Document:

Exhibit 4.1

 

THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

 

WARRANT TO PURCHASE COMMON STOCK

of

GeoPetro Resources Company

(void after ______________)

1.             Number of Shares of Common Stock
Subject to Warrant.  FOR VALUE
RECEIVED, on and after the Commencement Date (as defined below), and subject to
the terms and conditions herein set forth, Holder (as defined below) is
entitled to purchase from GeoPetro Resources Company, a California corporation
(the “Company”), at any time before 5:00 p.m. California time on _____________
(“Termination Date”), at a price per share equal to the Warrant Price
(as defined below), the Warrant Stock (as defined below) upon exercise of this
Warrant as set forth herein.

 

2.             Definitions.  As used in this Warrant, the following terms
shall have the definitions ascribed to them below:

(a)           “Commencement
Date” shall mean _____________.

(b)           “Holder”
shall mean _____________ (“_____________”), or any person or entity to whom _____________
(or its assignees) has assigned his rights hereunder pursuant to the terms
hereof and in whose name this Warrant shall be registered upon the books to be
maintained by the Company for that purpose.

(c)           “Warrant
Price” shall be equal to $_____ per share, subject to adjustments as described
in Section 3 below.

(d)           “Warrant
Stock” shall mean _________ shares of no par voting common stock of the Company
(“Common Stock”) subject to adjustment as described in Section 3 below.

3.             Adjustments
and Notices.  The Warrant Stock and
the Warrant Price shall be subject to adjustment from time to time in
accordance with the following provisions:

(a)           Subdivision,
Stock Dividends or Combinations.  In
case the Company shall at any time subdivide the outstanding shares of the
Common Stock or shall issue a stock dividend with respect to the Common Stock,
the Warrant Price in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased (and the

 

 

number
of shares of Warrant Stock proportionately increased), and in case the Company
shall at any time combine the outstanding shares of the Common Stock, the
Warrant Price in effect immediately prior to such combination shall be
proportionately increased (and the number of shares of Warrant Stock shall be
proportionately decreased), effective at the close of business on the date of
such subdivision, dividend or combination, as the case may be.

(b)           Reclassification,
Exchange, Substitution, In-Kind Distribution.  Upon any reclassification, exchange,
substitution, or other event that results in a change of the number and/or
class of the Common Stock issuable upon exercise or conversion of this Warrant
or upon the payment of a dividend in Common Stock or property other than Common
Stock, the Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of Common Stock and property that Holder
would have received for the Warrant Stock if this Warrant had been exercised
immediately before the record date for such reclassification, exchange,
substitution, or other event or immediately prior to the record date for such
dividend.  The Company or its successor
shall promptly issue to Holder a new Warrant for such new Common Stock or other
property.  The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 3 including, without
limitation, adjustments to the Warrant Price and to the number of Common Stock
or property issuable upon exercise of the new Warrant.  The provisions of this Section 3(b)
shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events and successive dividends.

(c)           No
Impairment.  The Company shall not,
by amendment of its Articles of Incorporation or through a reorganization,
transfer of assets, consolidation, merger, dissolution, issue, or sale of
Common Stock or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed under
this Warrant by the Company, but shall at all times in good faith assist in
carrying out of all the provisions of this Section 3 and in taking all
such action as may be necessary or appropriate to protect the Holder’s rights
under this Section 3 against impairment. 
If the Company takes any action affecting the Common Stock other than as
described above that adversely affects Holder’s rights under this Warrant, the
Warrant Price shall be adjusted downward by an amount that shall compensate
Holder as nearly as may be practicable for any such adverse effect.

(d)           Notice.  Upon any adjustment of the Warrant Price and
any increase or decrease in the number of shares of the Common Stock
purchasable upon the exercise or conversion of this Warrant, then, and in each
such case, the Company, as promptly as practicable thereafter, shall give
written notice thereof to the Holder of this Warrant at the address of such
Holder as shown on the books of the Company which notice shall state the
Warrant Price as adjusted and the increased or decreased number of shares
purchasable upon the exercise or conversion of this Warrant, setting forth in
reasonable detail the method of calculation of each.

(e)           Fractional
Shares of Common Stock.  No
fractional shares of Common Stock shall be issuable upon exercise or conversion
of the Warrant and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share. 
If a fractional share interest arises upon any exercise or conversion of
the Warrant, the Company shall eliminate such fractional share interest by
paying the Holder an amount computed by multiplying the fractional interest by
the fair market value of a full share.

 

2

 

4.             Stockholder
Rights.  This Warrant, by itself, as
distinguished from any shares of Warrant Stock obtained hereunder, shall not
entitle its Holder to any of the rights of a stockholder of the Company.

5.             Reservation
of Stock.  On and after the
Commencement Date, the Company will reserve from its authorized and unissued
Common Stock a sufficient number of shares of Common Stock to provide for the
issuance of Warrant Stock upon the exercise or conversion of this Warrant.  Issuance of this Warrant shall constitute
full authority to the Company’s officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of Warrant Stock issuable upon the exercise or conversion of this
Warrant. The Warrant Stock issuable upon exercise of the Holder’s rights
hereunder, when issued in accordance with the provisions of this Warrant, will
be validly issued, fully paid and non-assessable, and will be free of any
taxes, liens, charges or encumbrances of any nature whatsoever, provided,
however, that the Warrant Stock issuable pursuant to this Warrant may be
subject to restrictions on transfer under applicable state and/or federal
securities laws.

6.             Exercise
of Warrant.  This Warrant may be
exercised in whole or part by the Holder, at any time after the Commencement
Date and prior to the Termination Date, by the surrender of this Warrant,
together with the Notice of Exercise and Investment Representation Statement in
the forms attached hereto as Attachments 1 and 2, respectively,
duly completed and executed at the principal office of the Company, specifying
the portion of the Warrant to be exercised and accompanied by payment in full
of the Warrant Price in cash or by check with respect to the shares of Warrant
Stock being purchased.  This Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the date of its surrender for exercise as provided above, and the person
entitled to receive the shares of Warrant Stock issuable upon such exercise
shall be treated for all purposes as Holder of such shares of record as of the
close of business on such date.  As
promptly as practicable after such date, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or
certificates for the number of full shares of Warrant Stock issuable upon such
exercise.  If the Warrant shall be
exercised for less than the total number of shares of Warrant Stock then
issuable upon exercise, promptly after surrender of the Warrant upon such
exercise, the Company will execute and deliver a new Warrant, dated the date
hereof, evidencing the right of the Holder to the balance of the Warrant Stock
purchasable hereunder upon the same terms and conditions set forth herein.

7.             Transfer
of Warrant.  This Warrant may be
transferred or assigned by the Holder hereof in whole or in part, provided that
the transferor complies with applicable federal and state securities laws and
provides, at the Company’s request, an opinion of counsel reasonably
satisfactory to the Company that such transfer does not require registration
under the Act and the securities law applicable with respect to any other
applicable jurisdiction and an investment representation statement. In any such
event the Company shall, without charge, and to the extent the then Holder’s
rights hereunder are so transferred or assigned, execute and deliver a new
Warrant in the name of such assignee and, if applicable, a new Warrant in the
name of the then Holder for the portion of the rights hereunder retained by the
then Holder and this Warrant shall promptly be cancelled.  The Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.

 

3

 

8.             Registration Rights. 
For a period of five (5) years following the date of this Warrant
(the “Piggyback Rights Period”), if, following the filing and effectiveness of
a registration statement for the offering of shares of Common Stock by the
Company with the Securities and Exchange Commission (“SEC”), the Company
proposes to file any other registration statement with the SEC on any of Forms
S-1, S-2 or S-3 (each a “Registration Statement”), the Company will give
written notice to Holder at least thirty (30) days prior to said filing date
offering to include up to twenty percent (20%) of the undersigned’s Shares
received upon actual exercise of the Warrant, subject in each case to the
limitations set forth herein.  Upon
receipt by the Company of a request to include in such filing a registration of
Holder’s Shares (which request shall include the facts with respect to the
proposed distribution), the Company shall include such Shares in such filing at
no expense to Holder, except for the underwriting discounts, commissions and
spreads with respect to such Shares, transfer taxes incurred by Holder and fees
and expenses of counsel for Holder, if any, all of which shall be paid by
Holder, unless otherwise required by the blue-sky laws of any state.  However, if the Company files a Registration
Statement during the Piggyback Rights Period, the Company shall prepare and
file with the SEC such amendments and supplements to such Registration
Statement as may be necessary to keep it effective for a period of the lesser
of (a) 6 months following the effective date of any Registration Statement
filed on a Form S-1 or S-2, (b) 12 months following the date of any
registration statement filed on Form S-3, and (c) the time when the Shares can
be sold pursuant to Rule 144 of the Act or any other rule of similar effect.  Holder agrees that if so requested by an
underwriter in connection with the initial public offering of securities by the
Company, Holder shall not sell, or make any short sale of, the Company’s
securities without the prior written consent of the underwriter for a period of
180 days following the effective date of such Registration Statement.

9.             Termination.  This Warrant shall terminate at 5:00 p.m.
California time on the Termination Date.

10.           Legends.   The stock issuable, directly or indirectly,
upon exercise or conversion of the Warrant shall be imprinted with a legend in
substantially the following form:

THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.

 

11.           Miscellaneous.
 This Warrant shall be governed by the
laws of the State of California, without regard for the conflicts of law
provisions of the State of California or of any other state.  The headings in this Warrant are for purposes
of convenience and reference only, and shall not be deemed to constitute a part
hereof.  Neither this Warrant nor any
term hereof may be changed or waived orally, but only by an instrument in
writing signed by the Company and the Holder of this Warrant.  All notices and other communications from the
Company to the Holder of this Warrant shall be delivered personally, couriered,
or mailed via Federal Express or certified or registered mail, postage prepaid,
return receipt requested, to the address furnished to the Company in writing by
the last Holder of this Warrant who shall have furnished an address to

 

4

 

the
Company in writing, and if mailed shall be deemed given upon the date of
delivery or first attempted delivery as shown on the return receipt.

	
   

  	
  GeoPetro Resources Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

5

 

Attachment 1

NOTICE OF EXERCISE

TO:         GEOPETRO RESOURCES COMPANY

1.             The
undersigned hereby elects to purchase ____________________ shares of the
Warrant Stock of GeoPetro Resources Company pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.

2.             Please
issue a certificate or certificates representing said shares of Warrant Stock
in the name of the undersigned or in such other name as is specified below:

	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Address)

  	
   

  

 

	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
  (Name of Warrant
  Holder)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

Attachment 2

INVESTMENT REPRESENTATION STATEMENT

Shares of the Common Stock

(as defined in the attached Warrant) of

GeoPetro Resources Company

In connection with the purchase of the above-listed
Common Stock, the undersigned hereby represents to GeoPetro Resources Company
(the “Company”) as follows:

(a)           The
Common Stock to be received upon the exercise of the Warrant will be acquired
for investment for its own account, not as a nominee or agent, and not with a
view to the sale or distribution of any part thereof, and the undersigned has
no present intention of selling, granting participation in or otherwise
distributing the same, but subject, nevertheless, to any requirement of law
that the disposition of its property shall at all times be within its control.  By executing this Statement, the undersigned
further represents that it does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participations to
such person or to any third person, with respect to any Common Stock issuable
upon exercise of the Warrant.

(b)           The
undersigned understands that the Common Stock issuable upon exercise of the
Warrant at the time of issuance may not be registered under the Securities Act
of 1933, as amended (the “Act”), and applicable state securities laws, on the
ground that the issuance of such Common Stock is exempt pursuant to
Section 4(2) of the Act and state law exemptions relating to offers and
sales not by means of a public offering, and that the Company’s reliance on
such exemptions is predicated on the undersigned’s representations set forth
herein.

(c)           The
undersigned acknowledges that an investment in the Company is highly
speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment.  The undersigned represents that it has had
the opportunity to ask questions of the Company concerning the Company’s
business and assets and to obtain any additional information which it
considered necessary to verify the accuracy of or to amplify the Company’s
disclosures, and has had all questions which have been asked by it
satisfactorily answered by the Company.

(e)           The
undersigned acknowledges that the Common Stock issuable upon exercise of the
Warrant must be held indefinitely unless subsequently registered under the Act
or an exemption from such registration is available.  The undersigned is aware of the provisions of
Rule 144 promulgated under the Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than one year after a party has
purchased and

 

 

paid for the security to
be sold, the sale being through a “broker’s transaction” or in transactions
directly with a “market makers” (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Typed or Printed Name)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Title)

  

 

2

 

Attachment 3

NOTICE OF
CONVERSION

TO:         GeoPetro Resources Company

1.             The
undersigned hereby elects to acquire _________________ shares of the Common
Stock of GeoPetro Resources Company pursuant to the terms of the attached
Warrant, by conversion of          percent
(    %) of the Warrant.

2.             Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified below:

	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Address)

  	
   

  

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Typed or Printed Name)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Title)EXHIBIT 10.1

 

BENGARA-II
BLOCK EXPLORATION

JOINT
VENTURE

 

JOINT
OPERATING AGREEMENT

 

TABLE
OF CONTENTS

 

	
   

  	
  Article

  	
   

  	
  Page

  
	
  1

  	
  DEFINITIONS AND INTERPRETATION

  	
   

  	
  2

  
	
  2

  	
  JOINT VENTURE

  	
   

  	
  7

  
	
  3

  	
  NATURE OF RELATIONSHIP

  	
   

  	
  8

  
	
  4

  	
  PERCENTAGE INTERESTS

  	
   

  	
  9

  
	
  5

  	
  JOINT VENTURE PROPERTY

  	
   

  	
  9

  
	
  6

  	
  WARRANTIES

  	
   

  	
  9

  
	
  7

  	
  MANAGEMENT COMMITTEE

  	
   

  	
  9

  
	
  8

  	
  OPERATOR

  	
   

  	
  11

  
	
  9

  	
  APPOINTMENT AND REMOVAL OF OPERATOR

  	
   

  	
  12

  
	
  10

  	
  DUTIES AND OBLIGATIONS OF OPERATOR

  	
   

  	
  13

  
	
  11

  	
  ASSIGNMENT

  	
   

  	
  14

  
	
  12

  	
  WORK PROGRAMS AND BUDGETS

  	
   

  	
  15

  
	
  13

  	
  AUTHORITIES FOR EXPENDITURE

  	
   

  	
  16

  
	
  14

  	
  PAYMENT OF COSTS

  	
   

  	
  17

  
	
  15

  	
  NON-CONSENT

  	
   

  	
  17

  
	
  16

  	
  DEFAULT

  	
   

  	
  18

  
	
  17

  	
  INFORMATION

  	
   

  	
  18

  
	
  18

  	
  CONFIDENTIALITY

  	
   

  	
  19

  
	
  19

  	
  INSURANCE

  	
   

  	
  19

  
	
  20

  	
  WITHDRAWAL

  	
   

  	
  20

  
	
  21

  	
  ENCUMBRANCES

  	
   

  	
  21

  
	
  22

  	
  DISCOVERY OF PETROLEUM

  	
   

  	
  21

  
	
  23

  	
  PRODUCTION VENTURE

  	
   

  	
  22

  
	
  24

  	
  SOLE RISK OPERATIONS

  	
   

  	
  23

  
	
  25

  	
  SOLE RISK—DRILLING

  	
   

  	
  24

  
	
  26

  	
  SOLE RISK—DEEPEN, REWORK, SIDETRACK, TEST,
  COMPLETE

  	
   

  	
  24

  
	
  27

  	
  SOLE RISK—GENERAL PROVISIONS

  	
   

  	
  25

  
	
  28

  	
  DISPUTE RESOLUTION

  	
   

  	
  25

  
	
  29

  	
  CONDUCT OF LITIGATION

  	
   

  	
  26

  
	
  30

  	
  TERM AND TERMINATION

  	
   

  	
  26

  
	
  31

  	
  FORCE MAJEURE

  	
   

  	
  27

  
	
  32

  	
  PERMIT

  	
   

  	
  27

  
	
  33

  	
  GENERAL PROVISIONS

  	
   

  	
  27

  
	
  Annex—”A” JV Accounting Procedure

  	
   

  	
  30

  

 

1

 

Bengara-II
Block Exploration

JOINT
VENTURE

 

JOINT
OPERATING AGREEMENT

 

This Agreement, the “Agreement”
or “JOA”, is effective the 1st day of January, 2000 between CONTINENTAL
ENERGY CORPORATION (“CEC”) a Canadian, British Columbia corporation, APEX
(BENGARA-II) Ltd. (“Apex Bengara”) a British Virgin Islands corporation, and
GEOPETRO RESOURCES COMPANY (“GeoPetro”) a U.S.A., California corporation. All
of the aforementioned are parties to this Agreement are hereinafter referred to
individually as “Party” and collectively as “Parties” and each Party occupies
an address as set forth in Article-33.

 

Whereas;
Apex (Bengara-II) Ltd. was incorporated as an International Business Company in
the British Virgin Islands under the International Business Companies Act on
September 9, 1997 registration number 247888. Apex Bengara was incorporated
with and still has an authorized share capital of US$ 50,000 consisting of
50,000 common shares of US$ 1.00 par value each all of which are issued,
outstanding and fully paid up.

 

Whereas;
The sole business and asset of Apex Bengara is a 100% entitlement and ownership
holding in a Production Sharing Contract (PSC) to which it is party with Pertamina,
the state oil company of the Republic of Indonesia. The PSC provides Apex
Bengara with exclusive rights to explore for and if found develop, exploit and
produce oil and gas from the 4,867 square kilometers Bengara-II Block located
mostly onshore in East Kalimantan, Indonesia. The Bengara-II PSC was signed on
December 4. 1997 and has a 30-year term.

 

Whereas;
Pursuant to a share purchase and transfer agreement dated effective August 1,
1998 (the “SPTA”) CEC purchased all 50,000 common shares of Apex Bengara
representing a 100% ownership of Apex Bengara and the underlying Bengara-II PSC
from four private vendors (collectively known as the Original Apex Vendors).

 

Whereas;
Pursuant to a Farm Out Agreement dated effective January 1, 2000 CEC did farm
out a 40% undivided interest in Apex Bengara and the underlying Bengara-II PSC
to GeoPetro.

 

Whereas;
The undersigned Parties to this Agreement desire to associate themselves as a “Joint
Venture” on the terms and conditions contained in this Agreement for the purposes
of jointly conducting drilling, exploitation, development and production
operations in the Bengara-II Block pursuant to the Bengara-II PSC.

 

NOW THEREFORE, THIS AGREEMENT WITNESSES THAT
IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS HEREIN CONTAINED, THE
RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES COVENANT
AND AGREE WITH EACH OTHER AS FOLLOWS:

 

1  DEFINITIONS AND INTERPRETATION

 

1.1          In this Agreement, unless the context
otherwise requires:

 

“AFE” means authority for expenditure as set
out in Article-13;

 

“Apex Bengara” means Apex (Bengara-II) Ltd.
the Operator for the Joint Venture, the 100% holder of the Bengara-II PSC and
although a Party to this JOA, not an owner of a Percentage Interest in the
Joint Venture.

 

“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;

 

“AWP&B” means that certain Work Program
and Budget submitted by Operator to Pertamina annually in October of each year,
as may be amended, for Pertamina’s approval and containing Budget cost
estimations for the amount of funds required to conduct the Work Program and
thereby carry out Petroleum Operations during the forthcoming calendar year
within the Permit Area as required pursuant to the Permit;

 

“Bengara-II Block” refers to the 4,867 square
kilometer geographic area created by the Bengara-II PSC and located mostly
onshore but partially offshore in East Kalimantan, Indonesia and also known
herein as the Permit Area, the

 

2

 

exploration of and commercial exploitation of
any Petroleum found there which is the objective of the Joint Venture
constituted in this JOA.

 

“Bengara-II PSC” means a production sharing
contract dated December 4, 1997 pursuant to which Pertamina, the state oil
company of the Republic of Indonesia has granted exclusive rights to Apex
Bengara to explore for and if found develop, exploit and produce Petroleum from
a Permit Area known as the Bengara-II Block.

 

“Barrel”, as also defined in the PSC, means a
quantity or unit of oil equal to forty-two (42) United States gallons at the
temperature of sixty (60) degrees Fahrenheit.

 

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

 

“Budget” means a statement itemizing the cost
estimates for and schedule of funding required to conduct Petroleum Operations
to be carried out within the Permit Area according to a corresponding Work
Program during a specific and defined period, and must also include all of the
Operator’s administrative, office and personnel costs (including appropriate
approvals of any personnel policies), whether for a special purpose or as part
of and including the Budget portion of the AWP&B;

 

“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 Article-7;

 

“Consenting Party” has the meaning set out in
Article-15;

 

“Defaulting Party” has the meaning set out in
Article-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;

 

“CEC” means Continental Energy Corporation a
Party to this JOA and a JV Participant.

 

“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;

 

“Farm Out Agreements” or “FOA” means the
separate written agreements between any of the Parties which is the principle
instrument of conveyance of which a Party received its Percentage Interest in
the Joint Venture;

 

“GeoPetro” means GeoPetro Resources Company a
Party to this JOA and a JV Participant.

 

“Information” means all information available
with respect to JV Activities and the Permit Area, subject to Pertamina and PSC
restrictions thereon, 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” refers to the responsibility
of the Joint Venture and the Parties to jointly share the costs of financing a
joint venture account to pay for all costs and expenses incurred in respect of
the Joint Venture on behalf of all of the Parties according to their Percentage
Interest;

 

3

 

“Joint Operating Agreement” or “JOA” means
this Agreement including any amendments or restatements hereof;

 

“Joint Venture” or “JV” means the joint
venture between the Parties in terms of this Joint Operating Agreement which is
formally named “Bengara-II Block Exploration Joint Venture”;

 

“JV Accounting Procedure” means the procedure
set out in Annex-A to this Agreement;

 

“JV Accounts” in relation to the Joint
Venture, means all 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;

 

“JV Activities” means all activities
conducted for the purposes of the Joint Venture under the terms of this
Agreement, including but not necessarily limited to Petroleum Operations under
the Permit as herein defined;

 

“JV Costs” means all costs incurred by the
Joint Venture pursuant to this JOA in connection with JV Activities and
includes all PSC Costs and Operating Costs, Capital Costs and Non-Capital Costs
as defined in the JV Accounting Procedure. JV Costs shall be accounted for in
accordance with the JV Accounting Procedure or the PSC Accounting Procedure or
in the case where not therein provided for, in accordance with generally
accepted accounting practices in the U.S.A.;

 

“JV Participant” means a Party to this JOA
who also owns a Percentage Interest share of the Joint Venture. Apex Bengara,
as Operator, is a Party to this JOA but is not a JV Participant;

 

“JV Property” means the JV’s Apex Bengara
Shares; the Information; custody and control of all fixtures, machinery,
equipment, constructions, physical assets, inventory and supplies acquired for
the Joint Venture, subject to the provisions for Pertamina ownership of same as
per the Bengara-II PSC, Section-X; and any other property or rights of any
description, whether real or personal, acquired for the Joint Venture;

 

“Indonesian Tax Laws”, means all the current
tax laws including all the appropriate regulations as amended and as currently
in effect in the Republic of Indonesia which may affect the Joint Venture, the
Operator, JV Activities, the Permit and Petroleum Operations within the Permit
Area;

 

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

 

“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;

 

“Non-Consent Operation” means an operation
carried out by less than all Parties pursuant to Article-15;

 

“Non-Consent Party” has the meaning set out
in Article-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 namely Apex Bengara;

 

“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
warrant incurring the completion costs and equipping costs of the well; and

 

4

 

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;

 

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 the Bengara-II PSC and by
definition for the purposes hereof shall include any renewal, extension or
amendment thereof and also any other permit, license, lease, facility, Work
Program, Budget, Pertamina approval, Plan of Development or other holding,
approval, permission, regulatory determination or tenement for the time being
held by Apex Bengara or the JV 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 Apex Bengara of the Permit or otherwise acquired
by the Parties for the purpose of the Joint Venture;

 

“Permit Area” means the area within the
statutory mining territory of Indonesia covered by the Bengara-II PSC granted
by Pertamina which is the subject Joint Venture working area of this JOA, and
is constituted in the Bengara-II PSC and is described and defined in Exhibits “A”
and “B” attached thereto the PSC;

 

“Permit Year” means each consecutive period
of 12 months commencing on the effective date of the Bengara-II PSC, December
4, 1997, counted from said date or from an anniversary thereof;

 

“Pertamina” means “Perusahaan Tambangan
Minyak dan Gas Bumi” the Indonesian language name of the state owned oil
company of the Republic of Indonesia exclusively responsible for granting,
coordinating, regulating and administering the Bengara-II PSC and other similar
production sharing contracts throughout the nation. For the purposes of this
JOA and the Joint Venture the term “Pertamina” is also defined to include ALL
other Indonesian local, provincial or national governmental authorities or
departments of any kind which may also exert some form of control or influence
within their respective jurisdiction over the Bengara-II PSC, the Permit, the
Operator, Apex Bengara and/or the Joint Venture and Petroleum Operations and JV
Activities.

 

“Petroleum” has the same meaning as in the
PSC, and includes naturally occurring hydrocarbons commonly produced from wells
including crude oil, condensate, natural gas and natural gas liquids;

 

“Petroleum Operations” means all exploration,
development, extraction, producing, transportation, marketing, abandonment,
site restoration operations and any other work or activities planned, conducted,
authorized or contemplated by the Joint Venture under both the Permit and this
JOA and pertaining to the Permit Area, including Exploration, Appraisal
Operations, Production Operations, Non-Consent Operations and Sole Risk
Operations as elsewhere herein defined;

 

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

 

“Point of Export”, as also defined in the
PSC, 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 PSC parties and
the JV, as appropriate.

 

“Prescribed Rate” means the rate of interest
being 2% greater than the prevailing United States “prime rate” lending rate at
any time made effective for amounts greater than $100,000 for one year periods;

 

“Production Operations” means commercial
petroleum lifting and recovery operations and all activities necessary,
expedient, conducive or incidental thereto including without limitation, the
drilling, completion and work-over of

 

5

 

Development Wells; and the sampling,
production, processing, refining, treatment, transportation, handling, storage,
loading and delivery of Petroleum;

 

“PSC” means production sharing contract and
unless the context requires otherwise also refers specifically to the Bengara-II
PSC;

 

“PSC Costs” means expenditures made and
obligations incurred in carrying out Petroleum Operations under the Bengara-II
PSC as determined in accordance with the Accounting Procedure attached thereto
as Exhibit “C” which shall by definition be included within JV Costs. PSC Costs
shall include Operating Costs; Capital Costs and Non-Capital Costs as defined
in both the PSC and JV Accounting Procedures.

 

“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 or other entity that controls, or is controlled by a Party to this
JOA, or a company or other entity which controls or is controlled by a company
or other entity which controls a Party to this JOA, it being understood that
control shall mean ownership by one company or entity of at least fifty one
percent (51%) of the voting stock, if the other company is a corporation
issuing stock, or the controlling rights or interests, if the other entity is
not a corporation;

 

“Security Interest” means a JV Participant’s
ownership of Apex Bengara common shares in the same percentage as, but
subordinate in rights to, his JV Percentage Interest share constituted
hereunder as further described in Article-2.5.

 

“Sole Risk Operation” means an operation
carried out by one or more Parties within the Permit other than as JV
Activities;

 

“Special Majority Vote” means a resolution of
the Committee having the affirmative vote of two or more unrelated Parties
having aggregate Percentage Interests exceeding 80%;

 

“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;

 

“SR Parties” in relation to a Sole Risk
Operation, means the Parties participating in the Sole Risk Operation;

 

“PSC Accounting Procedure” means the
procedure set out in Exhibit-C to the Bengara-II PSC which Apex Bengara as the
Operator is obliged to follow with respect to accounting for all costs incurred
in the performance of Petroleum Operations pertaining to the Permit. In certain
respects there are significant differences in the required PSC Accounting
Procedure with respect to generally accepted accounting principles commonly
practiced in the U.S.A.;

 

“PSC Accounts” in relation specifically to
the Bengara-II PSC, means all accounts and financial statements and records
relating to the payment or receipt of moneys maintained by Apex Bengara as the
Operator in relation to transactions entered into in the course of Petroleum
Operations under the Permit and pertaining to the Permit Area together with all
supporting documents including invoices, statements of expenditure, receipts
and sales records; all principally for use as required by Pertamina for Cost
Recovery documentation and Pertamina reporting as prescribed in the PSC
Accounting Procedure and which would normally, but not necessarily, include JV
Accounts.

 

“Unanimous Vote” means a resolution of the
Committee having the affirmative vote of all of the Parties to the Joint
Venture taken at a meeting or in writing at which all Parties are present or
are represented and cast their respective votes all having aggregate Percentage
Interests totaling 100%;

 

“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;

 

6

 

“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 Work Program and Budget.

 

“Work Program” means a statement itemizing
the nature and schedule of Petroleum Operations to be carried out within the
Permit Area under a corresponding Budget during a specific and defined period,
whether for a special purpose or as part of and including the Work Program
portion of the AWP&B;

 

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)                                      references
to other paragraphs of this Agreement are denoted as “Article”;

 

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

 

e)                                      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;

 

f)                                        reference
to a Party includes a reference to its successors and assigns in accordance
with this Agreement; and

 

g)                                     reference
to currency shall be to US Dollars, the lawful currency of the United States of
America, unless the context requires otherwise.

 

2  JOINT VENTURE

 

2.1                               The
Parties hereby associate themselves as a “Joint Venture” (or “JV”) in
accordance with the provisions of this JOA for the purpose of carrying out
Petroleum Operations upon the Bengara-II Block and the Permit Area, in
accordance with and pursuant to the Permit, and establishing the Joint Venture
as a commercial Petroleum exploration and production enterprise.

 

2.2                               The
Joint Venture shall be called the Bengara-II Block Exploration Joint Venture or
such other name as the Parties may from time to time agree.

 

2.3                               The
Joint Venture shall be 100% owned by the JV Participants in the respective JV
Percentage Interest proportions set forth in Article-4.1.

 

2.4                               The
Joint Venture shall own and its sole commercial enterprise shall be a 100%
ownership constituted by this JOA in and of Apex Bengara and through it a 100%
ownership of its underlying rights to the Bengara-II PSC, the Permit and the
Permit Area.

 

2.5                               Each
JV Participant shall own a Percentage Interest in the Joint Venture constituted
by the JOA and as stated in Article-4.1 hereof, provided that:

 

(a)                                  The
Percentage Interest of each JV Participant in the Joint Venture shall be
secured by a “Security Interest” consisting of one common share certificate of
Apex Bengara common shares, duly issued and registered in the name of the JV
Participant and representing a corresponding undivided share ownership
percentage in Apex Bengara together with a corresponding percentage interest in
the respective underlying Bengara-II PSC such that the respective amount of JV
Percentage Interest owned by any JV Participant as set forth in this JOA shall
be equivalent to the same JV Participant’s Security Interest share ownership in
Apex Bengara and shall also be equivalent to the deemed PSC interest owned by
the JV Participant.

 

(b)                                 Notwithstanding
the foregoing, the Apex Bengara common shares certificate held by any JV
Participant shall be for the purposes of constituting only a “Security Interest”
in the Joint Venture.

 

7

 

(c)                                  For
so long as the applicable JOA is in force and effect the Security Interest
represented by the share certificate and the Farmee’s rights and obligations
thereunder shall be subordinate to the Working Interest constituted in the JOA.

 

(d)                                 Each
JV Participant Party hereby expressly agrees that his respective Percentage
Interest in the Joint Venture as created herein and defined in Article-4.1
shall take precedence over and above those rights and obligations normally
attributable to such Party and any other shareholder as solely an owner of
common shares. Such precedence shall continue until such time as this JOA is
dissolved or otherwise terminates, expires or becomes ineffective. To the
extent necessary to achieve such precedence this JOA shall be deemed by the JV
Participant Parties to also constitute a binding Apex Bengara shareholders
agreement and covenant between the Parties as Apex Bengara common shareholders
that their respective rights as set forth in this JOA take precedence over and
shall govern their respective relationships to each other and to Apex Bengara
as Apex Bengara common shareholders.

 

(e)                                  Immediately
upon this JOA becoming so dissolved or otherwise ineffective then the JV
Percentage Interest shall likewise terminate and the rights, obligations and
entitlements of the former JV Participants shall devolve to and vest in their
respective Security Interest common shares and from that point in time forwards
the JV Participants relations with one another and ownership in the Apex
Bengara and underlying PSC’s shall be as common shareholders subject only to
the memorandum and articles of association of Apex Bengara and the British
Virgin Islands International Corporations Act.

 

2.6                               It
is the intent of the Parties to maintain this Joint Venture and the PSC and the
Permit in full force and effect and meet the PSC prescribed annual exploration
work commitments for at least the full duration and term of the exploration
period of the PSC and in the event commercial petroleum production is
established within the Permit Area then the Parties shall maintain this Joint
Venture in full force and effect for the complete term of the PSC and the
Permit and any extensions thereof provided commercially exploitable Petroleum
is being produced from within the Permit Area.

 

2.7                               Once
this Joint Venture begins commercial petroleum production, as recognized by
Pertamina, each JV Participant may convert its Percentage Interest into a
direct interest in the PSC, subject to approval of Pertamina, and all Parties
shall cooperate in obtaining such approval.

 

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.

 

3.5                               The
Parties hereby expressly agree and acknowledge that the Operator holds only a
bare legal interest in and/or bare legal title to the Bengara II PSC and that
all beneficial ownership therein and all beneficial interest and duties and
obligations associated therewith is vested solely in the JV Participants and
not to any extent in the Operator.

 

8

 

4  PERCENTAGE INTERESTS

 

4.1                               The
Percentage Interests of the Parties and their respective percentage ownership
in the Joint Venture, the Security Interest and their net resulting beneficial
interest in the underlying Bengra-II PSC all as created herein and subject to
the terms and conditions of this Agreement as of its effective date are:

 

	
  Name of

  Beneficial

  Owner

  	
   

  	
  Percentage Interest

  In this JOA & the

  Joint Venture

  	
   

  	
  Security Interest

  In Apex

  Bengara

  Common Shares

  	
   

  	
  Net Beneficial

  Interest in the

  Bengara-II

  PSC

  	
   

  
	
  Apex
  Bengara

  	
   

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  
	
  CEC

  	
   

  	
  60.0

  	
  %

  	
  60.0

  	
  %

  	
  60.0

  	
  %

  
	
  GeoPetro

  	
   

  	
  40.0

  	
  %

  	
  40.0

  	
  %

  	
  40.0

  	
  %

  
	
  JV Total

  	
   

  	
  100.0

  	
  %

  	
  100.0

  	
  %

  	
  100.0

  	
  %

  

 

5  JOINT VENTURE PROPERTY

 

5.1                               The
Parties shall own all JV Property (other than the Apex Bengara Shares) as
tenants in common in proportion to their respective Percentage Interests.

 

5.2                               The
Parties fully understand and recognize that certain items procured by and paid
for by the Joint Venture and normally considered to be included in the
definition of JV Property may in fact be subject to ownership rights of
Pertamina in accordance with the provisions of the PSC and the Permit. In any
such circumstances where there is any conflict of interpretation between this
JOA and the Permit with regard to what constitutes JV Property or Pertamina
property or property which is deemed to be Pertamina property but is under the
custody and control of the Operator on behalf of the Joint Venture for so long
as the Permit is in effect then the interpretation of the PSC and the Permit
shall apply and the meaning of the terms JV Property herein shall be modified
and interpreted accordingly.

 

5.3                               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.

 

6  WARRANTIES

 

6.1                               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 authorize the execution and implementation of this Agreement.

 

7  MANAGEMENT COMMITTEE

 

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

 

7.2                               Exclusive
management, direction, guidance, policy-making authority and control of JV
Activities and other matters affecting the Permit and the Joint Venture shall
be vested wholly and irrevocably in the Committee.

 

7.3                               The
Committee is authorized 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
Committee may constitute and appoint and charge sub-committees consisting of
Operator’s personnel and any of the personnel of the Parties for the purposes
of studying and reviewing certain issues and reporting on same to the
Committee.

 

7.5                               The
following provisions shall, subject to Article-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;

 

9

 

(c)                                  each
member may have an alternate to act for it. An alternate shall be deemed a
member of the Committee and shall be appointed and removed in terms of this
clause;

 

(d)                                 a
quorum for a meeting shall be constituted when the Parties present at the
meeting and the Parties which are not present but which have, in accordance
with paragraph (h), given notice that they intend to vote by facsimile have
aggregate Percentage Interests sufficient to pass at least a Majority Vote, and
in the event the agenda of such meeting requires resolution of an issue so
requiring then at least a Special Majority Vote or a Unanimous Vote;

 

(e)                                  the
representative of the Party holding the largest Percentage Interest hereunder
shall act as Chairman; if any Chairman shall be unable or unwilling to attend
Committee meetings, the Party or Parties which nominated the Chairman shall
fill the vacancy;

 

(f)                                    the
voting power of each Party shall be in proportion to the Percentage Interest of
that Party at the date of the meeting;

 

(g)                                 each
Party shall cast its votes as a block vote proportionate to the Party’s
Percentage Interest and exercisable by one member representing each Party;

 

(h)                                 if
a Party is unable to be represented in person at a meeting, that Party may vote
at the meeting by letter or facsimile either prior to the scheduled
commencement of the meeting, or after that time if that Party advises the
Operator’s representative by telephone before votes are taken of its intention
to cast a written vote and if the vote is actually received by the Operator
before votes are taken;

 

(i)                                     at
all Committee meetings, a member shall act solely as the representative of the
Party which appointed him and shall have full power and authority to represent
and bind that Party;

 

(j)                                     Committee
meetings shall be held at least twice per year and any Party may convene a
meeting at any other time by notice stating the matter to be considered in
accordance with the procedure outlined in this section;

 

(k)                                  Committee
meetings shall be held where the Committee decides, and failing a decision,
then in the Operator’s office;

 

(l)                                     notice
of each Committee meeting shall be given to all members by the Chairman and
shall be accompanied by an agenda. The agenda may be furnished separately by
facsimile up to 21 days before the meeting. Matters not included in the agenda
for a meeting shall not be decided at the meeting unless all Parties agree;

 

(m)                               at
least 21 days notice shall be given of each meeting. No notice of meeting shall
be necessary when members representing each Party are present and agree upon
the meeting being held and the agenda, time and place for the meeting;

 

(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 30 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;

 

(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;

 

(p)                                 the
Committee shall appoint an auditor and cause an audit of the Joint Venture
Accounts annually to be performed in accordance with generally accepted
accounting principles and auditing standards acceptable to North American
securities regulatory authorities and distribute copies of such annual audit to
the Parties, and

 

(q)                                 the
Committee shall appoint an independent engineer to annually audit and determine
the amount of proven, probable and possible reserves, if any, and estimate the
amount of any possible resources contained in defined prospects recognized
within the Permit Area in accordance with reserves and resource classifications

 

10

 

determined by the American Society for
Petroleum Engineers and distribute copies of such annual reserves and resources
audit to the Parties.

 

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

 

7.7                               A
Special Majority Vote, as defined in Article-1.1, shall be required for any
decision in relation to:

 

(a)                                  approval
of the Joint Venture and commitment thereby of the Joint Venture to any and
each Annual Work Program & Budget prior to its submission to Pertamina as
required under and pursuant to the Permit;

 

(b)                                 the
periodic relinquishment of a portion of the surface area of the Permit Area as
required by and provided for in the PSC; and

 

(c)                                  approval
of the Joint Venture and commitment thereby of the Joint Venture to any and
each Plan of Development prior to its submission to Pertamina as required under
and pursuant to the Permit.

 

7.8                               Notwithstanding
any other provisions of this JOA, a Unanimous Vote of the Committee represented
by 100% of the Percentage Interest owner Parties shall be required for any
Committee decision or decision of the Parties in relation to or pertaining to:

 

(a)                                  dissolution
of the Joint Venture created hereunder;

 

(b)                                 the
surrender of the entire Permit back to Pertamina;

 

(c)                                  the
withdrawal of the Joint Venture from the entire Permit by sale, election or
whatever reason; and

 

(d)                                 modification,
amendment, termination, or any other variation without limitation of this Joint
Operating 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 employees, servants, agents and contractors. Notwithstanding anything
contained herein to the contrary, with respect to any JV or Permit related
matters, the Operator shall act solely as an agent for the Committee and is
accountable and subordinate to the Committee and has no independent power
whatsoever.

 

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

 

8.3                               For
the purposes of JV Activities, the Operator shall, subject to Budget and Work
Programs approved by the Committee and Pertamina, and always subject to the
Committee’s authority in general, have and may exercise all of the rights as
would be available to the Operator if the Operator was carrying out JV
Activities on its own behalf, including, subject to this Agreement and at the
expense of the Joint Account, the Operator shall and may:

 

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

 

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

 

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

 

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

 

(e)                                  manage
and conduct all Petroleum Operations within the Permit Area and otherwise
pertaining to the Permit;

 

(f)                                    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;

 

11

 

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

 

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

 

(i)                                     apply
for and obtain pipeline licenses, production licenses, access authorities,
rights of way, water rights and other rights as required to keep the Permit in
good standing and conduct Petroleum Operations;

 

(j)                                     enter
into contracts binding the Joint Venture;

 

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

 

(l)                                     maintain
plant and equipment and JV Property in good working order and condition;

 

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

 

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

 

(o)                                 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, if any.

 

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 custody
and control 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 Willful Misconduct.

 

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 bad faith.

 

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                               Apex
Bengara 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; or

 

(b)                                 a
Majority Vote of the Committee to remove such Operator.

 

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 pursuant to the terms of this clause, then a
replacement shall be immediately appointed by a Majority Vote of the Committee.

 

12

 

9.5                               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 JV
Accounts and Records of the Joint Venture and all Information not otherwise in
the possession of the replacement Operator.

 

9.6                               Upon
every change of Operator the Committee shall procure that the JV 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.

 

10.2                        The
Operator shall manage and conduct all Petroleum Operations in accordance with
the Permit 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.

 

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

 

10.4                        The
Operator shall represent itself, all of its shareholders and the Joint Venture
to Pertamina in respect of the Permit.

 

10.5                        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

  	
   

  	
  -$250,000

  	
   

  
	
  seismic

  	
   

  	
  -$150,000

  	
   

  
	
  technical
  studies

  	
   

  	
  -$50,000

  	
   

  
	
  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 Pertamina regulations pertaining to the Permit;
and

 

(e)                                  prepare
any environmental statements or plans or other survey or like document as may
be required pursuant to any Indonesian environmental legislation or by
Pertamina.

 

10.6                        The
Operator shall keep correct JV Accounts and accurate Records for the Joint
Venture. The JV 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.

 

10.7                        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 JV Accounts and Records of the Joint Venture by a registered

 

13

 

third party auditor. The Operator shall make
available to such outside auditor the JV Accounts and Records of the Joint
Venture for the purposes of the audit and provide necessary cooperation and
assistance to the outside auditor.

 

10.8                        The
Operator and the other Parties shall adopt the JV Accounting Procedure in
relation to the keeping of all JV Accounts and Records, notwithstanding that
for the purposes of Accounts and Records pertaining to the Petroleum Operations
pursuant to the Permit that the Accounting Procedure Exhibit-C to the PSC shall
take precedence over and above the Operator’s obligation to the JV Accounting
Procedure in the event of any conflict between the JV and PSC accounting
procedures.

 

10.9                        The
Operator shall comply with all laws and lawful regulations applicable to any JV
Activities carried out regardless of the jurisdiction in which such are carried
out including without limitation those of the Republic of Indonesia.

 

10.10                 The Operator
shall comply with and respect and cause its employees, agents, consultants and
contractors to likewise respect and comply with national customs, traditions
and practices in Indonesia and locally in the region of the Permit Area at all
time while carrying out JV Activities.

 

10.11                 The Operator
shall conduct all Petroleum Operations in an environmentally enlightened and
responsible manner such as to cause minimum damage to the natural environment
and minimal detrimental impact on local society within region of the Permit
Area.

 

11  ASSIGNMENT

 

11.1                        Except
as permitted by this Article-11 no Party may without the prior consent of all
other Parties sell, assign, transfer, mortgage, pledge, charge, encumber, sub-lease,
declare itself trustee of or in any way dispose of or alienate all or any of
its Percentage Interest and rights under this Agreement or its underlying
rights to the Permit, the Security Interest or in any JV Property PROVIDED THAT
nothing in this Article-11 shall apply to any Petroleum produced from the
Permit.

 

11.2                        Subject
to Article-11.5 any Party may assign the whole or any part of its Percentage
Interest to any Related Body Corporate.

 

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

 

11.4                        A
Party (“Transferor”) may dispose of its Percentage Interest or any part thereof
only in strict compliance with the provisions of this Article- 11.4 as follows:

 

(a)                                  Transferor
may dispose of its Percentage Interest 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);

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  a Percentage Interest in the Permit.

  

 

(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 favorable to the Offeree than those proposed in
  relation to such proposed purchaser.

  

 

14

 

(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 favorable 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 Article-11.4(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%.

 

11.5                        Prior
to this 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.

 

11.6                        It
shall be the responsibility of and at the sole cost of the Transferor to obtain
any required Pertamina consent to any assignment under this Article-11 and the
other Parties shall have no obligation to recognize 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.

 

12  WORK PROGRAMS AND BUDGETS

 

12.1                        The
Operator shall carry out all JV Activities and Petroleum Operations under the
Permit in accordance with Work Programs and Budgets approved by the Committee
and in accordance with this Article-12 and in accordance with and equivalent to
the AWP&B as required by Pertamina for its approval annually.

 

12.2                        The
Parties recognize and understand that the Joint Venture and the Operator are
obliged to submit an AWP&B annually in October to Pertamina for Pertamina’s
review and approval for each forthcoming calendar year during which the Permit
is in effect. The AWP&B submitted will be reviewed by Pertamina and
commented upon at an annual meeting between Pertamina and the Operator
representing the Joint Venture at which time Pertamina may require a
modification of the AWP&B. With Committee approval, the Operator may
prepare and submit an amended AWP&B to Pertamina at any time during the
year. Additionally, specific Pertamina regulations may apply to special Work
Programs and Budgets submitted for specific purposes, including as part of a
Plan of Development or possibly for a Sole Risk Operation. To the greatest
extent possible the Parties hereby expressly agree that the form and content of
any Joint Venture Work Programs and Budgets to be prepared by Operator for
Joint Venture use and consideration shall take identical form and content to
that required for same by Pertamina to minimize paperwork and reduce the
possibility of misunderstandings.

 

12.3                        As
provided for herein the responsibilities and procedures for Work Programs and
Budgets refers to those required for the Joint Venture and in the event of any
conflict with prevailing Pertamina planning and budgeting regulations then the
Pertamina regulations shall take precedence and the Operator shall so advise
the Parties so that the Parties may determine if the deviation for JV purposes
is warranted and shall continue.

 

15

 

12.4                        The
Operator shall not be entitled to exceed an approved Budget for an item of work
itemized 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.

 

12.5                        The
Operator shall prepare Work Programs 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 Work Programs and Budgets to the Committee at least
60 days prior to the day the Operator must submit them to Pertamina under the
Bengara II PSC. The Committee shall meet within 15 days after receipt of the
Work Program and Budgets from the Operator to consider and approve same.

 

12.6                        A Work
Program and Budget submitted by the Operator shall include a statement of the
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 itemized Budget of the estimated JV Costs to be incurred.

 

12.7                        If any
member of the Committee disapproves of the Work Program and Budget, then the
Parties shall promptly confer to reconcile their differences and to arrive at a
mutually acceptable Work Program 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 Work Program and Budget, then the matter shall be determined by
a resolution of the Committee in accordance with this Agreement.

 

12.8                        Subject
to this Article-12, an approved Work Program and Budget shall be binding upon
the Parties and on the Operator.

 

12.9                        A Work
Program and Budget may be revised from time to time by the Committee, subject
to and in accordance with the provisions of this clause.

 

12.10                 A copy of
each approved Work Program and Budget and each revision shall be furnished to
each Party.

 

13  AUTHORITIES FOR EXPENDITURE

 

13.1                        The
Operator shall, before entering into any single commitment or incurring any
single expenditure under an approved Work Program and Budget in excess of US$
100,000 prepare an AFE detailing, justifying and scheduling the estimated costs
to be incurred and shall submit a copy of the AFE to each Party.

 

13.2                        The
Parties recognize and understand that the Joint Venture and the Operator are
obliged to submit similar AFE’s to Pertamina for Pertamina’s review and
approval for major projects and expenditures including drilling wells, seismic
surveys, capital equipment purchase and construction projects. Each AFE
submitted will be reviewed by Pertamina and commented upon. Pertamina may
require a modification of the AFE. The Operator is required to periodically
submit amended and revised AFE’s to Pertamina for project and cost tracking
purposes. Additionally, specific Pertamina regulations may apply to AFE’s
submitted for specific purposes, including as part of a Plan of Development or
possibly for a Sole Risk Operation. To the greatest extent possible the Parties
hereby expressly agree that the form and content of any Joint Venture AFE to be
prepared by Operator for Joint Venture use and consideration shall take
identical form and content to that required for same by Pertamina to minimize
paperwork and reduce the possibility of misunderstandings.

 

13.3                        Each
AFE prepared by the Operator and delivered to the Joint Venture Parties
requires Committee approval even though it may have been part of and included
in an already JV and Pertamina approved AWP&B. Each Party shall within 21
days after receipt of such special AFE notify the Operator and the other
Parties whether it approves of the AFE. A Party shall be deemed to have
approved an AFE proposed by Operator unless notice of non-approval is
communicated to the Operator within the 21 day period referred to.

 

13.4                        If
Parties holding Percentage Interests sufficient to pass a Majority Vote approve
an AFE submitted by the Operator, then such approval shall constitute an AFE to
the Operator in terms of the AFE 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.

 

13.5                        If
necessary to carry out an approved Work Program or project, the Operator is
authorized 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.

 

16

 

13.6                        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.

 

14  PAYMENT OF COSTS

 

14.1                        Subject
to the provisions of any applicable farm out agreements pursuant to which a
Party may have acquired his particular Percentage Interest hereunder, the
Parties shall be liable for, agree to pay and shall pay all JV Costs and shall
finance and provide funds to the Joint Account as required to discharge all
Joint Venture liabilities in proportion to their respective Percentage
Interests.

 

14.2                        Without
exception the Parties agree that JV Costs shall include all PSC Costs of
whatever kind arising directly from or pertaining to the PSC and the Permit or
as a result of Petroleum Operations conducted within the Permit Area and
including costs of any kind as herein defined or as defined in the PSC, the PSC
Accounting Procedure or the attached JV Accounting Procedure.

 

14.3                        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.

 

14.4                        Subject
to Article-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 less 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 less 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.

 

14.5                        All
Cash Calls shall be paid within 30 days of receipt.

 

14.6                        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
simple interest thereon between the due date for payment and the date of actual
payment, at the Prescribed Rate.

 

15  NON-CONSENT

 

15.1                        Within
14 days after approval of a Work Program and Budget by the Committee, a Party
which voted against the carrying out of any work included in the approved Work
Program, 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 Work Program 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 included as part of JV Activities;

 

(b)                                 the
Consenting Parties may carry out the Non-Consent Operation as a Sole Risk
Operation and the provisions of Articles-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

 

17

 

(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: drilling an Exploration Well or an
Appraisal Well; or 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 well (“Casing Point”) the Committee will meet within 48 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 Article-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 (the “Default Amount”) is not paid when and as the same becomes
due and payable. Not less than 30 days thereafter, the Operator shall promptly
notify, in writing, the Parties of such default (the “Default Notice”).

 

16.2                        Where
a Party remains a Defaulting Party for more than 60 days after receipt of a
Default Notice, then the Defaulting Party shall have its Percentage Interest
reduced by an amount that bears the same proportion to its Percentage Interest
as the Default Amount bears to the total JV Costs made to date by such
Defaulting Party (the “Squeeze Down”).

 

16.3                        Promptly
following a Squeeze Down, 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 10 days of the 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 30 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 Article-16.3 by accepting less than 100% of the
default amount then notwithstanding Article-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 30
days after receipt thereof.

 

16.5                        Any
non Defaulting Party which does not pay a Cash Call rendered to that Party by
the Operator under either Article-16.3 or 16.4, shall itself become a
Defaulting Party.

 

16.6                        In the
event of a Squeeze Down, the non Defaulting Parties’ Percentage Interests shall
be adjusted to reflect such Squeeze Down and their respective payments, if any,
of some or all of the Default Amount.

 

16.7                        The
adjustments called for in Sections 16.2 and 16.6 hereof shall be made on terms
substantially similar to those found in Section 20.7 hereof.

 

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 in the same format and quality as submitted to Pertamina,
seismic sections and well logs. Any additional information shall be supplied by
the Operator at the costs of the Party requesting that information subject to
any Pertamina rules or regulations affecting the distribution of same.

 

18

 

17.2                        The
Operator shall provide each Party with daily drilling reports in a form and
content acceptable to Pertamina and the Joint Venture in respect of each well
drilled in the course of JV Activities together with a well completion report
in the same form as that delivered to Pertamina.

 

17.3                        The
Parties may make public announcements and statements with respect to JV
Activities subject to prior written approval of Pertamina as and when required
by Pertamina regulations.

 

17.4                        The
Operator shall keep the other Parties fully informed by means of reports as to
the progress of Exploration JV Activities 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.

 

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 make all reports required by Pertamina under the Permit in a
timely manner.

 

18  CONFIDENTIALITY

 

18.1                        All
Information obtained from Pertamina and all Information gathered by the Parties
relating to the Permit area shall be confidential in accordance with the terms
of the PSC and prevailing Pertamina regulations. 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
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 endeavors 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;

 

(g)                                 independent
accountants or legal counsel engaged by a Party to give advice on matters
relating to this Agreement; and

 

(h)                                 its
shareholders or other owners.

 

18.2                        The
disclosing Party under Article-18.1 above, clauses(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 clauses(b) and (c), and
of the disclosure of the Information to persons referred to in clauses (d) and
(e) after the sale has been made or the finance acquired. The Parties will
endeavor to limit the amount of Information disclosed to persons under clauses
(b), (c), (d), (e) and (f) to the extent reasonably required to accomplish the
desired purpose.

 

19  INSURANCE

 

19.1                        The
Operator shall maintain all insurance required by Pertamina or by any applicable
Law or by the terms of any contract relating thereto (“Required Insurance”) and
all insurance, other than Required Insurance, as the Parties may

 

19

 

from time to
time determine that the Operator shall effect on their behalf for the Joint
Account (“Determined Insurance”).

 

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

 

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

 

(b)                                 does
nothing which may interfere, directly or indirectly, with the Operator’s
placement of such insurance for the other Parties;

 

(c)                                  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

 

(d)                                 arranges
for such policies to be endorsed with waivers of subrogation in favor 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.

 

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

 

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

 

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

 

(c)                                  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.

 

19.4                        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.

 

19.5                        The
Operator shall require contractors and subcontractors performing work in
respect of JV Activities to effect and maintain all insurance 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. Insurance effected
pursuant to this Article-(e) shall provide for waivers of subrogation by the
insurer in favor 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                        If a
Party wishes to withdraw within ninety (90) days after the signature hereof
then the provisions of this Article-20 shall not apply and the provisions of
the withdrawing Party’s Farm Out Agreements shall prevail.

 

20.2                        Subject
to Article-20.1 hereof 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 Article-20.2(a)
above, by giving a Withdrawal Notice to the other Parties within 5 days after receipt of the notice
referred to in Article-20.2(a); or

 

20

 

(c)                                  by
giving a Withdrawal Notice to the other Parties within 5 days of approval of a
Work Program and Budget in accordance with Article-12.5 hereof.

 

20.3                        If a
Party gives a Withdrawal Notice to the other Parties in accordance with the
provisions of Articles-20.2(a) or 20.2(b) hereof, then subject to any approval
required from Pertamina, 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.

 

20.4                        If a
Party gives a Withdrawal Notice to the other Parties in accordance with the
provisions of Article-20.2(c), withdrawal will be effective upon the expiration
of the current Work Period.

 

20.5                        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.

 

20.6                        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
Work Program 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.

 

20.7                        A
Withdrawing Party shall on the effective date of withdrawal, be deemed to have
assigned to the other Parties in proportion to their respective Percentage
Interests, 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 Pertamina.

 

20.8                        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.

 

20.9                        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.

 

20.10                 In the event
the JV Participants choose to withdraw entirely from the PSC or permit it to
terminate in accordance with the provisions thereof, the JV Participants shall
be obligated to turn back their interest in the PSC to the original Apex
Bengara vendors in proportion to the Apex Bengara vendors ownership at the time
of their sale of Apex Bengara stock to CEC.

 

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
Article-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 Work Program
and Budget for the conduct of Appraisal Operations (“Appraisal

 

21

 

Program 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 Program 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.

 

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
itemized estimate of the JV 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 OPERATIONS

 

23.1                        Within
30 days of receiving Pertamina’s approval of a “Plan of Development” giving the
Operator permission to proceed with the commercial exploitation and production
of Petroleum from within the Permit Area the Parties shall meet for the
purposes of deciding whether this JOA is in need of modification, amendment or
restatement in view of the approved POD and anticipated development.

 

23.2                        Until
such time as the Parties thereafter decide and do implement any changes to this
JOA in contemplation of such production then this JOA shall remain in full
force and effect and shall extend to and continue to govern the Parties and the
Joint Venture with respect to any production ventures undertaken provided that:

 

(a)                                  JV
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 and these and all other
Petroleum exploitation, development and production costs shall be included in
JV Costs and the JV Accounts and shall be paid for by the Parties in respect to
their Percentage Interest in the Joint Venture;

 

(b)                                 each
Party shall, as tenant in common, own an undivided interest and share in all of
the Petroleum produced from the Permit Area and available to the Joint Venture
in accordance the terms and conditions of the Permit, applicable Indonesian Tax
Law and in a proportion equivalent to such Party’s Percentage Interest in
accordance with the terms and conditions of this JOA;

 

(c)                                  each
Party shall be responsible for paying its Percentage Interest share, as
applicable, of all entitlements due Pertamina pursuant to the PSC and all taxes
due Indonesian tax authorities that are allocable, deductible or payable in
respect of all Petroleum produced from the Permit Area;

 

(d)                                 the
Operator shall advise the Parties daily of Petroleum production rates,
cumulative production and the amount of Petroleum attributable to each Party
together with an estimation of each Party’s respective share of such
production, its costs, applicable taxes and distributions at the next period;

 

(e)                                  at
such time as production commences in the Permit Area, the Parties shall
negotiate in good faith and enter into a crude oil and natural gas offtake
procedure agreement; until such agreement is entered into each Party

 

22

 

shall be entitled to take in kind and
separately sell or dispose of its Percentage Interest share of all Petroleum
production derived from the Permit Area, in proportion to its respective
Percentage Interest;

 

(f)                                    notwithstanding
any other thing herein to the contrary, each Party shall have an absolute right
to direct that its share of any third party payment be made to its own account
and not to any JV account.

 

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; or

 

(c)                                  drilling
an Appraisal 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
Work Program 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 Work
Program 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 or an
Appraisal 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.

 

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 48 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 a 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;

 

23

 

(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)                                 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
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 Work
Program 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% (One Hundred Percent) 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

 

(c)                                  whether
or not the well is completed for production the SR-Parties shall, after
recovery of the aforesaid 100% (One Hundred Percent) 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 500% (Five Hundred Percent) in the case of an
Exploration Well and 500% (Five Hundred Percent) in the case of an Appraisal
Well of the SR-Costs incurred by the SR-Parties in relation to that well.

 

26  SOLE RISK—DEEPEN, REWORK, SIDETRACK, TEST,
COMPLETE

 

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% (Five Hundred
Percent) 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 no 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

 

24

 

(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% (One
Hundred Percent) 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 Parties 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

 

(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. If such payments discharge
in full 500% (Five Hundred Percent) of SR- Costs, 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 Pertamina regulations at the cost of
the SR-Parties.

 

27.6                        In the
event the Joint Venture is able to recover any SR Costs from Pertamina, such
costs will be treated the same as the recovery of any other costs and will be
allocated to the Parties pursuant to their respective Percentage Interests.

 

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
specialized 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.

 

25

 

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.

 

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                        All
non-technical disputes shall be settled via binding arbitration by a panel of
three people, chosen jointly by the disputing Parties, each having financial
and technical expertise in the oil and gas fields (who need not be attorneys),
with the time and place of such arbitration to be determined by the disputing
Parties.

 

28.5                        The
dispute resolution shall be held in Jakarta, Indonesia unless the Parties to
the dispute otherwise agree.

 

29  CONDUCT OF LITIGATION

 

29.1                        Subject
to Article-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, except as set forth herein, shall continue for so long as there are
operations being carried out or contemplated hereunder pursuant to the Permit
or any production license granted over any part of the Permit or any extensions
thereof 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.

 

26

 

31  FORCE MAJEURE

 

31.1                        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, labor 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
labor, or restrictions on them, or limitations on their use, inability to
obtain necessary consents from any authorities or governments, delays in
transportation, claims by traditional landowners, groups or organizations
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 as required under the PSC a relinquishment or surrender of any portion
of the Permit Area is required, the Operator shall give timely written notice
to the Committee, setting forth in detail the reasons for and a description of
the areas which the Operator suggests be so 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 Pertamina), determine and notify Operator
in writing of the decision to be carried out.

 

32.2                        Not
later than 180 days prior to the expiration of any particular period or term as
may be applicable under the PSC and the Permit, the Parties shall meet to
discuss whether an application to extend such period or term of the PSC or the
Permit should be made or should be allowed to lapse. The Parties that vote not
to extend the Permit shall simultaneously therewith serve a Withdrawal Notice
to the Operator and the other Parties in accordance with the provisions hereof.
The Parties that vote to renew the Permit shall determine the terms and
conditions for which such extension is sought and the acceptable work and
expenditure commitments therefor. Thereafter, the Operator shall on behalf of
the continuing Parties shall make all such applications and execute all such
documents as may be necessary or expedient to extend the term of the Permit for
the Joint Venture then to consist only of the Parties agreeing to the
conditions of such extension still subject to the provisions hereof.

 

33  GENERAL PROVISIONS

 

33.1                        Any
notice given in connection with this Agreement shall be delivered by hand; or
be sent by prepaid registered post; or by prepaid courier or be sent by
facsimile.

 

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:

 

	
  JV Participant

  	
  Operator

  
	
   

  	
   

  
	
  CONTINENTAL ENERGY CORPORATION

  	
  APEX (BENGARA-II) LTD.

  
	
  Suite 1760, 505 Burrard Street

  	
  3rd Floor Ampera Raya Building

  
	
  Vancouver, V6B-2M8

  	
  Jl. Ampera Raya 18

  
	
  British Columbia, CANADA

  	
  Jakarta, 12560, INDONESIA

  
	
  Tel: 1-604-687-3434

  	
  Tel: 62-21-782-7114

  
	
  Fax: 1-604-687-3073

  	
  Fax: 62-21-780-4752

  

 

27

 

	
  JV Participant

  	
   

  
	
  GEOPETRO RESOURCES COMPANY

  	
   

  
	
  Suit 400, One Maritime Plaza

  	
   

  
	
  San Francisco, CA, 94111, USA

  	
   

  
	
  Tel: 1-415-398-8186

  	
   

  
	
  Fax: 1-415-398-9227

  	
   

  

 

33.3                        A
notice shall be deemed to have been duly given if delivered on the date of
delivery or if sent by facsimile, on 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 canceling 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 authorizations and approvals to execute
this Agreement.

 

33.8                        The
provisions of this Agreement shall inure 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 British Virgin Islands.

 

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

 

28

 

IN WITNESS WHEREOF
the Parties hereto have caused their duly authorized representatives to hereto
set their hand and hereby bind the Parties effective on the date first above
written.

 

EXECUTED by the Parties as follows:

 

	
  SIGNED for and on behalf of APEX BENGARA

  by its duly authorized officer in the presence of:

  )

  )

  	
   

  	
  SIGNED & Common Seal affixed by
  authority of

  the Board of Directors, for and on behalf of

  Apex Bengara in its capacity as Operator &

  Party hereto, by:

  
	
  )

  	
   

  	
  )

  
	
  Name of Witness:

  	
   

  	
  )

  
	
  Occupation of Witness:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
   

  	
   

  	
  )                           /s/
  RICHARD L. MCADOO

  
	
   

  	
   

  	
   

  
	
  Address of Witness:

  	
   

  	
  MR. RICHARD L. MCADOO

  
	
   

  	
   

  	
  PRESIDENT & CEO

  
	
   

  	
   

  	
   

  
	
  SIGNED for and on behalf of CEC

  by its duly authorized officer in the presence of:

  )

  )

  	
   

  	
  SIGNED & Common Seal affixed by
  authority of

  the Board of Directors, for and on behalf of

  CEC, in its capacity as a JV Participant & Party

  hereto by:)

  
	
  )

  	
   

  	
  )

  
	
  Name of Witness:

  	
   

  	
  )

  
	
  Occupation of Witness:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
   

  	
   

  	
  )                                /s/
  GARY R. SCHELL

  
	
   

  	
   

  	
   

  
	
  Address of Witness:

  	
   

  	
  MR. GARY R. SCHELL

  
	
   

  	
   

  	
  DIRECTOR & CHAIRMAN OF THE BOARD

  
	
   

  	
   

  	
   

  
	
  SIGNED for and on behalf of GEOPETRO

  by its duly authorized officer in the presence of:

  )

  )

  	
   

  	
  SIGNED & Common Seal affixed by
  authority of the

  Board of Directors, for and on behalf of GEOPETRO

  in its capacity as a JV Participant & Party hereto by:

  
	
  )

  	
   

  	
   

  
	
  Name of Witness:

  	
   

  	
  )

  
	
  Occupation of Witness:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Address of Witness:

  	
   

  	
  )                                     /s/
  STUART J. DOSHI

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MR. S.J. DOSHI

  
	
   

  	
   

  	
  PRESIDENT & CEO

  

 

29

 

Annex—“A”
to the Joint Operating Agreement

The
Bengara-II JV Accounting Procedure

 

TABLE OF
CONTENTS

 

	
  ARTICLE

  	
   

  	
  PAGE

  
	
  1

  	
  SUBORDINATION TO PSC ACCOUNTING PROCEDURES

  	
   

  	
  31

  
	
  2

  	
  GENERAL PROVISIONS

  	
   

  	
  31

  
	
  3

  	
  ACCOUNTING RECORDS

  	
   

  	
  32

  
	
  4

  	
  CASH CALLS AND CASH ADVANCES

  	
   

  	
  33

  
	
  5

  	
  OPERATOR’S BANK ACCOUNTS FOR JOINT ACCOUNT
  TRANSACTIONS

  	
   

  	
  33

  
	
  6

  	
  STATEMENTS AND JOINT INTEREST BILLINGS

  	
   

  	
  34

  
	
  7

  	
  AUDITS AND ADJUSTMENTS

  	
   

  	
  34

  
	
  8

  	
  REPORTING—OPERATIONS BY LESS THAN ALL
  PARTIES

  	
   

  	
  35

  
	
  9

  	
  TERMINATION

  	
   

  	
  35

  
	
  10

  	
  OPERATING CHARGES AND CREDITS

  	
   

  	
  35

  
	
  11

  	
  BASIS OF CHARGES TO THE JOINT ACCOUNT FOR
  MATERIALS

  	
   

  	
  37

  
	
  12

  	
  PREMIUM PRICES & EMERGENCY SITUATIONS

  	
   

  	
  37

  
	
  13

  	
  WARRANTY OF MATERIALS

  	
   

  	
  37

  
	
  14

  	
  JV PURCHASED FOR THE JV ACTIVITIES FROM ONE
  OF THE PARTIES

  	
   

  	
  37

  
	
  15

  	
  USE OF EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES

  	
   

  	
  37

  
	
  16

  	
  DISPOSAL OF JV PROPERTY

  	
   

  	
  37

  
	
  17

  	
  USE OF JV PROPERTY

  	
   

  	
  38

  
	
  18

  	
  INVENTORIES

  	
   

  	
  38

  
	
  19

  	
  DISTINCTION OF PSC DEFINED COSTS

  	
   

  	
  39

  
	
  20

  	
  DEPRECIATION

  	
   

  	
  39

  

 

30

 

Annex—“A”
to the Joint Operating Agreement

 

The
Bengara-II JV Accounting Procedure

 

34  SUBORDINATION TO PSC ACCOUNTING PROCEDURES

 

(a)                                  This JV Accounting
Procedure is made subordinate to that PSC Accounting Procedure included as
Exhibit-C to the Bengara-II PSC. The Operator is obliged and shall continue to
be obliged to follow the PSC Accounting Procedure and prepare and file with
Pertamina all accounting Records, reports and financial statements as required
by and in the manner provided for in the PSC Accounting Procedure and other
Pertamina policies and regulations from time to time changed but currently in
effect.

 

(b)                                 The chart of accounts
that the Operator shall use in preparation of all Joint Account accounting
Records and statements and form of financial reporting statements shall be
those prescribed by Pertamina in accordance with the provisions of Section-1.2
of the PSC Accounting Procedure.

 

(c)                                  The JV Participants
shall all be entitled to receive, and Operator shall deliver to them, a copy of
any and all reports, financial statements, plans, budgets or other accounting
statements and records prepared by Operator for delivery to Pertamina in
accordance with Operator’s obligations thereto.

 

(d)                                 The Operator shall
also separately provide to the JV Participants the statements, billings,
accounts and Records as provided for herein and in the manner prescribed by
this JV Accounting Procedure.

 

(e)                                  To the extent
possible and in a manner not to become unduly burdensome on the Operator the
Operator shall also endeavor to provide the JV Participants with working papers
and information they may need to prepare their own respective internal
accounts.

 

35  GENERAL PROVISIONS

 

Definitions

 

Words and expressions that are defined in the
Agreement have the same meaning in this Accounting Procedure as ascribed to them
in the Agreement. Words and expressions that are defined in the PSC or the
Exhibit C to the PSC, the PSC Accounting Procedure, have the same meaning in
this Accounting Procedure as ascribed to them in the PSC Accounting Procedure.
In this Accounting Procedure the following terms enclosed in quotation marks
shall have the meaning ascribed to them below:

 

“Agreement”
means the Joint Operating Agreement of which this Accounting Procedure forms a
part;

 

“Capital Costs”
has the meaning ascribed to in paragraph-19 of this JV Accounting Procedure;

 

“Cost Price”
means the total actual cost of new materials which shall be the “landed’ or “local’
costs of such new materials and shall include, as applicable, net invoice
prices after trade and cash discounts, sales and added value taxes, insurance
costs, handling, import and transportation costs to the JV Activities
warehouse, customs and excise fees 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 or delivery direct to the site of such material’s
deployment, use or installation.

 

“Joint Account”
has the meaning ascribed to it in Article-1.1 of the JOA and is deemed to refer
to any bank account opened and controlled by the Operator for the purposes of
the Joint Venture, JV Activities, receipt of Cash Calls and disbursements of
payments for JV Costs;

 

“Joint
Interest Billing” or “JIB” has the meaning ascribed to it in paragraph 6(a)
below;

 

“JV Costs” has
the meaning ascribed to it in Article-1.1 of the JOA;

 

“JV
Participant” means a Party to this JOA who also owns a Percentage Interest
share of the Joint Venture. Apex Bengara, as Operator, is a Party to this JOA
but is not a JV Participant;

 

31

 

“JV Property”
has the meaning ascribed to it in Article-1.1 of the JOA, subject expressly to
the provisions for Pertamina ownership of same as per the Bengara-II PSC,
Section-X;

 

“Non-Capital
Costs” has the meaning ascribed to in paragraph-19 of this JV Accounting
Procedure;

 

“Non-Operating
Parties” means the parties other than the Operator;

 

“Operating
Costs” has the meaning ascribed to in paragraph-19 of this JV Accounting
Procedure;

 

“PSC Costs”
has the meaning ascribed to it in Article-1.1 of the JOA;

 

“Records” has
the meaning ascribed to it in Article-1.1 of the JOA; and

 

“Unused Market
Price” for any item of materials as used in this JV Accounting Procedures shall
mean the price (including sales tax, if any) for that particular item of
materials readily obtainable in the locality of the purchaser’s supply point at
the time of supply of that item of materials to the purchaser.

 

Interpretation

 

Interpretation of this JV Accounting
Procedure shall be made in accordance with the following:

 

Reference to
any Article is to an Article of the Agreement.

 

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

 

Reference to
any Section is to a Section of the PSC or the PSC 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.

 

Purpose

 

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 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.

 

ACCOUNTING
RECORDS

 

(f)                                    The Operator will
maintain and keep Records and Joint Accounts based on the Operator’s and
Pertamina’s usual accounting procedures and classifications and in accordance
with generally accepted accounting principles in the Petroleum Industry in
Indonesia, and with U.S. generally accepted accounting principles and
accounting standards consistently applied. All transactions in respect of the
JV Activities shall be recorded in the Joint Account in both United States
dollars currency and Indonesian Rupiah currency and converted to US dollar
currency for reporting purposes.

 

(g)                                 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.

 

(h)                                 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 except as required of such
Party to conform to and comply with the PSC, Indonesian Tax Law, the PSC
Accounting Procedure and this JV Accounting Procedure as such affects the Party’s
Joint Venture participation.

 

32

 

36  CASH CALLS AND CASH ADVANCES

 

(a)                                  Solely in accordance
with the approved budgets or AFE’s the Operator may “Cash Call” forward “Cash
Advances” from all (but not less than all) Parties who are also JV Participants
for their respective JV Percentage Interest share of estimated cash
requirements for the succeeding period’s operations.

 

(b)                                 The Operator is not a
JV Participant and shall not under any circumstances be required to fund Cash
Calls or make Cash Advances of any kind to the Joint Account at Operator’s sole
cost.

 

(c)                                  The Operator may make
routine periodic Cash Calls on a periodic basis determined from time to time by
the Committee in consideration of the level of anticipated JV Activity and
normally expected to be either monthly or quarterly. Unless another period is
set by the Committee and in effect the Operator shall make Cash Calls on a
calendar monthly basis.

 

(d)                                 Any Cash Call shall be
in and of a form approved by the Committee which shall specify details as to
the amount of each JV Participant’s Cash Advance contribution called, wire
transfer delivery instructions and a discussion as to what Budget and Work
Program items the requested advance and corresponding expenditure relates to,
the expected time schedule of expenditure and a Cash Call shall include the
Operator’s best estimate and forecast of the amount of cash that will be
required from the JV Participant for the next period’s Cash Call to follow.

 

(e)                                  Cash Calls shall be
prepared by Operator and delivered by fax or email to each JV Participant on a
business day equivalent to either the 14th, 15th or 16th
day of each month (or the first month of a quarter if quarterly Cash Calls are
in effect) and such Cash Calls shall be paid and the requested Cash Advance be
delivered to the Operator controlled Joint Account designated in the Cash Call
by each JV Participant no later than the 15th day of the following
month and each JV Participant shall dispatch a fax advice to the Operator,
giving details of Cash Advances so made.

 

(f)                                    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 JV Participants with the said
monthly estimate of its requirements, the Operator may request the JV
Participants to make special Cash Advances pursuant to special Cash Calls
covering the JV Participants’ proportionate shares of such unforeseen payments.
The Operator shall provide the JV Participants with specific details as to the
sums of money to be expended, each JV Participant’s contribution to the same
and the anticipated date of expenditure. The JV Participants shall dispatch
their proportionate special advances within 15 days of receipt of such notice.

 

(g)                                 The Operator shall not
without the prior written consent of all JV Participants make Cash Calls upon
the JV Participants if the expenditure to which the Cash Call relates is not to
be expended within at most two months of the date of the Cash Call.

 

(h)                                 Cash Calls and Cash
Advances made pursuant thereto shall be subject to review and adjustment by the
Operator’s accounting staff. If any or all of the JV Participants Cash Advances
exceed their actual realized share of actual expenditures, the next succeeding
Cash Calls, after such determination, shall be reduced accordingly. If a JV
Participant’s advances are determined to be more or less than its share of
actual expenditure, the deficiency shall, at Operator’s option, 1) be adjusted
to and offset against subsequent Cash Calls or 2) be the subject of a special
Cash Call made to the JV Participant for the purpose and being payable within 5
working days following the receipt of the billing for such deficiency, or 3)
repaid by Operator to the JV Participant. 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 (h) above, if, in the Committee’s opinion, a significant excess of
cash becomes evident, the Operator (which shall endeavor to maintain as low a
cash balance as is reasonably possible) will advise details of such excess to
the contributors which may elect to have their share of such excess cash
reimbursement by the Operator. If any JV Participant so elects the Operator
will refund all excess funds to all JV Participants entitled to such refunds.

 

1  OPERATOR’S BANK ACCOUNTS FOR JOINT ACCOUNT
TRANSACTIONS

 

(a)                                  The Operator shall be
required to open, maintain, control and operate, in the name of the Operator
but on behalf of the Joint Venture, sufficient separate bank accounts in
whatever currency and of whatever type necessary to provide for

 

33

 

and enable Joint Account bank transactions involving Work Programs,
Budgets and AFE’s for JV Activities and payment of JV Costs in respect thereof.

 

(b)                                 The Operator shall
maintain as low a cash balance as reasonably possible in the bank accounts
specified.

 

(c)                                  Funds in the bank
accounts not immediately needed to pay for JV Costs 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 JV Participants maintained for such purpose by
Operator.

 

(d)                                 It is the intent that
none of the JV Participants shall experience an exchange gain or loss at the
expense of, or to the benefit of, the other JV Participants. The JV
Participants upon whom Cash Calls are made shall be required to and hereby
agree to deliver their respective share of Cash Advances for credit to the
Joint Account at the Operator’s bank account as prescribed in the Cash Call in
the currency of United States dollars and any currency conversion gains or
losses thereon incurred by the JV Participant in accordance with such delivery
shall be for the account of the JV Participant alone. Operator shall furnish
the JV Participants, if required, with sufficient currency exchange data from
Operator’s bank to enable the JV Participants to translate the billings to the
currency of their corporate accounts.

 

(e)                                  Any gain or loss on
currency conversions in respect of transfers between Operator’s JV bank
accounts of differing currencies making up the Joint Account shall be for the
Joint Account.

 

(f)                                    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.

 

37  STATEMENTS AND JOINT INTEREST BILLINGS

 

(a)                                  Within 40 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 “Joint
Interest Billing” or “JIB” consisting of three separate financial statements as
follows:

 

(i)                                     a
statement recording actual cash expenditure against Cash Advances, if any, made
for that month;

 

(ii)                                  a
JV Activities statement summarizing 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. 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.

 

(iii)                               a
statement of source and application of funds in each currency in which Cash
Advances and Joint Account expenditures have been made.

 

(b)                                 The Operator shall
within 30 days following the end of each calendar year provide the Parties with
a list of insurance and other claims and litigation outstanding as at the end
of the previous year.

 

38  AUDITS AND 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 bad faith, 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)                                 The Committee shall
appoint an outside and independent auditor and conduct an Annual JV Audit at
the cost of the JV Account for distribution to all the JV Participants not
later than 60 days after year end.

 

(c)                                  Any one or more of
the Non-Operating Parties shall have the right to conduct an additional “External
Audit” of the JV Accounts and JV 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

 

34

 

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.

 

(d)                                 Any External Audits
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.

 

(e)                                  At the conclusion of
each External Audit, the Parties who are participating in the External Audit
will endeavor 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. The report shall
include all claims arising from such External 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 2 months following receipt
of the report. 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 Willful Misconduct, the Non-Operating
Parties shall have the right to conduct further External Audits in respect of
any earlier periods. The costs incurred in connection with any External Audit
shall be borne by the Parties participating in it in the proportion to which
their respective Percentage Interests bear to each other and shall not be
charged to the Joint Account.

 

(f)                                    All adjustments
resulting from any 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.

 

39  REPORTING—OPERATIONS BY LESS THAN ALL PARTIES

 

Within 30 days following the end of each
calendar month during which the Operator is carrying out a Sole Risk Operation
or a Non-Consent Operation or adjusting the Records and the Joint Account with
respect to same 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.

 

40  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.

 

41  OPERATING CHARGES AND CREDITS

 

The Parties to this Joint Venture and the JOA
understand and acknowledge that the current Operator named in this Agreement
was created especially for the purpose and has no other business activities or
mission or reason to exist other than to act as Operator of the Joint Venture
thus limiting the possibilities of conflicts of interest and simplifying the
allocation of charges to the Parties for expenditures incurred by the Operator.
For all intents and purposes each and every expenditure made by the Operator
regardless of nature is made by the Operator in his capacity as Operator on
behalf of and in direct respect to the Joint Venture. Therefore unless
otherwise particularly described or prohibited herein this Accounting Procedure
then ALL expenditures of any kind actually incurred by the Operator are for the
Joint Account subject to Operator’s documentation of all such actual costs on a
“when and as paid” basis. The Operator shall charge the Joint Account and the
Joint Venture shall pay for the following items:

 

Direct Charges

 

(a)                                  Rentals,
Fees and Deposits—Acquisitions and bonus costs, lease, license or permit
deposits, rentals, renewal or extension fees, royalties and other similar
payments paid by Operator for the Joint Account, as required for Petroleum
Operations and to maintain the interest of the Parties in any JV Property.

 

35

 

(b)                                 Personnel
Costs—Reasonable salaries, fees and wages of all Operator’s “Personnel”
including without limitation management, employees, consultants, contractors,
advisors, staff and casual labor employed by Operator in whatever manner for
whatever time period and engaged in whatever way in the conduct of JV
Activities including earned or compensatory time off relating to the employees
engagement in JV Activities.

 

(c)                                  Customary
Personnel Allowances—Operator’s reasonable costs of holiday, vacation,
sickness and disability benefits and other customary allowances and location
assignment bonuses paid to its Personnel.

 

(d)                                 Personnel
Assessments—Reasonable expenditures or contributions made pursuant to
withholding tax assessments imposed by governmental authority under Indonesian
Tax Law which are applicable to Operator’s Personnel cost of salaries and wages
as per contract or assessment.

 

(e)                                  Personnel
Benefits—Operator’s reasonable and current cost of established plans or as
per contract for its Personnel including without limitation medical
reimbursement plans, medical insurance, life insurance, hospitalization
insurance, remote location evacuation insurance, pensions, social assurance,
Jamsostek, ASTEK and retirement plans applicable to Operator’s Personnel.

 

(f)                                    Personnel
Bonuses—Operator’s reasonable and current cost of established plans for
providing its Personnel incentive work bonuses, production milestone related
cash bonuses, performance bonuses and other such bonuses applicable.

 

(g)                                 Material
and Supplies—Material and supplies purchased by Operator for JV use. 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.

 

(h)                                 Travel,
Living Allowance & Transportation—Reasonable travel expenses, living
allowances, and moving expenses of Personnel to the Joint Account. All 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 point of hire.

 

(i)                                     Services—All
costs and expenditure relative to work done for the Joint Account incurred
under contracts entered into by Operator with independent contractors of
whatever nature.

 

(j)                                     Utilities—The
cost of electricity, sewer, water, security, garbage collection and other utility
or public services procured by Operator.

 

(k)                                  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.

 

(l)                                     Acquisition
of Surface Rights and Damage Claims—All costs and expenses to acquire
surface rights, rights of way, land for construction or compensatory damages
payable for use of land and damages or destruction of crops, plants, property
or agriculture during Petroleum Operations.

 

(m)                               Legal
and Litigation Expenses—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 or
opine on or perfect titles, 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.

 

(n)                                 Taxes
and Levies—All taxes and rates of every kind and nature, except taxes which
are measured by the income of the parties, assessed or levied upon the Joint
Venture, the Operator or in connection with the JV Property, the JV Activities,
or the Petroleum production or the Permit or arising therefrom or pertaining to
any taxes paid by the Operator for the benefit of the Parties pursuant to
Indonesian Tax Law.

 

(o)                                 Insurance—Premiums
paid for insurance carried on the JV Property or JV Activities for the
protection of the Joint Venture or the Parties.

 

(p)                                 Other
Expenditures—Any other expenditure not covered or dealt with in the
foregoing provisions which are incurred by the Operator for the necessary and
proper conduct of work done for the Joint Account.

 

36

 

Indirect Charges

 

The Operator will not incur any Indirect
Charges.

 

42  BASIS OF CHARGES TO THE JOINT ACCOUNT FOR
MATERIALS

 

(a)                                  New
or used 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.

 

(b)                                 New
or used 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.

 

43  PREMIUM PRICES & EMERGENCY SITUATIONS

 

Whenever materials and supplies are not
readily obtainable at the customary supply point and prices because of
circumstances, 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 with a written justification of same which
shall be accepted and paid by the Joint Account it being fully understood that
the Operator is to take whatever remedial action it deems necessary in an
emergency to safeguard and protect the best interests of the Joint Venture, JV
Property, the Operator’s personnel and the Permit.

 

44  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.

 

45  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 Operator for use in the JV Activities at
Joint Account expense 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.

 

46  USE OF EXCLUSIVELY OWNED EQUIPMENT AND
FACILITIES

 

For services rendered to the JV Activities by
plant, equipment or facilities exclusively owned by a Party, the owner will
charge for such services at rates not in excess of fair market value of such
services, and the Operator will give consideration 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.

 

47  DISPOSAL OF JV PROPERTY

 

(a)                                  Section-10.1 of the
Bengara-II PSC specifically provides that all equipment and physical property
purchased by a PSC contractor, including the Operator on behalf of the Joint
Venture, shall immediately become the exclusive property of Pertamina upon such
purchase or on the date an imported purchase is landed in Indonesia. The
rationale for this provision is that by virtue of Pertamina granting cost
recovery to the PSC contractor in accordance with other PSC provisions that all
property purchased by the PSC contractor is thereby reimbursed and in effect
actually paid for by Pertamina.

 

(b)                                 Despite the Pertamina
entitlement the JV retains full custody, control over and rights of use of any
such Property for as long as the PSC is in effect always subject to the
provisions of the PSC and Pertamina policies and regulations concerning such
property.

 

37

 

(c)                                  The Pertamina
regulations are commonly strictly enforced regarding PSC Section-10.1 and
Pertamina takes immediate possession and inventories and transports at its own
cost such property to a Pertamina warehouse immediately upon termination or expiry
of any PSC regardless of whether any Petroleum production was actually
established from the PSC and any cost recovery proceeds were actually received
by the PSC contractor. This includes mundane items such as office furniture as
well as oil and gas exploration and production equipment.

 

(d)                                 Notwithstanding the
Pertamina title to all JV Property purchased for use in Petroleum Operations
there are prescribed Pertamina procedures whereby a PSC contractor may dispose
of such property with the prior approval of and in the manner prescribed by
Pertamina. Such dispositions are commonly made by one PSC contractor to another
PSC contractor or to or from Pertamina itself and may take the form of a
property trade or reimbursement to which the disposing party may accept cash
proceeds provided his PSC Costs, and claim thereby to later cost recovery under
the PSC, are suitably adjusted correspondingly.

 

(e)                                  Subject to prior
approval of the Committee the Operator may propose and effect a disposition of
any JV Property it considers surplus or otherwise unneeded provided such
disposition is made wholly in accordance with the obligations to Pertamina in
respect of such disposition.

 

(f)                                    In the event any JV
Property is disposed of by the Operator in accordance with Pertamina
regulations, the Operator shall advise the Parties of the net affect of any
such Pertamina approved disposition on the original cost of such JV Property
and advise of the accounting treatment applied by the Operator to properly
record and adjust the disposition to the Joint Account so that the Parties may
properly adjust their own respective accounts accordingly.

 

2  USE OF JV PROPERTY

 

Materials and JV Property 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. 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. The
Operator shall promptly credit the Joint Account upon receipt of the proceeds
received for such usage.

 

48  INVENTORIES

 

Periodic
Inventories, Notice and Presentation

 

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. 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. Each Party, at its own cost, also has the right to take an independent
inventory once a year.

 

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.

 

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.

 

38

 

49  DISTINCTION OF PSC DEFINED COSTS

 

The PSC and the PSC Accounting Procedure
define three specific types of costs particularly meaningful with regard to the
PSC Costs which are subject to cost recovery as defined and described in the
PSC. These three types of costs are as follows and are all to be a part of JV
Costs funded by the Parties for payment from the Joint Account with respect to
each JV Participant’s Percentage Interest share thereof.

 

(a)                                  “Non-Capital Costs”
means all Operating Costs incurred by the Joint Venture pursuant to this JOA
that are NOT “Capital Costs” as defined elsewhere herein and are subject to
definition and treatment as defined in the PSC and the PSC Accounting
Procedure, Section-2.2;

 

(b)                                 “Capital Costs” means
all JV Costs incurred in the acquisition of physical assets having a useful
life commonly exceeding the year in which they were purchased and placed in
service and which are commonly depreciated over time and includes the
construction or acquisition of plant, facilities and infrastructure; whether
specifically incurred as a PSC Cost or not and in any event shall be subject to
the definitions, treatment and depreciation methods as prescribed in the PSC
Accounting Procedure Section-2.3;

 

(c)                                  “Operating Costs” has
a specific meaning as defined in Section-2.1 of the PSC Accounting Procedure
and herein shall also mean and refer to PSC Costs for any given period that consist
of three specific elements; 1) Non-Capital Costs incurred during the period, 2)
applicable depreciation of Capital Costs for the period and 3) the allowable
portion, if any, allocated to the current period for unrecovered Operating
Costs carried forward from prior periods;

 

50  DEPRECIATION

 

The Operator shall calculate depreciation for
Capital Cost expenditures wholly in accordance with the provisions of and in
the manner prescribed in Section-III of the PSC Accounting Procedure.

 

—End JV Accounting Procedure—

 

39

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]