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EXHIBIT 10.1    
  

 
 

APEX BENGARA-II AND YAPEN
  FARM OUT AGREEMENT    
  

THIS FARM OUT AGREEMENT (this "Agreement" or "FOA"), is made effective as of the 1st day of January, 2000, by and between CONTINENTAL ENERGY CORPORATION
("CEC"), a British Columbia, Canada corporation located at Suite 1760, One Bentall Center, 505 Burrard Street, Vancouver, B.C., V7X-1M6, Canada, GEOPETRO RESOURCES COMPANY (the "Farmee"), a
California, U.S.A. corporation located at Suite 400, One Maritime Plaza, San Francisco, CA, 94111, USA, APEX (BENGARA-II) LTD. ("Apex Bengara"), a British Virgin Islands corporation located at 3rd
Floor, Ampera Raya Building, Jl. Ampera Raya 18, Jakarta, 12560, Indonesia, and APEX (YAPEN) LTD. ("Apex Yapen"), a British Virgin Islands corporation located at 3rd Floor, Ampera Raya Building, Jl.
Ampera Raya 18, Jakarta, 12560, Indonesia. CEC, the Farmee, Apex Bengara and Apex Yapen are sometimes hereinafter referred to individually as a "Party" and collectively as the "Parties". 

WHEREAS, CEC, including through its subsidiaries Apex Bengara and Apex Yapen, is involved in the oil and gas exploration and production business in
Indonesia pursuant to certain Production Sharing Contracts ("PSCs") with "Pertamina", the state oil company of the Republic of Indonesia, as described below. CEC does not presently derive any revenue
or income from the PSC contract areas, which are in an exploratory stage. CEC is seeking Farmees to farm in, purchase and take up working interests in the PSCs in order to reduce CEC's exposure and
raise capital to explore and drill in the PSC contract areas. 

WHEREAS, Apex Bengara was formed expressly for the sole purpose of entering into, holding and operating a PSC (the "Bengara-II PSC") covering a 4,867
square kilometer contract area known as the "Bengara-II Block" located partially onshore and partially offshore in East Kalimantan, Indonesia. Apex Bengara has no business or assets other than those
pertaining to the Bengara-II PSC, which it signed with Pertamina on December 4, 1997. Under the Bengara PSC, Apex Bengara has the exclusive authority to conduct petroleum exploration and production
operations for up to 30 years within the Bengara II Block. In accordance with a certain purchase agreement concerning the Apex Bengara stock
dated effective August 1, 1998 (the "Bengara-II Share Purchase Agreement"), CEC purchased 50,000 common shares of Apex Bengara from four separate vendors (the "Original Vendors"), which shares
constitute 100% of the authorized, issued and outstanding shares of Apex Bengara; thus, CEC is the sole owner of Apex Bengara. Apex Bengara is the sole signatory and holder of 100% of the Bengara-II
PSC. 

WHEREAS, Apex Yapen was formed expressly for the sole purpose of entering into, holding and operating a PSC (the "Yapen PSC") covering a 9,500 square
kilometer contract area known as the "Yapen Block" located offshore in northern Irian Jaya, Indonesia. Apex Yapen has no business or assets other than those pertaining to the Yapen PSC, which it
signed with Pertamina on September 27, 1999. Under the Yapen PSC, Apex Yapen has the exclusive authority to conduct petroleum exploration and production operations for up to 30-years within the Yapen
Block. In accordance with a certain purchase agreement concerning the Apex Yapen stock dated effective August 1, 1998 (the "Yapen Share Purchase Agreement"), CEC agreed to purchase 50,000 common
shares of Apex Yapen from the Original Vendors, which shares constitute 100% of the authorized, issued and outstanding shares of Apex Yapen; upon close of such transaction, CEC will be the sole owner
of Apex Yapen. Apex Yapen is the sole signatory and holder of 100% of the Yapen PSC. 

WHEREAS, the Farmee is engaged in the oil and gas business and wishes to farm in, purchase and take up a working interest in the PSCs and participate in
their exploration and exploitation. 

1

 

WHEREAS, CEC and the Farmee desire to set forth in writing the terms and conditions pursuant to which the Farmee shall farm in, purchase from CEC and
acquire a working interest in the PSCs and for that purpose have prepared this Agreement. 

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

1.  FARM OUT, WORKING INTEREST, PURCHASE PRICE AND FUNDING COVENANT  

    All as part of a transaction hereinafter referred to as the "Farm Out": 

	a)
	CEC
agrees to farm-out and sell and deliver to the Farmee a forty percent (40%) undivided interest in each of two joint ventures (the "JVs") that respectively relate and correspond
to equivalent interests in each of Apex Bengara and Apex Yapen and each of their underlying PSCs (the "Working Interests", as further defined in Article-3.c and 6 below). The JVs are more particularly
described in the Bengara II Block Exploration Joint Venture Joint Operating Agreement, attached hereto, and the Yapen Block Exploration Joint Venture Joint Operating Agreement (collectively, the
"JOAs"), each dated as of the effective date herewith. The parties acknowledge that a JOA for Apex Yapen will be prepared and executed as soon as possible based upon the form JOA for Apex Bengara
attached hereto.

	b)
	The
Farmee hereby agrees to farm-in and purchase and take up the Working Interests and to pay as consideration therefor the following:

	(i)
	Farmee
shall pay to CEC an aggregate purchase price (the "Purchase Price") of One Million Two Hundred Ninety Seven thousand United States dollars
(US$ 1,297,000), which represents 50% of its original acquisition costs for Apex Bengara and Apex Yapen (the "Acquisition Costs").

	(ii)
	Farmee
hereby covenants to and shall be obliged (the "Funding Covenants"), in accordance with the provisions of the applicable JOA to which Farmee
hereby agrees to become a party and in the manner prescribed in therein, to do as follows:

	a-
	The Farmee shall take up, fund and pay for, upon a practicable payment schedule, Farmee's Working Interest percentage share of all
Apex Bengara and Apex Yapen costs and their related PSC costs and work commitments accruing and becoming payable commencing retroactively and becoming effective as of August 1, 1998,

	b-
	provided that all of the costs referred to in this Article-1.b.ii are subject to audit and adjustment to actual Working Interest
share of such costs in accordance with the provisions of and in the manner provided for in the JOA, and are expected to be normally cost recovered in accordance with the PSC,

	c-
	further provided that CEC shall continue to be responsible, solely at its own 100% cost to pay and fully discharge, as soon as
possible, its obligations to the Original Vendors pursuant to Bengara-II and Yapen Share Purchase Agreements, which, if not paid in full by the time CEC receives payment number 3 of the Purchase
Price, CEC shall use all proceeds thereof toward satisfaction of its obligations under the Share Purchase Agreements, and the Farmee's obligations to pay its Working Interest share of costs shall not
apply to CEC's obligations to the Original Vendors; and

	d-
	solely for the purposes of illustration and as a forecast of anticipated future expenditures required of CEC and Farmee with respect
to these Funding Covenants, a table setting the costs expected to be incurred pursuant to the Funding Covenants in the proportions of 

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the
CEC's and Farmee's respective Working Interests during the first two quarters of calendar year 2000 in each of the JVs as derived from approved Pertamina budgets for same are attached hereto
entitled Exhibit-#A. The above-described numbers and values set forth in said Exhibit-#A are not intended to be actual numbers or be binding upon the Parties, but are for illustrative purposes only;
however, it is the firm intent of the Parties that all actual real costs accrued, incurred or paid with regard to the respective PSC related operations and corporate activities of Apex Bengara and
Apex Yapen shall be shared by CEC and Farmee in proportion to their Working Interest shares for so long as the respective JOAs are in effect. 

2.  PAYMENT SCHEDULE  

    Cash payments required from the Farmee as per Article-1 above shall be made according to the following schedule: 

	a)
	Farmee
hereby agrees to pay the Purchase Price to CEC strictly in accordance with the following Purchase Price "Payment Schedule": 

 
 

PURCHASE PRICE PAYMENT SCHEDULE    
  

	Payment Number
	 	US Dollars Payment
	 	Payment Due On or Before

	-1-	 	$	147,000.00	 	On signature of this FOA
	-2-	 	$	610,000.00	 	21-January-2000
	-3-	 	$	540,000.00	 	31-January-2000
	 	 	
	 	

	 	 	$	1,297,000.00	 	Total Purchase Price
	 	 	
	 	

	b)
	Farmee
hereby agrees to pay all cash due in accordance with Farmee's Funding Covenants as provided for in Article-1.b.ii above, including those described for quarters one and two of
year 2000 as shown in Exhibit-#A, directly to either Apex Bengara or Apex Yapen at the time, and in such amounts as requested by the respective JV "Operator" (as defined in Article 3.g., below, and
the JOAs) in cash calls according to the schedule and in the manner provided for in each respective JOA. The amounts set forth on Exhibit A under the three line items entitled "A/C payables" and
"payment for operations" are the best estimates available at the present time. Such amounts are subject to audit and adjustments, with credit toward future cash calls under the JOA to the extent
overstated on Exhibit A and paid by Farmee, and in no event shall Farmee be obliged to pay more for its share of such items in the event they are understated.

	c)
	CEC
hereby represents that, as illustrated on Exhibit-#A, CEC has already paid a total of US$ 25,000 to Apex Yapen and US$ 225,000 to Apex Bengara in respect of its own funding
obligations during the period August 1, 1998 through December 31, 1999. Farmee's respective Working Interest share of these costs is US$ 10,000 and US$ 90,000 respectively and, notwithstanding
anything herein or in the JOAs to the contrary, Farmee agrees to pay such amounts directly to CEC no later than March 31, 2000; provided, however, that such amounts are subject to audit as set forth
in Article-1.b.ii.b, above. Once the payments called for in this paragraph have been made, the parties agree and acknowledge that Farmee's Working
Interest share of joint venture costs will be brought into proportionality with that of CEC as of December 31, 1999, and that the respective JOAs will apply to all costs incurred commencing January 1,
2000. 

3.  JOINT VENTURE, WORKING INTEREST & JOA  

    Farmee and CEC agree to, and are in fact entering into each of the JOAs two simultaneously herewith, both JOAs to be dated effective January 1, 2000. Each JOA
shall form and constitute a JV 

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between CEC, Farmee and any other subsequent farmees, all of whom as parties to the JOA shall be known as "JV Participants". 

	a)
	The
"Bengara JOA" shall create and govern the nature and operation of the "Bengara JV" and the JV Participants shall therein deem that the Bengara JV shall own a 100% participating
interest in Apex Bengara and the underlying Bengara-II PSC and all business activities of Apex Bengara and petroleum operations conducted pursuant to the Bengara-II PSC shall be deemed to be for and
on behalf of the Bengara JV.

	b)
	The
"Yapen JOA" shall create and govern the nature and operation of the "Yapen JV" and the JV Participants shall therein deem that the Yapen JV shall own a 100% participating
interest in Apex Yapen and the underlying Yapen PSC and all business activities of Apex Yapen and petroleum operations conducted pursuant to the Yapen PSC shall be deemed to be for and on behalf of
the Yapen JV.

	c)
	Each
JOA shall contain a listing and statement of the percentage interest that each JV Participant owns in the JV. The total amount of the JV Participants' percentage interests
ownership in the JV shall be equal to 100% and each such JV Participant's interest is hereby defined as constituting the "Working Interest" ownership of that JV Participant in the particular JV, which
shall in turn be equivalent to that same JV Participant's deemed percentage ownership in the respective underlying Apex company and its PSC as further described in Article-6 below.

	d)
	Each
JOA shall contain the fundamental terms and conditions regarding the nature and manner in which the exploration, drilling and field exploitation activities within the
respective PSC contract area and under the respective PSC are jointly conducted by CEC, Farmee and other farmees acting together as JV Participants in the respective JVs.

	e)
	Each
JOA shall also contain the fundamental terms and conditions governing the nature and manner in which business matters are conducted among the JV participants within the
respective JVs and the relationships between the JV participants and the rights and obligations of each JV Participant within the JV and with respect to each other.

	f)
	Each
JOA shall contain provisions for, and only in the manner to be provided for in each JOA, and subject to commercial petroleum production as recognized by Pertamina having first
been established by the JV with respect to the PSC contract area then each JV Participant may have the option to convert its JV Working Interest into a direct interest in the PSC provided that
Pertamina approval of such assignment is first received.

	g)
	Each
JOA shall contain provisions for recognizing the residual rights of the original Apex Bengara and Apex Yapen shareholders as set forth in their respective share purchase
agreements with CEC dated effective August 1, 1998. CEC represents and warrants that such residual rights consist solely of: (i) the requirement that in the event the JV Participants choose to
withdraw entirely from the respective PSC or permit it to terminate in accordance with the provisions thereof that, the JV Participants shall be obliged to turn back 100% of their interest in the
respective PSC to the Original Vendors in proportion to their holdings at the time of sale to CEC; and (ii) the JV Participants shall not pledge, encumber or hypothecate any of their shares in Apex
Bengara or Apex Yapen until all amounts due the Original Vendors pursuant to the Bengara II Stock Purchase Agreement and Yapen Stock Purchase Agreement have been paid in full.

	h)
	Any
and all participants signing similar farm out agreements or in any manner otherwise acquiring a beneficial interest directly in either Apex Bengara or Apex Yapen or the
underlying PSCs shall be
required to become a party to either the Bengara JV or Yapen JV as a precondition of transfer of such interest by any JV Participant and only in the manner therefor provided in the applicable JOA such
that all direct beneficial interest owners including CEC and Farmee shall at all times be parties to a single JOA and thereby JV participants in their respective JVs. 

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	i)
	Apex
Bengara shall be the Bengara JV "Operator", with role and responsibility as defined in the Bengara JOA, on behalf of the Bengara JV Participants and Apex Yapen shall be the
Yapen JV "Operator", with role and responsibility as defined in the Yapen JOA, on behalf of the Yapen JV Participants. 

4.  DELIVERY OF PAYMENTS  

    Farmee agrees to deliver the payments required of Farmee pursuant to Article-1 and Article-2 hereof as follows: 

	a)
	Farmee
agrees to deliver the entire Purchase Price in accordance with the Payment Schedule to CEC as follows:

	(i)
	Farmee
shall deliver Purchase Price installment payment number -1- as set forth in Article-2.a by wire transfer to a CEC bank account designated in
writing by CEC to Farmee and shall cause such transfer no later than January 20, 2000 and CEC shall use the proceeds of such installment strictly as provided for in Article-5.a hereof; and

	(ii)
	Farmee
shall deliver Purchase Price installment payment number -2- as set forth in Article-2.a by check no later than January 21, 2000 to a Trust
Account established for the purpose and under control of an attorney chosen by Farmee (the "Special Counsel") and the proceeds of such installment are to be utilized strictly as provided for in
Article-5.c hereof.

	(iii)
	Farmee
shall deliver Purchase Price installment payment number -3- as set forth in Article-2.a in the form of three separate written promissory
notes each issued by the Farmee in favor of CEC (the "Notes"), each dated effective January 31, 2000, each bearing simple interest at a rate of 7.5% per annum from the effective date thereof, each
containing specific payment delivery instructions and each taking the general form of the blank note attached hereto entitled Exhibit-B. Farmee shall issue such
notes in the principal amounts and having dates on which payment of the principal amount together with any accrued but unpaid interest becomes due and payable as follows:

	•
	Note-#1
in the principal amount of US$ 180,000 payable on June 30, 2000.

	•
	Note-#2
in the principal amount of US$ 180,000 payable on September 30, 2000.

	•
	Note-#3
in the principal amount of US$ 180,000 payable on December 31, 2000. 

	b)
	Except
as provided for in Article-2.c. hereof, Farmee agrees to deliver the payments due pursuant to Farmee's Funding Covenants and as provided for in Article-2.b and Article-2.c
and Article-5.a by wire transfer directly to accounts of Apex Bengara or Apex Yapen at the Hong Kong Shanghai Bank, Pondok Indah Branch, Jakarta, Indonesia as indicated by them in writing to the
Farmee and as provided for in the respective applicable JOA. 

5.  USE & APPLICATION OF PURCHASE PRICE PROCEEDS  

    Upon signature by both parties, and except as otherwise provided herein, the Farm Out hereby constituted shall be irrevocable, and the Farmee agrees that: 

	a)
	Upon
delivery of installment payment number -1- of the Purchase Price as provided for in Article-4.a.i above, CEC shall cause US$ 100,000 of the full amount of such payment to be
used as working capital in connection with the JVs which shall be treated as a working capital contribution to the JVs by CEC as per the JOAs. The remainder of payment number -1- shall be utilized by
CEC at its own discretion. In accordance with this FOA and the JOAs, GeoPetro shall be required to contribute its JV Working Interest share of the aforementioned CEC JV contribution and shall do so by
delivering to the JV accounts its corresponding JV Working Interest share of CEC's 

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contribution
in the amount of US$ 66,667 pursuant to a cash call made under the provisions of the JOA no earlier than May 31, 2000. In the event that CEC is unable to obtain the release of the
Security Interest (as defined below) by February 29, 2000, then, at Farmee's option (i) CEC shall return such installment payment number -1- to Farmee by February 29, 2000 with simple interest at the
rate of 7.5% per annum thereon or, if such installment has not been returned to Farmee by such date, or (ii) CEC shall cause Apex Yapen and Apex Bengara, respectively, to transfer to Farmee (or an
affiliate
identified by Farmee) a 5% Working Interest in each of the Apex PSC and the Bengara PSC, and Apex Yapen and Apex Bengara hereby agree to use their best efforts to effect such transfer. 

	b)
	CEC
is currently using its best efforts, and shall continue to do so, to obtain the release of a general security interest covering all of its assets, which may include its
interests in Apex Yapen and Apex Bengara, held by one Mr. Fred Mancheski (the "Lender")of Connecticut, U.S.A. (the "Security Interest") in respect of a loan made by the Lender to CEC in December of
1998, and to terminate the consent order with Lender (the "Consent Order").

	c)
	Delivery
of installment payment number -2- of the Purchase Price as provided for in Article-4.a.ii above shall be made to Farmee's counsel's ("Special Counsel") trust account
strictly as follows: Special Counsel shall apply, but only if and when the Special Counsel is satisfied that the Security Interest and Consent Order will be terminated with such application, any or
all of the proceeds of such installment payment number 2 as required to obtain the termination of the Security Interest and Consent Order, with the remainder to be paid over to CEC. In the event that
the Security Interest and Consent Order are not released by February 29, 2000, then the Special Counsel shall return the proceeds of such installment payment number 2 to Farmee, and this Agreement
shall terminate (including Farmee's obligation to deliver and make any payment upon the Notes), but subject to the other applicable terms and conditions hereof, including Article 5.a., above. Neither
CEC, Apex Bengara nor Apex Yapen will cause the termination of the Security Interest or Consent Order by delivery of any shares of stock of such company or any Working Interest to the Lender.

	d)
	Upon
delivery of the payments as provided for in Article-4.b above, Apex Bengara or Apex Yapen may immediately apply and use any funds so received for working capital requirements
in accordance with the applicable JOA. 

6.  THE SECURITY INTEREST  

    Each JV Participant will own a Working Interest in the Joint Venture constituted by the JOA as provided for in Article-3 provided that: 

	a)
	The
Working Interest of each JV Participant shall be secured by a "Security Interest" consisting of two common share certificates, duly issued and registered in the name of the
Farmee, dated as of the Closing Date, one certificate for a number of common shares in Apex Bengara and another for common shares of Apex Yapen representing a corresponding undivided share ownership
percentage in each Apex company together with a deemed corresponding percentage interest in the respective underlying PSCs such that the respective amount of Working Interest owned by any JV
Participant as set forth in this FOA and restated in the JOA shall be equivalent to the same JV Participant's Security Interest share ownership in the respective Apex company and shall also be
equivalent to the deemed PSC interest owned by the JV Participant. The certificates shall be delivered to GeoPetro as soon as practicable after Closing in a manner, place and time agreed by the
parties, but no later than February
29, 2000, and an executed board resolution relating thereto shall be delivered to GeoPetro by February 15, 2000. 

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	b)
	Notwithstanding
the foregoing, the Apex Bengara and Apex Yapen common shares certificates held by any JV Participant shall be for the purposes of constituting a Security Interest in
the manner to be provided for in the JOA.

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

	d)
	CEC
and Farmee hereby expressly agree that the Working Interests as created and defined in the respective JOA shall take precedence over and above those rights and obligations
normally attributable to the any other shareholder as an owner of Security Interest common shares. Such precedence shall continue until such time as the applicable JOA is dissolved or otherwise
terminates, expires or becomes ineffective.

	e)
	Immediately
upon the applicable JOA becoming dissolved or otherwise ineffective, then the Working Interest shall likewise terminate and the rights, obligations and entitlements of
the previous JV Participants and Security Interest owners shall 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 companies and underlying PSCs shall be as common shareholders subject to the memorandums and articles of association of the Apex companies. 

7.  DELIVERY OF THE WORKING INTEREST  

    CEC agrees to deliver, and hereby delivers, the Working Interest to the Farmee effective as of the date of Closing as defined in Article-8, below and further
provided that the Working Interest entitlements and obligations becomes effective retroactively as at January 1, 2000 simultaneously on the same date as the effectiveness of this FOA and the JOAs. 

8.  CLOSING  

    The "Closing" of this Agreement shall occur on January 31, 2000 or such later date as the parties may agree (the "Closing Date") provided that on or before the
Closing Date this FOA and the JOAs are signed by the parties, the Purchase Price wire transfers are made by GeoPetro as prescribed herein and the promissory notes constituting the last payment of the
entire Purchase Price are signed and delivered by GeoPetro to CEC upon the same date and further provided that upon such Closing date the 40%Working Interest hereby purchased by GeoPetro shall be
thereupon deemed simultaneously delivered to GeoPetro with effect from January 1, 2000. 

9.  DEFAULT OF PAYMENT OF PURCHASE PRICE  

	a)
	In
the event that, for any reason other than breach of any representation, warranty or covenant contained herein, or fraud or similar, Farmee does not make full payment of the cash
portion of the Purchase Price as provided for payments numbered -1- and -2- by the date payment number -2- of the Purchase Price is due as set forth in the Payment Schedule in Article-2.a above, then
the Farmee shall be immediately upon such date held in default of Farmee's Purchase Price payment obligation. Under such circumstances this Agreement shall terminate upon such due date and the Parties
shall be under no further obligation to one another (except as otherwise herein provided) and Farmee shall forfeit any partial payments of the Purchase Price already made. Also in the event of such
default, the defaulting Farmee shall cease to be a party to any JOA already signed by the defaulting Farmee, in accordance with the provisions thereof, and shall no longer be entitled to any
participation in the JVs and the Farmee hereby agrees that in the event of such default, then such default shall be deemed to constitute Farmee's withdrawal from any signed JOA and Farmee shall have
no further recourse against CEC or any other JV Participant. 

7

 
	b)
	In
the event of a default of Farmee with respect to the promissory notes issued by Farmee to CEC as a portion of the Purchase Price as described in Article-4.a.iii above then the
provisions of the notes regarding such default shall apply. 

10. REPRESENTATIONS AND WARRANTIES OF THE FARMEE  

    Effective as of the date hereof and as of the Closing, Farmee represents and warrants to CEC, acknowledging that CEC will be relying upon such representations
and warranties in entering into this Agreement, that: 

	a)
	Except
for a potential transfer to a wholly owned subsidiary or other closely related affiliate, Farmee is purchasing as principal, for investment and not with a view to brokering
an immediate resale or distribution, and no other person, corporation, firm or other organization will have a beneficial interest in the Apex Bengara and Apex Yapen Shares without proper assignment as
shall be provided for in the JOA.

	b)
	The
Farmee has the legal capacity and competence to enter into and execute this Agreement and take all actions required pursuant hereto and, if the Farmee is a corporation it is
duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders, and others have been given to authorize
execution of this Agreement on behalf of the Farmee.

	c)
	The
entering into of this Agreement and the transactions contemplated hereby will not result in the violation of any of the terms and provisions of any law applicable to the Farmee
or of any agreement, written or oral, to which the Farmee may be a party or by which the Farmee is or may be bound;

	d)
	This
Agreement has been duly executed and delivered by the Farmee by the Farmee's duly authorized representative and constitutes a valid and binding agreement of the Farmee
enforceable against the Farmee in accordance with its terms;

	e)
	The
Farmee has such knowledge in financial and business affairs as to be capable of evaluating the merits and risks of Farmee's making an investment in this Farm Out and the Farmee
is able to bear the economic risk of a total loss of this investment.

	f)
	The
Farmee has had the opportunity to consult his or her own independent professional advisors with respect to the consequences of entering this Farm Out. 

11. REPRESENTATIONS AND WARRANTIES OF CEC, APEX BENGARA AND APEX YAPEN  

    Effective as of the date hereof and as of the Closing, CEC represents and warrants to Farmee, on its own behalf and on the behalves of Apex Bengara and Apex
Yapen, acknowledging that the Farmee will be relying upon such representations and warranties in entering into this Agreement, that: 

	a)
	CEC,
Apex Bengara and Apex Yapen are valid and subsisting corporations duly incorporated and in good standing under the laws of their governing jurisdictions.

	b)
	CEC
is a reporting issuer as defined in the Securities Act (British Columbia) (the "Act"), and the Securities Rules (the "Rules") under the regulation of the British Columbia
Securities Commission (the "Commission"). Common shares of CEC are traded on the Canadian Venture Exchange (the "Exchange"). CEC is required to and is acting in accordance with the Act and all the
Rules and regulations of the Exchange, including the making of accurate and timely filings and press releases with regard to its business and financial condition, and including with regard to
consummating certain transactions including the one contemplated hereunder. CEC is obliged to seek Exchange acceptance of this transaction and shall do so at its own expense and risk, but regardless
of its 

8

 

success
in obtaining such acceptance the transactions in this FOA shall apply and remain binding upon CEC. 

	c)
	There
are no actions, suits, judgements, investigations or proceedings of any material kind outstanding, pending, or threatened against or affecting CEC or Apex Bengara and Apex
Yapen at law or in equity or before or by any federal, provincial, state, municipal, or other governmental department, commission, board, bureau or agency of any kind whatsoever and, to the best of
its knowledge, there is no basis therefor; except for an as yet unregistered and unresolved action brought by the Lender against CEC and CEC's former President in regard to a 1998 loan made to CEC all
as more fully described in CEC's last audited financial statements and publicly filed information circular for CEC's year 2000 annual general meeting.

	d)
	The
financial statements of CEC most recently filed with the Commission and the Exchange (the "Latest Financial Statements") accurately reflect the financial position of CEC
consolidated with that of Apex Bengara and Apex Yapen as of the date thereof and, subject to changes over time in the ordinary course of CEC's business, no material change in such position has taken
place since the date thereof, other than material changes disclosed in news releases filed with the Exchange since such date.

	e)
	The
Farm Out by CEC does not and will not conflict with and does not and will not result in a breach of any of the terms, conditions or provisions of its or the Apex companies'
charter documents or any agreement or instrument to which CEC or the Apex companies is a party.

	f)
	The
execution of this Agreement, and any actions called for hereunder, have been duly authorized by all necessary corporate action on behalf of CEC and the Apex companies, and
constitutes a binding obligation of CEC and the Apex companies enforceable in accordance with its terms.

	g)
	Except
as contemplated hereunder, there are no Pertamina, Indonesian or British Virgin Islands governmental or other filings, consents or approvals necessary to be made or obtained
in order to Close the Farm Out.

	h)
	Custody
of the original Apex Bengara and Apex Yapen corporate documents, share issues register, shareholders and directors meeting minutes and resolutions is with the Apex Bengara
and Apex Yapen Secretary in the Jakarta office. Duplicate sets shall be maintained at CEC's corporate offices and at Apex Bengara and Apex Yapen's registered agent's office in the British Virgin
Islands.

	i)
	The
authorized capital stock of Apex Bengara consists of 50,000 ordinary shares, with a par value US$1 per share, all of which are issued, outstanding and fully paid. CEC has good
and marketable title to all of its own material assets including all 50,000 of the shares of Apex Bengara, free and clear of any and all restrictions, taxes, claims, charges, liens, encumbrances and
security interests thereon except for those certain residual obligations CEC has to the Apex Bengara vendors with regard to payment for the shares and covenants in regard to the shares CEC purchased
from them pursuant to the share purchase and transfer agreement dated effective August 1, 1998, and except for certain encumbrances pursuant to interpretations of a general security agreement over all
of the assets of CEC dated for reference November 22, 1999, in favor of the Lender referred to in Article-5.b above.

	j)
	The
authorized capital stock of Apex Yapen consists of 50,000 ordinary shares, with a par value US$1 per share, all of which are issued, outstanding and fully paid. Upon closure of
its acquisition CEC shall have good and marketable title to all 50,000 of the shares of Apex Yapen, free and clear of any and all restrictions, taxes, claims, charges, liens, encumbrances and security
interests thereon except for those certain residual obligations CEC has to the Apex Yapen vendors with regard to payment for the shares and covenants in regard to the shares CEC is purchasing from 

9

 

them
pursuant to the share purchase and transfer agreement dated effective August 1, 1998 as amended. 

	k)
	There
have been no amendments or changes to the Bengara-II PSC or the Yapen PSC since their respective signings and as of the date of this Agreement both PSCs are in full force and
effect.

	l)
	There
is no pending or threatened dispute, proceeding or other action by Pertamina or the Indonesian Government against CEC or Apex Bengara and Apex Yapen in connection with or
pertaining to Apex Bengara and Apex Yapen or the PSCs.

	m)
	Except
for those certain liabilities, obligations and commitments incurred by it directly in accordance with, and pursuant to, the PSCs, Apex Bengara and Apex Yapen have no other
liabilities and no other obligations.

	n)
	All
information relating to Apex Bengara, Apex Yapen and CEC furnished by CEC to the Farmee, in connection with CEC, Apex Bengara and Apex Yapen or the PSCs, is true and complete in
all respects as of the date hereof (and does not fail to include any information that reasonably may be deemed material to Farmee's decision to enter into the transaction contemplated hereunder),
provided that certain forward looking statements including without limitation cost estimations, production forecasts, resource and reserves estimations, oil price assumptions and economic analyses are
prepared on a reasonable and realistic basis but are fully recognized by all parties as being assumptions commonly made when considering investment decisions but upon which there is no certainty that
any such forecast results will actually be accurate or achieved.

	o)
	CEC
agree to cause Apex Bengara and Apex Yapen management to not commit to any new liabilities or make any material changes in Apex Bengara and Apex Yapen's business activities
pursuant to the PSCs or otherwise during the period from the signature date hereof and prior to Closing without first informing Farmee and obtaining Farmee's approval on any Apex Bengara and Apex
Yapen business decisions other than routine ones made in accordance with the Annual Work Program and Budget for Calendar Year 2000 for both PSCs as already approved by Pertamina.

	p)
	Apex
Bengara and Apex Yapen have good and marketable title to all of their material assets (including their respective PSCs), subject to terms and conditions of the applicable PSC,
free and clear of any and all restrictions, taxes, claims, charges, liens, encumbrances and Security Interests. 

12. DUE DILIGENCE MATERIALS  

    Certified true and complete copies, as amended and currently valid, have been or shall be as soon as reasonable practicable furnished to the Farmee by CEC,
unless otherwise specified below, and shall include: 

	a)
	Apex
Bengara and Apex Yapen's Certificate of Incorporation and Memorandum of Association and Articles of Association.

	b)
	The
Bengara-II PSC and the Yapen PSC.

	c)
	The
executed Bengara SPTA and the Yapen SPTA both dated effective August 1, 1998 pursuant to which CEC purchases Apex Bengara and Apex Yapen from the original vendors.

	d)
	The
Annual Work Program and Budget for Calendar Year 2000 for both PSCs.

	e)
	A
copy of the most recent audited financial statements of CEC consolidating the books of Apex Bengara and Apex Yapen together with an unaudited and management prepared financial
statement from the last quarter stub period for which such is available.

	f)
	Full
documentation relating to the Lender's general security interest and CEC's indebtedness to the original vendors of Apex Bengara and Apex Yapen. 

10

 

13. COVENANTS OF FARMEE  

    Farmee warrants that, in accordance with the Farm Out and in accordance with Farmee's capacity as a shareholder of Apex Bengara and Apex Yapen and a JV
Participant and Working Interest holder, Farmee shall abide by and comply with and shall at all times cause Apex Bengara and Apex Yapen to abide by and comply with all responsibilities, obligations,
undertakings, covenants and commitments placed on either Apex Bengara and Apex Yapen or the Farmee with respect to: 

	a)
	the
terms and conditions of the PSCs, regulations of Pertamina, MIGAS and other Indonesian authorities having jurisdiction and prevailing Indonesian laws;

	b)
	the
fact that as a "going concern" Apex Bengara and Apex Yapen have certain pre-existing and continuing obligations with respect to its employees, consultants, suppliers,
contractors and others and the Farmee shall at all times cause Apex Bengara and Apex Yapen to honor and fulfill all such outstanding commitments;

	c)
	the
JV as may be from time to time amended in accordance with the rules described in the JOA; and

	d)
	the
Apex Bengara and Apex Yapen Memorandum and Articles of Association as may be amended in accordance with the rules therein. 

14. COVENANTS OF CEC  

    CEC warrants, on its own behalf and on the behalves of Apex Yapen and Apex Bengara where applicable, as follows: 

	a)
	That,
in accordance with the Farm Out and in accordance with CEC's capacity as a shareholder of Apex Bengara and Apex Yapen and a JV participant, and otherwise, CEC shall abide by
and comply with and shall at all times cause Apex Bengara and Apex Yapen to abide by and comply with all responsibilities, obligations, undertakings, covenants and commitments placed on either Apex
Bengara and Apex Yapen or CEC with respect to:

	(i)
	the
terms and conditions of the PSCs, regulations of Pertamina, MIGAS and other Indonesian authorities having jurisdiction and prevailing Indonesian
laws;

	(ii)
	the
fact that as a "going concern" Apex Bengara and Apex Yapen have certain pre-existing and continuing obligations with respect to its employees,
consultants, suppliers, contractors and others and CEC shall at all times cause Apex Bengara and Apex Yapen to honor and fulfill all such outstanding commitments;

	(iii)
	the
JV as may be from time to time amended in accordance with the rules described in the JOA; and

	(iv)
	the
Apex Bengara and Apex Yapen Memorandum and Articles of Association as may be amended in accordance with the rules therein. 

	b)
	That
neither Apex Bengara nor Apex Yapen shall authorize or issue any additional shares of stock, whether common or preferred, nor shall they issue any debt of any kind, without the
prior written consent of Farmee. 

15. JOINT COVENANT TO FARM DOWN PROPORTIONALLY  

    CEC and the Farmee recognize that their financial resources are limited and that proper exploration of the PSCs may take more funds than CEC and the Farmee
alone are able to raise. Therefore CEC and the Farmee hereby agree to jointly conduct efforts to make additional farm outs of Working Interest from either or both PSCs to third parties at the best
possible commercial terms. In 

11

 

such cases where farm out efforts are jointly initiated and conducted, then, if the terms are acceptable to both CEC and the Farmee, CEC and the Farmee will farm down and reduce their own respective
Working Interest percentages, in proportion to their respective Working Interests at the time of such farm down, in order to provide an amount of Working Interest to the new farmee; provided, however,
that neither party is obligated to proportionately farm down its Working Interest if the proposed terms of such Farm Down are unsatisfactory to it. 

16. JOINT COVENANT TO FORM AREA OF MUTUAL INTEREST  

    CEC and the Farmee have discussed a mutual interest in jointly pursuing additional PSC contract areas in Indonesia. Within three months of the date of Farmee's
payment of all amounts owing pursuant to the promissory notes as per Article-4.a.iii, Closing CEC and the Farmee hereby covenant with one another to negotiate and enter a mutually acceptable contract
to be known as an "Area of Mutual Interest" or "AMI" agreement covering the Republic of Indonesia and its waters. Such AMI will specify possible geographic areas for which PSCs may be jointly sought
and the commercial terms and conditions of a joint venture for acquiring any such PSCs as well as pro-forma joint venture terms for managing them. Any such joint venture or similar agreements will,
with respect to both CEC and Farmee, be on a 50/50 ground floor non-promoted basis. 

17. ADDITIONAL AGREEMENTS  

	(a)
	Both
CEC and Farmee will promptly sign or cause its respective duly authorized representatives to sign and thereby bind the individual Parties in the event any other contracts,
filings, declarations or agreements that are required or may become required to give full force and effect to and facilitate actions relating to and including without limitation the Farm Out, the
Joint Venture, PSC activities and the consideration payable for same.

	(b)
	Until
such time as Farmee has fully discharged its obligations under the Notes, Farmee covenants and agrees to immediately apply upon receipt and make partial prepayment thereby
against the Notes twenty-five (25%) of any and all cash proceeds received directly by Farmee as a result of any and all farm outs or sales of Working Interests made by Farmee.

	(c)
	Until
such time as CEC has fully discharged its obligations to the Original Vendors pursuant to the Bengara-II and Yapen Share Purchase Agreements, CEC covenants and agrees to
immediately apply upon receipt and make partial prepayment thereby against such obligations twenty-five (25%) of any
and all cash proceeds received directly by CEC as a result of any and all farm outs or sales of Working Interests made by CEC.

	(d)
	CEC
covenant that, not later than January 21, 2000, or such later date as Farmee may agree, it will obtain a written agreement from each of the Original Vendors, in a form
satisfactory to Farmee, whereby they release CEC and its successors and assigns from: (i) all obligations under Article VII of each of the Bengara II and Yapen Share Purchase Agreements (the
"Release"); (ii) all restrictions on encumbering, pledging or hypothecating the shares of Apex Bengara as per Paragraph 4 of the promissory notes dated September 30, 1998, made by CEC in favor of Apex
vendors (the "Waiver"). The delivery of the Release and the Waiver shall be conditions precedent to delivery of installment payments 2 and 3 by Farmee. 

18. MISCELLANEOUS  

    Time is of the essence of this Agreement. This FOA may not be assigned by either party and further this FOA shall; 

	a)
	be
binding on the executors, successors, trustees in bankruptcy or other legal representatives of both Parties; 

12

 
	b)
	constitute
the entire agreement between the Parties and shall supersede and replace any other express or implied, oral or written agreements between the Parties with respect to the
Farm Out

	c)
	in
the event and matter of any dispute arising between the Farmee and CEC with regard to their respective entitlements and obligations in accordance with the Farm Out this FOA shall
take precedence over the JOA in the event of any conflict of interpretation between the FOA and the JOA;

	d)
	after
Closing and upon the effective delivery of the Working Interest to the Farmee, be deemed to be satisfactorily performed and shall terminate and cease to be effective and the
ongoing relationship of the Farmee and CEC shall be governed by the JOA; except that the Parties covenants in Articles 10, 11, 13, 14, 15, 16 and 17 hereof shall continue to survive and apply for as
long as the Parties hereto remain parties to the JOA and further provided that the three promissory notes herewith issued shall remain several and binding on the Farmee as provided for therein;

	e)
	be
governed by, and construed in accordance with, the laws of California, U.S.A., and jurisdiction and venue for any and all disputes hereunder or related hereto shall lie in U.S.
Federal District Court in San Francisco, California. 

19. NOTICES  

    A party to this Agreement will give all notices to, or written communications with, the other party concerning this Agreement by fax provided that an original
follows and is delivered by hand, or by courier or by registered mail addressed to the other party's address as first above written or as may be amended by like notice, and such notices shall be
effective on the date of first delivery by fax or otherwise. 

20. COSTS AND EXPENSES  

    Reasonable and applicable legal costs incurred by the parties directly in the preparation and performance of this FOA and the JOAs (except for costs incurred
by CEC, Apex Bengara and Apex Yapen with respect to the Lender) shall be for the account of the respective joint venture and shall be so billed by the parties and allocated by the Operator provided
that each party is responsible for first paying costs of its own counsel or counsel retained by it and further providing suitable supporting accounting information in respect of such payments as the
Operator may require are delivered to Operator and thereupon the Operator shall credit the respective parties Joint Venture Working Interest share of costs and advances accordingly. All other costs of
the parties, unless otherwise provided for in the JOAs are solely for the account of the party incurring them and shall not be joint venture costs. 

IN WITNESS WHEREOF the parties hereto set their hand effective on the date first above written. 

	CONTINENTAL ENERGY CORPORATION	 	GEOPETRO RESOURCES COMPANY
	

 	
 	

 
	
 By its Chairman, Mr. Gary R. Schell	 	
 By its President, Mr. S.J. Doshi
	
APEX (BENGARA-II) LIMITED	
 	

APEX (YAPEN) LIMITED
	

 	
 	

 
	
 By its President, Mr. Richard L. McAdoo	 	
 By its President, Mr. Richard L. McAdoo

13

  

 
 

EXHIBIT A    
  

Current Status Statement at 31-Dec-99

For the Deal Continental Energy Bought Apex (Bengara-II) Ltd.  

Original Deal—Continental to Pay Bengara-2 Vendors  

	 
	 	Due Date
	 	Shares
	 	Value at Deal
	 	Total US$ Value

	Total CEC Shares	 	30-Sep-98	 	850,000.00	 	$	0.62	 	$	525,619
	Cash Payments to Vendors	 	30-Sep-98	 	 	 	$	1,200,000	 	$	1,200,000
	Fund all Apex B2/PSC Needs	 	1-Aug-98	 	 	 	$	—	 	$	—
	 	 	 	 	 	 	 	 	 	

	 	Total Original Deal Value at 1-Aug-98	 	 	 	 	 	 	 	 	$	1,725,619
	 	 	 	 	 	 	 	 	 	

Transaction Summary of Issue of Continental Shares  

	Continental Shares
 
	 	Due Date
	 	Paid Date
	 	Shares
	 	Value at Deal
	 	Total US$ Value
	 
	Total Shares to Vendors	 	30-Jun-99	 	30-Jun-99	 	850,000.00	 	$	0.62	 	$	525,619	 
	Less Shares Issued to:	 	 	 	 	 	 	 	 	 	 	 	 	 
	Apex Oil & Gas	 	30-Jun-99	 	30-Jun-99	 	(250,000.00	)	$	0.62	 	$	(154,594	)
	Eka Sinto Kasih	 	30-Jun-99	 	30-Jun-99	 	(250,000.00	)	$	0.62	 	$	(154,594	)
	Richard McAdoo	 	30-Jun-99	 	30-Jun-99	 	(250,000.00	)	$	0.62	 	$	(154,594	)
	Asian Venture Finance Corp	 	30-Jun-99	 	30-Jun-99	 	(100,000.00	)	$	0.62	 	$	(61,838	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	Balance Shares Due at 31-Dec-99	 	 	 	 	 	—	 	 	 	 	$	—	 
	 	 	 	 	 	 	 	 	 	 	 	
	 

Transaction Summary of Cash Payments  

	Cash Payments
 
	 	Due Date
	 	Paid Date
	 	Amount Due
	 	Amount Paid
	 	Total US$

	Cash Payment to Vendors	 	15-Dec-98	 	7-Dec-98	 	$	400,000	 	$	(400,000	)	$	—
	 	 	
	 	
	 	
	 	
	 	

	 	Balance Cash Due at 31-Dec-99	 	 	 	 	 	 	400,000	 	 	(400,000	)	$	—
	 	 	 	 	 	 	 	 	 	 	 	 	

Transaction Summary of Promissory Note Payments  

	P-Notes Issued 30-Sept-98
 
	 	Due Date
	 	Paid Date
	 	Principle
	 	+Interest
	 	Total US$

	AB2 Promissory Note-#1	 	1-Mar-99	 	Not Yet	 	$	300,000	 	$	45,000	 	$	345,000
	AB2 Promissory Note-#2	 	1-May-99	 	Not Yet	 	$	300,000	 	$	36,000	 	$	336,000
	AB2 Promissory Note-#3	 	1-Jul-99	 	Not Yet	 	$	200,000	 	$	18,000	 	$	218,000
	 	 	 	 	 	 	 	 	 	 	 	 	

	 	Balance Cash Due From Notes at 31-Dec-99	 	 	 	$	800,000	 	$	99,000	 	$	899,000
	 	 	 	 	 	 	 	 	 	 	 	 	

FINAL SUMMARY ACQUISITION COSTS  

	Total Value Received From Continental by B2 Vendors at 31-Dec-99	 	$	925,619
	 	 	

	Total Value Due From Continental to B2 Vendors at 31-Dec-99	 	$	899,000
	 	 	

	Total Amount Continental Obliged to Pay Bengara-2 Vendors	 	$	1,824,619
	 	 	

14

  

 
 

FOA Exhibit-"B"    
    
    ProForma—Promissory Note-# 1/2/3    
  

THIS "PROMISSORY NOTE" IS AN AGREEMENT AND PROMISE TO PAY, (hereinafter referred to as "Note-# 1/2/3"),
dated effective 31-January-2000 and issued by GeoPetro Resources Company and hereby made binding upon its heirs, successors, assigns, executors, and trustees in bankruptcy (the "Payer") to, and in
favor of, Continental Energy Corporation (the "Payee") as partial consideration made by Payer to Payee pursuant to a Farm Out Agreement dated effective 1-January-2000, (the "FOA"), between the Payer,
Payee, and certain other parties in accordance with which the Payee delivered Payer a working interest in two Indonesian oil and gas properties known as Apex Bengara and Apex Yapen ("Working
Interests"); the terms, conditions, definitions, addresses of the parties and other descriptions as defined in the FOA shall apply to this Promissory Note, a blank and pro-forma copy of which is
included attached to the FOA entitled Exhibit-B. 

NOW THEREFORE, Payer hereby irrevocably agrees and promises to pay to the Payee as follows: 

	1.
	The
Payer shall, and hereby promises and irrevocably covenants, to pay to the Payee, subject to the conditions of this Note-#      , an amount equivalent to the sum of
US$ 180,000 (one hundred eighty thousand US Dollars) ("the Payment").

	2.
	The
Payee hereby directs the Payer to make the Payment by wire transfer to the US$ account of the Payee, details of which shall be provided in writing by Payee to Payer immediately
upon Payer's request.

	3.
	The
"Payment Due Date" of this Note-#      shall be the last day of      2000. The Payment, or any unpaid balance thereof together with all accrued but
unpaid interest thereon shall become due and is immediately thereupon payable by Payer to Payee upon the Payment Due Date.

	4.
	Payer
may make prepayments to the Payee of partial amounts of the Payment or make full Payment at any time prior to the Payment Due Date at Payer's discretion without penalty;
provided always that together with such prepayments all accrued but unpaid interest thereupon through the date of such prepayment is also paid.

	5.
	Payer
agrees to pay accumulated "Interest" on any unpaid Payment balance at a rate of seven and one-half percent (7.5%) simple interest per annum. Accrual of such Interest shall
commence upon and include the effective date of this Promissory Note and shall continue to accrue and be payable until the date that actual payment of the entire Payment or of any partial pre-payments
of the total Payment is made. Accrued Interest shall be prorated to the actual number of days of the month upon the date of any payments. The total amount of accrued but unpaid Interest shall be paid
together with the entire Payment upon the Payment Due Date or upon the date of any partial pre-payment thereof.

	6.
	If
for any reason other than a breach of a representation, warranty or covenant by any of Payee, Apex Yapen Ltd. or Apex (Bengara-II) Ltd. under Articles 11, 14, 15, 16 or 17 of FOA
the Payer does not make the Payment together with accrued but unpaid Interest thereon to the Payee on or before the Payment Due Date, then the Payer shall immediately upon the day after the Payment
Due Date be held in "Default" of Payer's obligations hereunder.

	7.
	In
the case of Default the only remedy available to Payer to cure such Default shall be for Payer to forthwith give up, forfeit to and immediately assign to the Payee ("Tender") an
undivided 5.55% Working Interest in the Apex Bengara-II and Apex Yapen joint ventures to the Payee; provided, however, that at the time of any Default, if Payer holds less than a 40% Working Interest,
then Payer shall only Tender that portion of any of its remaining Working Interest which is equivalent 5.55 divided by 40. 

15

 
	8.
	Provided
that if any such Default is remedied and cured by satisfactory delivery by Payer to Payee of the Working Interest in the manner provided for in clause-7 above , then
immediately thereupon this Note-#      shall terminate and the Payer shall be released from his Payment obligations hereunder. In such case,

	(i)
	Payer
shall not forfeit any revenue entitlements due under the JOAs attributable to the amount of Working Interest so assigned by Payer to Payee to
cure Payer's Default and

	(ii)
	any
costs already paid by Payer to the JV arising pursuant to the JOA and attributable and limited to the amount of Working Interest so assigned by
Payer to Payee to cure Payer's Default shall be
credited and adjusted against future Cash Calls (as defined in the JOAs) proportionally to the Working Interests of the JV Participants. 

	9.
	Until
such time as the Payer has fully discharged his obligations hereunder by delivering full Payment and accrued Interest to the Payee or by a Tender, the Payer hereby covenants
not to, and the Payer shall not and is not entitled to sell, assign, transfer, hypothecate, pledge as collateral or grant a security interest in or over or otherwise encumber all or any portion of
Payer's Working Interest in the Apex Bengara-II and Apex Yapen Joint Ventures except as expressly provided for:

	(i)
	in
respect of a sale and assignment of a portion of Payer's Working Interest pursuant to a farm out by Payer made with Payee's prior knowledge and
permission as per Article-15 of the FOA; or

	(ii)
	in
respect of a Default curing assignment made to the Payee as provided for in clause-7 above; or

	(iii)
	in
respect of an assignment of not less than 100% of the Payer's then-existing Working Interest to an affiliated corporation in which the Payer
holds at least a 51% majority interest. 

IN WITNESS WHEREOF, the Payer, GeoPetro Resource Company, has caused this Promissory Note to be signed in favor of the Payee, Continental Energy Corporation, by its duly
authorized representative:

	 
	 	 

	 	 	
 Mr. S.J. Doshi, President

Duly Authorized GeoPetro Representative

16

QuickLinks

EXHIBIT 10.1

APEX BENGARA-II AND YAPEN FARM OUT AGREEMENT

PURCHASE PRICE PAYMENT SCHEDULE

EXHIBIT A

FOA Exhibit-"B" ProForma—Promissory Note-# 1/2/3Prepared by MERRILL CORPORATION

QuickLinks
 -- Click here to rapidly navigate through this document
  

 
 

EXHIBIT 10.2    
  

 
 

BENGARA-II BLOCK EXPLORATION
  JOINT VENTURE    
  

 
 

JOINT OPERATING AGREEMENT    
  

 
 

TABLE OF CONTENTS    
  

	 
	 	Article
 
	 	Page

	1	 	DEFINITIONS AND INTERPRETATION	 	2
	2	 	JOINT VENTURE	 	8
	3	 	NATURE OF RELATIONSHIP	 	9
	4	 	PERCENTAGE INTERESTS	 	10
	5	 	JOINT VENTURE PROPERTY	 	10
	6	 	WARRANTIES	 	10
	7	 	MANAGEMENT COMMITTEE	 	11
	8	 	OPERATOR	 	13
	9	 	APPOINTMENT AND REMOVAL OF OPERATOR	 	14
	10	 	DUTIES AND OBLIGATIONS OF OPERATOR	 	15
	11	 	ASSIGNMENT	 	16
	12	 	WORK PROGRAMS AND BUDGETS	 	18
	13	 	AUTHORITIES FOR EXPENDITURE	 	19
	14	 	PAYMENT OF COSTS	 	20
	15	 	NON-CONSENT	 	20
	16	 	DEFAULT	 	21
	17	 	INFORMATION	 	22
	18	 	CONFIDENTIALITY	 	23
	19	 	INSURANCE	 	23
	20	 	WITHDRAWAL	 	24
	21	 	ENCUMBRANCES	 	25
	22	 	DISCOVERY OF PETROLEUM	 	26
	23	 	PRODUCTION VENTURE	 	26
	24	 	SOLE RISK OPERATIONS	 	27
	25	 	SOLE RISK—DRILLING	 	29
	26	 	SOLE RISK—DEEPEN, REWORK, SIDETRACK, TEST, COMPLETE	 	29
	27	 	SOLE RISK—GENERAL PROVISIONS	 	30
	28	 	DISPUTE RESOLUTION	 	31
	29	 	CONDUCT OF LITIGATION	 	31
	30	 	TERM AND TERMINATION	 	32
	31	 	FORCE MAJEURE	 	32
	32	 	PERMIT	 	33
	33	 	GENERAL PROVISIONS	 	33
	Annex—"A" JV Accounting Procedure	 	36

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;

2

 

	

 	
 	

"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 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;

3

 

	

 	
 	

"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;
	

 	
 	

"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%;

4

 

	

 	
 	

"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
	

 	
 	

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;

5

 

	

 	
 	

"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 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;

6

 

	

 	
 	

"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;
	

 	
 	

"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.

7

 

	

 	
 	

"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.

8

 

	

 	
 	

(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.
	

 	
 	

(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.

9

 

	

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.

 
 

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.

10

 
 
 

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;
	

 	
 	

(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;

11

 

	

 	
 	

(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 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;

12

  

	

 	
 	

(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;
	

 	
 	

(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;

13

 

	

 	
 	

(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.

14

 

	

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

15

 

	

 	
 	

(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 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;

16

 

	

 	
 	

(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.

	

 	
 	

(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.

17

 

	

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.
	

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.

18

 

	

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.

19

 

	

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.

20

 

	

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

	

 	
 	

(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").

21

 

	

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.
	

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.

22

  

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

23

 

	

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;

24

 

	

 	
 	

(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
	

 	
 	

(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.

25

 

	

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 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.

26

 

	

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 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.

27

 

	

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;
	

 	
 	

(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.

28

 

	

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

29

 

	

 	
 	

(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.

30

 

	

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.
	

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.

31

 
  
 

    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.

 
 

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

 
  
 

    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
 Suite 1760, 505 Burrard Street

Vancouver, V6B-2M8

British Columbia, CANADA

Tel: 1-604-687-3434

Fax: 1-604-687-3073	 	APEX (BENGARA-II) LTD.

3rd Floor Ampera Raya Building

Jl. Ampera Raya 18

Jakarta, 12560, INDONESIA

Tel: 62-21-782-7114

Fax: 62-21-780-4752
	
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

 

	

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.

34

 

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:

)

)

)
Name of Witness:
Occupation of Witness:
	

 	

 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:

)

)

)

)

)

	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:

)

)

)
Name of Witness:
Occupation of Witness:
	

 	

 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:

)

)

)

)

)

	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:

)

)

)
Name of Witness:
Occupation of Witness:
	

 	

 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:

)

)

)

)
	Address of Witness:
	 	)

	 	 	MR. S.J. DOSHI

PRESIDENT & CEO
 

35

  

 
 

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT
  THE BENGARA-II JV ACCOUNTING PROCEDURE    
  

 
 

TABLE OF CONTENTS    
  

	ARTICLE
 
	 	PAGE

	1	 	SUBORDINATION TO PSC ACCOUNTING PROCEDURES	 	37
	2	 	GENERAL PROVISIONS	 	37
	3	 	ACCOUNTING RECORDS	 	38
	4	 	CASH CALLS AND CASH ADVANCES	 	39
	5	 	OPERATOR'S BANK ACCOUNTS FOR JOINT ACCOUNT TRANSACTIONS	 	40
	6	 	STATEMENTS AND JOINT INTEREST BILLINGS	 	41
	7	 	AUDITS AND ADJUSTMENTS	 	41
	8	 	REPORTING—OPERATIONS BY LESS THAN ALL PARTIES	 	42
	9	 	TERMINATION	 	42
	10	 	OPERATING CHARGES AND CREDITS	 	42
	11	 	BASIS OF CHARGES TO THE JOINT ACCOUNT FOR MATERIALS	 	44
	12	 	PREMIUM PRICES & EMERGENCY SITUATIONS	 	44
	13	 	WARRANTY OF MATERIALS	 	44
	14	 	JV PURCHASED FOR THE JV ACTIVITIES FROM ONE OF THE PARTIES	 	44
	15	 	USE OF EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES	 	45
	16	 	DISPOSAL OF JV PROPERTY	 	45
	17	 	USE OF JV PROPERTY	 	45
	18	 	INVENTORIES	 	46
	19	 	DISTINCTION OF PSC DEFINED COSTS	 	46
	20	 	DEPRECIATION	 	47

36

  

 
 

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. 

37

 

    "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; 

    "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 

38

 

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. 

 
 

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. 

39

 
	(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 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. 

40

 
 
 

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 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 

41

 

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. 

42

 
	(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 

43

 

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. 

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. 

44

 
 
 

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.

	(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 

45

 

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. 

 
 

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; 

46

 
	(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— 

47

QuickLinks

EXHIBIT 10.2

BENGARA-II BLOCK EXPLORATION JOINT VENTURE

JOINT OPERATING AGREEMENT

TABLE OF CONTENTS

Bengara-II Block Exploration JOINT VENTURE JOINT OPERATING AGREEMENT

1 DEFINITIONS AND INTERPRETATION

2 JOINT VENTURE

3 NATURE OF RELATIONSHIP

4 PERCENTAGE INTERESTS

5 JOINT VENTURE PROPERTY

6 WARRANTIES

7 MANAGEMENT COMMITTEE

8 OPERATOR

9 APPOINTMENT AND REMOVAL OF OPERATOR

10 DUTIES AND OBLIGATIONS OF OPERATOR

11 ASSIGNMENT

12 WORK PROGRAMS AND BUDGETS

13 AUTHORITIES FOR EXPENDITURE

14 PAYMENT OF COSTS

15 NON-CONSENT

16 DEFAULT

17 INFORMATION

18 CONFIDENTIALITY

19 INSURANCE

20 WITHDRAWAL

21 ENCUMBRANCES

22 DISCOVERY OF PETROLEUM

23 PRODUCTION OPERATIONS

24 SOLE RISK OPERATIONS

25 SOLE RISK—DRILLING

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

27 SOLE RISK—GENERAL PROVISIONS

28 DISPUTE RESOLUTION

29 CONDUCT OF LITIGATION

30 TERM AND TERMINATION

31 FORCE MAJEURE

32 PERMIT

33 GENERAL PROVISIONS

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT THE BENGARA-II JV ACCOUNTING PROCEDURE

TABLE OF CONTENTS

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT THE BENGARA-II JV ACCOUNTING PROCEDURE

34 SUBORDINATION TO PSC ACCOUNTING PROCEDURES

35 GENERAL PROVISIONS

ACCOUNTING RECORDS

36 CASH CALLS AND CASH ADVANCES

1 OPERATOR'S BANK ACCOUNTS FOR JOINT ACCOUNT TRANSACTIONS

37 STATEMENTS AND JOINT INTEREST BILLINGS

38 AUDITS AND ADJUSTMENTS

39 REPORTING—OPERATIONS BY LESS THAN ALL PARTIES

40 TERMINATION

41 OPERATING CHARGES AND CREDITS

42 BASIS OF CHARGES TO THE JOINT ACCOUNT FOR MATERIALS

43 PREMIUM PRICES & EMERGENCY SITUATIONS

44 WARRANTY OF MATERIALS

45 JV PURCHASED FOR THE JV ACTIVITIES FROM ONE OF THE PARTIES

46 USE OF EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES

47 DISPOSAL OF JV PROPERTY

2 USE OF JV PROPERTY

48 INVENTORIES

49 DISTINCTION OF PSC DEFINED COSTS

50 DEPRECIATION

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