Operator and has failed to fulfill any of its obligations as specified in Sections III, IV and VIII hereof, PERTAMINA shall have
the right to issue to CONTRACTOR a "Performance Deficiency Notice". Said Notice shall detail the specific performance deficiencies of CONTRACTOR under this Contract.
	

 	
 	

Upon receipt of the Performance Deficiency Notice, CONTRACTOR shall have one hundred and twenty (120) days in which to remedy the deficiencies detailed in said Notice. Should CONTRACTOR fail to remedy the deficiencies within the specified one
hundred and twenty (120) days or the Parties fail to agree on an extension of the period of time in which CONTRACTOR can remedy the deficiencies, PERTAMINA shall have the right to terminate the Contract in its entirety without prejudice to
CONTRACTOR's right to invoke arbitration as stipulated in Section XI.
	

13.5	
 	

Without prejudice to the provisions stipulated in clause 13.1 herein above, either Party shall be entitled to terminate this Contract in its entirety by a ninety (90) days written notice if a major breach of Contract is committed by the
other Party, provided that conclusive evidence thereof is proved by arbitration as stipulated in Section XI.

 
 

SECTION XIV
  
    BOOKS AND ACCOUNTS AND AUDITS    
  

	14.1	 	BOOKS AND ACCOUNTS
	

 	
 	

Subject to the requirements of clause 5.2.17 of Section V, PERTAMINA shall be responsible for keeping complete books and accounts with the assistance of CONTRACTOR reflecting all Operating Costs as well as monies received from the sale of
Crude Oil, consistent with modern petroleum industry practices and proceedings as described in Exhibit "C" attached hereto. Until such time that commercial production commences, however, PERTAMINA delegates to CONTRACTOR its obligations to keep books
and accounts. Should there be any inconsistency between the provisions of clause 6.1.2 of Section VI of this Contract and the provisions of Exhibit "C", the provisions of clause 6.1.2 of Section VI of this Contract shall
prevail.
	

14.2	
 	

AUDITS
	

 	
 	

14.2.1	
 	

CONTRACTOR shall have the right to inspect and audit PERTAMINA's books and accounts relating to this Contract for any Calendar Year within the two (2) year period following the end of such Calendar Year. Any such audit will be satisfied within
twelve (12) months after its commencement. Any exception must be made in writing within sixty (60) days following the end of such audit and failure to give such written exception within such time shall establish the correctness of
PERTAMINA's books and accounts.
	

 	
 	

14.2.2	
 	

PERTAMINA and the Government of the Republic of Indonesia shall have the right to inspect and audit CONTRACTOR's books and accounts relating to this Contract for any Calendar Year covered by this Contract. Any exception must be made in writing within
sixty (60) days following the completion of such audit.
	

 	
 	

 	
 	

In addition, PERTAMINA and the Government of the Republic of Indonesia may require CONTRACTOR to engage its independent accountants to examine, in accordance with generally accepted auditing standards, the CONTRACTOR's books and accounts relating to
this Contract for any Calendar Year or perform such auditing procedures as deemed appropriate by PERTAMINA.
	

 	
 	

 	
 	

A copy of the independent accountant's report or any exceptions shall be forwarded to PERTAMINA within sixty (60) days following the completion of such audit. The costs related to the engagement of such independent accountants shall be included
in Operating Costs.

17

  

 
 

SECTION XV
  
    OTHER PROVISIONS    
  

	15.1	 	NOTICES
	 	 	Any notices required or given by either Party to the other shall be deemed to have been delivered when properly acknowledged for receipt by the receiving Party. All such notices shall be addressed to:
	

 	
 	

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

(PERTAMINA)

JL. MERDEKA TIMUR 1-A

Jakarta, 10110

INDONESIA

Attn: President Director and Chief Executive Officer

FAX: 62-21-310-6564

PHONE: 62-21-310-2101
	

 	
 	

APEX (YAPEN) LTD.

GRIYA AMPERA 3rd FLOOR

JL. AMPERA RAYA 18

Jakarta, INDONESIA

Attn: President and Chief Executive Officer

FAX: 62-21-780-4752

PHONE: 62-21-782-7114
	

 	
 	

Either Party may substitute or change its address on written notice thereof to the other.
	

15.2	
 	

LAWS AND REGULATIONS
	

 	
 	

15.2.1	
 	

The laws of the Republic of Indonesia shall apply to this Contract.
	

 	
 	

15.2.2	
 	

No terms or provisions of this Contract, including the agreement of the Parties to submit to arbitration hereunder, shall prevent or limit the Government of the Republic of Indonesia from exercising its inalienable rights.
	

15.3	
 	

SUSPENSION OF OBLIGATIONS
	

 	
 	

15.3.1	
 	

Any failure or delay on the part of either Party in the performance of their obligations or duties hereunder shall be excused to the extent attributable to Force Majeure.
	

 	
 	

15.3.2	
 	

If operations are delayed, curtailed or prevented by such causes, then the time for carrying out the obligations thereby affected, the term of this Contract and all rights and obligations hereunder shall be extended for a period equal to the period
thus involved.
	

 	
 	

15.3.3	
 	

The Party whose ability to perform its obligations is so affected shall notify" the other Party thereof in writing, stating the cause and both Parties shall do all reasonably within their power to remove such cause.
	

15.4	
 	

PROCESSING OF PRODUCTS
	

 	
 	

15.4.1	
 	

CONTRACTOR shall be willing to consider to come to another contract or loan agreement for the processing of product derived from the Petroleum Operations hereunder, on mutually agreeable terms.

18

 

	

 	
 	

15.4.2	
 	

Within the framework of the preceding principle, CONTRACTOR would agree subject to the conditions stated below to have refined in Indonesia twenty-eight point five seven percent (28.57%) of the portion of Crude Oil to which it is entitled pursuant to
clauses 6.1.3 and 6.3.1. hereof and should no refining capacity be available therefore to set up a corresponding refining capacity for that purpose.
	

 	
 	

 	
 	

The conditions above referred to are that:

	

 	
 	

(a)	
 	

PERTAMINA has first requested CONTRACTOR thereto;
	

 	
 	

(b)	
 	

CONTRACTOR's portion of Crude Oil pursuant to clauses 6.1.3 and 6.3.1 hereof be not less than one hundred thousand (100,000) Barrels per day; and
	

 	
 	

(c)	
 	

if refining capacity has to be erected that the setting up and use of such refining capacity be economical in the judgment of the Parties.

	

 	
 	

15.4.3	
 	

It is further agreed that CONTRACTOR may in lieu of setting up such refining capacity, but subject to the same conditions, make an equivalent investment in another project related to petroleum or petrochemical industries.
	

 	
 	

15.4.4	
 	

Petroleum to be delivered to such facilities would be sold by CONTRACTOR at the net realized prices f.o.b. Indonesia received by CONTRACTOR established pursuant to Section VII hereof or at another mutually agreed price.

 
 

SECTION XVI
  
    PARTICIPATION    
  

	16.1	 	PERTAMINA shall have the right to demand from CONTRACTOR that a ten percent (10%) undivided interest in the total rights and obligations under this Contract be offered to either itself or a limited liability company to be
designated by PERTAMINA the shareholders of which shall be Indonesian Nationals (both hereinafter called "The Indonesian Participant").
	

16.2	
 	

The right referred to in clause 16.1 shall lapse unless exercised by PERTAMINA not later than three (3) months after CONTRACTOR's notification by registered letter to PERTAMINA of its first discovery of Petroleum in the Contract Area, which
in the judgment of CONTRACTOR after consultation with PERTAMINA can be produced commercially. PERTAMINA shall make its demand known to CONTRACTOR by a registered letter.
	

16.3	
 	

CONTRACTOR shall make its offer by registered letter to the Indonesian Participant within one (1) month after receipt of PERTAMINA's registered letter referred to in clause 16.2. CONTRACTOR's letter shall be accompanied by a copy of this
Contract and a draft Operating Agreement embodying the manner in which CONTRACTOR and the Indonesian Participant shall cooperate. The main principles of the draft Operating Agreement are contained in Exhibit "D" to this Contract.
	

16.4	
 	

The offer by CONTRACTOR to the Indonesian Participant shall be effective for a period of six (6) months. If the Indonesian Participant has not accepted this offer by registered letter to CONTRACTOR within the said period, CONTRACTOR shall be released
from the obligation referred to in this Section XVI.
	

16.5	
 	

In the event of acceptance by the Indonesian Participant of CONTRACTOR's offer, the Indonesian Participant shall be deemed to have acquired the undivided interest on the date of CONTRACTOR's notification to PERTAMINA referred to in
clause 16.2.

19

 

	

16.6	
 	

For the acquisition of a ten percent (10%) undivided interest in the total of the rights and obligations arising out of this Contract, the Indonesian Participant shall reimburse CONTRACTOR an amount equal to ten percent (10%) of the sum of Operating
Costs which CONTRACTOR has incurred for and on behalf of its activities in the Contract Area up to the date of CONTRACTOR's notification to PERTAMINA mentioned in clause 16.2, ten percent (10%) of the compensation paid to PERTAMINA for
information referred to in clause 8.1 of this Contract and ten percent (10%) of the amount referred to in clause 8.2 of this Contract.
	

16.7	
 	

At the option of the Indonesian Participant the said amount shall be reimbursed:
	

 	
 	

16.7.1	
 	

Either by a transfer of cash equal to the said amount by the Indonesian Participant within three (3) months after the date of its acceptance of CONTRACTOR's offer referred to in clause 16.3., to CONTRACTOR's account with a banking
institution to be designated by it, in the currency in which the relevant costs have been financed; or
	

 	
 	

16.7.2	
 	

by way of a "payment out of production" of fifty percent (50%) of the Indonesian Participant's production entitlements under this Contract valued in the manner as described in Section VII of this Contract, equal in total to one hundred fifty
percent (150%) of the said amount and commencing as from the first sale of Petroleum produced and saved from the Contract Area.
	

16.8	
 	

At the time of its acceptance of CONTRACTOR's offer the Indonesian Participant shall state whether it wishes to reimburse in cash or out of production in the manner indicated under clauses 16.7ol and 16.7.2.

 
 

SECTION XVII
  
    EFFECTIVENESS    
  

	17.1	 	This Contract shall come into effect on the Effective Date.
	

17.2	
 	

This Contract shall not be annulled, amended or modified in any respect, except by the mutual consent in writing of the Parties hereto.

IN WITNESS WHEREOF, the Parties hereto have executed this Contract, in quadruplicate and in the English language, as of the day and year first above written. 

	PERUSAHAAN PERTAMBANGAN	 	APEX (YAPEN) LTD.
	MINYAK DAN GAS BUMI NEGARA

(PERTAMINA),	 	 
	

 President Director and	
 	

	Chief Executive Officer	 	 

 
 

APPROVED BY THE MINISTER OF MINING AND ENERGY
  This      day of            1998
  on behalf of the
  GOVERNMENT OF THE
REPUBLIC OF INDONESIA    

20

  

 
 

EXHIBIT "A"    
  

    This Exhibit "A" is attached to and made an integral part of the Contract between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX
(YAPEN) LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined. 

DESCRIPTION OF CONTRACT AREA

YAPEN BLOCK. OFFSHORE, IRIAN JAYA  

    Using the Geographic Coordinate System beginning at point A located at 01° 18' 00" South Latitude, 136° 50' 00" East Longitude; proceed
eastward in a direct line to point B located at 01° 18' 00" South Latitude, 138° 00' 00" East Longitude. 

    Thence
proceed southward in a direct line to point C located at 01° 27' 00" South Latitude, 138° 00' 00" East Longitude, thence proceed westward in a direct
line to point D located at 01° 27' 00" South Latitude, 137° 32' 00" East Longitude. 

    Thence
proceed southward in a direct line to point E located at O1° 34' 00" South Latitude, 137° 32' 00" East Longitude; thence proceed westward in a direct
line to point F located at 01° 34' 00" South Latitude, 137° 22' 00" East Longitude. 

    Thence
proceed southward in a direct line to point G located at 01° 40' 00" South Latitude, 137° 22' 00" East Longitude; thence proceed westward in a direct
line to point H located at 01° 40' 00" South Latitude, 137° 15' 00" East Longitude. 

    Thence
proceed southward in a direct line to point I located at 01° 44' 00" South Latitude, 137° 15' 00" East Longitude; thence proceed westward in a direct
line to point J located at 01° 44' 00" South Latitude, 137° 05' 00" East Longitude. 

    Thence
proceed southward in a direct line to point K located at 02° 05' 00" South Latitude, 137° 05' 00" East Longitude; thence proceed westward in a direct
line to point L located at 02° 05' 00" South Latitude, 136° 55" 00" East Longitude. 

    Thence
proceed southward in a direct line to point M located at 02° 10' 00" South Latitude, 136° 55' 00" East Longitude; thence proceed westward in a direct
line to point N located at 02° 10' 00" South Latitude, 136" 43' 00" East Longitude. 

    Thence
proceed southward in a direct line to point O located at 02° 13' 00" South Latitude, 136o 43' 00" East Longitude; thence proceed westward in a direct line to point
P located at 02° 13' 00" South Latitude, 136° 33' 00" East Longitude. 

    Thence
proceed northward in a direct line to point Q located at 02° 10' 00" South Latitude, 136° 33' 00" East Longitude; thence proceed westward in a direct
line to point R located at 02° 10' 00" South Latitude, 136° 19' 00" East Longitude. 

    Thence
proceed southward in a direct line to point S located at 02° 23' 00" South Latitude, 136° 19' 00" East Longitude; thence proceed westward in a direct
line to point T located at 02° 23' 00" South Latitude, 136° 16' 00" East Longitude. 

    Thence
proceed southward in a direct line to point U located at 020 30' 00" South Latitude, 136° 16' 00" East Longitude; thence proceed westward in a direct line to point
V located at 02° 30' 00" South Latitude, 136° 13' 00" East Longitude. 

    Thence
proceed southward in a direct line to point W located at 02° 35' 00" South Latitude, 136° 13' 00" East Longitude; thence proceed westward in a direct
line to point X located at 02° 35' 00" South Latitude, 136° 00' 00" East Longitude. 

A–1

 

    Thence proceed northward in a direct line to point Y located at 01° 55' 00" South Latitude, 136° 00' 00" East Longitude; thence proceed eastward in a direct
line to point Z located at 01° 55' 00" South Latitude, 136° 15' 00" East Longitude. 

    Thence
proceed southward in a direct line to point A1 located at 01° 59' 00" South Latitude, 136° 15' 00" East Longitude; thence proceed eastward in a direct
line to point B1 located at 01° 59' 00" South Latitude, 136° 25' 00" East Longitude. 

    Thence
proceed northward in a direct line to point C1 located at 01° 54' 00" South Latitude, 136° 25' 00" East Longitude; thence proceed eastward in a direct
line to point D1 located at 01° 54' 00" South Latitude, 136° 35' 00" East Longitude. 

    Thence
proceed northward in a direct line to point E1 located at 01° 52' 00" South Latitude, 136° 35' 00" East Longitude; thence proceed eastward in a direct
line to point F1 located at 01° 52' 00" South Latitude, 136° 43' 00" East Longitude. 

    Thence
proceed northward in a direct line to point G1 located at 01° 50' 00" South Latitude, 136° 43' 00" East Longitude; thence proceed eastward in a direct
line to point H1 located at 01° 50' 00" South Latitude, 136° 55' 00" East Longitude. 

    Thence
proceed northward in a direct line to point I1 located at 01° 46' 00" South Latitude, 136° 55' 00" East Longitude; thence proceed westward in a direct
line to point J1 located at 01° 46' 00" South Latitude, 136° 50' 00" East Longitude. 

    Thence
proceed northward in a direct line to point A, point of beginning. 

    The
Contract Area described above shall consist of approximately 9,500 square Kilometers. 

A–2

  

 
 

EXHIBIT "B"    
  

    This Exhibit "B" is attached to and made an integral part of the Contract between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX
(YAPEN) LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined. 

MAP
OF CONTRACT AREA 

B–1

  

 
 

EXHIBIT "C"    
  

    This Exhibit "C" is attached to and made an integral part of the Contract between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX
(YAPEN) LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined. 

ACCOUNTING PROCEDURE  

Article I

General Provisions  

	1.1.
	Definitions 

The
accounting procedure herein provided for is to be followed and observed in the performance of either Party's obligations raider the Contract to which this Exhibit is attached. The definition and
terms appearing in this Exhibit "C" shall have the same meaning as those defined in said Contract. 

	1.2.
	Accounts
and Statements 

PERTAMINA's
and CONTRACTOR's, as the case may be, accounting records and books will be kept in accordance with generally accepted and recognized accounting systems, consistent with modern petroleum
industry practices and procedures. Books and reports will be maintained and prepared in accordance with methods established by PERTAMINA. The chart of accounts and related account definitions will be
prescribed by PERTAMINA. Reports will be organized for the use of PERTAMINA in carrying out its management responsibilities under this Contract. 

 
 

Article II
  Operating Costs    
  

	2.1
	Definition

For
any year in which commercial production occurs, Operating Costs consists of: (a) current Year Non-capital Costs, (b) current Year's depreciation for Capital Costs and,
(c) current Year allowed recovery of prior Year's unrecovered Operating Costs. 

	2.2	 	Non-capital Costs
	

 	
 	

Non-Capital Costs means those Operating Costs incurred that relate to current Year's operations. In addition to costs relating only to current operations, the costs of surveys and the intangible costs of drilling exploratory and development wells, as
described in paragraphs 2.2.3, 2.2.4 and 2.2.5 below, will be classified as Non-Capital Costs. Non-Capital Costs include, but are not limited to the following:
	

 	
 	

2.2.1	
 	

Operations
	 	 	 	 	Labor, materials and services used in day to day oil well operations, oil field production facilities operations, secondary recovery operations, storage handling, transportation and delivery operations, gas well
operations, gas field production facilities operations, gas transportation and delivery operations, gas processing auxiliaries and utilities, abandonment and site restoration, and other operating activities, including repairs and
maintenance.
	

 	
 	

2.2.2	
 	

Office, services and general administration
	 	 	 	 	General services including technical and related services, material services, transportation, rental of specialized and heavy engineering equipment, site rentals and other rentals of services and property, personnel
expenses, public relations, and other expenses abroad.
	

 	
 	

2.2.3	
 	

Production drilling

C–1

 

	 	 	 	 	Labor, materials and services used in drilling wells with the object of penetrating a proven reservoir, including the drilling of delineation wells as well as redrilling, deepening or recompleting wells, and access roads
leading directly to wells.
	

 	
 	

2.2.4	
 	

Exploratory drilling
	 	 	 	 	Labor, materials and services used in the drilling of wells with the object of finding unproven reservoirs of oil and gas, and access roads leading directly to wells.
	

 	
 	

2.2.5	
 	

Surveys
	 	 	 	 	Labor, materials and services used in aerial, geological, topographical, geophysical and seismic surveys, and core hole drilling.
	

 	
 	

2.2.6	
 	

Other exploration expenditures
	 	 	 	 	Auxiliary or temporary facilities having lives of one year or less used in exploration and purchased geological and geophysical information.
	

 	
 	

2.2.7	
 	

Training
	 	 	 	 	Training of Indonesian personnel as set forth in Section XII of the Contract.
	

2.3	
 	

Capital Costs
	

 	
 	

Capital Costs mean expenditures made for items which normally have a useful life beyond the year incurred. A reasonable annual allowance for depreciation of Capital Costs, computed as described in Article III Section 3.1 here below, will be
allowed as a recoverable Operating Costs for the current Year.
	

 	
 	

Capital Costs include classification described herein but are not limited to the following specifications:
	

 	
 	

2.3.1	
 	

Construction utilities and auxiliaries
	 	 	 	 	Work shops, power and water facilities, warehouses, cargo jetties, and field roads except the access roads mentioned in paragraphs 2.2.3 and 2.2.4 above.
	

 	
 	

2.3.2	
 	

Construction housing and auxiliaries
	 	 	 	 	Housing, recreational facilities and other tangible property incidental to construction.
	

 	
 	

2.3.3	
 	

Production Facilities
	 	 	 	 	Offshore platform (including the costs of labor, fuel, hauling and supplies for both the offsite fabrication and onsite installation of platforms, and other construction costs in erecting platforms and installing
submarine pipelines), wellhead equipment, subsurface lifting equipment, production tubing, sucker rods, surface pumps, flow lines, gathering equipment, delivery lines and storage facilities. Costs of oil jetties and anchorages, treating plants and
equipment, secondary and tertiary recovery systems, gas plants and steam systems.
	

 	
 	

2.3.4	
 	

Movables
	 	 	 	 	Surface and subsurface drilling and production tools, equipment and instruments, barges, floating craft, automotive equipment, aircraft, construction equipment, furniture and office equipment and miscellaneous
equipment.

Article III

Accounting Methods To Be Used To Calculate

Recovery of Operating Costs  

	3.1
	Depreciation

Depreciation
will be calculated beginning the Calendar Year in which the asset is placed into service with a full Year's depreciation allowed the initial Calendar Year. The method used to 

C–2

 

calculate each Year's allowable Recovery of Capital Costs is the declining balance depreciation method. 

Calculation
of each such Year's allowable recover3, of Capital Costs should be based on the individual asset's Capital Costs at the beginning of such Year multiplied by the depreciation factor as
follows, for: 

—
Group 1 = 50% 

—
Group 2 = 25% 

For
the Groups of capital assets for Crude Oil projects and/or Natural Gas Projects apply useful lives as follows: 

	GROUP 1:	 	 
	

Automobile	
 	

1.5 years
	Trucks-light (13,000 pounds or less) and tractor units	 	2 years
	Trucks-heavy (more than 13,000 pounds)	 	3 years
	Buses	 	4.5 years
	Aircraft	 	3 years
	Construction Equipment	 	3 years
	Furniture and Office Equipment	 	5 years
	

GROUP 2:	
 	

 
	

Construction utilities and auxiliaries	
 	

5 years
	Construction housing and welfare	 	10 years
	Production facilities	 	5 years
	Railroad cars and locomotives	 	7.5 years
	Vessels, barges, tugs and similar water transportation equipment	 	9 years
	Drilling and production tools, equipment and instruments	 	5 years

Balance
of unrecovered Capital Costs is eligible for full depreciation at the end of the individual asset's useful life. 

The
undepreciated balance of assets taken out of service will not be charged to Operating Costs but will continue depreciating based upon the lives described above, except where such assets have been
subjected to unanticipated destruction, for example, by fire or accident. 

	3.2
	Overhead
Allocation 

General
and administrative costs, other than direct charges, allocable to this operation should be determined by a detailed study, and the method determined by such study shall be applied each Year
consistently. The method selected must be approved by PERTAMINA, and such approval can be reviewed periodically by PERTAMINA and CONTRACTOR. 

	3.3
	Interest
Recovery 

Interest
on loans obtained by CONTRACTOR from Affiliates or parent companies or from third party non-affiliates at rates not exceeding prevailing commercial rates for capital investment in
Petroleum Operations may be recoverable as Operating Costs. Details of any financing plan and amounts must be included in each Year's Budget of Operating Costs for the prior approval of PERTAMINA. All
other financing must also be approved by PERTAMINA. 

	3.4
	Gas
Costs 

C–3

 

Operating
Costs directly associated with the production of Natural Gas will be directly chargeable against Natural Gas revenues in determining entitlements under Section VI clause 6.2.2
of the Contract. Operating Costs incurred for production of both Natural Gas and Crude Oil will be allocated to Natural Gas and Crude Oil based on the relative value of the products produced for the
current Year. 

Common
support costs will be allocated on an equitable basis agreed to by both Parties. 

If
after commencement of production the Natural Gas revenues do not permit full recovery of Natural Gas costs, as outlined above, then the excess costs shall be recovered from Crude Oil revenues. 

Likewise,
if excess Crude Oil costs (Crude Oil costs less Crude Oil revenues) exists, this excess can be recovered from Natural Gas revenues. 

If
production of either Natural Gas or Crude Oil has commenced while the other has not, the allocable production costs and common support costs will be allocated in an equitable manner. Propane and
butane tractions extracted from Natural Gas but not spiked in Crude Oil shall be deemed as Natural Gas for the purpose of accounting. 

	3.5
	Inventory
Accounting 

The
costs of non-capital items purchased for inventory will be recoverable at such time the items have landed in Indonesia. 

	3.6
	Insurance
and Claims 

Operating
Costs shall include premiums paid for insurance normally required to be carried for the Petroleum Operations relating to CONTRACTOR's obligations conducted under the Contract, together with
all expenditures incurred and paid in settlement of any and all losses, claims, damages, judgments, and other expenses, including fees relating to CONTRACTOR's obligation under the Contract. 

	3.7
	Abandonment
and Site Restoration. 

Operating
Costs shall include all expenditures incurred in the abandonment of all exploratory wells and the restoration of their drillsites, together with all estimates of monies required for the
funding of any abandonment and site restoration program established in conjunction with an approved plan of development for a commercial discovery. 

Expenditures
incurred in the abandonment of exploratory wells and the restoration of their drillsites shall be charged as Operating Costs in accordance with Article II of this Exhibit "C". 

Estimates
of monies required for the funding of any abandonment and site restoration program established pursuant to paragraph (e) of clause 5.2.5 of the Contract shall be charged as
Operating Costs annually on the basis of accounting accruals beginning in the year of first production. The amount charged in each Year will be calculated by dividing the total estimated cost of
abandonment and site restoration for each discovery by the total estimated number of years in the economic life of each discovery. The estimates of monies required for all abandonment and site
restoration activities shall be reviewed on an annual basis and such estimates shall be adjusted each Year as required. 

C–4

  

 
 

EXHIBIT "D"    
  

    This EXHIBIT "D", THE MEMORANDUM OF PARTICIPATION is attached to and made an integral part of the Contract between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI
NEGARA (PERTAMINA) and APEX (YAPEN) LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined. 

MEMORANDUM OF PARTICIPATION  

    The operating agreement between CONTRACTOR and the Indonesian participant referred to in subsection 16.3 Section XVI shall embody, inter alia, the
following main principles: 

	1.
	CONTRACTOR
shall be the sole Operator of the venture under properly defined rights and obligations.

	2.
	Authorized
representatives of both parties shall meet periodically for the purpose of conducting the venture's operations. All decisions shall be taken by majority vote except in
case of terminating the Contract which decision shall require the unanimous consent of both parties. However if either of the parties wishes to withdraw from the venture it shall transfer without cost
its undivided interest to the other party.

	3.
	Both
parties shall have the obligation to provide or cause to be provided their respective proportions of such finance and in such currencies as may be required from time to time by
the Operator for the operations envisaged under the Contract. The effects of a party's failure to meet calls for funds within the prescribed time limits shall be provided.

	4.
	The
Operator shall prepare the annual work program and budgets which shall be submitted to the authorized representative of both partners for decision prior to their submission to
PERTAMINA in accordance with the provisions of the Contract.

	5.
	In
respect of any exploratory drilling operation a "non-consent" provision shall be made which assures the Indonesian Participant that it does not have to participate in
such operation if it were to disagree to the inclusion of such operation in the work program and budget and which in case of success adequately compensates CONTRACTOR for the cost and risk incurred by
the latter.

	6.
	Subject
to adequate lifting tolerances each party shall offtake at CONTRACTOR's point of export its production entitlement and its proportionate share of any portion of the Crude
Oil which PERTAMINA elects not to take in kind, both as provided under the Contract. However, if the Indonesian Participant is not in a position to market such quantity wholly or partly it shall in
respect of the quantity which it cannot market itself have the option under an adequate notification procedure: either to require CONTRACTOR (or its associates if CONTRACTOR so desires) to purchase
that quantity, or to lift that quantity at a later date under an adequate procedure.

	7.
	In
respect of any quantity to be purchased from the Indonesian Participant by CONTRACTOR (or its associates) the price in respect of each quality of Crude Oil shall be:

	7.1
	for
Crude Oil to be delivered for local consumption under the terms of the Contract twenty-five percent (25%) of the price pursuant to Section VII or as otherwise
provided for in the Contract.

	7.2
	for
all other Crude Oil the weighted average net realized price received by CONTRACTOR for comparable types and quantities sold by it during the Calendar Year involved minus five
percent (5%). 

	8.
	If
Natural Gas is encountered in commercial quantities, special provisions shall be drawn up having due regard, inter alia, to the long term character of Natural Gas supply
contracts. 

D–1

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EXHIBIT 10.5

TABLE OF CONTENTS

SECTION I SCOPE AND DEFINITIONS

SECTION II TERM

SECTION III EXCLUSION OF AREAS

SECTION IV WORK PROGRAM AND EXPENDITURES

SECTION V RIGHTS AND OBLIGATIONS OF THE PARTIES

SECTION VI RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION

SECTION VII VALUATION OF CRUDE OIL

SECTION VIII COMPENSATION, ASSISTANCE, AND PRODUCTION BONUS

SECTION IX PAYMENTS

SECTION X TITLE TO EQUIPMENT

SECTION XI CONSULTATION AND ARBITRATION

SECTION XII EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL

SECTION XIII TERMINATION

SECTION XIV BOOKS AND ACCOUNTS AND AUDITS

SECTION XV OTHER PROVISIONS

SECTION XVI PARTICIPATION

SECTION XVII EFFECTIVENESS

APPROVED BY THE MINISTER OF MINING AND ENERGY This day of 1998 on behalf of the GOVERNMENT OF THE REPUBLIC OF INDONESIA

EXHIBIT "A"

EXHIBIT "B"

EXHIBIT "C"

Article II Operating Costs

EXHIBIT "D"Prepared by MERRILL CORPORATION

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EXHIBIT 10.6    
  

JOINT VENTURE AGREEMENT

WHICHER RANGE, DATED OCTOBER 28, 1996  

JOINT OPERATING AGREEMENT  

 AMITY OIL NL  

 GEOPETRO COMPANY  

 SEVEN SEAS PETROLEUM AUSTRALIA INC.  

 PENNZOIL EXPLORATION AUSTRALIA, INC.  

Blakiston &
Crabb

Solicitors

1202 Hay Street

WEST PERTH WA 6005

DX
91 PERTH 

Tel:
(09) 322 7644

Fax: (09) 322 1506

Ref: CL.AO/3727 

 
 

INDEX    
  

	1	 	DEFINITIONS AND INTERPRETATION	 	1
	

2	
 	

JOINT VENTURE	
 	

5
	

3	
 	

NATURE OF RELATIONSHIP	
 	

5
	

4	
 	

PERCENTAGE INTERESTS	
 	

6
	

5	
 	

JOINT VENTURE PROPERTY	
 	

6
	

6	
 	

WARRANTIES	
 	

6
	

7	
 	

MANAGEMENT COMMITTEE	
 	

7
	

8	
 	

OPERATOR	
 	

7
	

9	
 	

APPOINTMENT AND REMOVAL OF OPERATOR	
 	

9
	

10	
 	

DUTIES AND OBLIGATIONS OF OPERATOR	
 	

9
	

11	
 	

ASSIGNMENT	
 	

11
	

12	
 	

PROGRAMMES AND BUDGETS	
 	

12
	

13	
 	

AUTHORITIES FOR EXPENDITURE	
 	

13
	

14	
 	

PAYMENT OF COSTS	
 	

14
	

15	
 	

NON CONSENT	
 	

14
	

16	
 	

DEFAULT	
 	

15
	

17	
 	

INFORMATION	
 	

16
	

18	
 	

CONFIDENTIALITY	
 	

17
	

19	
 	

INSURANCE	
 	

18
	

20	
 	

WITHDRAWAL	
 	

19
	

21	
 	

ENCUMBRANCES	
 	

20
	

22	
 	

DISCOVERY OF PETROLEUM	
 	

20
	

23	
 	

PRODUCTION VENTURE	
 	

21
	

24	
 	

SOLE RISK OPERATIONS	
 	

23
	

25	
 	

SOLE RISK- DRILLING	
 	

24
	

26	
 	

SOLE RISK—DEEPENING, REWORKING, SIDETRACKING, TESTING, COMPLETION ETC	
 	

25
	

27	
 	

SOLE RISK—GENERAL PROVISIONS	
 	

26
	

28	
 	

DISPUTE RESOLUTION	
 	

26
	

29	
 	

CONDUCT OF LITIGATION	
 	

27
	

30	
 	

TERM AND TERMINATION	
 	

27
	

31	
 	

FORCE MAJEURE	
 	

28
	

32	
 	

PERMIT	
 	

28
	

33	
 	

GENERAL PROVISIONS	
 	

29

  

 
 

JOINT OPERATING AGREEMENT    
  

    THIS JOINT OPERATING AGREEMENT is made 28 October, 1996. 

    BETWEEN: 

    AMITY
OIL NL ACN 009 230 835 of 2nd Floor 33 Ord Street West Perth Western Australia ("Amity"); 

    AND

    GEOPETRO
COMPANY of Suite 700, 1 Maritime Plaza, San Francisco, California 94111, United States of America ("GeoPetro") 

    AND

    SEVEN
SEAS PETROLEUM AUSTRALIA INC. of Suite 305, Reunion Centre Building, Nine East Fourth, Tulsa, Oklahoma 74103, United States of America ("Seven Seas") 

    AND 

    PENNZOIL
EXPLORATION AUSTRALIA, INC. of Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands ("Pennzoil"). 

    RECITALS:

	A.
	Amity,
GeoPetro and Seven Seas are the applicants for Petroleum Exploration Permit Application No 15/94-5 situated in Western Australia and granted pursuant to the
Petroleum Act.

	B.
	Ensign
Operating Co. was a party to the Permit application but has withdrawn.

	C.
	Pursuant
to the Farm-out Agreement, Amity and GeoPetro have agreed to assign an interest in the Permit, to Pennzoil.

	D.
	Upon
the grant of the Permit, the parties will therefore be the beneficial owners of the JV Area in the following proportions: 

	Pennzoil	 	44.115	%
	Amity	 	30.115	%
	GeoPetro	 	14.000	%
	Seven Seas	 	11.770	%.

	E.
	The
parties have agreed to associate themselves as a joint venture on the terms and conditions contained in this Agreement to conduct exploration and, if warranted, Production
Operations with a view to exploitation and development of the Permit.

	1
	DEFINITIONS
AND INTERPRETATION

	1.1
	In
this Agreement, unless the context otherwise requires: 

"Accounting
Procedure" means the procedure set out in Annexure A; 

"Accounts"
in relation to the Joint Venture, means all accounts and financial statements and records relating to the payment or receipt of moneys maintained by the Operator in relation to JV Costs and
transactions entered into in the course of JV Activities, and all supporting documents including invoices, statements of expenditure, receipts and sales records; 

"AFE"
means authority for expenditure as set out in clause 13; 

1

 

"Appraisal Operations" means the drilling of Appraisal Wells and other activities for the purpose of evaluating the quantities or qualities of Petroleum in a Petroleum Pool encountered by a Discovery
Well; 

"Appraisal
Well" means any well drilled as Appraisal Operations; 

"Cash
Call" means an invoice issued by the Operator to a party for its Percentage Interest share of JV Costs incurred or to be incurred; 

"Committee"
means the committee established under clause 7; 

"Consenting
Party" has the meaning set out in clause 15; 

"Defaulting
Party" has the meaning set out in clause 16.1; 

"Development
Well" means a well drilled in search of Petroleum other than and insofar as it is not an Exploration Well or an Appraisal Well; 

"Discovery
Well" means the first well which finds and recovers to the surface Petroleum from a previously unknown or untested Petroleum Pool or where a sufficient indication is proven to the
satisfaction of all parties that a Petroleum Pool exists, then a well may be declared a Discovery Well notwithstanding that the well did not test to the surface Petroleum; 

"ERMP"
has the meaning ascribed in clause 10.3(e); 

"Exploration"
means all activities aimed at the discovery, location and delineation of Petroleum Pools and all activities necessary,, expedient, conducive or incidental thereto and includes but is not
limited to the drilling of Exploration Wells and Appraisal Wells; 

"Exploration
Well" means any well drilled in search of Petroleum with the objective of discovering any previously unknown Petroleum Pool; 

"Farmin
Agreement" means a Farmin Agreement dated 28 October 1996 between Amity, GeoPetro and Pennzoil; 

"Information"
means all information available with respect to the JV Area including, but not limited to, all surveys, maps, mosaics, aerial photographs, electromagnetic tapes, sketches, drawings,
memoranda, drill cores, logs of such sub-surface cores, geophysical or geological maps, sampling and analytical reports, notes and other relevant information and data; 

"Joint
Account" means all costs and expenses incurred in respect of the Joint Venture on behalf of all of the parties; 

"Joint
Venture" means the joint venture between the parties in terms of this Agreement; 

"JV
Activities" means all activities conducted for the purposes of the Joint Venture under the terms of this Agreement; 

"JV
Area" means the land the subject from time to time of the Permit; 

"JV
Capital Costs" means all JV Costs of a capital nature including JV Costs incurred in the acquisition of major assets and the construction or acquisition of plant, facilities and infrastructure; 

"JV
Costs" means all costs incurred in connection with JV Activities, accounted for in accordance with the Accounting Procedure or, where not provided for in the Accounting Procedure, in accordance
with generally accepted accounting practices in Australia; 

"JV
Operating Costs" means JV Costs other than JV Capital Costs; 

2

 

"JV Property" means: 

	(a)
	the
Permit;

	(b)
	the
Information;

	(c)
	all
fixtures, machinery, equipment anti supplies acquired for the Joint Venture; and

	(d)
	any
other property" or rights of any description, whether real or personal, acquired for the Joint Venture; 

"Law"
means the Corporations Law of Australia; 

"Majority
Vote" means a resolution of the Committee having the affirmative vote of two or more unrelated parties having aggregate Percentage Interests exceeding 65%; 

"Mines
Department" means the body, department or authority responsible for the administration of the Petroleum Act; 

"Net
Value" in relation to Petroleum production means the gross proceeds from sale thereof on an arm's length basis less: 

	(a)
	all
costs reasonably incurred in the lifting, handling and transportation of the production; and

	(b)
	all
governmental royalties and levies in relation to the production; 

"Nyungah
Deed" means the Deed intended to be entered into between Amity, on behalf of the Farmor, the Farminee and Seven Seas of the one part and the authorised representatives on behalf of the
Nyungah People of the other part; 

"Non
Consent Operation" means an operation carried out by less than all parties pursuant to clause 15; 

"Non
Consent Party" has the meaning set out in clause 15; 

"Non
SR Parties" means the parties not participating in a Sole Risk Operation; 

"Operator"
means the party acting as operator in terms of this Agreement and in its capacity as operator; 

"Paying
Quantities" means: 

	(a)
	in
the case of a well not completed and equipped for production, the anticipated output from the well of that quantity of Petroleum which, considering the completion costs,
equipping costs transportation costs and the costs of operating the well for the recovery of Petroleum and the kind and quality of production, the price to be received therefor and the royalties and
other burdens payable with respect thereto, would in the opinion of the Committee comprised of the SR Parties warrant incurring the completion costs and equipping costs of the well; and

	(b)
	in
the case of a well completed and equipped for production, the output from the well of that quantity of Petroleum which, considering the same factors as in (a) above except
completion costs and equipping costs, would warrant the continued production from the well; 

"Percentage
Interest" in relation to a party means the respective proportion expressed as a percentage, by which that party, subject to this Agreement: 

	(a)
	is
obliged to contribute to JV Costs; 

3

 

	(b)
	is
entitled to receive in kind and to dispose of from its own account Petroleum derived from the Permit;

	(c)
	is
beneficial owner as a tenant in common of an undivided share of all JV Property; and

	(d)
	participates
in all other rights and liabilities accruing to or incurred by the parties in or arising out of this Agreement; 

"Permit"
means Petroleum Exploration Permit Application No 15/94-5 and includes any renewal or extension thereof when granted and any other permit, licence, lease or other holding or
tenement for the time being held by or on behalf of the parties in substitution therefor either in part or in whole or granted, issued or otherwise arising in consequence of the holding by the parties
of the Permit or otherwise acquired by the parties for the purpose of the Joint Venture; 

"Permit
Year" means each consecutive period of 12 months commencing on the date of grant or renewal of the Permit; 

"Petroleum"
has the same meaning as in the Petroleum Act and includes natural gas; 

"Petroleum
Act" means the Petroleum Act 1967 - 81 of the State of Western Australia as amended; 

"Petroleum
Pool" means a Petroleum reservoir related to the same individual geological structural features or stratigraphic conditions or both; 

"Prescribed
Rate" means the rate of interest being 4% greater than the Westpac Banking Corporation's prime lending rate for amounts greater than $100,000; 

"Production
Interest" in relation to a party and in relation to a Production Venture, means the participating interest of that party in the Production Venture; 

"Production
Operations" means commercial petroleum lifting and recovery operations and all activities necessary, expedient, conducive or incidental thereto including without limitation: 

	(a)
	the
drilling and development of Development Wells; and

	(b)
	the
sampling, production, refining, treatment, transportation, handling, storage, loading and delivery of Petroleum; 

"Production
Operator" means party acting as operator for the Production Venture under the terms of this Agreement; 

"Production
Venture" means a venture for the conduct of Production Operations; 

"Records",
in relation to the Joint Venture, means all books, records, invoices, documents and other papers maintained by the Operator in relation to JV Activities or transaction effected in the
course of JV Activities; 

"Related
Body Corporate" means a related corporation within Section 50 of the Law; 

"Sole
Risk Operation" means an operation carried out by one or more parties within the Permit otherwise than as JV Activities; 

"SR
Costs" in relation to the Sole Risk Operation, means all costs and expenses reasonably and properly incurred by SR Parties in carrying out the Sole Risk Operation; 

"SR
Interest" in relation to a SR Party and a Sole Risk Operation, means the participating interest of that party in the Sole Risk Operation; 

4

 

"SR Parties" in relation to a Sole Risk Operation, means the parties participating in the Sole Risk Operation; 

"Wilful
Misconduct" includes any act or omission committed in bad faith or with reckless disregard for the foreseeable and harmful consequences; 

"Withdrawal
Notice" means a notice of intention to withdraw from the Joint Venture; 

"Withdrawing
Party," means a party which has served, or which, under the terms of this Agreement, has been deemed to have served, a Withdrawal Notice on the other parties; 

"Work
Obligation" means the minimum work and expenditure requirements from time to time being conditions of grant of the Permit; and 

"Work
Period" means the period the subject of an approved programme and budget. 

	1.2
	In
this Agreement unless the context otherwise requires:

	(a)
	the
singular shall include the plural and vice versa;

	(b)
	words
importing persons shall include corporations;

	(c)
	the
heading shall not affect the interpretation or construction of this Agreement;

	(d)
	reference
to any statute shall mean that statute as amended or modified or replaced from time to time and includes orders, ordinances, regulations and rules and by-laws
made in terms of or pursuant to the relevant legislation;

	(e)
	reference
to a party includes a reference to its successors and assigns in accordance with this Agreement; and

	(f)
	reference
to currency shall be to the lawful currency of Australia. 

	2
	JOINT
VENTURE

	2.1
	The
parties associate themselves as a joint venture in accordance with the provisions of this Agreement for the purpose of carrying out Exploration upon the Permit with a view to
establishing Production Operations for the development and exploitation of the Permit.

	2.2
	The
Joint Venture shall be called the Busselton Joint Venture or such other name as the parties may from time to time agree. 

	3
	NATURE
OF RELATIONSHIP

	3.1
	The
obligations of the parties in terms of this Agreement and in relation to JV Activities, to each other and to third parties shall be several and not joint nor shall they be joint
and several.

	3.2
	Nothing
in this Agreement shall make a party the partner of any other party nor, except as expressly provided in this Agreement, constitute any party the agent or legal
representative of any other or create any fiduciary relationship between them.

	3.3
	No
party shall have any authority to act on behalf of any other party, except as expressly provided in this Agreement. Where a party acts on behalf of any other without authority,
such party shall indemnify the other from any losses, claims, damages and liabilities arising out of any such act.

	3.4
	A
party shall not engage in or be concerned in any activity upon or with respect to the Permit except as otherwise provided in this Agreement. 

5

 

	3.5
	If,
for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership each Party elects to be excluded from the
application of all of
the provisions of Subchapter "K", Chapter 1. Subtitle "A" of the United States Internal Revenue Code of 1986, as amended ("the Code"), as permitted and authorised by Section 761(a) of the Code
and the regulations promulgated under the Code, Pennzoil is authorised and directed to execute and file, or cause to be executed and filed, any such evidence of this election as may be required by the
Internal Revenue Service and provide a copy thereof to each Party. 

	4
	PERCENTAGE
INTERESTS

	4.1
	The
Percentage Interests of the parties as at the date of this Agreement are: 

	Pennzoil	 	44.115	%
	Amity	 	30.115	%
	GeoPetro	 	14.000	%
	Seven Seas	 	11.770	%

	4.2
	If
any party's Percentage Interest falls below 5% that party shall not be entitled to vote individually at meetings of the Committee, and its vote shall be taken into account only
if added to the vote or votes of another party or parties. 

	5
	JOINT
VENTURE PROPERTY

	5.1
	The
parties shall own an undivided interest in all JV Property in proportion to their respective Percentage Interests.

	5.2
	Each
party shall from time to time at the request of another party deliver such transfers and other documents as are necessary to record and protect the Percentage Interest from
time to time of the other parties in the Permit and the JV Property. Until such transfers are effected, each party holding JV Property from time to time shall hold the JV Property in trust for all of
the parties proportionately to their then respective Percentage Interests.

	5.3
	For
the term of the Joint Venture, no party shall partition any part of the JV Property. 

	6
	WARRANTIES

	6.1
	Each
party hereby severally warrants to each other party that, at the date of this Agreement:

	(a)
	that
party is contributing to the JV Costs as indicated in Recital B or as otherwise provided for in the Farmin Agreement;

	(b)
	save
as disclosed in this Agreement, the interests of that party as indicated in Recital D are held or entitled to be held by that party as beneficial owner;

	(c)
	save
as may arise pursuant to the Nyungah Deed, there are no mortgages, pledges, liens, charges or encumbrances against the interest of that party as indicated in Recital B, or
relating thereto; and

	(d)
	there
is no litigation nor are there any government actions or proceedings pending or threatened affecting the interests of that party as indicated in Recital D of which that party
has notice and which may in any way impair any of that party's rights. 

	6.2
	Each
party warrants to each other party that it has full right, power and authority to enter into and implement this Agreement and that it has taken all necessary action to
authorise the execution and implementation of this Agreement. 

6

 

	7
	MANAGEMENT
COMMITTEE

	7.1
	The
parties hereby establish the Committee whereby management of JV Activities is vested.

	7.2
	Management
and control of JV Activities and other matters affecting the Permit and the Joint Venture shall be vested in the Committee.

	7.3
	The
Committee is authorised to make all decisions on the nature and extent of and the management of JV Activities including varying or vetoing any decision, commitment or other
action of the Operator and directing the Operator on the management and conduct of JV Activities. All decisions of the Committee shall be binding on the parties.

	7.4
	The
following provisions shall, subject to clause 4.2, apply to the Committee:

	(a)
	each
party shall be entitled to appoint one member;

	(b)
	each
party may remove any member appointed by it and appoint another. Notice of any appointment or removal shall be given to the other parties;

	(n)
	the
Chairman shall prepare full and accurate minutes covering business conducted and decisions reached at meetings and submit them to the parties for approval. Each party shall
promptly notify the Chairman and the other parties of any changes that it believes should be made. A party that does not give any such notice within 20 days of receipt of the minutes shall be
deemed to have approved those minutes. Following the approval of the minutes, the Chairman shall sign an appropriate number of original copies as a true and correct record and forward one copy to each
party; and

	(o)
	any
decision on any matter falling within the jurisdiction of the Committee made without a meeting and evidenced by writing including facsimile transmission, signed by each party,
or by a member appointed by each party shall be binding on the parties. 

	7.5
	Except
where otherwise expressly provided in this Agreement, decisions of the Committee shall be by Majority Vote at a duly convened meeting.

	7.6
	If
a Majority Vote cannot be obtained with respect to any JV Activities proposed and forming part of the Work Obligation, including the drilling or location of any well, then the
matter shall be determined by the vote of a party or group of parties voting in the same manner who have in aggregate Percentage Interest greater than any other party, or group of parties voting in
another manner. If any matter cannot be determined in the manner aforesaid, then the Operator's vote shall determine the matter.

	7.7
	A
unanimous vote shall be required for any decision in relation to:

	(a)
	any
variation of a Work Obligation in respect of the Permit;

	(b)
	the
surrender or relinquishment of all or part of the Permit; or

	(c)
	a
variation of the Agreement. 

	8
	OPERATOR

	8.1
	All
JV Activities shall be carried out by the Operator, subject to the control and direction of the Committee. The Operator may carry out JV Activities through its servants, agents
and contractors.

	8.2
	JV
Activities carried out by the Operator shall be carried out on behalf of all the parties in proportion to their respective Percentage Interests. 

7

 

	8.3
	For
the purposes of JV Activities, the Operator shall have and may exercise all of the rights, liberties and discretions as would be available to the Operator if the Operator was
carrying out JV Activities on its own behalf and without limitation but subject to this Agreement may:

	(a)
	retain,
supervise and control consultants, experts, servants, agents and independent contractors;

	(b)
	acquire
materials, supplies, machinery, equipment and services;

	(c)
	procure
special design, technical, accounting, legal and other professional services from outside experts and consultants;

	(d)
	perform
obligations imposed on or with respect to the Permit;

	(e)
	pay
rates, duties, charges and levies payable on or in connection with JV Property and do all things necessary to maintain the JV Property in good standing;

	(f)
	prepare
and file reports or returns required by law on or with respect to JV Property or JV Activities;

	(g)
	disburse
funds of the Joint Venture on JV Costs;

	(h)
	apply
for and obtain pipeline licences, production licences, access authorities, rights of way, water rights and other rights;

	(i)
	enter
into contracts binding the Joint Venture;

	(j)
	do
all things reasonably necessary to comply with relevant legislation and the requirements of relevant authorities in the conduct of JV Activities;

	(k)
	maintain
plant and equipment in good working order and condition;

	(l)
	represent
the Joint Venture before government authorities and courts with respect to all matters concerning the Joint Venture;

	(m)
	prepare,
sign, file and receive any affidavit, certificate, authorisation, report or other document concerning the Joint Venture; and

	(n)
	perform
any act necessary or advisable in the Operator's judgment to protect the interests of the Joint Venture, without prejudice to the right of each party to take such steps as
it considers necessary to protect its own interest and to be separately represented in any proceedings that relate to or are connected with its Percentage Interest. 

	8.4
	The
Operator shall determine the number of employees, their selection and the terms of their employment in connection with JV Activities. All employees and contractors used in
connection with JV Activities shall be the employees and contractors of the Operator. The Operator shall employ for
JV Activities only such employees, agents and contractors as it reasonably estimates to be required for the proper conduct of JV Activities.

	8.5
	For
the purpose of carrying out JV Activities, the Operator shall have sole possession of JV Property.

	8.6
	The
Operator shall not be liable to any party for any losses sustained or liability incurred by any party except to the extent that such losses or liability results from the
Operator's Wilful Misconduct. 

8

  

	8.7
	Each
party to the extent of its Percentage Interest shall indemnify the Operator against any liability, loss or damage incurred by the Operator in the conduct of JV Activities
except for liability, loss or damage incurred by reason of the Operator's Wilful Misconduct.

	8.8
	Each
party shall give to the Operator such assistance as the Operator may reasonably require in the performance of its duties. 

	9
	APPOINTMENT
AND REMOVAL OF OPERATOR

	9.1
	Amity
shall be the Operator until it is removed or resigns in accordance with the provisions of this clause.

	9.2
	The
Operator shall be removed immediately upon the occurrence of any of the following:

	(a)
	if
the Operator becomes bankrupt or insolvent or commits or suffers any act of bankruptcy or insolvency or makes any assignment for the benefit of its creditors;

	(b)
	if
the Operator fails to perform any obligation or duty as Operator in terms of this Agreement and does not rectify the default within 30 days after receipt of written notice
from one or more of the parties specifying the default and requiring the Operator to remedy the default, (provided the notice has been first authorised by a Majority Vote of the parties other than the
Operator or parties which are Related Bodies Corporate of the Operator, each party exercising a percentage vote in proportion to its respective Percentage Interest) or, if default is disputed, within
30 days of being adjudged to be in default by a court of competent jurisdiction; and

	(c)
	without
cause by the unanimous vote of the parties other than the Operator or parties which are Related Bodies Corporate of the Operator should the Percentage Interest of the
Operator or parties which are Related Bodies Corporate of the Operator fall below 25%. 

	9.3
	The
Operator may resign at any time as Operator upon at least 3 months' prior written notice to the parties.

	9.4
	If
the Operator resigns or is removed in terms of this clause then a replacement shall be immediately appointed by the Committee. If the outgoing Operator was removed in terms of
sub-clauses 9.2(a), (b) or (c), then the outgoing Operator and parties which are Related Bodies Corporate of the Operator shall not be reappointed as Operator for a period of two
years after the date of removal, except with the unanimous approval of the Committee.

	9.5
	If
a party other than Amity is voted Production Operator in accordance with clause 23.1(a), Amity shall, subject to the provisions of this clause 9, continue as Operator
under this Agreement which shall continue to apply to Exploration activities of the Joint Venture on the Permit, subject to clause 23.2.

	9.6
	At
the effective date of resignation or removal of an Operator, the Operator shall deliver to the replacement Operator possession of all JV Property and all Accounts and Records of
the Joint Venture and all Information not otherwise in the possession of the replacement Operator.

	9.7
	Upon
every change of Operator the parties shall procure that the Accounts of the Joint Venture are audited at the cost of the Joint Venture. 

	10	 	DUTIES AND OBLIGATIONS OF OPERATOR
	

 	
 	

10.1	
 	

The Operator shall manage and conduct all JV Activities with the skill, diligence and care normally exercised by qualified persons in the performance of comparable work and in accordance with accepted industry methods and practices.

9

 

	

 	
 	

10.2	
 	

The Operator shall promptly carry out all instructions and directions of the Committee.
	

 	
 	

10.3	
 	

Without limiting its other duties and obligations herein expressed, the Operator shall:
	

 	
 	

 	
 	

(a)	
 	

invite competitive tenders for and inspect contracts for material or services for the Joint Account involving amounts of more than $100,000 for any one item;
	

 	
 	

 	
 	

(b)	
 	

obtain Committee approval for the principal terms of the contracts for the Joint Account:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

involving amounts of at least the amounts set out below for any one item or series of related items in respect of:

	drilling rigs	 	-$	200,000	 
	seismic	 	-$	100,000	 
	technical studies	 	-$	100,000	 
	supply of other goods/services	 	-$	100,000	,

	

 	
 	

 	
 	

 	
 	

 	
 	

such approvals to be additional to and not in lieu of the approvals required to be obtained by the Operator pursuant to any AFE; or
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

where the Operator has an interest whether by way of the equity, voting power or otherwise, in the firm or company with whom the Operator is proposing to contract;
	

 	
 	

 	
 	

(c)	
 	

in respect of each contract entered into by the Operator in the course of JV Activities (other than a contract of employment) requiring the approval of the Committee, disclose that it acts as agent for the parties and ensure that it is made a term of
the contract that the obligations of each of the parties are several not joint nor joint and several, and that liability is expressed to be in proportion to their respective undivided interests;
	

 	
 	

 	
 	

(d)	
 	

comply with all government acts and regulations pertaining to the Permit; and
	

 	
 	

 	
 	

(e)	
 	

prepare any Environmental Review Management Programme ("ERMP") or other survey or like document as may be required pursuant to any environmental legislation or other relevant government acts.
	

 	
 	

10.4	
 	

The Operator shall keep correct Accounts and accurate Records for the Joint Venture. The Accounts and Records maintained by the Operator shall fully and fairly explain all material JV Activities and JV Costs and transactions effected in the course of
JV Activities. Any party not being the Operator may not more than once in any calendar year and on reasonable notice in writing to the Operator, conduct an audit at its own expense of the Accounts and Records of the Joint Venture by a registered
company auditor. The Operator shall make available to the auditor the Accounts and Records of the Joint Venture for the purposes of the audit.
	

 	
 	

10.5	
 	

The Operator and the other parties shall adopt the Accounting Procedure in relation to the keeping of all Accounts and Records.
	

 	
 	

10.6	
 	

The Operator shall comply with all laws and lawful regulations applicable to any JV Activities carried out.

10

 

	

11	
 	

ASSIGNMENT
	

 	
 	

11.1	
 	

Except as permitted by this clause 11 no party may without the prior consent of all other parties sell, assign, transfer, mortgage, pledge, charge, encumber, sub- 1ease, declare itself trustee of or in any way dispose of or alienate all or any
of its rights under this Agreement, in the Permit in it Percentage Interest or in any JV Property PROVIDED THAT nothing in this clause 11 shall apply to any Petroleum produced from the Permit.
	

 	
 	

11.2	
 	

(a)	
 	

Subject to clause 11.4 any party may assign the whole or any part of its Percentage Interest to any Related Body Corporate. Such transfers to a Related Body Corporate shall not be subject to the provisions of clause 11.3.
	

 	
 	

 	
 	

(b)	
 	

The parties will not unreasonably withhold their consent in respect of a charge over the whole or any part of a Percentage Interest.
	

 	
 	

11.3	
 	

(a)	
 	

A party ("Transferor") may dispose of its Percentage Interest or any part thereof in strict compliance with the provisions of this clause 11.3 and for a consideration comprising any one or more of the following:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

cash or a cash equivalent;
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

any Petroleum produced and saved from the Permit (including a consideration calculated by reference to the value of any such Petroleum); and
	

 	
 	

 	
 	

 	
 	

(iii)	
 	

the assumption of any obligations of the Transferor under this Agreement referable to the Percentage Interest being assigned.
	

 	
 	

 	
 	

(b)	
 	

If the Transferor shall desire to dispose of its Percentage Interest or any part thereof it shall give to each other party ("Offeree") notice thereof containing:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

the name and address of the proposed assignee or transferee ("Proposed Transferee");
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

all the terms and conditions of the proposed sale; and
	

 	
 	

 	
 	

 	
 	

(iii)	
 	

an offer to sell its Percentage Interest or the relevant part thereof to the Offeree on terms and conditions not less favourable to the Offeree than those proposed in relation to such proposed purchaser.
	

 	
 	

 	
 	

(c)	
 	

Each Offeree shall have the right to accept (pro-rata to their respective Percentage Interests if more than one) such offer from the Transferor by sending to it notice to that effect at any time during a period of 21 days after receipt of such
offer.
	

 	
 	

 	
 	

(d)	
 	

If no Offeree shall accept such offer the Transferor shall have the right to transfer or assign its Percentage Interest or the relevant part thereof to such Proposed Transferee on terms and conditions not more favourable to the Proposed Transferee
than those specified in such notice to the Offeree PROVIDED THAT such right shall lapse upon the expiration of 120 days after the date on which the aforesaid offer was made by the Transferor to the Offeree.
	

 	
 	

 	
 	

(e)	
 	

Save with the prior consent of the Transferor no Offeree shall directly or indirectly communicate with the Proposed Transferee before the right of the Transferor to transfer or assign to such Proposed Transferee has lapsed pursuant to
clause 11.3(d).
	

 	
 	

 	
 	

(f)	
 	

In no circumstances shall a party assign any of its Percentage Interest so that the Transferor shall retain a Percentage Interest of less than 5% or so that the Proposed Transferee would be entitled to a Percentage Interest of less than
5%.

11

 

	

 	
 	

11.4	
 	

Prior to and as a condition of any assignment or transfer hereunder the Proposed Transferee shall enter into a covenant satisfactory in form and substance to the parties by which the Proposed Transferee shall agree to be bound by all the provisions
of this Agreement and to assume, observe and perform all the obligations of the Transferor under this Agreement applicable to the Percentage Interest or part being assigned or sold. No such assignment or transfer shall proceed unless such Proposed
Transferee is in the reasonable opinion of the continuing parties of sufficient financial substance to enable it to meet its proposed obligations under this Agreement and the said covenants. If the Proposed Transferee is a Related Body Corporate of
the Transferor it will re-assign the Percentage Interest or part thereof to the Transferor if the Proposed Transferee ceases to be a Related Body Corporate and the Transferor hereby covenants with each other party to accept such re-assignment. The
Transferor shall bear all reasonable costs of each party, in connection with any such assignment.
	

 	
 	

11.5	
 	

It shall be the responsibility of the Transferor to obtain any required government consent to any assignment under this clause 11 and the other parties shall have no obligation to recognise an assignment made or proposed to be made without that
consent, provided that the non-assigning parties shall execute any documents reasonably required by the Transferor to obtain such government consent.
	

 	
 	

11.6	
 	

(a)	
 	

Any proposing Transferor shall at the time of giving notice pursuant to clause 11.3 call upon the other parties to meet and discuss the level of foreign ownership in the Joint Venture, both existing and proposed, likely or possible, and the
proposing Transferor shall give proper consideration to the views of the other parties.
	

 	
 	

 	
 	

(b)	
 	

No parties shall without the prior consent of all other parties make any assignment which would contravene or place the Joint Venture or any party in the position of contravening either State or Federal Government foreign investment guidelines
applicable to project developments. No party shall make any assignment if, as a result of that assignment, any other party shall be required to vary, its Percentage Interest in order to comply with either State or Federal Government foreign
investment guidelines applicable to project developments.
	

12	
 	

PROGRAMMES AND BUDGETS
	

 	
 	

12.1	
 	

The Operator shall carry out all JV Activities in accordance with programmes and budgets approved by the Committee and in accordance with this clause 12.
	

 	
 	

12.2	
 	

The Operator shall not be entitled to exceed an approved budget for an item of work itemised within the budget by more than 10% without the approval of the Committee, except in the case of emergency expenditure involving any actual or reasonably
apprehended substantial damage to JV Property or injury or loss of life.
	

 	
 	

12.3	
 	

The Operator shall prepare programmes and budgets for JV Activities in respect of Work Periods approved by the Committee from time to time, not exceeding one year and shall submit the programmes and budgets to the Committee at least 90 days prior to
the first day of the relevant Work Period.
	

 	
 	

12.4	
 	

A programme and budget submitted by the Operator shall include a statement of the JV Activities proposed to be undertaken during the relevant Work Period and shall contain sufficient details to enable each party, to give proper consideration thereto
and where appropriate, shall include details of any proposed wells and an itemised budget of the estimated JV Costs to be incurred.

12

 

	

 	
 	

12.5	
 	

The Committee shall meet to consider and approve programmes and budgets prepared by the Operator at least 60 days prior to commencement of the relevant Work Period. The Committee shall promptly notify the Operator of its approval or disapproval
of any programme and budget submitted.
	

 	
 	

12.6	
 	

If any member of the Committee disapproves of the programme and budget, then the parties shall promptly confer to reconcile their differences and to arrive at a mutually acceptable programme and budget. If the parties have not reached agreement in
the Committee within 30 days of the date of submission by the Operator of the programme and budget, then the matter shall be determined by a resolution of the Committee in accordance with this Agreement.
	

 	
 	

12.7	
 	

Subject to this clause 12, an approved programme and budget shall be binding upon the parties and on the Operator.
	

 	
 	

12.8	
 	

A programme and budget may be revised from time to time by the Committee, subject to and in accordance with the provisions of this clause.
	

 	
 	

12.9	
 	

A copy of each approved programme and budget and each revision shall be furnished to each party.
	

 	
 	

12.10	
 	

The budget for any Work Period shall not be less than the amount required to meet the Work Obligation relating to the Permit.
	

13	
 	

AUTHORITIES FOR EXPENDITURE
	

 	
 	

13.1	
 	

The Operator shall, before entering into any commitment or incurring any expenditure under an approved programme and budget prepare a schedule of the estimated costs to be incurred and the times at which payment on account of such costs are
anticipated, and shall submit a copy of the schedule to each party. Each party shall within 14 days after receipt of the schedule notify the Operator and the other parties whether it approves of the schedule. A party shall be deemed to have
approved a schedule unless notice of non-approval is communicated to the Operator within the 14 day period referred to.
	

 	
 	

13.2	
 	

If parties holding Percentage Interests sufficient to pass a Majority Vote approve or are deemed to approve a schedule submitted by the Operator, then such approval or deemed approval shall constitute an AFE to the Operator in terms of the schedule
and shall oblige the parties to pay their respective Percentage Interest shares of all JV Costs arising or incurred in respect of the subject matter of the AFE.
	

 	
 	

13.3	
 	

If necessary to carry out an approved program or project, the Operator is authorised to make expenditures in excess of the approved AFE up to but not exceeding 10% of such AFE. The Operator shall promptly notify the parties if such expenditures are
expected to exceed such AFE by 10% thereof.
	

 	
 	

13.4	
 	

A party shall not unreasonably withhold its approval to an AFE submitted by the Operator where the additional costs were properly incurred by the Operator in carrying out the AFE in accordance with the terms of approval.
	

 	
 	

13.5	
 	

The Operator shall be entitled to exceed an AFE in cases of emergency expenditure involving any actual or reasonably apprehended substantial damage to JV Property or injury or loss of life. Any such emergency expenditures shall be reported promptly
to the parties by the Operator.

13

 

	

14	
 	

PAYMENT OF COSTS
	

 	
 	

14.1	
 	

Subject to the provisions of the Farmin Agreement and this clause, the parties shall be liable for and shall pay JV Costs in proportion to their respective Percentage Interests.
	

 	
 	

14.2	
 	

The Operator shall on a monthly basis submit to each party, a statement of account for JV Costs incurred and actually paid or accrued by the Operator since submission of the previous statement, and shall issue a Cash Call to each party, for its
Percentage Interest share of such JV Costs.
	

 	
 	

14.3	
 	

Subject to clause 13, the Operator may at its discretion issue Cash Calls to the parties for estimated JV Costs which the Operator anticipates will be incurred during any forthcoming calendar month, not more than 30 days before the
commencement of that month. Where the Operator is to incur a commitment or enter a contract and the commitment or contract will extend over a period greater than one month, then the Operator shall not more than 30 days before entering into the
commitment be entitled to issue Cash Calls to the parties, sufficient to cover the maximum prospective liability of the Operator under the commitment. Where the Operator has issued Cash Calls to the parties to cover anticipated JV Costs to be
incurred, then the Operator shall be under no obligation to incur those JV Costs or to enter any commitment whereby those JV Costs will be incurred, until the Cash Calls have been paid.
	

 	
 	

14.4	
 	

All Cash Calls shall be paid within 15 days of receipt.
	

 	
 	

14.5	
 	

A party that does not duly and punctually pay a Cash Call issued by the Operator pursuant to the provisions of this clause on the due date for payment shall pay interest thereon between the due date for payment and the date of actual payment, at the
Prescribed Rate. Interest shall be calculated daily and shall be payable to the Operator on demand.
	

15	
 	

NON CONSENT
	

 	
 	

15.1	
 	

Within 14 days after approval of a programme and budget by the Committee, a party which voted against the carrying out of any work included in the approved programme, other than the Work Obligation, may elect not to participate in and contribute
to the costs to be incurred in carrying out that work. The parties so electing are referred to as Non Consent Parties and the other parties are referred to as Consenting Parties. The work in respect of which notice is given is referred to as the Non
Consent Operation.
	

 	
 	

15.2	
 	

Upon the making of an election by one or more Non Consent Parties pursuant to this clause, the Consenting Parties shall meet to determine whether they will proceed with the Non Consent Operation. If the Consenting Parties elect not to proceed with
the Non Consent Operation, then the approved programme and budget shall be amended by the deletion of the Non Consent Operation therefrom.
	

 	
 	

15.3	
 	

If the Consenting Parties elect to proceed with the Non Consent Operation, then:
	

 	
 	

 	
 	

(a)	
 	

the Non Consent Operation shall not be JV Activities;
	

 	
 	

 	
 	

(b)	
 	

the Consenting Parties may carry, out the Non Consent Operation as a Sole Risk Operation and the provisions of clauses 24, 25, 26 and 27 shall apply to the Non Consent Operation as if:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

the Non Consent Operation constituted a Sole Risk Operation;
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

the Non Consent Parties constituted Non SR Parties and the Consenting Parties constituted SR Parties; and

14

 

	

 	
 	

 	
 	

(c)	
 	

the Non Consent Parties shall not be responsible for any costs, risks or expenses attributable to the Non Consent Operation.
	

 	
 	

15.4	
 	

Any work forming part of the Work Obligation may not be the subject of a Non Consent Operation, and the provisions of this clause shall not apply in relation thereto. Subject to the foregoing, a Non Consent Operation may comprise of any of the
following (but no other) activities:
	

 	
 	

 	
 	

(a)	
 	

drilling an Exploration Well, a Development Well or an Appraisal Well; or
	

 	
 	

 	
 	

(b)	
 	

deepening, re-working, side-tracking or completion and testing an Exploration Well or an Appraisal Well.
	

 	
 	

15.5	
 	

On any well reaching programmed total depth and after the completion of the programmed evaluation of the weI1 ("Casing Point") the Committee will meet within 24 hours to consider and determine by Majority Vote whether to plug and abandon, deepen,
 re-work, side-track, complete or production test the well. If a course of action other than plugging and abandoning the well is determined by Majority Vote, any party voting against the program adopted by Majority Vote may elect to be a Non Consent
Party as defined by clause 15.1.
	

16	
 	

DEFAULT
	

 	
 	

16.1	
 	

A party shall be a Defaulting Party for the purposes of this Agreement if any Cash Call which becomes due or payable by that party, under any of the term of this Agreement ("default amount") is not paid when and as the same becomes due and payable.
Notwithstanding the above, the Operator shall promptly notify, in writing, the parties of such default.
	

 	
 	

16.2	
 	

Where a party, remains a Defaulting Party for more than 60 days, then the Defaulting Party shall be deemed on the 65th day, following first occurrence of the default to have given a notice of withdrawal from the Joint Venture in terms of this
Agreement. The Defaulting Party hereby appoints the Operator its lawful attorney for, on behalf of and in the name of the Defaulting Party, to execute all such instruments, deeds and documents and do and carry out all such acts as may be necessary or
expedient to give effect to the withdrawal of the Defaulting Party under this clause.
	

 	
 	

16.3	
 	

Where a Party remains a Defaulting Party for a period of 60 days, the Operator shall invite each non Defaulting Party to either meet its Percentage Interest share of the default amount or such other percentage of the default amount as each non
Defaulting Party wishes to nominate. Each non Defaulting Party must reply within 5 days of the deemed receipt of the Operator's invitation. A failure to reply within this period shall be deemed to be notice that the particular non Defaulting
Party does not wish to contribute to the default amount. Where the Operator receives acceptances for 100% or more (in which case the non Defaulting Parties who accepted are to be deemed to have accepted such percentage of the default amount as is
determined by that party's nominated percentage as a factor of the total nominated percentage of the non Defaulting Parties) ("Agreed Additional Percentage") it shall issue a Cash Call to each non Defaulting Party for its Agreed Additional Percentage
share of the default amount and each non Defaulting Party shall pay such Cash Call within 21 days after receipt thereof.
	

 	
 	

16.4	
 	

Alternatively, if the non Defaulting Parties respond or are deemed to have responded to the Operator's invitation under clause 16.3 by accepting less than 100% of the default amount then notwithstanding clause 16.3, the Operator shall issue
a Cash Call to each non Defaulting Party for its Percentage Interest share of the default amount and each non Defaulting Party shall pay such Cash Call within 21 days after receipt thereof.

15

 

	

 	
 	

16.5	
 	

If the Defaulting Party subsequently pays any of the default amount to the Operator, then that amount shall be distributed amongst the non Defaulting Parties proportionately to the respective proportionate shares in which those parties paid the
default amount to the Operator pursuant to either clause 16.3 or 16.4. Any non Defaulting Party which does not pay a Cash Call rendered to that party by the Operator under either clause 16.3 or 16.4, shall itself become a Defaulting
Party.
	

 	
 	

16.6	
 	

A party shall be a non-complying party, for the purposes of this Agreement if that party defaults in the due observance or performance of any covenant, condition or provision contained in this Agreement other than the payment of money to the Operator
and such default continues for more than 28 days after written notice from the Operator to that party specifying the default and demanding the same to be remedied.
	

 	
 	

16.7	
 	

The Operator may institute proceedings against a Defaulting Party, or a non-complying party to enforce performance of any of the provisions of this Agreement.
	

 	
 	

16.8	
 	

A Defaulting Party and a non-complying party shall pay on demand all solicitors fees, court costs and other costs reasonably incurred by the Operator in the collection or attempted collection of unpaid amounts or otherwise arising by reason of the
default.
	

 	
 	

16.9	
 	

A Defaulting Party and a non-complying party shall not while default continues be entitled to any Information and shall not be entitled to be represented or to vote at any meeting of the Committee.
	

 	
 	

16.10	
 	

Each non-complying party hereby appoints the Operator its lawful attorney for, on behalf of and in the name of the non-complying party to execute all such instruments, deeds and documents and carry out and do all such acts as may be necessary or
expedient to remedy the default or non-compliance of the non-complying party. The Operator shall not exercise any Power of Attorney conferred under this clause until:
	

 	
 	

 	
 	

(a)	
 	

the Operator has taken all reasonable steps to procure that the non-complying party itself acts so as to remedy its non-compliance; and
	

 	
 	

 	
 	

(b)	
 	

the Operator notifies the non-complying party of its intention to exercise the Power of Attorney if the non-complying party fails to act as so required within 14 days of such notification.
	

17	
 	

INFORMATION
	

 	
 	

17.1	
 	

Each party shall be entitled to receive full details of all Information received or developed by the Operator in the course of JV Activities but limited to one copy of final reports submitted to the Mines Department, seismic sections and well logs.
Any additional information shall be supplied by the Operator at the costs of the party requesting that information.
	

 	
 	

17.2	
 	

The Operator shall provide each party with daily drilling reports in a form and content acceptable to the Joint Venture in respect of each well drilled in the course of JV Activities together with a well completion report.
	

 	
 	

17.3	
 	

The parties may make routine public announcements and statements with respect to JV Activities subject to prior notification to the other parties.
	

 	
 	

17.4	
 	

The Operator shall keep the other parties fully informed by means of reports as to the progress of Exploration and all relevant Information derived therefrom. Such reports shall be furnished by the Operator at quarterly intervals and shall include a
general description of the Operator's plan for the next quarter.

16

 

	

 	
 	

17.5	
 	

The Operator shall keep the other parties fully informed of any information relating to the Joint Venture which might cause loss to the parties.
	

 	
 	

17.6	
 	

Each party, at its own cost and risk may at all reasonable times and on reasonable notice to the Operator by its servants or agents enter the JV Area to inspect all operations and activities thereon.
	

 	
 	

17.7	
 	

The Operator shall furnish each party with a copy of every report submitted to a government agency. The Operator shall make all reports required under the Petroleum Act, or under the titles to the Permit in a timely manner.
	

18	
 	

CONFIDENTIALITY
	

 	
 	

18.1	
 	

All Information relating to the Joint Venture not in the public domain shall be confidential during the term of the Joint Venture and for a period of 2 years thereafter. The information will not be disclosed by a party, without the written
consent of the other parties. The consent shall be given or denied promptly but shall not be unreasonably withheld. The Information may be furnished without consent by a party to:
	

 	
 	

 	
 	

(a)	
 	

a Related Body Corporate;
	

 	
 	

 	
 	

(b)	
 	

any State or Federal Government having lawful jurisdiction over a party and being entitled to such information;
	

 	
 	

 	
 	

(c)	
 	

any stock exchange on which shares or other securities of the party or a Related Body Corporate are listed when required by regulations of that stock exchange provided that the parties shall use their best endeavours to agree on the wording of any
statement or announcement to the stock exchange;
	

 	
 	

 	
 	

(d)	
 	

persons during bona fide negotiations for the purchase of any of the parties' Percentage Interest, separately or as part of the sale of its shares or the shares of its holding company or of a sale of assets of such party;
	

 	
 	

 	
 	

(e)	
 	

financial and lending institutions or other third parties for the purpose of acquiring finance;
	

 	
 	

 	
 	

(f)	
 	

independent consultants and contractors of a party whose duties in relation to the Joint Venture reasonably require such disclosure; and
	

 	
 	

 	
 	

(g)	
 	

independent accountants or legal counsel engaged by a party to give advice on matters relating to this Agreement.
	

 	
 	

 	
 	

The disclosing party under subclauses (a), (d) and (e) shall, before disclosure, ensure that the recipient undertakes to keep the Information confidential at least to the same degree as provided in this clause by the execution of a binding
document which any party to this Agreement will be able to enforce. Notice will be given to the other parties of the proposed disclosure of the Information to the persons listed in subclauses (b) and (c), and of the disclosure of the Information
to persons referred to in subclauses (d) and (e) after the sale has been made or the finance acquired. The parties will endeavour to limit the amount of Information disclosed to persons under subclauses (b), (c), (d), (e) and
(f) to the extent reasonably required to accomplish the desired purpose.
	

 	
 	

 	
 	

 	
 	

 	
 	

 

17

  

	 
	 	 
	 	 
	 	 
	 	 

	 	 	18.2	 	All the parties shall use reasonable endeavours to agree on the wording of all public announcements and statements including statements to shareholders whether contained in an annual report or made at a general meeting or
otherwise, relative to the subject matter of this Agreement.
	

19	
 	

INSURANCE
	

 	
 	

19.1	
 	

(a)	
 	

The Operator shall maintain all insurances required by any applicable Act of Parliament or Regulation or by the terms of any contract relating thereto ("Required Insurance") and all insurances, other than Required Insurance, as the parties may from
time to time determine that the Operator shall effect on their behalf for the Joint Account ("Determined Insurance").
	

 	
 	

 	
 	

(b)	
 	

With respect to any policy of Determined Insurance, any party may elect not to participate as a co-insured provided that such party:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

gives prompt notice of its non-participation to the Operator;
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

does nothing which may interfere, directly or indirectly, with the Operator's placement of such insurance for the other parties;
	

 	
 	

 	
 	

 	
 	

(iii)	
 	

effects and maintains, in proportion to its undivided interest, such insurance or other evidence of financial responsibility against the risk covered by Determined Insurance as the Committee may determine to be acceptable; and
	

 	
 	

 	
 	

 	
 	

(iv)	
 	

arranges for such policies to be endorsed with waivers of subrogation in favour of all the other parties but with respect only to Joint Venture activities and for such policies to be subject to the conditions that they shall not be cancelled, amended
or varied, or permitted to expire or lapse, without, in each instance, the insurer first having given to the other parties not less than 14 days prior notice of its intention so to do.
	

 	
 	

 	
 	

(c)	
 	

In respect of each policy of Required Insurance and Determined Insurance, the Operator shall:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

upon request, provide any party participating in that policy of insurance with a copy of that policy and evidence that it is current;
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

arrange for the parties participating therein to be named co-insured and for the endorsement of such policies with waivers of subrogation in favour of all the other parties, but with respect only to the Joint Venture Activities; and
	

 	
 	

 	
 	

 	
 	

(iii)	
 	

as soon as practicable, pursue claims and collect the proceeds which shall be credited to parties in proportion to their respective interests in such insurance. Any settlement of a claim exceeding $25,000 shall require the approval of the
Committee.
	

 	
 	

 	
 	

(d)	
 	

Each party may, for its own account and at its own expense, obtain such additional insurance as it thinks fit, provided that the obtaining of such additional insurance shall not in any way interfere with the Operator's placement of Required Insurance
or Determined Insurance or prejudice such insurance when placed.

18

 

	

 	
 	

 	
 	

(e)	
 	

The Operator shall require contractors and subcontractors performing work in respect of JV Activities to effect and maintain all insurances pertaining to such work which are required by virtue of any applicable Regulation or the terms of any contract
relating thereto and such other insurance as the Committee directs, or, in the absence of such a direction, as the Operator thinks advisable, after consultation with all parties. Insurances effected pursuant to this subclause (e) shall provide
for waivers of subrogation by the insurer in favour of the parties and shall be subject to the condition that they shall not be cancelled, amended or varied, or permitted to expire or elapse, without, in each instance, the insurer first giving the
parties not less than 14 days prior notice of its intention so to do.
	

20	
 	

WITHDRAWAL
	

 	
 	

20.1	
 	

A party may withdraw from the Joint Venture:
	

 	
 	

 	
 	

(a)	
 	

by giving a Withdrawal Notice to the other parties not less than 30 days prior to the expiration of the Permit Year then current;
	

 	
 	

 	
 	

(b)	
 	

if a party other than the party giving a Withdrawal Notice under subclause 20.1(a) above, by giving a Withdrawal Notice to the other parties within 5 days after receipt of the notice referred to in sub-clause 20.1 (a); or
	

 	
 	

 	
 	

(c)	
 	

by giving a Withdrawal Notice to the other parties within 5 days of approval of a programme and budget in accordance with clause 12.4 hereof.
	

 	
 	

20.2	
 	

If a party gives a Withdrawal Notice to the other parties in accordance with the provisions of sub-clauses 20.l(a) or 20.l(b) hereof, or is deemed, under the terms of this Agreement, to have given a Withdrawal Notice to the other parties, then
subject to any approval required from the Mines Department, withdrawal will be effective upon expiration of the Permit Year current on the date of the Withdrawal Notice or completion of the Work Period current on the date of the Withdrawal Notice,
whichever is later.
	

 	
 	

20.3	
 	

If a party gives a Withdrawal Notice to the other parties in accordance with the provisions of sub-clause 20.1(C), withdrawal will be effective upon the expiration of the current Work Period.
	

 	
 	

20.4	
 	

A Withdrawing Party shall not after the date of withdrawal, be entitled to vote on any matter with respect to the Joint Venture except to the extent only that work to the cost of which it is contributing will be affected by its vote.
	

 	
 	

20.5	
 	

A Withdrawing Party shall remain liable for payment of any amount which the Operator has called or is entitled to call upon it to pay in accordance with this Agreement and for its proportion of JV Costs in respect of the approved programme for the
Work Period current on the date on which the Withdrawal Notice was given, but shall have no further obligation after the effective date of withdrawal.

19

 

	

 	
 	

20.6	
 	

A Withdrawing Party shall on the effective date of withdrawal, be deemed, subject to the Petroleum Act and without further formality or compensation to have assigned to the other parties in proportion to their respective Percentage Interests in all
circumstances, other than where the non Defaulting Parties have made contributions to the default amount of the Defaulting Party in accordance with the Agreed Additional Percentage, in which case any assignment to the other Parties is to be in
proportion to their respective Agreed Additional Percentages, all the right title and interest of the Withdrawing Party in terms of this Agreement and in the Permit and to any Petroleum contained within the Permit and in all JV Property and shall at
its cost do all acts, matters and things reasonably required by the other parties in order to give full effect to the assignment, including executing forms of transfer and making appropriate applications to the Mines Department.
	

 	
 	

20.7	
 	

A Withdrawing Party shall pending any necessary completion of assignment of its right, title and interest under this Agreement and in the JV Property, hold such right, title and interest in trust for the other parties.
	

 	
 	

20.8	
 	

A Withdrawing Party shall on the effective date of withdrawal and subject to the provisions of this Agreement, be released from and indemnified by the other parties against all obligations arising in terms of this Agreement or otherwise, with respect
to the Permit, except so far as such obligations may have been incurred or accrued as a result of events which took place prior to the effect date of withdrawal.
	

21	
 	

ENCUMBRANCES
	

 	
 	

21.1	
 	

For the purposes of this clause, "encumbrance" means any mortgage, charge, lien, writ or other encumbrance or third party, interest.
	

 	
 	

21.2	
 	

A party shall not create or permit the creation of an encumbrance over the whole or part of its Percentage Interest without the prior written consent of the other parties which shall not be unreasonably withheld.
	

 	
 	

21.3	
 	

It shall be a condition contained in any encumbrance created by a party in accordance with this clause that any sale, assignment or foreclosure by way of an exercise of rights by the person taking the encumbrance pursuant to the terms of the
encumbrance shall be subject to compliance with the provisions of clause 11 relating to transfers of Percentage Interests.
	

22	
 	

DISCOVERY OF PETROLEUM
	

 	
 	

22.1	
 	

Within 60 days after establishment of a Discovery Well, the Committee shall decide whether such Discovery Well requires the carrying out of Appraisal Operations.
	

 	
 	

22.2	
 	

If the Committee decides that Appraisal Operations shall be carried out, the Operator shall within 60 days after such decision submit to the Committee a programme and budget for the conduct of Appraisal Operations ("Appraisal Programme and
Budget"), covering such period as the Operator deems advisable or as the Committee directs. Within 30 days of such submission, the Committee shall decide upon an Appraisal Programme and Budget.
	

 	
 	

22.3	
 	

Within 3 months after Appraisal Operations are carried out pursuant to this Part, the Operator shall submit to all the parties a report giving details as to all Information derived from such Appraisal Operations. Within 30 days after such
submission the Committee may decide to proceed with a feasibility study in accordance with the provisions of this clause or decide to carry out supplementary Appraisal Operations.

20

 

	

 	
 	

22.4	
 	

If the Committee decides to proceed with a feasibility study, the Operator shall within 6 months prepare the feasibility study, which shall cover without limiting the generality of the study:
	

 	
 	

 	
 	

(a)	
 	

the development, production, transportation and treatment (if any) of the production of the Petroleum Pool;
	

 	
 	

 	
 	

(b)	
 	

an itemised estimate of the JV Capital Costs and JV Operating Costs to be incurred and facilities required;
	

 	
 	

 	
 	

(c)	
 	

a plan for financing;
	

 	
 	

 	
 	

(d)	
 	

a preliminary plan for the development of the Petroleum Pool; and
	

 	
 	

 	
 	

(e)	
 	

the delineation of the Petroleum Pool.
	

 	
 	

22.5	
 	

Upon completion of any feasibility study, the Operator shall forthwith submit a copy thereof to each party, the cost of such copies to be charged to the Joint Venture. From the date of such submission the parties shall have 60 days (or such
longer period as the parties may agree) to consider the feasibility, study and to propose to each other alterations, amendments and additions thereto. Within that period, a meeting of the Committee shall be convened for the purpose of settling the
feasibility study and deciding and planning the development of the Petroleum Pool on the basis thereof.
	

23	
 	

PRODUCTION VENTURE
	

 	
 	

23.1	
 	

If any member or members of the Committee decides to proceed to develop the Petroleum Pool, then the parties voting to proceed shall be associated in a Production Venture as follows (provided that in the case of a Petroleum Pool which has been
discovered by a Sole Risk Operation, then only the vote of the SR Parties who participated in the Sole Risk Operation shall be required for a decision to develop such Petroleum Pool) and upon such decision all parties shall join in the application
for a Production Licence over the Petroleum Pool:
	

 	
 	

 	
 	

(a)	
 	

a Production Operator shall be appointed by majority vote of the Committee and a Production Licence shall be applied for over the Petroleum Pool;
	

 	
 	

 	
 	

(b)	
 	

the purpose of the Production Venture shall be to carry out Production Operations for the recovery of Petroleum from the Petroleum Pool. Production Venture activities shall include all activities necessary, expedient or ancillary to the conduct of
Production Operations, including the construction of terminals, tanks, pipelines, facilities and infrastructure;
	

 	
 	

 	
 	

(c)	
 	

the Production Venture shall be a contractual joint venture between the parties and will be known as the Whicher Range Production Venture;
	

 	
 	

 	
 	

(d)	
 	

each party shall have a Production Interest in the Production Venture. The Production Interest of each party shall be its Percentage Interest at the date on which the Production Venture is established;
	

 	
 	

 	
 	

(e)	
 	

each party shall, as tenant in common, own an undivided interest in all of the Production Venture property and assets, proportionate to its respective Production Interest;
	

 	
 	

 	
 	

(f)	
 	

each party shall take in kind and separately sell or dispose of a share of all Petroleum production derived by the Production Venture, in proportion to its respective Production Interest;

21

 

	

 	
 	

 	
 	

(g)	
 	

the parties shall as soon as practicable enter into negotiations to establish a formula under which any one or more of the parties may take their share of Petroleum produced at times otherwise than in accordance with the order of
production;
	

 	
 	

 	
 	

(h)	
 	

all available Petroleum shall be delivered to the parties by the Production Operator at such place or places as the committee of the Production Venture shall determine;
	

 	
 	

 	
 	

(i)	
 	

Petroleum will be divided among the parties in such manner that each party will receive concurrently Petroleum of like gravity, and quality to that received by each other party and to the extent that such division is impracticable, a method of making
periodic adjustments to equalise the division of Petroleum among the parties will be determined by the committee of the Production Venture;
	

 	
 	

 	
 	

(j)	
 	

all Production Venture costs shall be paid by the parties in proportion to their respective Production Interests. Production Venture costs shall be all costs incurred in connection with Production Venture activities;
	

 	
 	

 	
 	

(k)	
 	

each party shall be responsible for financing its share of Production Venture costs;
	

 	
 	

 	
 	

(l)	
 	

each party, shall be responsible for paying all royalties, imposts and levies payable in respect of its share of Petroleum derived by the Production Venture, and the same shall not be Production Venture costs;
	

 	
 	

 	
 	

(m)	
 	

the Production Venture shall have an operating committee. The committee shall have management and control of Production Venture activities. The provisions of this Agreement relating to the constitution, procedure and responsibility of the Committee
of the Joint Venture shall, apply equally to the committee of the Production Venture, mutatis mutandis;
	

 	
 	

 	
 	

(n)	
 	

the Production Operator shall have sole and exclusive conduct of Production Venture activities, subject to the control and direction of the committee. The Production Operator shall have rights and obligations commensurate with the rights and
obligations of the Operator under this Agreement. The Production Operator shall within 6 months after establishment of the Production Venture submit to the operating committee a programme and budget for development of the Petroleum Pool the
subject of the Production Venture;
	

 	
 	

 	
 	

(o)	
 	

the Production Operator may be appointed and removed from time to time in accordance with the provisions of this Agreement concerning appointment and removal of the Operator, mutatis mutandis;
	

 	
 	

 	
 	

(p)	
 	

the Production Operator shall have a first lien and charge on each party's share of Petroleum production to secure payment by each party of the share of Production Venture costs payable by that party. Each party shall grant to each other party a
cross charge over its interest in the Production Venture to secure payment of cash calls. If a party fails to pay its share of Production Venture costs within 14 days from the due date therefor, the Production Operator shall be entitled to
retain and sell that party's share of production and to retain such share of the proceeds as are necessary to fully or partly satisfy the outstanding amount; and
	

 	
 	

 	
 	

(q)	
 	

the Production Operator shall advise the parties of:
	

 	
 	

 	
 	

 	
 	

(i)	
 	

daily production rates;
	

 	
 	

 	
 	

 	
 	

(ii)	
 	

daily and cumulative interest shares of petroleum produced attributable to each party; and

22

 

	

 	
 	

 	
 	

 	
 	

(iii)	
 	

each party's liability for government royalty.
	

 	
 	

23.2	
 	

Prior to the commencement of a development programme the parties shall negotiate in good faith with a view to reaching appropriate terms of a further agreement ("Production JOA") to provide for the timely development of the Petroleum Pool and the
conduct of Production Operations. This Agreement shall remain in force until the Production JOA is executed by the parties. This Agreement shall not apply to the Production Licence area after execution of the Production JOA but shall otherwise
continue to regulate the Exploration activities of the Joint Venture over the remaining Permit area.
	

24	
 	

SOLE RISK OPERATIONS
	

 	
 	

24.1	
 	

Subject to the provisions of this Part, a party ("Proposing Party") may give to the other parties ("Receiving Parties") and the Operator a notice ("Sole Risk Notice") stating that party's intention to carry out a Sole Risk Operation and stating the
proposed location, purpose and estimated cost of the Sole Risk Operation.
	

 	
 	

24.2	
 	

A Sole Risk Operation may comprise any of the following:
	

 	
 	

 	
 	

(a)	
 	

drilling an Exploration Well;
	

 	
 	

 	
 	

(b)	
 	

deepening, re-working, sidetracking, testing or completing an Appraisal Well or an Exploration Well;
	

 	
 	

 	
 	

(c)	
 	

drilling an Appraisal Well; or
	

 	
 	

 	
 	

(d)	
 	

drilling a Development Well.
	

 	
 	

24.3	
 	

A party shall not give a Sole Risk Notice if any of the following conditions exist:
	

 	
 	

 	
 	

(a)	
 	

the work proposed to be carried out under the Sole Risk Operation is included in a programme and budget for JV Activities previously approved by the Committee but not yet carried out;
	

 	
 	

 	
 	

(b)	
 	

any work is being carried out or has been proposed or included in an approved programme and budget for JV Activities which has the same objective as the work in respect of which a Sole Risk Notice is desired to be given; or
	

 	
 	

 	
 	

(c)	
 	

the work proposed is part of the Work Obligation.
	

 	
 	

24.4	
 	

A party may give a Sole Risk Notice only if the activities covered by the Sole Risk Notice have been proposed to the Committee and the Committee has resolved not to carry out those activities as JV Activities. A Sole Risk Notice shall be effective
only if it is given within the following periods:
	

 	
 	

 	
 	

(a)	
 	

where the proposed Sole Risk Operation is the drilling of an Exploration Well, an Appraisal Well or a Development Well, within 30 days after the decision of the Committee not to carry out the proposed activities as JV Activities; or
	

 	
 	

 	
 	

(b)	
 	

where the proposed Sole Risk Operation is the deepening reworking sidetracking, testing or completing of an Appraisal Well or an Exploration Well, prior to commencement of operations to abandon the well.
	

 	
 	

24.5	
 	

Within 30 days after receipt of the Sole Risk Notice, each Receiving Party, shall give notice to the Proposing Party whether that Receiving Party will participate in the Sole Risk Operation, failing which that Receiving Party shall be deemed to
have given notice to the Proposing Party that it will not participate in the Sole Risk Operation.

23

 

	

 	
 	

24.6	
 	

Where a drilling rig is on the location of the well, the time to respond to a Sole Risk Notice with respect to deepening, reworking, sidetracking or testing or completing of the well shall be reduced to 24 hours, after which rig time shall be at
the expense of the SR Parties PROVIDED HOWEVER that if "the Sole Risk Operation is not carried out, the same additional expense shall be borne by the Proposing Party.
	

 	
 	

24.7	
 	

Each party electing to participate in the Sole Risk Operation shall be an SR Party.
	

 	
 	

24.8	
 	

The SR Parties shall be associated in a Sole Risk Venture on the following terms:
	

 	
 	

 	
 	

(a)	
 	

the purpose of the Sole Risk Venture shall be to carry out the Sole Risk Operation;
	

 	
 	

 	
 	

(b)	
 	

each party shall have an SR Interest equal to the proportion that its Percentage Interest bears to the aggregate Percentage Interests of all of the SR Parties;
	

 	
 	

 	
 	

(c)	
 	

the SR Parties shall pay all costs and expenses and bear all liabilities incurred in connection with the Sole Risk Operation in proportion to their respective SR Interests;
	

 	
 	

 	
 	

(d)	
 	

if the Operator is a SR Party, it shall be the operator of the Sole Risk Venture ("SR Operator"). If the Operator is not a SR Party, it shall carry out the operations on behalf of the SR Parties, unless it declines to do so, in which case the SR
Parties shall appoint a SR Operator by majority vote; and
	

 	
 	

 	
 	

(e)	
 	

except as otherwise provided, the relationship between the SR Parties in relation to the Sole Risk Venture shall be governed by the terms of this Agreement, mutatis mutandis.
	

 	
 	

24.9	
 	

As soon as the SR Parties have been determined in accordance with this clause, the SR Operator shall forthwith give notice to all the SR Parties how the costs, risks and liabilities of the Sole Risk Operation will be shared, and may thereafter
commence the Sole Risk Operation.
	

 	
 	

24.10	
 	

Sole Risk Operations shall not be commenced more than 180 days after the Sole Risk Notice with respect thereto was given PROVIDED THAT a Sole Risk Notice may again be given for the same Sole Risk Operation within or after the expiration of the
said 180 day period.
	

 	
 	

24.11	
 	

If following the giving of a Sole Risk Notice all parties elect to participate, the proposed operation shall be conducted by the Operator as JV Activities, and the programme and budget for the then current Work Period shall be revised
accordingly.
	

25	
 	

SOLE RISK—DRILLING
	

 	
 	

25.1	
 	

If the Sole Risk Operation is the drilling of a well and if the operation results in discovery of Petroleum in Paying Quantities, then the following provisions shall apply:
	

 	
 	

 	
 	

(a)	
 	

if the well is completed for production, the SR Parties shall separately be entitled to take all Petroleum production derived therefrom by any Production Venture in proportion to their SR Interests until the Net Value of the Petroleum so taken equals
100% of the SR Costs incurred by the SR Parties in relation to that well;
	

 	
 	

 	
 	

(b)	
 	

if the well is not completed for production, the SR Parties shall separately be entitled to take all Petroleum production derived by any Production Venture from any and all subsequent wells completed for production in the same Petroleum Pool until
the Net Value thereof equals 100% of the SR Costs incurred by the SR Parties in relation to that well; and

24

 

	

 	
 	

 	
 	

(c)	
 	

whether or not the well is completed for production the SR Parties shall, after recovery of the aforesaid 100% of SR Costs, be entitled to receive all further Petroleum production ("Premium Share of Production") derived by any Production Venture from
such well and any and all subsequent wells completed for production in the same Petroleum Pool until the Net Value thereof is an amount equal to 1000% in the case of an Exploration Well and 700% in the case of an Appraisal Well and 500% in the case
of a Development Well of the SR Costs incurred by the SR Parties in relation to that well,
	

26	
 	

SOLE RISK DEEPENING, REWORKING, SIDETRACKING, TESTING, COMPLETION ETC
	

 	
 	

26.1	
 	

If the Sole Risk Operation is the deepening, reworking, side tracking, completion or testing of a well, and if the operation results in the discovery of Petroleum in Paying Quantities, then the SR Parties shall be entitled to take all Petroleum
production derived by any Production Venture from the well until the Net Value of the Petroleum production so taken equals 500% of the SR Costs incurred by the SR Parties in relation to that operation.
	

 	
 	

26.2	
 	

If the Sole Risk Operation is the deepening of a well, the following provisions shall apply:-
	

 	
 	

 	
 	

(a)	
 	

if the initial drilling of that well up to a depth at which deepening operations commenced ("Initial Depth") was also carried out as a Sole Risk Operation, then the Non SR Parties in the drilling to the Initial Depth shall nevertheless have the right
to participate in the deepening operation in proportion to their respective SR Interests in the deepening operation;
	

 	
 	

 	
 	

(b)	
 	

if the deepening does not result in the discovery of Petroleum in Paying Quantities, the SR Parties who participated in the deepening but not in the drilling of the well to the Initial Depth shall have not obligation to contribute to the costs of
drilling the well to the Initial Depth (except as to costs of materials, supplies and equipment assumed by the deepening parties); and
	

 	
 	

 	
 	

(c)	
 	

if the deepening operation results in the discovery of Petroleum in Paying Quantities, the SR Parties participating in the completion of the well for the taking of Petroleum production from a formation into which the well was drilled as part of the
deepening operation shall reimburse in cash to the SR Parties participating in the drilling of the well to the Initial Depth 100% of the SR Costs incurred in drilling the well to the Initial Depth.
	

 	
 	

26.3	
 	

A Sole Risk Notice for a deepening, reworking or side-tracking operation may be given with respect to a well producing or capable of producing Petroleum in Paying Quantities and, in that event, the following provisions shall apply:
	

 	
 	

 	
 	

(a)	
 	

in drilling beyond the point where the well is or may be productive in Paying Quantities, the deepening parties will protect the hole so that the well can be plugged back to the depth at which the presence of Petroleum in Paying Quantities was found
or suspected;
	

 	
 	

 	
 	

(b)	
 	

the deepening panics shall, if the deepening does not result in the discovery of Petroleum in Paying Quantities, plug back the well at the sole risk and expense of the deepening parties to the point at which Petroleum was discovered or suspect in
Paying Quantities, if at least one of the parties so requires; or

25

 

	

 	
 	

 	
 	

(c)	
 	

should the well be capable of producing Petroleum in Paying Quantities from both above and below the depth at which the deepening operation began and one or more of the respective parties entitled to attempt to complete the well in the respective
productive formations wish to do so, the respective SR Parties will co-operate in causing the well to be duly completed. If this is not possible or feasible in accordance with good engineering practice, then completion shall be made in the formation
within the originally proposed depth provided that such completion is in accordance with good engineering practice.
	

27	
 	

SOLE RISK—GENERAL PROVISIONS
	

 	
 	

27.1	
 	

Notwithstanding the foregoing, a Non SR Party may at any time pay to the SR Parties an amount in cash in lieu of the SR Costs and the Premium Share of Production otherwise recoverable by the SR Parties under this Agreement. The Non SR Party shall
thereafter be entitled to take its proportionate share of Production.
	

 	
 	

27.2	
 	

During the period that SR Parties are taking Petroleum production to the exclusion of Non SR Parties pursuant to this Agreement, the SR Operator shall supply all parties with monthly statements showing the amount of Production taken by the SR Parties
during the relevant month, the Net Value thereof and the amount still to be recovered by the SR Parties. The SR Parties shall provide the SR Operator with sufficient information to allow the SR Operator to supply the monthly statements.
	

 	
 	

27.3	
 	

The SR Parties shall indemnify, and hold harmless the Non SR Parties from all costs, expenses, suits, claims, liens, liabilities and losses resulting from the carrying out of the Sole Risk Operation.
	

 	
 	

27.4	
 	

The SR Parties shall ensure that the Sole Risk Operation is carried out with reasonable care skill and diligence, in accordance with good exploration and oilfield practice and in compliance with all relevant laws and regulations and the requirements
of all relevant authorities.
	

 	
 	

27.5	
 	

If any Sole Risk Operation results in a dry hole, the SR Operator shall plug and abandon the well in accordance with the Petroleum Act at the cost of the SR Parties.
	

28	
 	

DISPUTE RESOLUTION
	

 	
 	

28.1	
 	

Without derogating from the other provisions of this Agreement, any dispute or difference which shall arise between any of the Parties in respect of any technical matter or any matter requiring the exercise of professional or specialised knowledge
and expertise in the field of Petroleum exploration, shall be referred to an independent expert unless the parties who are party to the dispute otherwise unanimously agree. Any party may by notice in writing to the others specify the nature of the
dispute and call for submission to an independent expert. In the event of notice under this clause, the independent expert shall be as nominated by the Chairman of the Australian Petroleum Exploration Association.
	

 	
 	

28.2	
 	

The expert shall have a reasonable commercial and practical experience in the area of dispute and shall be required to undertake to keep confidential matters coming to his knowledge by reason of his appointment and carrying it out.

26

  

	 
	 	 
	 	 
	 	 
	 	 

	 	 	28.3	 	The expert shall have the following powers:
	

 	
 	

 	
 	

(a)	
 	

to inform himself independently as to facts and if necessary technical matters to which the dispute relates;
	

 	
 	

 	
 	

(b)	
 	

to receive written submissions sworn and unsworn written statements and photocopy documents and to act upon the same; and
	

 	
 	

 	
 	

(c)	
 	

to take such measures as he thinks fit to expedite the completion of the dispute resolution including finding adversely to any party who fails to comply with a timetable reasonably set by him.
	

 	
 	

28.4	
 	

The dispute resolution shall be held in Perth, Western Australia unless the parties to the dispute otherwise agree.
	

29	
 	

CONDUCT OF LITIGATION
	

 	
 	

29.1	
 	

Subject to clause 29.2, all litigation in connection with the Permit shall be defended, carried on and conducted for and on behalf of all parties by legal practitioners selected by the Committee, which practitioners shall be instructed in
accordance with the wishes of the Committee. Each party shall notify the others of any process served upon it in any action involving the title of the Permit of Joint Venture Activities and thereupon the Committee shall choose legal practitioners to
handle such action for the Joint Account. The actual and necessary expense of legal practitioners incurred with respect to the action shall be for the Joint Account. If any party, wishes to employ independent legal practitioners to act on its behalf
with respect to the action, no fee for their services shall be charged to the Joint Account.
	

 	
 	

29.2	
 	

The Operator shall have the power, without reference to the Committee, to settle claims made by third parties as a result of JV Activities up to $50,000.
	

30	
 	

TERM AND TERMINATION
	

 	
 	

30.1	
 	

The Joint Venture shall be deemed to have commenced on the date of this Agreement and shall continue for so long as there are operations being carried out or contemplated hereunder pursuant to the Permit or any production licence granted over any
part of the Permit and until all assets jointly owned hereunder have been removed and disposed of and final settlement made among the parties. If any interest of any party in any of the Permit violates the rule against perpetuities, then such
interest shall terminate 80 years from the date of commencement of this Agreement.
	

 	
 	

30.2	
 	

On termination of the Joint Venture, whether by effluxion of time or otherwise, all rights and obligations of the parties shall cease except:-
	

 	
 	

 	
 	

(a)	
 	

rights and obligations in respect of any Sole Risk Operation;
	

 	
 	

 	
 	

(b)	
 	

the settlement of any accounts for JV Costs incurred before termination and settlement of any other liability or obligation incurred before termination or arising out of termination;
	

 	
 	

 	
 	

(c)	
 	

the confidentiality provisions;
	

 	
 	

 	
 	

(d)	
 	

the right of a party to Information; and
	

 	
 	

 	
 	

(e)	
 	

obligations to make payments imposed by the Permit or any agreements or instruments in terms of which the Permit is held and which become payable at any time prior to termination.

27

 

	

31	
 	

FORCE MAJEURE
	

 	
 	

31.l	
 	

The obligations of a party shall be suspended while such party is prevented or hindered from complying with the terms of this Agreement by force majeure which shall include, but not be limited to, strikes, lockouts, labour and civil disturbances,
action whether legal or otherwise, by conservation groups or other groups opposed to the conduct of JV Activities in the Permit or its vicinity on the basis of environmental considerations, acts of God, unavoidable accidents, laws, rules, regulations,
 orders or decrees of any national, municipal or other governmental agency, whether domestic or foreign, acts of war, or conditions arising out of or attributable to war (declared or undeclared), acts of terrorism, shortage of necessary equipment,
materials, or labour, or restrictions on them, or reasonable marked conditions or limitations on their use, inability to obtain necessary consents from any authorities or governments, delays in transportation, claims by traditional landowners or
other aboriginal individuals, groups or organisations pursuant to legislation or at common law or any other matters beyond the control of such party, whether similar to the matters listed above or otherwise.
	

 	
 	

31.2	
 	

No party shall be entitled to the benefit of the provisions of this clause if the event of force majeure is caused by lack of funds, or by the negligence of the party claiming suspension.
	

 	
 	

31.3	
 	

If force majeure causes a suspension of the obligations of any party, such party shall give notice of suspension as soon as reasonably possible to the other parties stating the date and extent of such suspension, whether in whole or in part, and the
nature of the force majeure. Any party whose obligations have been suspended shall resume the performance of such obligations as soon as reasonably possible after the removal of the force majeure and shall so notify the other parties.
	

32	
 	

PERMIT
	

 	
 	

32.1	
 	

If at any time renouncement or surrender of any portion of the Permit should be required by operation of the Petroleum Act or the terms and provisions of the Permit, the Operator shall give timely written notice to the Committee, setting forth in
detail the reasons for such renouncement or surrender and a description of the areas which the Operator suggests be renounced or surrendered in compliance with such requirement. The Committee shall consider all matters relevant to the question of
such renouncement or surrender and shall, within one month (or such shorter period of time as may be required by the Mines Department), determine and notify Operator in writing of the decision to be carried out.
	

 	
 	

32.2	
 	

Any party may at any time propose to the other parties that one or more portions of the Permit be surrendered. If approved by all parties, the proposal shall, subject to the granting of any necessary consents of the Mines Department, be given
effect.
	

 	
 	

32.3	
 	

Not later than 120 days prior to expiration of the term of the Permit, the parties shall meet to discuss whether the Permit should be renewed or should be allowed to lapse. The parties that vote not to renew the Permit shall be entitled to serve
a Withdrawal Notice to the Operator and the other parties. The parties that vote to renew the Permit shall determine the area for which renewal is sought and the acceptable work and expenditure conditions. Thereafter, the parties shall make all such
applications and execute all such documents as may be necessary or expedient to obtain renewal of the Permit to the continuing parties.

28

 

	

33	
 	

GENERAL PROVISIONS
	

 	
 	

33.1	
 	

Any notice given in connection with this Agreement shall—
	

 	
 	

 	
 	

(a)	
 	

be delivered by hand; or
	

 	
 	

 	
 	

(b)	
 	

be sent by facsimile (if the party has its own facsimile receiver).
	

 	
 	

33.2	
 	

Notices to a party shall be addressed in accordance with such postal or facsimile particulars as may be notified by that party to the other parties from time to time, and at the date of execution of this Agreement are as follows:
	

 	
 	

 	
 	

GeoPetro:
	

 	
 	

 	
 	

GeoPetro Company

Suite 700, 1 Maritime Plaza

San Francisco

California 94111

United States of America

Fax: l 415 398 9227
	

 	
 	

 	
 	

Seven Seas:
	

 	
 	

 	
 	

Seven Seas Petroleum Australia Inc.

Suite 305 Reunion Centre Building

Nine East Fourth

Tulsa

Oklahoma 74103

United States of America

Fax: l 918 587 1883
	

 	
 	

 	
 	

Pennzoil:
	

 	
 	

 	
 	

Pennzoil Exploration Australia, Inc.

Craigmuir Chambers

PO Box 71

Road Town

Tortola

British Virgin Islands
	

 	
 	

 	
 	

with copy to:
	

 	
 	

 	
 	

Pennzoil Exploration and Production Company

Pennzoil Place

700 Milam

PO Box 2967 Houston

Texas 77252-2967

United States of America

Fax: 1 713 546 8559

29

 

	

 	
 	

 	
 	

Amity:
	

 	
 	

 	
 	

Amity Oil NL

2nd Floor

33 Ord Street

West Perth

Western Australia 6005

Australia

Fax: 61 9 324 1224
	

 	
 	

33.3	
 	

A notice shall be deemed to have been duly given—
	

 	
 	

 	
 	

(a)	
 	

if delivered on the date of delivery; or
	

 	
 	

 	
 	

(b)	
 	

if sent by facsimile, o11 the day following the day the facsimile is transmitted.
	

 	
 	

33.4	
 	

This Agreement constitutes the entire contract and supersedes all other agreements and understandings between the parties with regard to the matters dealt with in this Agreement and no representations, terms, conditions or warranties not contained in
this Agreement shall be binding on the parties.
	

 	
 	

33.5	
 	

No agreement varying, adding to, deleting from or cancelling this Agreement, shall be effective unless reduced to writing and signed by or on behalf of the parties.
	

 	
 	

33.6	
 	

No indulgence granted by a party shall constitute a waiver of any of that party's rights under this Agreement; accordingly, that party shall not be precluded, as a consequence of having granted such indulgence, from exercising any rights against the
other which may have arisen in the past or which may arise in the future.
	

 	
 	

33.7	
 	

Each party warrants that it has all necessary authorisations and approvals to execute this Agreement.
	

 	
 	

33.8	
 	

The provisions of this Agreement shall enure for the benefit of and be binding upon the parties and their respective successors and permitted assigns.
	

 	
 	

33.9	
 	

This Agreement shall be governed and interpreted in accordance with the laws from time to time in force in the State of Western Australia.
	

 	
 	

3.10	
 	

The costs of and incidental to the preparation of this Agreement including stamp duty shall be JV Costs.

    EXECUTED
by the parties. 

30

 

	 
	 	 

	THE COMMON SEAL of AMITY OIL	)	 
	NL was affixed by authority of the Directors	)	 
	in the presence of:	)	 
	

/s/ P. D. ALLCHURCH   
 Director	
 	

/s/ R. D. MACLIVER   
 Director/Secretary
	

/s/ P. D. ALLCHURCH   
 Print name:	
 	

/s/ R. D. MACLIVER   
 Print name:
	

SIGNED for and on behalf of GEOPETRO	
)	

 
	COMPANY by a duly authorised officer	)	"S. J. Doshi"
	in the presence of:	)	President
	

Name of Witness: "Lawrence Barker, Jr."
	

Address of Witness: "One Maritime Plaza, San Francisco"
	

Occupation of Witness: "Chairman, GeoPetro"
	

SIGNED for and on behalf of SEVEN	
)	

 
	SEAS PETROLEUM AUSTRALIA INC.	)	 
	by a duly authorised officer in the presence of	)	President
	

Name of Witness: "Laura Brown"
	

Address of Witness: "1990 Post Oak Blvd. Ste.960"

"Houston, TX 77056"
	

Occupation of Witness: "Office Manager"
	

SIGNED for and on behalf of PENNZOIL	
)	

 
	EXPLORATION AUSTRALIA,	)	"Alan R. Smith"
	INC. by a duly authorised	)	 
	

Name of Witness: "G. Kevin Cunningham"
	

Address of Witness: "700 Milam Houston Tex. USA
	

Occupation of Witness: "Manager"

31

  

 
 

"A"    
    
    ACCOUNTING PROCEDURE    
    
    INDEX    
  

	1	 	GENERAL PROVISIONS	 	33
	 	 	1.1	 	Definitions and Purpose	 	33
	 	 	1.2	 	Accounting Records	 	34
	 	 	1.3	 	Responsibility for Accounting Records	 	34
	 	 	1.4	 	Advances and Payments	 	34
	 	 	1.5	 	Statements and Billings	 	36
	 	 	1.6	 	Adjustments	 	36
	 	 	1.7	 	Reporting—operations by less than all Parties	 	37
	 	 	1.8	 	Termination	 	37
	

2	
 	

OPERATING CHARGES AND CREDITS	
 	

38
	 	 	2.1	 	Direct Charges	 	38
	 	 	2.2	 	Indirect Charges	 	40
	

3	
 	

BASIS OF CHARGES TO THE JOINT ACCOUNT	
 	

40
	 	 	3.1	 	Purchase of New Materials	 	40
	 	 	3.2	 	Used Materials Purchased from a Third Party or New or Used Materials Furnished From Operator's or an Affiliate's Stock	 	41
	 	 	3.3	 	Premium Prices	 	42
	 	 	3.4	 	Warranty of Materials	 	42
	 	 	3.5	 	JV Purchased for the JV Activities from One of the Parties	 	42
	 	 	3.6	 	Use of Exclusively Owned Equipment and Facilities	 	42
	

4	
 	

DISPOSAL OF MATERIALS AND USE OF JV PROPERTY	
 	

42
	 	 	4.1	 	Disposal of Materials	 	42
	 	 	4.2	 	Basis of Pricing Materials Removed from Joint Account	 	43
	 	 	4.3	 	Use of JV Property	 	44
	

5	
 	

INVENTORIES	
 	

45
	 	 	5.1	 	Periodic Inventories, Notice and Presentation	 	45
	 	 	5.2	 	Reconciliation,and Adjustment of Inventories	 	45
	 	 	5.3	 	Special Inventories	 	45

32

  

	1
	GENERAL
PROVISIONS

	1.1
	Definitions
and Purpose 

In
this Accounting Procedure:- 

"Agreement"
means the Joint Operating Agreement of which this Accounting Procedure forms part; 

"Capital
Expenditures" means costs incurred to carry out Exploration Programmes, Drilling Wells and Construction Projects excluding costs described in paragraph 2.1; 

"Construction
Projects" means the installation and/or construction of capital facilities pursuant to the Agreement including, but not limited to field gathering and process installations, compressor
plants, water stations, pressure maintenance systems, secondary recovery systems, airstrips and roads; 

"Cost
Price" has the meaning ascribed to it in paragraph 3.1(a); 

"Drilling
Wells" means any well drilled, plugged back, drilled deeper, converted to production or injection well to and including the abandonment thereof, or on which remedial operations are
performed, involving the use of drilling crew and equipment; 

"Exploration
Programmes" means geological, geophysical and geochemical examinations and other investigations relating to the subsurface geology, including, without limiting the generality of the
foregoing, seismograph reflection and refraction surveys, gravity meter and gravity reconnaissance programmes, magnetometer surveys, surface geological studies and satellite or aerial mapping or
surveying conducted pursuant to the Agreement; 

"Joint
Account" means an account opened by the Operator for the purposes of the JV Activities or any matter connected to them; 

"Non-
Operating Parties" means the parties other than the Operator; 

"Operation
and Maintenance" means all operations directly related to the production of Petroleum other than Exploration Programmes, Drilling Wells and Construction Projects conducted pursuant to the
Agreement; 

"Operator's
Bank" means the bank chosen by the Operator for the purposes of the Joint Accounts; 

"Technical
Employee" means an employee having special or specific engineering, geological, geophysical, permitting and drafting or ether professional skills, but excluding administrative employees,
and whose primary function is the handling of specific operating conditions and problems for the benefit of the JV Activities; and 

"Unused
Market Price" has the meaning ascribed to it in paragraph 4.2(a). 

Words
and expressions defined in the Agreement have the same meaning in this Accounting Procedure as ascribed to them in the Agreement. 

Reference
to any clause is to a clause of the Agreement. 

Reference
to any paragraph is to a paragraph in this Accounting Procedure. 

In
the event of a conflict between the provisions of this Accounting Procedure and the provisions of the Agreement the latter shall prevail, 

This
Accounting Procedure sets forth the procedures to be followed in maintaining proper control and detailed records of the accounting required under the Agreement. It also sets forth the 

33

 

charges and credits attributable to the JV Activities in order to establish the amounts owing between the Parties and to ensure that any particular item cannot be recovered twice by the Operator. It
shall truly reflect the Operator's actual cost to the end that the Operator shall neither gain nor lose by reason of the fact that it acts as the Operator. 

	1.2
	Accounting
Records 

The
Operator will maintain Joint Accounts based on the Operator's usual accounting procedures and classifications and in accordance with generally accepted accounting principles in the Petroleum
Industry in Australia, and with Australian Accounting Standards consistently applied. All transactions in respect of the JV Activities shall be recorded in the Joint Account in Australian currency.
When it is necessary to translate other currencies into Australian currency the provisions of paragraph 1.4 shall apply. 

	1.3
	Responsibility
for Accounting Records

	(a)
	Each
Party is responsible for its own accounting records required by law or to support its income tax or similar tax returns. To enable each Party to comply with its statutory and
corporate requirements, the Operator shall provide such data and information as may reasonably be expected to be available from the accounting records maintained by the Operator, and the cost thereof
shall be for the Joint Account.

	(b)
	Depreciation
and amortisation of facilities and other capital assets comprising the JV Property will not be recorded as operating costs in the Joint Account. It shall be the
responsibility of each Party to calculate depreciation and amortisation on its undivided share of the JV Property.

	(c)
	Nothing
contained in the Agreement or this Accounting Procedure shall be construed as an election by a Party with respect to any matter under the tax laws or other laws of any
jurisdiction, or as an election with respect to any method of accounting for the purpose of accounting to any government, or any subdivision or agency thereof, or as an election for any other purpose. 

	1.4
	Advances
and Payments

	(a)
	In
accordance with the approved budgets or AFE's the Operator may call forward cash advances from all (but not less than all) Parties for their proportionate share of estimated cash
requirements for the succeeding month's operations. The Cash Call requesting from the Parties, cash in advance shall be submitted 14 days before the due date for each Party's contribution,
specific details as to each Party's contribution, specific details as to what the expenditure relates to, the expected time of expenditure of
the same and a best estimate of the cash required from the Non-Operating Parties for the one month next following the month for which  advances are requested. The Operator shall not without the prior
written consent of all Parties request cash advances from the Parties if the expenditure to which the Cash Call
relates is not to be expended within two months of the date of the Cash Call.

	(b)
	Cash
Calls shall be paid by each Party within 14 days after the first day of each month and each Non-Operating Party, shall dispatch a fax advice to the
Operator's office, or to such other place as the Operator may designate, giving details of advances made.

	(c)
	Should
the Operator be required to pay any large sum of money in relation to JV Activities, which were unforeseen at the time of providing the Non-Operating Parties with
the said monthly estimate of its requirements, the Operator may request the Non-Operating Parties to pay special advances covering the Non-Operating Parties' proportionate
shares of such payments. The Operator shall provide the Non-Operating 

34

 

Parties
with specific details as to the sums of money to be expended, each Party's contribution to the same and the anticipated date of expenditure. The Non-Operating Parties shall
dispatch their proportionate special advances within 10 days of receipt of such notice. 

	(d)
	The
Operator shall be required to maintain separate bank accounts in relation to approved budgets and AFE's for JV Activities and such other additional bank accounts in the name of
the Operator as may be required, The Operator shall maintain as low a cash balance as reasonably possible in the bank accounts specified. Funds not in the Joint Account shall be invested by the
Operator for the benefit of the Joint Account in such manner as the Committee may determine, or failing such determination in an interest bearing deposit account for the benefit of the Parties.

	(e)
	If,
in any month, the Operator is required to purchase an amount of a foreign currency which amount exceeds the equivalent of AUD$50,000, the Operator, when submitting the relevant
Cash Call, shall notify the Non-Operating Parties of the amount of foreign currency required and each Non-Operating Party's share of it. By mutual arrangement between a
Non-Operating Party and the Operator, a Non-Operating Party may elect to provide its share of such foreign currency requirement in that currency. Such election must be advised
to the Operator no less than 5 working days prior to the date on which such foreign currency is due to be paid to the Operator.

	(f)
	In
the conversion of currencies, the accounting for advances of different currencies as provided for in this paragraph 1.4, or any other currency transactions affecting the
JV Activities, it is the intent that none of the Parties shall experience an exchange gain or loss at the expense of, or to the benefit of the other Parties. Credit shall be given in Australian
dollars to each contributor for other currencies in amounts (less than AUD$20,000) provided at the telegraphic transfer selling rate of exchange quoted
by the Operator's Bank for the business day stated as the due date for the advances requested and in amounts more than AUD$20,O00 at the Operator's Bank spot selling rate regarding the telegraphic
transfer selling rate of exchange. If the Operator's Bank does not quote a required rate of exchange, then a like quote obtained from another bank for such business day shall be used. Operator shall
furnish the Non-Operating Parties with sufficient currency exchange data to enable the Non-Operating Parties to translate the billings to the currency of their corporate
accounts. Subject to obtaining all requisite Governmental approvals, the Operator shall open such foreign currency bank accounts as are required to handle the foreign currency of the corporate
accounts of the Non-Operating Parties.

	(g)
	Any
gain or loss on currency conversion shall be for the Joint Account.

	(h)
	If
any or all of the Non-Operating Parties advances exceed their share of actual expenditures, the next succeeding cash advance requirements, alter such determination,
shall be reduced accordingly. If a Non-Operating Party's advances are less than its share of actual expenditure, the deficiency shall, at Operator's option be added to subsequent cash
advance requirements or be paid by the Non-Operating Party within 5 working days following the receipt of the Operator's billings to the Non- Operating Party, for such
deficiency. In each case a statement shall be provided by the Operator stating details of any variance between amounts advanced and amounts expended in appropriate classifications.

	(i)
	Subject
to paragraph 1.4(h), if, in the Operator's opinion, a significant excess of cash becomes evident, the Operator (which shall endeavour to maintain as low a cash
balance as is reasonably possible) will advise details of such excess to the contributors which may 

35

 

elect
to have their share of such excess cash reimbursement by the Operator, If any Non- Operating Party so elects the Operator will refund all excess funds to all
Non-Operating Parties entitled to such refunds. 

	(j)
	Default
interest received as required by the Agreement shall be paid to the non-defaulters in proportion to their contribution to the advance or billing respect of
which the defaulter is in default. 

	1.5
	Statements
and Billings

	(a)
	Within
25 days following the end of each calendar month, the accumulated charges and credits in the Joint Account will be determined, and the Operator will issue a statement
recording actual cash expenditure against advances (if any) made for that month. Such statement shall be accompanied by a JV Activities billing statement summarising all charges and credits incurred
by the Joint Account by
appropriate classifications indicative of the nature thereof and by AFE or main budget heading as appropriate.

	(b)
	Accruals
forming part of the charges shall be allocated to each AFE or main budget heading. The total accruals shall be deducted from total incurred cost to adjust the amounts shown
on the statement to a cash expenditure basis.

	(c)
	The
monthly statements shall include a statement of cash flows and a statement of the Parties account together with information required under Australian Accounting Standard 19
Accounting for Joint Ventures if required.

	(d)
	The
Operator shall within 30 days following the end of June and December in each year provide the Parties with a list of insurance and other claims and litigation outstanding
as at the end of the previous 6 month period commencing of January or July as the case may be. 

	1.6
	Adjustments

	(a)
	Payment
of advances and billing statements shall not prejudice the right of a Party to protest or question the correctness thereof provided however, all Cash Calls and billing
statements rendered to a Party by the Operator during any Permit Year shall, save in the case of fraud or Wilful Misconduct, conclusively be presumed to be true and correct after 24 months
following the end of any such Permit Year unless within the said 24 month period a Party takes written exception thereto and makes claim on the Operator for adjustment. The provisions of this
paragraph shall not prevent adjustments resulting from physical inventory.

	(b)
	Any
of the Non-Operating Parties shall have the right to audit the accounts and records of the Joint Account for each Year maintained by the Operator in respect of the
JV Activities and to obtain all necessary information for such purposes, before the end of the 24th month following the end of such year. At least 30 days notice shall be given to the Operator
of an intention to conduct an audit. The right of audit includes the right of access at all reasonable times during normal business hours to all accounts and records pertaining to the Joint Account,
maintained by the Operator.

	(c)
	Any
audits under paragraph 1.6(b) shall be conducted so as to cause a minimum of inconvenience to the Operator. The Operator shall make every reasonable effort to
co-operate with the Non-Operating Parties and, where appropriate, ensure the reasonable co-operation of its statutory auditors with the external auditors appointed
pursuant to the Joint Venture Agreement by the Non-Operating Parties and will provide reasonable facilities and assistance to the Non-Operating Parties in the conduct of
audits. 

36

 

	(d)
	At
the conclusion of each audit, the Parties who are participating in the audit will endeavour to settle outstanding matters and a written report by the participating auditors will
be circulated to all the Parties participating within a reasonable time of the conclusion of each audit.

	(e)
	The
report shall include all claims arising from such audit together with comments pertinent to the operation of the accounts and records to the extent considered appropriate by the
auditors. The Operator shall reply to the report in writing as soon as possible and in any event not later than 3 months following receipt of the report.

	(f)
	Notwithstanding
that the said period of 24 months may have expired, if the Non-Operating Parties have reasonable grounds to believe that the Operator has been
guilty of fraud or Wilful Misconduct, the Non- Operating Parties shall have the right to conduct further audits in respect of any earlier periods.

	(g)
	All
adjustments resulting from an audit report accepted by the Operator and so notified to the Non-Operating Parties conducting the audit shall be rectified promptly in
the Joint Account by the Operator and reported to the other Non-Operating Parties. If any dispute shall arise in connection with an audit, it shall be considered by the Committee and, if a
settlement between the Parties is not unanimously agreed, the item or items in dispute shall be referred to clause 28 of the Joint Operating Agreement.

	(h)
	Except
as otherwise expressly provided in paragraph 1.6(b), the costs incurred in connection with paragraphs 1.6(b) to 1.6(f) inclusive shall be borne by the participating
Non-Operating Parties in the proportion to which their respective Percentage Interests bear to each other and shall not be charged to the Joint Account. 

	1.7
	Reporting—operations
by less than all Parties 

Within
30 days following the end of each calendar month during which: 

	(a)
	the
Operator is carrying out a Sole Risk Operation under clause 24; or

	(b)
	a
Party is being reimbursed as provided for under clauses 24, 25, 26 or 27, 

the
Operator shall furnish the Parties with a statement of all costs and liabilities incurred in such operation during that month and, if appropriate, a statement of the quantity, and value of
Petroleum produced from such operation during that month. 

	1.8
	Termination 

Upon
termination of this Agreement the Parties will continue to be liable with respect to commitments made under contracts entered into pursuant to this Agreement. Further, the Parties will continue
to be liable for their share of credits or refunds (as the case may be) in respect of any matter outstanding at the time of termination of this Agreement including any litigation outstanding for which
settlement will be made when the outcome of such litigation is known provided that the rights of audit described in paragraph 1.6 shall also continue to apply. 

37

 

	2
	OPERATING
CHARGES AND CREDITS 

Subject
to the limitations prescribed, the Operator shall charge the Joint Account with the following items: 

	2.1
	Direct
Charges

	(a)
	Rentals
and other payments 

Acquisitions
and bonus costs, lease, licence or permit deposits, rentals, renewal or extension fees, royalties and other similar payments paid by Operator for the Joint Account, as required to
maintain the interest of the Parties in the JV Property. 

	(b)
	Labour

	(i)
	Salaries
and wages of Operator's field employees directly employed in the conduct of JV Activities. 

Salaries
of supervisors in the field engaged in the conduct of JV Activities. 

Salaries,
and wages of technical employees (including landmen and draftsmen) including those assigned to project economics, environmental and governmental reports, either temporarily or permanently
assigned to and directly, employed in whatever way in the operation of the JV Property. 

Earned
or compensatory time off relating to the above wage or salary categories and JV Activities. 

	(ii)
	Operator's
costs of holiday, vacation, sickness and disability benefits and other customary allowances and location assignment bonuses paid to the
employees whose salaries and wages are chargeable to the Joint Account under paragraph 2.1(b)(i). Cost under this paragraph 2.l(b)(ii) may be charged on a "when and as paid basis" or by
"percentage assessment" on the amount of salaries and wages chargeable to the Joint Account under paragraph 2.1(b)(i). If percentage assessment is used, the rate shall be based on the
Operator's cost experience.

	(iii)
	Expenditure
or contributions made pursuant to assessments imposed by governmental authority which are applicable to Operator's labour cost of
salaries and wages chargeable to the Joint Account under paragraph 2.1(b)(i) and 2.1(b)(ii). 

	(c)
	Employee
Benefits 

Operator's
current cost of established plans for employees' group life insurance, hospitalisation, pension, retirement and superannuation applicable to Operator's labour cost chargeable to the Joint
Account under paragraphs 2.1.(b)(i) and 2.1(b)(ii) shall be chargeable at Operator's actual cost, or by percentage assessment charged to the Joint Account based on Operator's cost
experience. 

	(d)
	Material

Material
purchased or furnished by Operator for use on the JV Property. So far as it is reasonably practical and consistent with efficient and economical operations, only such material shall be
purchased for or transferred to the JV Property as may be required for immediate use; and the accumulation of surplus stocks shall be avoided. 

	(e)
	Travel,
Living Allowance & Transportation 

Actual
travel expenses, living allowances, and moving expenses (when paid in lieu of hotel expense) of employees chargeable to the Joint Account per paragraph 2.1(b). All 

38

 

expenses charged to the Joint Account under this paragraph shall be in accordance with the Operator's standard terms of employment in force in the relevant period and shall include those incurred in
connection with the families of personnel where appropriate. Relocation expenses at the termination of a period of work for the Joint Account will be on the basis of a return to Perth, Western
Australia. 

	(f)
	Services

All
costs and expenditure relative to work done for the Joint Account incurred under contracts entered into by Operator with contractors and professional geological, geophysical, drilling or
engineering consultants, other than services covered by paragraph 2.1(h). 

The
cost of utilities and other services procured from outside sources other than services covered by paragraph 2.1(h). 

Use
and service of equipment and facilities furnished by Operator at rates, not to exceed those available in the immediate area for like facilities and equipment, and commensurate with the costs of
ownership and operation thereof. 

	(g)
	Damage
and Losses to JV Property 

All
costs or expenses necessary for the repair or replacement of JV Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident or other cause. 

	(h)
	Acquisition
of Surface Rights and Legal Expenses

	(i)
	Costs
of acquisition of renewal of surface rights and legal services for title work.

	(ii)
	All
costs and expenses of handling, investigating and settling litigation or claims against the Parties or any of them relating to the Joint
Account or necessary to protect or recover the JV Property, including, but not limited to, lawyers' fees, court costs, cost of investigation or procuring evidence and amounts paid in settlement or
satisfaction of any such litigation or claims; provided no charge shall be made for the services of Operator's legal staff or other regularly employed personnel (such services being considered to be
administrative Overhead under paragraph 2.2), unless approved by the Non-Operators. 

	(i)
	Taxes
and Rates 

All
taxes and rates of every kind and nature, except taxes which are measured by the income of the parties, assessed or levied upon or in connection with the JV Property, the operation thereof, or the
production therefrom and which taxes or rates have been paid by the Operator for the benefit of the Parties. 

	(j)
	Insurance 

Net
premiums paid for insurance required to be carried on the JV Property for the protection of the Parties. 

	(k)
	Other
Expenditures 

Any
other expenditure not covered or dealt with in the foregoing provisions of this paragraph 2.1 or in paragraph 2.2 and which are incurred by the Operator for the necessary and proper
conduct of work done for the Joint Account. 

39

 

	(l)
	Schedule
of Direct Charges 

The
Operator is to provide to the other Parties a schedule of direct charges including on-cost provisions. 

	2.2
	Indirect
Charges

	(a)
	In
this paragraph 2.2 "Overhead" means the cost to Operator of salaries, wages, employee benefits, government assessments and all other expenses of all Employees, (other than
those covered by paragraph 2.1 hereof) and the cost of maintaining and operating offices, camps and housing facilities that are not JV Property. 

Notwithstanding
that the actual Overhead might be greater or less, Operator shall charge for Overhead as set forth below: 

	(i)
	Capital
Expenditure 

It
will be a sliding scale percentage recalculated monthly and based on year-to-date capital expenditure, incurred for the Joint Account, with a minimum charge of AUD$24,000
per Permit Year. 

Scale
Per Annual Basis 

	First	 	$500,000 expenditure:	 	7.5	%
	Next	 	$1,500,000 expenditure:	 	5	%
	Over	 	$2,000,000 expenditure:	 	1	%

	(ii)
	Major
Construction 

Major
construction projects such as, but not limited to, pipelines, gas reprocessing and processing plants, and final loading and terminal facilities, when the estimated cost of each project amounts
to more than AUD$5,000,000, the Overhead shall be charged at rate set by the Committee at the time of approval of the project. 

	(iii)
	Operating/Production
Expenditure 

5%
of costs for the first $1,000,000 and 2% of costs above $1,000,000 per year of the cost of operating and maintaining the Joint Venture exclusive of costs provided under paragraphs 2.1(a) and
2.1(h)(ii) exclusive of all salvage credits, pipeline tariffs, the value of injected substances purchased for secondary recovery and all taxes and assessments which are levied, assessed and
paid upon the mineral interest in and to the JV Property. 

	(iv)
	Notwithstanding
anything to the contrary which might be stated in the Accounting Procedure, it is understood that no cost or expenditure included
in paragraph 2.2 shall be included or duplicated elsewhere. 

	3
	BASIS
OF CHARGES TO THE JOINT ACCOUNT

	3.1
	Purchase
of New Materials

	(a)
	New
materials purchased from third party for JV Activities warehouse stock. 

Imported
and locally purchased new materials purchased by, or for the Operator for the JV Activities warehouse stocks shall be charged to the Joint Account at Cost Price. The Cost Price of new
materials shall be the "Landed' or "Local' costs of such new materials delivered into a JV Activities warehouse and shall include, as applicable, net invoice prices after trade and cash discounts,
sales and added value taxes, insurance costs, handling and transportation costs to the JV Activities warehouse, customs and excise fees 

40

 

and duties and like items chargeable against the materials, purchasing, shipping and forwarding service fees and all other costs incurred by the Operator in procuring delivery of the materials into a
JV Activities warehouse. 

	(b)
	New
materials purchased from a third party and charged directly to JV Activities 

Imported
and locally purchased new materials purchased by, or for the Operator for the JV Activities, which are delivered directly to the operating site and do not pass through a JV Activities
warehouse shall be charged at the Cost Price except that handling and transportation costs to the site of installation and use will be included. 

	3.2
	Used
Materials Purchased from a Third Party. or New or Used Materials Furnished From Operator's or an Affiliate's Stock 

New
or used materials required for JV Activities shall be purchased for direct charge to the Joint Account whenever practicable, except that the Operator may furnish such materials from the Operator's
stocks, or acquire such Materials from a Party or an affiliate, or used materials from a third party under the following conditions: 

	(a)
	New
Materials (Condition "A") 

New
materials transferred from non JV Activities warehouses or other properties shall be priced at the current new price, and shall be classified as being Condition "A". 

The
current new price shall be the current price of Condition "A" material at the nearest seaport or receiving point to which material could be delivered. 

	(b)
	Used
Materials (Conditions "B" and "C") 

Materials
which are in sound and serviceable conditions and are suitable for re-use without reconditioning shall be classed as Condition "B" and priced at 75% of Condition "A" cost. 

	(c)
	Materials
which cannot be classified as Condition "B" but which,

	(i)
	after
reconditioning, will be further serviceable for its original function as good Condition "B" materials; or

	(ii)
	is
serviceable for its original function but cannot be rated good Condition "B" materials and of which reconditioning would be uneconomical, shall
be classified as Condition "C" and priced at 50% of Condition "A" cost. 

	(d)
	Surplus
and obsolete materials or materials which cannot be classified as Condition "B" or Condition "C" shall be priced at a value commensurate with their use. Materials including
drill pipe, casing and tubing, which are no longer useable for their original purpose without excessive repair cost but are further useable for some other purpose, shall be graded and priced according
to its condition compared with materials normally used for such other purposes. 

41

  

	3.3
	Premium
Prices

	(a)
	Whenever
materials are not readily obtainable at the customer supply point and at prices specified in paragraphs 3.1 and 3.2 because of national emergencies, strikes or other
unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the required materials on the basis of the Operator's direct cost and expense incurred in procuring
such materials, in making such materials suitable for use and in moving such materials to the location; provided, however, that notice in writing is furnished to the Parties of the proposed charge
prior to commitment by the Operator to acquire the materials pursuant to this provision, whereupon the Parties within 10 days after receiving notice from the Operator, may agree to furnish in
kind or in tonnage, as the Parties may agree, at the location, or the nearest or to the Operator's storage point within a comparable distance, all or part of its share of such materials suitable for
use and acceptable to the Operator.

	(b)
	Transportation
costs on any such materials furnished by a Party, at any point other than the location, shall be borne by the Party. If, pursuant to the provisions of this
paragraph 3.3, a Party furnished materials in kind, the Operator shall make appropriate credits therefore to the account of that Party. 

	3.4
	Warranty
of Materials 

The
Operator does not warrant materials furnished beyond the supplier's or manufacturer's guarantee. In case of defective material claims, the Joint Account shall not be credited until adjustment has
been received by the Operator from the manufacturers or their agents. 

	3.5
	JV
Purchased for the JV Activities from One of the Parties 

Fixed
assets which are owned by one of the Parties and which are sold to the Parties for the JV Activities shall be priced at fair market value. In determining the fair market value of an asset,
consideration will be given among other things to the age, condition, location and local market value. 

	3.6
	Use
of Exclusively Owned Equipment and Facilities 

For
services rendered to the JV Activities by field equipment or facilities exclusively owned by a Party including but not limited to transportation equipment, drilling and cleanout tools, workshops,
water, fuel and power systems, warehouses, and the like, the owner will charge for such services at rates not in excess of fair market value of such services, consideration will be given to rates
charged by other potential suppliers, location, quality and timing of service and any other relevant factors. The cost of repairing damage sustained to such equipment or facilities with the JV
Activities shall be charged to the Joint Account provided always that, if the cost of such damage is recoverable from any underwriters or any third party, the recovery will be credited to the Joint
Account. 

	4
	DISPOSAL
OF MATERIALS AND USE OF JV PROPERTY

	4.1
	Disposal
of Materials

	(a)
	Materials
originally charged to the Joint Account may be purchased by any Party as surplus either during operations or upon termination, but the Parties are under no obligation to
do so.

	(b)
	When
materials charged to the Joint Account are disposed of, the Operator shall advise the Parties of the original cost of such materials to the Joint Account so that the Parties
may properly eliminate such costs from their asset records, unless otherwise agreed, 

42

 

transportation
costs of such transfers of materials will be for the account of the operation to which transferred. 

	(i)
	Materials
Purchased by a Party 

Materials
issued from JV Activities warehouse stock to a Party or an Affiliate thereof shall be priced at fair market value. In determining the fair market value of an item, consideration will be
given to the age, condition, location and local market value and any other relevant factors. Sales of physical assets shall only be made by agreement between the Parties. 

	(ii)
	Division
in Kind 

Division
of material in kind, if made between the Parties, shall be in proportion to their respective percentage interests in such materials. Each Party will thereupon be charged individually with the
value of the materials received or receivable by each Party in accordance with paragraph 4.2 below. 

	(iii)
	Sales
to Third Parties 

The
Operator shall not offer any JV Property for sale to third Parties without first giving the parties an opportunity to purchase same. Sales by Operator shall be made only with the agreement of the
Parties as to both terms and price. The net proceeds from sales of JV Property to third Parties shall be credited to each Company's account in proportion to their interest in the Operation. Such sales
shall be billed directly by the Operator to the purchaser. Any claims by purchasers for defective materials shall be charged back to the Joint Account, if and when paid by the Operator. 

	(iv)
	Materials
returned to Non JV Activities Warehouse 

Materials
returned from the JV Activities to the non JV Activities warehouse of a Party or an affiliate shall be credited to the Joint Account at the applicable prices prescribed by
paragraph 4.2. Transportation costs shall be for the account of the operation from which the materials are transferred. 

	(v)
	Junk
and Obsolete Material 

If
there is no market for junk or obsolete materials which have been charged to the Joint Account, the Operator will advise the Parties of the date of purchase and cost of such JV Property for purpose
of eliminating such costs from its asset accounts. The cost of disposing of such JV Property, if any, shall be charged to the Joint Account. 

	4.2
	Basis
of Pricing Materials Removed from Joint Account 

Materials
purchased by either the Operator or a Party or divided in kind, unless otherwise approved by the Operating Committee, shall be priced as prescribed in this paragraph 4.2.
Transportation costs shall be for the account of the Party taking possession of the Materials unless approved otherwise by the Committee. The net proceeds from the disposal of materials shall be
credited to the Joint Account after receipt by the Operator. 

	(a)
	Unused
Market Price Defined 

Unused
Market Price for any item of materials as used in the following paragraphs shall mean the price (including sales tax, if any) for that particular item of materials readily obtainable in the
locality of the purchaser supply point at the time of supply of that item of materials to the purchaser. 

43

 

	(b)
	Unused
Materials 

Unused
materials (Condition "A") being new materials procured for the Joint Account but never used, at 100 percent of the Unused Market Price. 

	(c)
	Good
Used Materials 

Good
used materials (Condition "B") being used materials in sound and serviceable condition, suitable for use without reconditioning: 

	(i)
	At
75% of the Unused Market Price if the materials were charged to Joint Account as new; or

	(ii)
	At
65% of the Unused Market Price if the materials were originally charged to the Joint Account as good used materials (Condition "B") at 75% of the Unused Market Price. 

	(d)
	Other
Used Materials 

Used
materials (Condition "C") at 50% of the Unused Market Price, being used materials which: 

	(i)
	after
reconditioning will be further serviceable for original function as good used materials (Condition "B"); or

	(ii)
	are
serviceable for their original function but cannot be rated good condition materials and of which reconditioning would be uneconomical. 

	(e)
	Bad
Order Materials 

Materials
(Condition "D") which are no longer useable for their original purpose without excessive repair cost but are further useable for some other purpose, shall be priced on a basis comparable
with that of items normally used for that purpose. 

	(f)
	Junk

Junk
(Condition "E") being obsolete and scrap materials, at prevailing prices. 

	(g)
	Temporarily
Used Materials 

When
the use of materials is temporary and their service to the Joint Account does not justify the reduction in price as provided in paragraph 4.2(d)(ii), such materials shall be priced on a basis
that will leave a net charge to the Joint Account consistent with the value of the service rendered. 

	4.3
	Use
of JV Property. 

Materials
charged to the Joint Account and used other than for the JV Activities or Sole Risk Operations, if applicable, by any of the Parties, their affiliates, or a third party shall be subject to
approval by the Committee. The user shall be billed by the Operator at rates not in excess of fair market value determined in the same manner as provided in paragraph 3.6 for exclusively owned
equipment and facilities. The cost of repairing damage sustained to such items arising out of or in the course of such use will be charged to the user, provided that if the cost of repairing such
damage is recoverable from insurers, or underwriters, the amount recovered should be credited to the user who would otherwise be liable under this paragraph 4.3. The Operator shall promptly
credit the Joint Account upon receipt of the proceeds received for such usage. 

44

 

	5
	INVENTORIES

	5.1
	Periodic
Inventories, Notice and Presentation

	(a)
	At
reasonable intervals inventories shall be taken by the Operator of the JV Activities warehouse stocks and materials which are ordinarily considered controllable by operators of
oil and gas properties. Once every year an inventory shall be taken by the Operator of the fixed assets of the JV Property. The cost of such inventories shall be charged to the Joint Account.

	(b)
	Written
notice of the intention to take an inventory shall be given by the Operator at least 30 days before any inventory is to begin so that Parties may be represented when
any inventory is taken. Failure of a Party to be represented at an inventory shall bind that Party to accept the inventory taken by the Operator, who shall in that event furnish that Party with a copy
thereof. 

	5.2
	Reconciliation
and Adjustment of Inventories 

Reconciliation
of an inventory with charges to the Joint Account shall be made and a list of overages and shortages shall be determined by the Operator. Inventory adjustment shall be made by the
Operator to the Joint Account for overages and shortages, but the Operator shall be held accountable to the Parties only for shortages due to lack of reasonable diligence. Details of inventory on hand
shall be provided to any Party upon request and costs associated with providing this information shall be a charge to the Party. 

	5.3
	Special
Inventories 

Special
inventories may be taken, at the expense of the requesting Party, whenever there is any sale or change of Percentage Interest in the JV Activities or part thereof and it shall (subject to the
Agreement) be the duty of the party, assigning to notify all other Parties hereto as quickly as possible that the transfer of interest is to take place. In such cases, both the assignor and the
assignee shall be represented and shall be bound by the inventory so taken. 

45

QuickLinks

EXHIBIT 10.6

INDEX

JOINT OPERATING AGREEMENT

"A" ACCOUNTING PROCEDURE INDEX

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