Document:

EXHIBIT 10.2

 

PRODUCTION
SHARING CONTRACT

 

BENGARA
II—DATED DECEMBER 4, 1997

 

1

 

PRODUCTION
SHARING CONTRACT

 

between

 

PERUSAHAAN
PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA)

and

APEX
(BENGARA-II) LTD.

 

Contract
Area: BENGARA-II BLOCK

 

INDEX

 

	
  Section

  	
   

  	
  Title

  	
   

  	
   

  
	
  I

  	
   

  	
  SCOPE AND DEFINITIONS

  	
   

  	
  3

  
	
  II

  	
   

  	
  TERM

  	
   

  	
  5

  
	
  III

  	
   

  	
  EXCLUSION OF AREAS

  	
   

  	
  5

  
	
  IV

  	
   

  	
  WORK PROGRAM AND EXPENDITURES

  	
   

  	
  6

  
	
  V

  	
   

  	
  RIGHTS AND OBLIGATIONS OF THE PARTIES

  	
   

  	
  7

  
	
  VI

  	
   

  	
  RECOVERY OF OPERATING COSTS AND HANDLING OF
  PRODUCTION

  	
   

  	
  10

  
	
  VII

  	
   

  	
  VALUATION OF CRUDE OIL

  	
   

  	
  13

  
	
  VIII

  	
   

  	
  COMPENSATION, ASSISTANCE & PRODUCTION
  BONUS

  	
   

  	
  14

  
	
  IX

  	
   

  	
  PAYMENTS

  	
   

  	
  15

  
	
  X

  	
   

  	
  TITLE TO EQUIPMENT

  	
   

  	
  15

  
	
  XI

  	
   

  	
  CONSULTATION AND ARBITRATION

  	
   

  	
  15

  
	
  XII

  	
   

  	
  EMPLOYMENT & TRA1NING OF INDONESIAN
  PERSONNEL

  	
   

  	
  16

  
	
  XIII

  	
   

  	
  TERMINATION

  	
   

  	
  16

  
	
  XIV

  	
   

  	
  BOOKS, ACCOUNTS, AND AUDITS

  	
   

  	
  16

  
	
  XV

  	
   

  	
  OTHER PROVISIONS

  	
   

  	
  17

  
	
  XVI

  	
   

  	
  PARTICIPATION

  	
   

  	
  18

  
	
  XVII

  	
   

  	
  EFFECTIVENESS

  	
   

  	
  19

  
	
  EXHIBITS

  	
   

  	
   

  
	
  EXHIBIT “A” DESCRIPTION OF CONTRACT AREA

  	
   

  	
  35

  
	
  EXHIBIT “B” MAP OF CONTRACT AREA

  	
   

  	
  35

  
	
  EXHIBIT “C” ACCOUNTING PROCEDURE

  	
   

  	
  35

  
	
  EXHIBIT “D” MEMORANDUM ON PARTICIPATION

  	
   

  	
  35

  

 

2

 

PRODUCTION
SHARING CONTRACT

 

between

 

PERUSAHAAN
PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA)

and

APEX
(BENGARA-II) LTD.

 

THIS CONTRACT, made and entered on this 4th
day of December 1997, 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 (BENGARA-II)
LTD., a corporation organized and existing under the laws of the 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 in and throughout the area described in
Exhibit “A” and outlined on the map which is Exhibit “B”, both attached hereto
and made 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 desires to join and assist
PERTAMINA in accelerating the exploration mad development of the potential
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, 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 foreign capital investors.

 

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

 

SECTION
1

 

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 operations in accordance with the provisions of this Contract, and is
hereby appointed and constituted the exclusive company to conduct Petroleum
Operations.

 

CONTRACTOR shall provide all the financial
and technical assistance required 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 as Exhibit “C” 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 achieved in the conduct of such operations shall be divided in
accordance with the provisions of Section VI hereof.

 

3

 

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 same 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 of at least fifty percent (50%) of (a) the voting stock, if
the other company 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 equal to forty-two (42) United States gallons
at the temperature of sixty (60) 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 Unit 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 months commencing with January 1 and
ending on the following December 31, according to the Gregorian Calendar.

 

1.2.6            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 a part hereof.

 

1.2.7            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 an
anniversary of such Effective Date.

 

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.

 

1.2.10         Force
Majeure means delays or defaults 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, storms,
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 Government of 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, casinghead 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 mineral 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.

 

4

 

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, 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 thereof, no Petroleum is discovered in commercial quantities in the
Contract Area, then without prejudice to Section XII1 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 thereof, which in the judgment of PERTAMINA
and CONTRACTOR can be produced commercially, based on consideration of all
pertinent operating 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.

 

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 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 nine hundred seventy (970) square kilometers, or twenty percent
(20%) of the original total Contract Area, whichever is less.

 

3.4           CONTRACTOR’s
obligation 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
relinquishments as set forth in clauses 3.1, 3.2 and 3.3 above, the Parties
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 years submit an exploration program, PERTAMINA
may by written notice to CONTRACTOR require them 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 Area, and such portion
shall then be credited against 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 relinquishments, CONTRACTOR mid
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 portions shall each be of sufficient size and
convenient shape to enable Petroleum Operations to be conducted thereon.

 

5

 

SECTION
IV

 

WORK
PROGRAM AND EXPENDITURES

 

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

 

4.2           The
amount to be spent and the Work Program to be carried out by the CONTRACTOR in
conducting exploration operations pursuant to the terms of this Contract during
the first six (6) Contract Years and in conducting Petroleum Operations
pursuant to the terms of this Contract during the next four (4) Contract Years
following the Effective Date shall in the aggregate be not less than hereafter
specified for each of these ten (10) Contract Years as follows:

 

	
  Contract

  Year

  	
   

  	
  Program

  	
   

  	
  Amount

  	
   

  
	
  First

  	
   

  	
  G&G
  Studies

  	
   

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

  	
   

  
	
  Second

  	
   

  	
  Seismic
  Reprocessing

  	
   

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

  	
   

  
	
  Third

  	
   

  	
  Drill Two
  Wells

  	
   

  	
  Six Million
  United States Dollars (US$6,000,000)

  	
   

  
	
  Fourth

  	
   

  	
  G&G
  Studies

  	
   

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

  	
   

  
	
  Fifth

  	
   

  	
  Drill One
  Well

  	
   

  	
  Five Million
  United States Dollars (US$5,000,000)

  	
   

  
	
  Sixth

  	
   

  	
  Shoot 300Mn
  Seismic

  	
   

  	
  Three
  Million Seven Hundred Fifty Thousand United States Dollars (US$3,750,000)

  	
   

  
	
  Seventh

  	
   

  	
  Drill One
  Well

  	
   

  	
  Five Million
  Two Hundred Fifty Thousand United States Dollars (US$5,250,000)

  	
   

  
	
  Eighth

  	
   

  	
  Evaluate
  Well Results

  	
   

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

  	
   

  
	
  Ninth

  	
   

  	
  G&G
  Studies

  	
   

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

  	
   

  
	
  Tenth

  	
   

  	
  G&G
  Studies

  	
   

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

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
  Twenty Five
  Million United States Dollars (US$25,000,000)

  	
   

  

 

CONTRACTOR shall carry out Petroleum
Operations during the first three (3) Contract Years, during which period
CONTRACTOR shall spend at least Seven Million United States Dollars (US$
7,000,000), 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 may otherwise be mutually agreed to 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.

 

4.4           Should
PERTAMINA wish to propose a revision as to certain specific features of said
Work Program and Budget of Operating 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 therein.

 

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 emergency or extraordinary
circumstances requiring immediate action, either Party may take all actions it
deems proper or advisable to protect their interests and those of their
respective employees and any cost so incurred shall be included in the
Operating Costs.

 

6

 

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 clauses 5.2.6 and 5.2.7,

 

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
services 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;

 

(c)           after
the Contract expiration or termination, or relinquishment of part of the
Contract Area, or abandonment of any field, remove from the area all equipment
and installations brought to the area by CONTRACTOR in a manner acceptable to
PERTAMINA, and perform all necessary site restoration activities in relation to
CONTRACTOR’s Petroleum Operations in accordance with the applicable Government
regulations to prevent hazards to human life and property of others or
environment to the extent caused by or arising from CONTRACTOR’s Petroleum
Operations; provided however, if PERTAMINA or any third party designated by
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 in respect 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 the CONTRACTOR in the abandonment of all
such wells and restoration of their drillsites 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 that one Technical Assistance Contract or
Production Sharing Contract at any given time;

 

7

 

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
that one Technical Assistance Contract or Production Sharing Contract at any
given time; except during the first three (3) Contract Years CONTRACTOR shall
hold a 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 caused to be
brought into Indonesia, and be entitled to freely remove 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;

 

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 for Indonesia 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 it 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 the Contract Area by a fraction,
the numerator of” which is the total quantity of Crude Oil to be supplied and
the denominator of which is the entire Indonesian production of Crude Oil of
all petroleum companies; and

 

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

 

(c)                                  multiply
the lowest quantity of Crude Oil computed either in accordance with paragraphs
(a) or (b) above by the percentage of CONTRACTOR’s entitlement as applicable
under clause 6.1.3 hereof, from the Crude Oil remaining after deducting
Operating Costs.

 

The quantity of Crude Oil computed under
paragraph (c.) above shall be the maximum 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 exceeds 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 fifteen (15%) percent 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 delivery, but upon
request from PERTAMINA, shall assist in arranging transportation and such
assistance provided shall be without cost or risk to CONTRACTOR.

 

8

 

Notwithstanding the foregoing, for a period
of five (5) consecutive Years (meaning 60 consecutive calendar months) starting
the month of the first delivery of Crude Oil produced and saved from each new
field in the Contract Area, the fee per barrel for the quantity of Crude Oil
supplied to the Indonesian domestic market from each such new field shall be
equal to the price determined in accordance with Section VII hereof for Crude
Oil from such field taken for the recovery of Operating Costs. The proceeds in
excess of those arising due to the aforesaid fifteen percent (15%) 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 practice, 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;

 

5.2.17      severally,
be subject to and pay to the Government of the Republic of Indonesia the Income
Tax and the final tax on profit after tax deduction imposed on it pursuant to
the 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.
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 termination of this Contract.

 

5.3           PERTAMINA
shall:

 

5.3.1        have
and be responsible for the management of the operations 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 income tax and the final tax on
profit after tax deduction as set forth in clause 5.2.17 herein above, assume
and discharge other Indonesian taxes of CONTRACTOR including value added tax
(VAT), 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 and the final tax on profit after tax deduction, nor
taxes on tobaccos, liquor and personal 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 deliver), 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 CONTRACTOR only out of PERTAMINA’s share of
production within sixty (60) days after receipt of invoice therefore. 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 approved 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

 

9

 

the funds provided therefore shall be included in the Operating Costs.
Such reimbursement will be made in United States Dollars computed at the rate
of exchange at the time of conversion.

 

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) for the purpose of enabling
PERTAMINA to meet Rupiah expenditures incurred pursuant to this paragraph.

 

If at any time during the annual Work Program
period the minimum amount advanced under this paragraph has been fully
expended, separate additional advance payments as may be necessary to provide
for 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 paragraph for the succeeding annual Work Program period;

 

5.3.4        ensure
that at all times during the term 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
and further provided that CONTRACTOR may retain copies of such data, which
should not be disclosed to any third party without PERTAMINA’s consent pursuant
to clause 5.2.19; and

 

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 Petroleum Operations envisaged under this Contract and
if PERTAMINA wishes to use such equipment for any alternative purpose, then
PERTAMINA shall first consult CONTRACTOR.

 

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 provisions 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 the purpose 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, Operating Costs exceed the value of Crude Oil produced and saved
hereunder and not used in Petroleum Operations, then the unrecovered excess
shall be recovered in the succeeding years.

 

6.1.3        Of
the Crude Oil remaining after deducting Operating Costs:

 

(a)           If
the first Crude Oil production of this Contract Area is from a Marginal Field
as described herein below, for such Crude Oil production the Parties shall be
entitled to take and receive each Year, respectively, sixty four point two
eight five seven percent (64.2857%) for PERTAMINA and thirty five point seven
one four three percent (35.7143%) for CONTRACTOR over the life of such field.

 

A Marginal Field is the first field of the
Contract Area proposed for development and approved by PERTAMINA, capable of
Crude Oil production not exceeding ten thousand (10,000) Barrels daily

 

10

 

average projected for the initial two (2)
producing years (24 consecutive producing months). Marginal Field production
represents a separate segment from the others.

 

(b)           For
Crude Oil production as a result of Tertiary Recovery EOR projects, the Parties
shall be entitled to take and receive each Year, respectively, sixty four point
two eight five seven percent (64.2857%) for PERTAMINA and thirty five point
seven one four three percent (35.7143%) for CONTRACTOR.

 

Tertiary Recovery EOR production represents a
separate segment from the others.

 

(e)           For
Crude Oil production from pre-Tertiary reservoir rocks the Parties shall be
entitled to take and receive each Year as follows:

 

(i)            PERTAMINA
sixty four point two eight five seven percent (64.2857%) and CONTRACTOR thirty
five point seven one four three percent (35.7143%) for the segment of zero (0)
to fifty thousand (50,000) Barrels daily average of all of such pre-Tertiary
production of the Contract Area for the Calendar Year;

 

(ii)           PERTAMINA
seventy three point two one four three percent (73.2143%) and CONTRACTOR twenty
six point seven eight five seven percent (26.7857%) for the segment of fifty
thousand and one (50,001) to one hundred fifty thousand (150,000) Barrels daily
average of all of such pre-Tertiary production of the Contract Area for the
Calendar Year;

 

(iii)          PERTAMINA
eighty two point one four two nine percent (82.1429%) and CONTRACTOR seventeen
point eight five seven one percent (17.8571%) for the segment of more than one
hundred fifty thousand (150,000) Barrels daily average of all of such pre-Tertiary
production of the Contract Area for the Calendar Year.

 

Pre-Tertiary, reservoir rocks means petroleum
reservoir rocks deposited or formed in pre-Tertiary times.

 

(d)           For
Crude Oil production from the Contract Area other than those segments described
in paragraphs (a), (b) and (c) herein above, PERTAMINA shall be entitled to
take and receive each Year seventy three point two one four three percent
(73.2143%) and CONTRACTOR twenty six point seven eight five seven percent
(26.7857%) of Crude Oil production from the Contract Area for the Calendar
Year. Such production represents a separate segment from the others.

 

Each of the above segments represents a
separate production segment From the others.

 

The deduction of investment credit and
Operating Costs, before the entitlements are taken by each respective Party as
provided herein above clause 6.1.3, shall be subject to the following pro-ration
method: For each Calendar Year, the recoverable investment credits and
Operating Costs shall be apportioned for deduction from the production of each
of the segments as herein above defined, at the same ratios as the production
from each such segment from the total production of such Year.

 

In the event that Crude Oil production from a
field qualifies for more than one of the definitions set out in paragraphs (a),
(b) and (c) of this clause 6.I.3, CONTRACTOR shall have the option to elect
which of the paragraphs above shall be applied. Such election when made shall
not be changed.

 

6.1.4        Title
to CONTRACTOR’s portion of Crude Oil under clauses 6.1.3 and 6.1.7 and clause
6.3.1 as well as to such portion of Crude Oil exported and sold to recover
Operating Costs and the investment credit provided for in clause 6.1.7 shall
pass to CONTRACTOR at the Point of Export, or, in the case of oil delivered to
PERTAMINA pursuant to clause 5.2.15 or otherwise, at the point of delivery.

 

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

 

11

 

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.

 

6.1.7

 

(a)           CONTRACTOR
may recover an investment credit amounting to fifteen point seven eight zero
zero percent (15.7800%) of the capital investment costs directly required for
developing Crude Oil production facilities as provided under clause 2.3.3 of
Exhibit “C” hereof, of a new field, producing from Tertiary reservoir rock, out
of deduction from gross production before recovering Operating Costs,
commencing in the earliest production Year or Years before tax deduction (to be
paid in advance in such Production Year when taken).

 

(b)           CONTRACTOR
may recover an investment credit amounting to one hundred two point one four
zero zero percent (102.1400%) of the capital investment costs directly required
for developing Crude Oil production facilities as provided under Article 2.3.3
of Exhibit “C” hereof, of a new field, producing from pre-Tertiary reservoir
rock, out of deduction from gross production before recovering Operating Costs,
commencing in the earliest production Year or Years before tax deduction (to be
paid in advance in such Production Year when taken).

 

The investment credits referred to in
paragraphs (a) and (b) above may be applied to new secondary recovery and
tertiary recovery EOR projects but are not applicable to any interim production
schemes nor further investments to enhance production and reservoir drainage in
excess of what was contemplated in the original development program as approved
by PERTAMINA.

 

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 or 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 repressing and recycling.

 

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”; PERTAMINA shall be
entitled to take and receive thirty seven point five zero zero zero percent
(37.5000%) and CONTRACTOR shall be entitled to take and receive sixty two point
five zero zero zero percent (62.5000%);

 

6.2.3        CONTRACTOR
may recover an investment credit amounting to one hundred two point one four
zero zero percent (102.1400%) of the capital investment costs directly required
for developing Natural Gas production facilities as provided under clause 2.3.3
of Exhibit “C” hereof of a new field, producing from pre-Tertiary reservoir
rocks, out of deduction from gross production before recovering Operating
Costs, commencing in the earliest production Year or Years before tax deduction
(to be paid in advance in such production Year when taken).

 

12

 

6.2.4        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 risk 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 Twenty Percent (20%) of the Petroleum production for each such Year, called
the “First Tranche Petroleum”, before rely deduction for recovery of Operating
Costs and handling of production as provided herein under this Section VI.

 

6.3.2        Such
First Tranche Petroleum for each Calendar Year shall further be shared for
Crude Oil between PERTAMINA and CONTRACTOR in accordance with the sharing
splits provided under clause 6.1.3, by apportioning it as applicable, to the
respective production segments as herein above defined, at the same ratios as
the production from each such segment over the total production of the Year.

 

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 herein above in clauses
7.1.1 and 7.1.2 are made.

 

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 herein above, except CONTRACTOR’s share 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 (451) 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 VI 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 to CONTRACTOR at least thirty (30)
days prior to lifting said Crude Oil. Such lifting must not interfere with
scheduled tanker movements. PERTAMINA shall account to CONTRACTOR in respect of
any sale made by it hereunder.

 

13

 

7.1.7        PERTAMINA
shall have the option, in any Year in which the quantity of Crude Oil to which
it is entitled pursuant to clause 6.1.3 and clause 6.3.1 hereof is less than
fifty percent (50%) of the total 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 Crude Oil which together with PERTAMINA’s entitlement under clause
6.1.3 and clause 6.3.1 equals fifty percent (50%) of the total Crude Oil
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 such
Crude Oil shall be valued 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 is purchasers with whom (at the time
sale is made) CONTRACTOR has no contractual interest involving directly or
indirectly any joint interest.

 

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 Crude Oil to be
produced, of internal consumption in Indonesia, of marketing possibilities, of
prices and other sale conditions as well as of any other relevant factors.
Within thirty (30) days after the end of the said given Year, adjustments 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 a given Year shall contribute to:

 

(a)           the
“required quantity” destined in such Year to the recovery of all Operating
Costs and investment credit pursuant to clauses 6.1.2 and 6.1.7 hereof;

 

(b)           the
“required quantity” of Crude Oil to which a Party is entitled in such Year
pursuant to clause 6.1.3 and clause 6.3.1 hereof;

 

(e)           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 it is entitled pursuant to
clause 6.1.3 and clause 6.3.1;

 

with quantities, each of which shall bear to
the respective “required quantity” referred to in paragraphs (a), (b) and (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 Fifty Thousand United States Dollars (US$ 250,000) after
approval of this Contract by the Government

 

14

 

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).

 

CONTRACTOR shall pay to PERTAMINA the sum of One Million Five Hundred
Thousand United States Dollars (US$ 1,500,000) within thirty (30) days after
cumulative Crude Oil production from the Contract Area has reached sixty
million (60,000,000) Barrels of Oil Equivalent (BOE).

 

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 one hundred
million (100,000,000) Barrels of Oil Equivalent (BOE).

 

8.4           Such
compensation, assistance and production bonuses shall be borne solely 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 Dollar
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, unless otherwise
specified, 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.

 

I0.2          The
provisions of clause 10.1 above shall not apply to leased equipment belonging
to third parties who perform services as a contractor, such 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.

 

11.2         Disputes,
if any, arising between PERTAMINA and CONTRACTOR relating to this Contract or
the interpretation and performance of any of the clauses or 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

 

15

 

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 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 in operations 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 on a basis to be agreed by PERTAMINA and
CONTRACTOR.

 

SECTION
XIII

 

TERMINATION

 

13.1         This
Contract cannot be terminated during the first three (3) years as from the
Effective Date, except by Provisions as stipulated in clause 13.3 hereunder.

 

13.2         At
any time following the end of the third 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.

 

13.3         If
during the first three (3) Contract Years, CONTRACTOR has not completed the
Work Program and 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         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 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, 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 modem petroleum industry practices and
proceedings as described in Exhibit “C” attached hereto. Until such time that
commercial production commences, however, PERTAMINA hereby delegates to
CONTRACTOR its obligations to keep books and accounts. Should there be any
inconsistency between the provisions of this Contract and the provisions of
Exhibit “C”, then the provisions of clause 6.1.2 of this Contract shall
prevail.

 

16

 

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 one (1) 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 fight 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 sixty (60) days
  following the completion of such audits.

  

 

	
   

  	
   

  	
  In addition, PERTAMINA and the Government of the Republic of
  Indonesia may require CONTRACTOR to engage independent accountants to
  examine, in accordance with generally accepted auditing standards,
  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 including any
  exceptions shall be forwarded to PERTAMINA and CONTRACTOR 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.

   

  

 

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. Either party may substitute or change such
address on written notice thereof to the other. 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 (BENGARA-II) LTD.

WISMA INDOCEMENT 6th Floor

JL. JENDRAL SUDIRMAN

Jakarta, INDONESIA

Attn: President and Chief Executive Officer

 

	
  FAX:

  	
  62-21-251-0220

  
	
  PHONE:

  	
  62-21-570-3778

  

 

15.2         LAWS
AND REGULATIONS:

 

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

 

15.2.2      No
term or provision 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 for exercising its inalienable rights.

 

17

 

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 herein under 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 so affected shall notify the
other Party thereof in writing, stating the cause, and the 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 products derived from the Petroleum Operations hereunder, on
mutually agreeable terms.

 

15.4.2      Within
the framework of the preceding principle, CONTRACTOR would agree on the
conditions stated below to have refined in Indonesia twenty eight point five
seven percent (28.57%) of CONTRACTOR’S share of Crude Oil to which it is
entitled pursuant to clauses 6.1.3 and 6.3.1 of 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
share of Crude Oil pursuant to clause 6.1.3 and clause 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 ten percent (10%) of
CONTRACTOR’s 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 the 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
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.

 

18

 

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.

 

16.6         For
the acquisition of such 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 the 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 (31) months after the date of its acceptance of CONTRACTOR’s offer
referred to in clause 16.3 herein above, to CONTRACTOR’s account with the
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 (50) percent 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 set forth in the preceding clause 16.1
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 in clauses 16.7.1 or 16.7.2 above.

 

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.

 

19

 

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

  	
   

  	
   

  
	
  MINYAK DAN GAS BUMI NEGARA 

  	
   

  	
   

  
	
  (PERTAMINA)

  	
   

  	
  APEX (BENGARA-II) LTD.

  
	
   

  	
   

  	
   

  
	
  «Signed
  by F. Abdoue»

  	
   

  	
  «Signed
  by Richard L. McAdoo»

  
	
  President Director and Chief Executive
  Officer

  	
   

  	
  Director

  

 

APPROVED BY THE MINISTER OF
MINES AND ENERGY

 

This ‹4th› day of «December» ,1997 on behalf of the

 

GOVERNMENT OF THE REPUBLIC OF
INDONESIA.

 

«Signed by
His Excellency LB. Sudjana»

 

20

 

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;

 

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

 

21

 

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;

 

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.

 

22

 

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

 

23

 

SECTION
V

 

RIGHTS
AND OBLIGATIONS OF THE PARTIES

 

	
  5.1 

  	
  Subject to the provisions of clauses 5.2.6
  and 5.2.7, 

  
	
   

  	
   

  
	
  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 services 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;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  after the Contract expiration or
  termination, or relinquishment of part of the Contract Area, or abandonment
  of any field, remove from the area all equipment and installations brought to
  the area by CONTRACTOR in a manner acceptable to PERTAMINA, and perform all
  necessary site restoration activities in relation to CONTRACTOR’s Petroleum
  Operations in accordance with the applicable Government regulations to
  prevent hazards to human life and property of others or environment to the
  extent caused by or arising from CONTRACTOR’s Petroleum Operations; provided
  however, if PERTAMINA or any third party designated by 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 in respect 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
  the CONTRACTOR in the abandonment of all such wells and restoration of their
  drillsites 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 that 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 that one Technical Assistance Contract or
  Production Sharing Contract at any given time; except during the first three
  (3) Contract Years CONTRACTOR shall hold a 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 caused to be brought into Indonesia, and be
  entitled to freely remove 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

  

 

24

 

	
   

  	
   

  	
  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;

  
	
   

  	
   

  	
   

  
	
   

  	
  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 for
  Indonesia 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 it 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 the Contract Area by a fraction, the numerator of” which is the
  total quantity of Crude Oil to be supplied and the denominator of which is
  the entire Indonesian production of Crude Oil of all petroleum companies; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

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

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  multiply the lowest quantity of Crude Oil
  computed either in accordance with paragraphs (a) or (b) above by the
  percentage of CONTRACTOR’s entitlement as applicable under clause 6.1.3
  hereof, from the Crude Oil remaining after deducting Operating Costs.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The quantity of Crude Oil computed under
  paragraph (c.) above shall be the maximum 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 exceeds 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 fifteen (15%) percent 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 delivery, but upon
  request from PERTAMINA, shall assist in arranging transportation and such
  assistance provided shall be without cost or risk to CONTRACTOR.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notwithstanding the foregoing, for a period
  of five (5) consecutive Years (meaning 60 consecutive calendar months)
  starting the month of the first delivery of Crude Oil produced and saved from
  each new field in the Contract Area, the fee per barrel for the quantity of
  Crude Oil supplied to the Indonesian domestic market from each such new field
  shall be equal to the price determined in accordance with Section VII hereof
  for Crude Oil from such field taken for the recovery of Operating Costs. The
  proceeds in excess of those arising due to the aforesaid fifteen percent
  (15%) 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 practice, 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;

  
	
   

  	
   

  	
   

  
	
   

  	
  5.2.17

  	
  severally, be subject to and pay to the
  Government of the Republic of Indonesia the Income Tax and the final tax on
  profit after tax deduction imposed on it pursuant to the 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. 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
  termination of this Contract.

  
	
   

  	
   

  	
   

  
	
  5.3 

  	
  PERTAMINA shall:

  
	
   

  	
   

  
	
   

  	
  5.3.1

  	
  have and be responsible for the management
  of the operations 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 income tax and the final tax on profit after tax

  

 

25

 

	
   

  	
   

  	
  deduction as set forth in clause 5.2.17
  herein above, assume and discharge other Indonesian taxes of CONTRACTOR
  including value added tax (VAT), 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 and the final tax on profit after tax deduction, nor
  taxes on tobaccos, liquor and personal 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 deliver), 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 CONTRACTOR only out of PERTAMINA’s share
  of production within sixty (60) days after receipt of invoice therefore.
  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 approved 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 the
  funds provided therefore shall be included in the Operating Costs. Such
  reimbursement will be made in United States Dollars computed at the rate of
  exchange at the time of conversion.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  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) for the purpose of enabling
  PERTAMINA to meet Rupiah expenditures incurred pursuant to this paragraph.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If at any time during the annual Work
  Program period the minimum amount advanced under this paragraph has been
  fully expended, separate additional advance payments as may be necessary to
  provide for 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 paragraph for the succeeding annual
  Work Program period;

  
	
   

  	
   

  	
   

  
	
   

  	
  5.3.4

  	
  ensure that at all times during the term
  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 and further provided
  that CONTRACTOR may retain copies of such data, which should not be disclosed
  to any third party without PERTAMINA’s consent pursuant to clause 5.2.19; and

  
	
   

  	
   

  	
   

  
	
   

  	
  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 Petroleum
  Operations envisaged under this Contract and if PERTAMINA wishes to use such
  equipment for any alternative purpose, then PERTAMINA shall first consult
  CONTRACTOR.

  

 

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 provisions 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

  

 

26

 

	
   

  	
   

  	
  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 the purpose 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,
  Operating Costs exceed the value of Crude Oil produced and saved hereunder
  and not used in Petroleum Operations, then the unrecovered excess shall be
  recovered in the succeeding years.

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1.3

  	
  Of the Crude Oil remaining after deducting
  Operating Costs:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  If the first Crude Oil production of this
  Contract Area is from a Marginal Field as described herein below, for such
  Crude Oil production the Parties shall be entitled to take and receive each
  Year, respectively, sixty four point two eight five seven percent (64.2857%)
  for PERTAMINA and thirty five point seven one four three percent (35.7143%)
  for CONTRACTOR over the life of such field.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  A Marginal Field is the first field of the
  Contract Area proposed for development and approved by PERTAMINA, capable of
  Crude Oil production not exceeding ten thousand (10,000) Barrels daily
  average projected for the initial two (2) producing years (24 consecutive
  producing months). Marginal Field production represents a separate segment
  from the others.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  For Crude Oil production as a result of
  Tertiary Recovery EOR projects, the Parties shall be entitled to take and
  receive each Year, respectively, sixty four point two eight five seven
  percent (64.2857%) for PERTAMINA and thirty five point seven one four three
  percent (35.7143%) for CONTRACTOR.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Tertiary Recovery EOR production represents
  a separate segment from the others.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  For Crude Oil production from pre-Tertiary
  reservoir rocks the Parties shall be entitled to take and receive each Year
  as follows:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  PERTAMINA sixty four point two eight five
  seven percent (64.2857%) and CONTRACTOR thirty five point seven one four
  three percent (35.7143%) for the segment of zero (0) to fifty thousand
  (50,000) Barrels daily average of all of such pre-Tertiary production of the
  Contract Area for the Calendar Year;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  PERTAMINA seventy three point two one four
  three percent (73.2143%) and CONTRACTOR twenty six point seven eight five
  seven percent (26.7857%) for the segment of fifty thousand and one (50,001)
  to one hundred fifty thousand (150,000) Barrels daily average of all of such
  pre-Tertiary production of the Contract Area for the Calendar Year;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
  PERTAMINA eighty two point one four two
  nine percent (82.1429%) and CONTRACTOR seventeen point eight five seven one
  percent (17.8571%) for the segment of more than one hundred fifty thousand
  (150,000) Barrels daily average of all of such pre-Tertiary production of the
  Contract Area for the Calendar Year. 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Pre-Tertiary, reservoir rocks means
  petroleum reservoir rocks deposited or formed in pre-Tertiary times.

  
	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  For Crude Oil production from the Contract
  Area other than those segments described in paragraphs (a), (b) and (c)
  herein above, PERTAMINA shall be entitled to take and receive each Year
  seventy three point two one four three percent (73.2143%) and CONTRACTOR
  twenty six point seven eight five seven percent (26.7857%) of Crude Oil
  production from the Contract Area for the Calendar Year. Such production
  represents a separate segment from the others.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Each of the above segments represents a
  separate production segment From the others.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  The deduction of investment credit and
  Operating Costs, before the entitlements are taken by each respective Party
  as provided herein above clause 6.1.3, shall be subject to the following pro-ration
  method: For each Calendar Year, the recoverable investment credits and Operating
  Costs shall be apportioned for deduction from the production of each of the
  segments as herein above defined, at the same ratios as the production from
  each such segment from the total production of such Year.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  In the event that Crude Oil production from
  a field qualifies for more than one of the definitions set out in paragraphs
  (a), (b) and (c) of this clause 6.I.3, CONTRACTOR shall have the option to
  elect which of the paragraphs above shall be applied. Such election when made
  shall not be changed.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1.4

  	
  Title to CONTRACTOR’s portion of Crude Oil
  under clauses 6.1.3 and 6.1.7 and clause 6.3.1 as well as to such portion of
  Crude Oil exported and sold to recover Operating Costs and the investment
  credit provided for in clause 6.1.7 shall pass to CONTRACTOR at the Point of
  Export, or, in the case of oil delivered to PERTAMINA pursuant to clause
  5.2.15 or otherwise, at the point of delivery.

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1.5

  	
  CONTRACTOR will use its best reasonable
  efforts to market such 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

  

 

27

 

	
   

  	
   

  	
  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.

  
	
   

  	
  6.1.7

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  CONTRACTOR may recover an investment credit
  amounting to fifteen point seven eight zero zero percent (15.7800%) of the
  capital investment costs directly required for developing Crude Oil
  production facilities as provided under clause 2.3.3 of Exhibit “C” hereof,
  of a new field, producing from Tertiary reservoir rock, out of deduction from
  gross production before recovering Operating Costs, commencing in the
  earliest production Year or Years before tax deduction (to be paid in advance
  in such Production Year when taken).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  CONTRACTOR may recover an investment credit
  amounting to one hundred two point one four zero zero percent (102.1400%) of
  the capital investment costs directly required for developing Crude Oil
  production facilities as provided under Article 2.3.3 of Exhibit “C” hereof,
  of a new field, producing from pre-Tertiary reservoir rock, out of deduction
  from gross production before recovering Operating Costs, commencing in the
  earliest production Year or Years before tax deduction (to be paid in advance
  in such Production Year when taken).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  The investment credits referred to in
  paragraphs (a) and (b) above may be applied to new secondary recovery and
  tertiary recovery EOR projects but are not applicable to any interim
  production schemes nor further investments to enhance production and
  reservoir drainage in excess of what was contemplated in the original
  development program as approved by PERTAMINA.

  
	
   

  	
   

  
	
  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 or 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 repressing and recycling.

  
	
   

  	
   

  	
   

  
	
   

  	
  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”; PERTAMINA shall be
  entitled to take and receive thirty seven point five zero zero zero percent
  (37.5000%) and CONTRACTOR shall be entitled to take and receive sixty two
  point five zero zero zero percent (62.5000%);

  
	
   

  	
   

  	
   

  
	
   

  	
  6.2.3

  	
  CONTRACTOR may recover an investment credit
  amounting to one hundred two point one four zero zero percent (102.1400%) of
  the capital investment costs directly required for developing Natural Gas
  production facilities as provided under clause 2.3.3 of Exhibit “C” hereof of
  a new field, producing from pre-Tertiary reservoir rocks, out of deduction
  from gross production before recovering Operating Costs, commencing in the
  earliest production Year or Years before tax deduction (to be paid in advance
  in such production Year when taken).

  
	
   

  	
   

  	
   

  
	
   

  	
  6.2.4

  	
  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 risk 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 Twenty Percent (20%) of
  the Petroleum production for each such Year, called the “First Tranche Petroleum”,
  before rely deduction for recovery of Operating Costs and handling of
  production as provided herein under this Section VI.

  
	
   

  	
   

  	
   

  
	
   

  	
  6.3.2

  	
  Such First Tranche Petroleum for each
  Calendar Year shall further be shared for Crude Oil between PERTAMINA and CONTRACTOR
  in accordance with the sharing splits provided under clause 6.1.3, by
  apportioning it as applicable, to the respective production segments as
  herein above defined, at the same ratios as the production from each such
  segment over the total production of the Year.

  
	
   

  	
   

  	
   

  
	
   

  	
  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.

  

 

28

 

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 herein above in clauses 7.1.1 and 7.1.2 are made.

  
	
   

  	
   

  	
   

  
	
   

  	
  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 herein above, except
  CONTRACTOR’s share 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 (451) 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 VI 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 to CONTRACTOR at least thirty (30) days prior to lifting
  said Crude Oil. Such lifting must not interfere with 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 Crude Oil to which it is entitled pursuant to
  clause 6.1.3 and clause 6.3.1 hereof is less than fifty percent (50%) of the
  total 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 Crude Oil which
  together with PERTAMINA’s entitlement under clause 6.1.3 and clause 6.3.1
  equals fifty percent (50%) of the total Crude Oil 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 such Crude Oil shall be valued 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 is purchasers with whom (at the time sale is made)
  CONTRACTOR has no contractual interest involving directly or indirectly any
  joint interest.

  
	
   

  	
   

  
	
  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 Crude Oil to be produced, of internal consumption
  in Indonesia, of marketing possibilities, of prices and other sale conditions
  as well as of any other relevant factors. Within thirty (30) days after the end
  of the said given Year, adjustments 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

  

 

29

 

	
   

  	
  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 a
  given Year shall contribute to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  the “required quantity” destined in such
  Year to the recovery of all Operating Costs and investment credit pursuant to
  clauses 6.1.2 and 6.1.7 hereof;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  the “required quantity” of Crude Oil to
  which a Party is entitled in such Year pursuant to clause 6.1.3 and clause
  6.3.1 hereof;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  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 it is entitled pursuant to clause 6.1.3 and clause 6.3.1;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with quantities, each of which shall bear
  to the respective “required quantity” referred to in paragraphs (a), (b) and
  (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
  Fifty Thousand United States Dollars (US$ 250,000) 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).

  
	
   

  	
   

  
	
   

  	
  CONTRACTOR shall pay to PERTAMINA the sum
  of One Million Five Hundred Thousand United States Dollars (US$ 1,500,000)
  within thirty (30) days after cumulative Crude Oil production from the
  Contract Area has reached sixty million (60,000,000) Barrels of Oil
  Equivalent (BOE).

  
	
   

  	
   

  
	
   

  	
  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 one hundred million (100,000,000) Barrels of Oil Equivalent
  (BOE).

  
	
   

  	
   

  
	
  8.4 

  	
  Such compensation, assistance and
  production bonuses shall be borne solely 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 Dollar 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, unless otherwise specified, 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.

  
	
   

  	
   

  
	
  I0.2 

  	
  The provisions of clause 10.1 above shall
  not apply to leased equipment belonging to third parties who perform services

  

 

30

 

	
   

  	
  as a contractor, such 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.

  
	
   

  	
   

  
	
  11.2 

  	
  Disputes, if any, arising between PERTAMINA
  and CONTRACTOR relating to this Contract or the interpretation and
  performance of any of the clauses or 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 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 in operations 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 on
  a basis to be agreed by PERTAMINA and CONTRACTOR.

  

 

SECTION
XIII

 

TERMINATION

 

	
  13.1 

  	
  This Contract cannot be terminated during
  the first three (3) years as from the Effective Date, except by Provisions as
  stipulated in clause 13.3 hereunder.

  
	
   

  	
   

  
	
  13.2 

  	
  At any time following the end of the third
  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.

  
	
   

  	
   

  
	
  13.3 

  	
  If during the first three (3) Contract
  Years, CONTRACTOR has not completed the Work Program and 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 

  	
  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 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

  

 

31

 

	
   

  	
  Subject to the requirements of clause
  5.2.17, 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 modem
  petroleum industry practices and proceedings as described in Exhibit “C”
  attached hereto. Until such time that commercial production commences,
  however, PERTAMINA hereby delegates to CONTRACTOR its obligations to keep
  books and accounts. Should there be any inconsistency between the provisions
  of this Contract and the provisions of Exhibit “C”, then the provisions of
  clause 6.1.2 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 one (1) 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 fight 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 sixty (60) days
  following the completion of such audits.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In addition, PERTAMINA and the Government
  of the Republic of Indonesia may require CONTRACTOR to engage independent
  accountants to examine, in accordance with generally accepted auditing
  standards, 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 including any exceptions shall be forwarded to PERTAMINA and
  CONTRACTOR 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.

  

 

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. Either party may substitute
  or change such address on written notice thereof to the other. 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:

  PHONE:

  	
  62-21-310-6564

  62-21-310-2101

  
	
   

  	
  APEX (BENGARA-II) LTD.

  WISMA INDOCEMENT 6th Floor

  JL. JENDRAL SUDIRMAN

  Jakarta, INDONESIA

  Attn: President and Chief Executive Officer

  
	
   

  	
  FAX:

  PHONE:

  	
  62-21-251-0220

  62-21-570-3778

  
	
   

  	
   

  	
   

  
	
  15.2 

  	
  LAWS AND REGULATIONS:

  
	
   

  	
   

  
	
   

  	
  15.2.1

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

  
	
   

  	
   

  	
   

  
	
   

  	
  15.2.2

  	
  No term or provision 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 for
  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 herein under 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 so affected shall notify the other Party thereof in writing,

  

 

32

 

	
   

  	
   

  	
  stating the cause, and the 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 products
  derived from the Petroleum Operations hereunder, on mutually agreeable terms.

  
	
   

  	
   

  	
   

  
	
   

  	
  15.4.2

  	
  Within the framework of the preceding
  principle, CONTRACTOR would agree on the conditions stated below to have
  refined in Indonesia twenty eight point five seven percent (28.57%) of
  CONTRACTOR’S share of Crude Oil to which it is entitled pursuant to clauses
  6.1.3 and 6.3.1 of 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 share of Crude Oil pursuant to
  clause 6.1.3 and clause 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 ten percent (10%) of CONTRACTOR’s 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 the 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 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.

  
	
   

  	
   

  
	
  16.6 

  	
  For the acquisition of such 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 the 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 (31) months after the
  date of its acceptance of CONTRACTOR’s offer referred to in clause 16.3
  herein above, to CONTRACTOR’s account with the 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 (50) percent 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 set forth in the preceding clause 16.1 and commencing as from the
  first sale of Petroleum produced and saved from the Contract Area.

  

 

33

 

	
  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 in clauses 16.7.1 or
  16.7.2 above.

  

 

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 (BENGARA-II) LTD.

  
	
  MINYAK DAN GAS BUMI NEGARA

  	
   

  	
   

  
	
  (PERTAMINA)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  «Signed by F. Abdoue»

  	
   

  	
  «Signed by Richard L. McAdoo»

  
	
  President Director and Chief Executive
  Officer

  	
   

  	
  Director

  

 

APPROVED BY THE MINISTER OF MINES AND ENERGY

This <4th> day of «December»
,1997 on behalf of the

GOVERNMENT OF THE REPUBLIC OF INDONESIA.

«Signed by His Excellency LB. Sudjana»

 

34

 

EXHIBIT
“A”

 

This Exhibit “A” is attached to and made an
integral part of the Contract for the Bengara-II Contract Area by and between
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX BENGARA
LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined.

 

DESCRIPTION
OF BENGARA-II CONTRACT AREA

 

The Bengara-II Contract Area is located
mostly onshore and partially offshore Kalimantan Timur and is specifically
defined and described as being the area within the polygon the perimeter of
which is defined by connecting points (~!~) located using the Geographic
Coordinate System of Latitude and Longitude expressed in Degrees (°),
Minutes (‘) and Seconds (“) as follows:

 

Beginning at a Point ~A~ at 03°
14’ 0” North, 117° 00’ 0” East ; then drawing a line East to Point
~B~ at 03° 14’ 0” North, 117°
20’ 0” East; then drawing a line South to Point ~C~ at 03°
11’ 0” North, 117° 20’ 0” East; then drawing a line East to Point
~D~ at 03° 11’ 0” North, 117°
28’ 0” East; then drawing a line South to Point ~E~ at 03°
08’ 0” North, 117° 28’ 0” East; then drawing a line East to Point
~F~ at 03° 08’ 0” North, 117°
45’ 0” East; then drawing a line South to Point ~G~ at 02°
46’ 0” North, 117° 45’ 0” East; then drawing a line East to Point
~H~ at 02° 46’ 0” North, 117°
48’ 0” East; then drawing a line South to Point ~I~ at 02°
40’ 0” North, 117° 48’ 0” East; then drawing a line West to Point
~J~ at 02° 40’ 0” North, 117°
00’ 0” East; then drawing a line North returning to Point ~A~; and thereby
defining the perimeter of the polygon known as the Bengara-II Contract Area.

 

The area described above, the Contract Area,
shall be hereby deemed to consist of approximately 4,867 square kilometers. The
Points referred to above arc represented graphically upon the map attached
hereto entitled Exhibit “B”.

 

EXHIBIT
“B”

 

This Exhibit “B” is attached to and made an
integral part of the Contract for the Bengara-II Contract Area by and between
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA & (PERTAMINA) and APEX
BENGARA LTD. (CONTRACTOR) and is dated as of the Effective Date therein
defined.

 

SKETCH MAP OF BENGARA-II
CONTRACT AREA

 

Letters (~A~) denote points the locations of
which are set forth in Exhibit “A”.

 

EXHIBIT “B”

 

EXHIBIT
“C”

 

This Exhibit “C” is attached to and made an
integral part of the Contract for the Bengara-II Contract Area by and between
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX BENGARA
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 any Party’s
  obligations under the Contract to which this Exhibit is attached. The
  definitions 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 modem
  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.

  

 

35

 

ARTICLE—II

 

OPERATING
COSTS

 

	
  2.1 

  	
  Definitions

  
	
   

  	
   

  
	
   

  	
  For any Year
  in which commercial production occurs, Operating Costs consist 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 clauses 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, utilities, and other operating activities,
  including repairs and maintenance;

  
	
   

  	
   

  	
   

  
	
   

  	
  2.2.2

  	
  Offices,
  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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Labor,
  materials and services used in drilling wells with the object of penetrating
  a proven reservoir, including the drilling of appraisal 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.

  
	
   

  	
   

  	
   

  
	
   

  	
  2.27

  	
  Training

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  2.3 

  	
  Capital
  Costs

  
	
   

  	
   

  
	
   

  	
  Capital
  Costs means 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 below, will
  be allowed as a recoverable Operating Costs for the current year. Capital
  Costs include classifications 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 welfare

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Housing,
  recreational facilities and other tangible property incidental to
  construction;

  
	
   

  	
   

  	
   

  
	
   

  	
  2.3.3

  	
  Production
  facilities

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Offshore
  platforms (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 and cost of oil jetties and anchorages, treating plants
  and equipment, secondary 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.

  

 

36

 

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
  Calendar Year’s depreciation allowed the initial Calendar Year. The method
  used to calculate each Calendar Year’s allowable recover), of Capital Costs
  is the declining balance depreciation method. Calculation of each such
  Calendar Year’s allowable recovery of Capital Costs should be based on the
  individual asset’s Capital Cost at the beginning of such year multiplied by
  the depreciation factor as follows, for:

  

 

	
  Group 1 =

  	
   

  	
  50

  	
  %

  
	
  Group 2 =

  	
   

  	
  25

  	
  %

  
	
  Group 3 =

  	
   

  	
  10

  	
  %

  

 

For the Groups of capital assets for any
Crude Oil project, apply useful lives as follows:

 

	
  Group -1

  	
   

  	
   

  	
   

  	
   

  
	
  Automobiles

  	
   

  	
  1.5

  	
   

  	
  years

  
	
  Trucks-light (13,000 pounds or less) and
  tractor units

  	
   

  	
  2

  	
   

  	
  years

  
	
  Trucks-heavy (more than 13,000 pounds) and
  trailers

  	
   

  	
  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, similar water transportation
  equipment

  	
   

  	
  9

  	
   

  	
  years

  
	
  Drilling and production tools, equipment
  and instruments

  	
   

  	
  5

  	
   

  	
  years

  

 

For the Groups of capital assets for any
Natural Gas projects, apply fifty percent (50%) of the following useful lives:

 

	
  Group 1

  	
   

  	
   

  	
   

  	
   

  
	
  Automobiles

  	
   

  	
  3

  	
   

  	
  years

  
	
  Trucks-light (13,000 pounds or less) and
  tractor units

  	
   

  	
  4

  	
   

  	
  years

  
	
  Trucks-heavy (more than 13,000 pounds) and
  trailers

  	
   

  	
  6

  	
   

  	
  years

  
	
  Group 2

  	
   

  	
   

  	
   

  	
   

  
	
  Aircraft

  	
   

  	
  6

  	
   

  	
  years

  
	
  Vessels, barges, tugs, similar water
  transportation equipment

  	
   

  	
  18

  	
   

  	
  years

  
	
  Drilling and production tools, equipment
  and instruments

  	
   

  	
  8

  	
   

  	
  years

  
	
  Construction Equipment

  	
   

  	
  6

  	
   

  	
  years

  
	
  Furniture and Office Equipment

  	
   

  	
  10

  	
   

  	
  years

  
	
  Group 3

  	
   

  	
   

  	
   

  	
   

  
	
  Construction utilities and auxiliaries

  	
   

  	
  8

  	
   

  	
  years

  
	
  Construction housing and welfare

  	
   

  	
  20

  	
   

  	
  years

  
	
  Production facilities

  	
   

  	
  8

  	
   

  	
  years

  
	
  Railroad cars and locomotives

  	
   

  	
  15

  	
   

  	
  years

  

 

	
   

  	
  The 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.

  

 

37

 

	
  3.3 

  	
  Interest Recovery

  
	
   

  	
   

  
	
   

  	
  Interest on loans obtained by a Party from
  Affiliates or parent companies or from third party non-affiliates at rates
  not exceeding prevailing commercial rates for capital investments 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.

  
	
   

  	
   

  
	
  3.3 

  	
  Gas Costs

  
	
   

  	
   

  
	
   

  	
  Operating Costs directly associated with
  the production of Natural Gas will be directly chargeable against Natural Gas
  revenues in determining entitlements under clause 6.2.2 of Section VI.
  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) exist, 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 mailer.
  Propane and butane fractions extracted from Natural Gas but not spiked in
  Crude Oil shall be deemed as Natural Gas for the purpose of accounting.

  
	
   

  	
   

  
	
  3.4 

  	
  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, judgment and other expenses, including fees relating to
  CONTRACTOR’s obligations 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 drill sites, 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 drill sites 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.

  

 

EXHIBIT
“D”

 

This Exhibit “D” is attached to and made an
integral part of the Contract for the Bengara-II Contract Area by and between
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) and APEX BENGARA
LTD. (CONTRACTOR) and is dated as of the Effective Date therein defined.

 

MEMORANDUM
ON PARTICIPATION

 

The Operating Agreement between CONTRACTOR
and the Indonesian Participant referred to in subsection 16.3 of Section-XVI of
the Contract shall embody, inter alia, the following principles:

 

1.             CONTRACTOR shaI1 be
the 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 party wishes to
withdraw from the venture it shall transfer without costs 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.

 

38

 

4.             The Operator shall
prepare the annual Work Program and budget which shall be submitted to the
authorized representative of both parties for decisions prior to submission to
PERTAMINA in accordance with the provisions of the Contract.

 

5.             In respect of any
exploratory drilling operations, a “nonconsent” provision shall be made which
assures the Indonesian Participant that it does not have to participate in such
operations if it were to disagree to the inclusion of such operations in the
Work Program and budget, and which, in case of success, adequately compensates
CONTRACTOR for the costs and risks incurred by the latter.

 

6.             Subject to adequate
lifting tolerances, each party shall offtake at CONTRACTOR’s point of export
its production entitlement in 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 Crude Oil shall be:

 

7.1           for Crude Oil to be
delivered for local consumption under the terms of the Contract, fifteen
percent (15%) of the price as provided in Section-VII or as otherwise provided
for in the Contract and

 

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.

 

39EXHIBIT 10.3

 

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

  	
   

  	
  /s/ R.
  D. MACLIVER

  
	
  Director

  	
   

  	
  Director/Secretary

  
	
   

  	
   

  	
   

  
	
  /s/ P.
  D. ALLCHURCH

  	
   

  	
  /s/ R.
  D. MACLIVER

  
	
  Print
  name:

  	
   

  	
  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

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