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EXHIBIT 10.3    
  

 
 

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

-End
Contents- 

  

 
 

YAPEN 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 (YAPEN) LTD.
("Apex Yapen") 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 (Yapen) Ltd. was incorporated as an International Business Company in the British Virgin Islands under the International
Business Companies Act on January 8, 1998 registration number 264002. Apex Yapen 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 Yapen 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 Yapen with exclusive rights to explore for and if found develop, exploit and produce oil
and gas from the 9,500 square kilometers Yapen Block located offshore Irian Jaya, Indonesia. The Yapen PSC was signed on September 27, 1999 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 Yapen representing a 100% ownership of Apex Yapen and the underlying Yapen 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 Yapen and
the underlying Yapen 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 Yapen Block pursuant to the Yapen 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
Yapen" means Apex (Yapen) Ltd. the Operator for the Joint Venture, the 100% holder of the Yapen 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; 

"Yapen
Block" refers to the 9,500 square kilometer geographic area created by the Yapen PSC and located offshore Irian Jaya, 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. 

"Yapen
PSC" means a production sharing contract dated September 27, 1999 pursuant to which Pertamina, the state oil company of the Republic of Indonesia has granted exclusive rights to Apex Yapen to
explore for and if found develop, exploit and produce Petroleum from a Permit Area known as the Yapen 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 "Yapen 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 Yapen, as Operator, is a Party to this JOA but is not a JV Participant; 

"JV
Property" means the JV's Apex Yapen 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 Yapen 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 Yapen; 

"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 Yapen 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 Yapen 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 Yapen 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 Yapen PSC granted by Pertamina which is the subject Joint Venture working area of this JOA, and is
constituted in the Yapen 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 Yapen PSC, September 27, 1999, 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 Yapen 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 Yapen PSC, the Permit, the Operator, Apex Yapen 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 Yapen PSC; 

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

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

"Related
Body Corporate" means a related corporation or other entity that controls, or is controlled by a Party to this JOA, or a company or other entity which controls or is controlled by a company
or other entity which controls a Party to this JOA, it being understood that control shall mean ownership by one company or entity of at least fifty one percent (51%) of the voting stock, 

6

 

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 Yapen 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 Yapen PSC which Apex Yapen 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 Yapen PSC, means all accounts and financial statements and records relating to the payment or receipt of moneys maintained by Apex Yapen 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. 

"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; 

7

 

	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 Yapen 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 Yapen 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 Yapen
and through it a 100% ownership of its underlying rights to the Yapen 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 Yapen common shares,
duly issued and registered in the name of the JV Participant and representing a corresponding undivided share ownership percentage in Apex Yapen together with a corresponding percentage interest in
the respective underlying Yapen 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 Yapen and shall also be equivalent to the deemed PSC interest owned by the JV Participant.

	(b)
	Notwithstanding
the foregoing, the Apex Yapen 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 

8

 

extent
necessary to achieve such precedence this JOA shall be deemed by the JV Participant Parties to also constitute a binding Apex Yapen shareholders agreement and covenant between the Parties as
Apex Yapen 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 Yapen as Apex Yapen
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 Yapen and underlying PSC's shall be as common shareholders subject only to the memorandum and articles of association of Apex Yapen and the British Virgin Islands International
Corporations Act. 

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

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

 
 

3  NATURE OF RELATIONSHIP    
  

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

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

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

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

	3.5
	The Parties hereby expressly agree and acknowledge that the Operator holds only a bare legal interest in and/or bare legal title to
the Yapen 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 

9

 

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 Yapen Common Shares
	 	Net Beneficial Interest in the Yapen PSC
	 
	Apex Yapen	 	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 Yapen Shares) as tenants in common in proportion to their respective
Percentage Interests.

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

	5.3
	Each Party shall from time to time at the request of another Party deliver such transfers and other documents as are necessary to
record and protect the Percentage Interest from time to time of the other Parties in the Permit and the JV Property. Until such transfers are effected, each Party holding
JV Property from time to time shall hold the JV Property in trust for all of the Parties proportionately to their then respective Percentage Interests. 

 
 

6  WARRANTIES    
  

	6.1
	Each Party warrants to each other Party that it has full right, power and authority to enter into and implement this Agreement and
that it has taken all necessary action to authorize the execution and implementation of this Agreement. 

 
 

7  MANAGEMENT COMMITTEE    
  

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

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

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

	7.4
	The Committee may constitute and appoint and charge sub-committees consisting of Operator's personnel and any of the personnel of the
Parties for the purposes of studying and reviewing certain issues and reporting on same to the Committee. 

10

 
	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;

	(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; 

11

  

	(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; 

	 	 	(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.

12

 

	

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;
	

 	
 	

(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.

13

 

	

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 Yapen 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.
	

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;

14

 

	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(i)	
 	

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

	

drilling—	
 	

$250,000
	

seismic—	
 	

$150,000
	

technical studies—	
 	

$50,000
	

supply of other goods/services—	
 	

$100,000,

	

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

(ii)	
 	

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

 	
 	

(c)	
 	

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

 	
 	

(d)	
 	

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

 	
 	

(e)	
 	

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

10.6	
 	

The Operator shall keep correct JV Accounts and accurate Records for the Joint Venture. The JV Accounts and Records maintained by the Operator shall fully and fairly explain all material JV Activities and JV Costs and transactions effected in the
course of JV Activities.
	

10.7	
 	

Any Party not being the Operator may not more than once in any calendar year and on reasonable notice in writing to the Operator, conduct an audit at its own expense of the JV Accounts and Records of the Joint Venture by a registered 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.

15

 

	

10.11	
 	

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

 
 

11  ASSIGNMENT    
  

	

11.1	
 	

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

11.2	
 	

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

11.3	
 	

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

11.4	
 	

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

 	
 	

(a)	
 	

Transferor may dispose of its Percentage Interest for a consideration comprising any one or more of the following:
	

 	
 	

 	
 	

(i)	
 	

cash or a cash equivalent;
	

 	
 	

 	
 	

(ii)	
 	

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

 	
 	

 	
 	

(iii)	
 	

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

 	
 	

 	
 	

(iv)	
 	

a Percentage Interest in the Permit.
	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(i)	
 	

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

 	
 	

 	
 	

(ii)	
 	

all the terms and conditions of the proposed sale; and
	

 	
 	

 	
 	

(iii)	
 	

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

 	
 	

(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.

16

 

	

 	
 	

(e)	
 	

Save with the prior consent of the Transferor no Offeree shall directly or indirectly communicate with the Proposed Transferee before the right of the Transferor to transfer or assign to such Proposed Transferee has lapsed pursuant to Article-11.4
(d).
	

 	
 	

(f)	
 	

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

11.5	
 	

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

11.6	
 	

It shall be the responsibility of and at the sole cost of the Transferor to obtain any required Pertamina consent to any assignment under this Article-11 and the other Parties shall have no obligation to recognize an assignment made or proposed to be
made without that consent, provided that the non-assigning Parties shall execute any documents reasonably required by the Transferor to obtain such government consent.

 
 

12  WORK PROGRAMS AND BUDGETS    
  

	

12.1	
 	

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

12.2	
 	

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

12.3	
 	

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

17

 

	

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 Yapen II PSC. The Committee shall meet within 15 days after receipt of the Work Program and Budgets from the Operator to consider and approve same.
	

12.6	
 	

A Work Program and Budget submitted by the Operator shall include a statement of the activities proposed to be undertaken during the relevant Work Period and shall contain sufficient details to enable each Party to give proper consideration thereto
and where appropriate, shall include details of any proposed wells and an itemized Budget of the estimated JV Costs to be incurred.
	

12.7	
 	

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

12.8	
 	

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

12.9	
 	

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

12.10	
 	

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

 
 

13  AUTHORITIES FOR EXPENDITURE    
  

	

13.1	
 	

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

13.2	
 	

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

18

 

	

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.
	

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.

19

 

	

14.6	
 	

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

 
 

15  NON-CONSENT    
  

	

15.1	
 	

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

15.2	
 	

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

15.3	
 	

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

 	
 	

(a)	
 	

the Non-Consent Operation shall not be included as part of JV Activities;
	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(i)	
 	

the Non-Consent Operation constituted a Sole Risk Operation;
	

 	
 	

 	
 	

(ii)	
 	

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

 	
 	

(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").

20

 

	

16.2	
 	

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

16.3	
 	

Promptly following a Squeeze Down, the Operator shall invite each non Defaulting Party to either meet its Percentage Interest share of the Default Amount or such other percentage of the Default Amount as each non Defaulting Party wishes to nominate.
Each non Defaulting Party must reply within 10 days of the receipt of the Operator's invitation. A failure to reply within this period shall be deemed to be notice that the particular non Defaulting Party does not wish to contribute to the Default
Amount. Where the Operator receives acceptances for 100% or more (in which case the non Defaulting Parties who accepted are to be deemed to have accepted such percentage of the Default Amount as is determined by that Party's nominated percentage as a
factor of the total nominated percentage of the non Defaulting Parties) ("Agreed Additional Percentage") it shall issue a Cash Call to each non Defaulting Party for its Agreed Additional Percentage share of the Default Amount and each non Defaulting
Party shall pay such Cash Call within 30 days after receipt thereof.
	

16.4	
 	

Alternatively, if the non Defaulting Parties respond or are deemed to have responded to the Operator's invitation under Article-16.3 by accepting less than 100% of the default amount then notwithstanding Article-16.3, the Operator shall issue a Cash
Call to each non Defaulting Party for its Percentage Interest share of the Default Amount and each non Defaulting Party shall pay such Cash Call within 30 days after receipt thereof.
	

16.5	
 	

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

16.6	
 	

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

16.7	
 	

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

 
 

17  INFORMATION    
  

	

17.1	
 	

Each Party shall be entitled to receive full details of all Information received or developed by the Operator in the course of JV Activities but limited to one copy of final reports in the same format and quality as submitted to Pertamina, seismic
sections and well logs. Any additional information shall be supplied by the Operator at the costs of the Party requesting that information subject to any Pertamina rules or regulations affecting the distribution of same.
	

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.

21

 

	

17.5	
 	

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

17.6	
 	

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

17.7	
 	

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

 
 

18  CONFIDENTIALITY    
  

	

18.1	
 	

All Information obtained from Pertamina and all Information gathered by the Parties relating to the Permit area shall be confidential in accordance with the terms of the PSC and prevailing Pertamina regulations. The Information will not be disclosed
by a Party without the written consent of the other Parties. The consent shall be given or denied promptly but shall not be unreasonably withheld. The Information may be furnished without consent by a Party to:
	

 	
 	

(a)	
 	

a Related Body Corporate;
	

 	
 	

(b)	
 	

any government having lawful jurisdiction over a Party and being entitled to such information;
	

 	
 	

(c)	
 	

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

 	
 	

(d)	
 	

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

 	
 	

(e)	
 	

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

 	
 	

(f)	
 	

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

 	
 	

(g)	
 	

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

 	
 	

(h)	
 	

its shareholders or other owners.
	

18.2	
 	

The disclosing Party under Article-18.1 above, clauses(a), (d) and (e) shall, before disclosure, ensure that the recipient undertakes to keep the Information confidential at least to the same degree as provided in this clause by the execution of a
binding document which any Party to this Agreement will be able to enforce. Notice will be given to the other Parties of the proposed disclosure of the Information to the persons listed in clauses(b) and (c), and of the disclosure of the Information
to persons referred to in clauses (d) and (e) after the sale has been made or the finance acquired. The Parties will endeavor to limit the amount of Information disclosed to persons under clauses (b), (c), (d), (e) and (f) to the extent reasonably
required to accomplish the desired purpose.

22

  

 
 

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").
	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.

23

 

	

20.2	
 	

Subject to Article-20.1 hereof a Party may withdraw from the Joint Venture:
	

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

if a Party other than the Party giving a Withdrawal Notice under Article-20.2(a) above, by giving a Withdrawal Notice to the other Parties within 5 days after receipt of the notice referred to in
Article-20.2(a); or
	

 	
 	

(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 Yapen
vendors in proportion to the Apex Yapen vendors ownership at the time of their sale of Apex Yapen stock to CEC.

24

 
  
 

    21  ENCUMBRANCES    
  

	

21.1	
 	

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

21.2	
 	

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

21.3	
 	

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

 
 

22  DISCOVERY OF PETROLEUM    
  

	

22.1	
 	

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

22.2	
 	

If the Committee decides that Appraisal Operations shall be carried out, the Operator shall within 60 days after such decision submit to the Committee a Work Program and Budget for the conduct of Appraisal Operations ("Appraisal 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.

25

 
  
 

    23  PRODUCTION OPERATIONS    
  

	

23.1	
 	

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

23.2	
 	

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

 	
 	

(a)	
 	

JV Activities shall include all activities necessary, expedient or ancillary to the conduct of Production Operations, including the construction of terminals, tanks, pipelines, facilities and infrastructure and these and all other Petroleum
exploitation, development and production costs shall be included in JV Costs and the JV Accounts and shall be paid for by the Parties in respect to their Percentage Interest in the Joint Venture;
	

 	
 	

(b)	
 	

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

 	
 	

(c)	
 	

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

 	
 	

(d)	
 	

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

 	
 	

(e)	
 	

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

26

 

	

 	
 	

(b)	
 	

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

 	
 	

(c)	
 	

drilling an Appraisal Well.
	

24.3	
 	

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

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

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

 	
 	

(c)	
 	

the work proposed is part of the Work Obligation.
	

24.4	
 	

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

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

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

24.5	
 	

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

24.6	
 	

Where a drilling rig is on the location of the well, the time to respond to a Sole Risk Notice with respect to deepening, reworking, sidetracking or testing or completing of the well shall be reduced to 48 hours, after which rig time shall be at the
expense of the SR-Parties PROVIDED HOWEVER that if the Sole Risk Operation is not carried out, the same additional expense shall be borne by the Proposing Party.
	

24.7	
 	

Each Party electing to participate in the Sole Risk Operation shall be a SR-Party.
	

24.8	
 	

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

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

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

 	
 	

(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.

27

 

	

24.10	
 	

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

24.11	
 	

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

 
 

25  SOLE RISK—DRILLING    
  

	

25.1	
 	

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

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

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

 	
 	

(c)	
 	

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

 
 

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

	

26.1	
 	

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

26.2	
 	

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

 	
 	

(a)	
 	

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

 	
 	

(b)	
 	

if the deepening does not result in the discovery of Petroleum in Paying Quantities, the SR-Parties who participated in the deepening but not in the drilling of the well to the Initial Depth shall have no obligation to contribute to the costs of
drilling the well to the Initial Depth (except as to costs of materials, supplies and equipment assumed by the deepening Parties); and

28

 

	

 	
 	

(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.

29

 

	

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.

30

 
  
 

    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.

31

 
  
 

    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

CONTINENTAL ENERGY CORPORATION
 Suite 1760, 505 Burrard Street

British Columbia, CANADA

Tel: 1-604-687-3434

Fax: 1-604-687-3073	
 	
Operator

APEX (YAPEN) LTD.
 3rd Floor Ampera Raya Building

Vancouver, V6B-2M8 Jl. Ampera Raya 18

Jakarta, 12560, INDONESIA

Tel: 62-21-782-7114

ax: 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.
	

33.4	
 	

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.

32

 

	

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.

33

 

    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 YAPEN

by its duly authorized officer in the presence of:	 	SIGNED & Common Seal affixed by authority of the Board of Directors, for and on behalf of Apex Yapen in its capacity as Operator & Party hereto, by:
	)	 	 	 	)	 
	)	 	 	 	)	 
	)	
	 	)	 
	Name of Witness:	 	 	)	 
	 	 	
	 	 	 
	Occupation of Witness:	 	 	)	 
	 	 	
	 	 	

	Address of Witness:	 	 	MR. RICHARD L. MCADOO
	 	 	
	 	PRESIDENT & CEO
	

SIGNED FOR AND ON BEHALF OF CEC by its duly authorized officer in the presence of:	
 	
SIGNED & Common Seal affixed by authority of the Board of Directors, for and on behalf of CEC, in its capacity as a JV Participant & Party hereto by:
	)	 	 	 	)	 
	)	 	 	 	)	 
	)	
	 	)	 
	Name of Witness:	 	 	)	 
	 	 	
	 	 	 
	Occupation of Witness:	 	 	)	 
	 	 	
	 	 	

	Address of Witness:	 	 	MR. GARY R. SCHELL
	 	 	
	 	DIRECTOR & CHAIRMAN OF THE BOARD
	

SIGNED FOR AND ON BEHALF OF GEOPETRO by its duly authorized officer in the presence of:	
 	
SIGNED & Common Seal affixed by authority of the Board of Directors, for and on behalf of GEOPETRO in its capacity as a JV Participant & Party hereto
by:
	)	 	 	 	)	 
	)	 	 	 	)	 
	)	
	 	)	 
	Name of Witness:	 	 	)	 
	 	 	
	 	 	 
	Occupation of Witness:	 	 	)	 
	 	 	
	 	 	

	Address of Witness:	 	 	MR. S.J. DOSHI
	 	 	
	 	PRESIDENT & CEO

34

  

 
 

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT
  THE YAPEN JV ACCOUNTING PROCEDURE    
  

 
 

TABLE OF CONTENTS    
  

	ARTICLE
 
	 	PAGE

	1	 	SUBORDINATION TO PSC ACCOUNTING PROCEDURES	 	36
	2	 	GENERAL PROVISIONS	 	36
	3	 	ACCOUNTING RECORDS	 	37
	4	 	CASH CALLS AND CASH ADVANCES	 	38
	5	 	OPERATOR'S BANK ACCOUNTS FOR JOINT ACCOUNT TRANSACTIONS	 	39
	6	 	STATEMENTS AND JOINT INTEREST BILLINGS	 	40
	7	 	AUDITS AND ADJUSTMENTS	 	40
	8	 	REPORTING—OPERATIONS BY LESS THAN ALL PARTIES	 	41
	9	 	TERMINATION	 	41
	10	 	OPERATING CHARGES AND CREDITS	 	41
	11	 	BASIS OF CHARGES TO THE JOINT ACCOUNT FOR MATERIALS	 	43
	12	 	PREMIUM PRICES & EMERGENCY SITUATIONS	 	43
	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	 	44
	16	 	DISPOSAL OF JV PROPERTY	 	44
	17	 	USE OF JV PROPERTY	 	45
	18	 	INVENTORIES	 	45
	19	 	DISTINCTION OF PSC DEFINED COSTS	 	46
	20	 	DEPRECIATION	 	46

35

  

 
 

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT
  
    THE YAPEN 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 Yapen 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. 

36

 

"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 Yapen PSC, Section-X; 

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

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

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

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

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

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

Interpretation  

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

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

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

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

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

Purpose  

    This Accounting Procedure sets forth the procedures to be followed in maintaining proper control and detailed records of the accounting required under the
Agreement. It also sets forth the charges and credits attributable to the JV Activities in order to establish the amounts owing between the Parties and to ensure that any particular item cannot be
recovered twice by the Operator. It shall truly reflect the Operator's actual cost to the end that the Operator shall neither gain nor lose by reason of the fact that it acts as the Operator. 

ACCOUNTING RECORDS  

	(f)
	The
Operator will maintain and keep Records and Joint Accounts based on the Operator's and Pertamina's usual accounting procedures and classifications and in accordance with
generally accepted accounting principles in the Petroleum Industry in Indonesia, and with U.S. generally accepted accounting principles and accounting standards consistently applied. All transactions
in respect of the JV Activities shall be recorded in the Joint Account in both 

37

 

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 

38

 

the
same and the anticipated date of expenditure. The JV Participants shall dispatch their proportionate special advances within 15 days of receipt of such notice. 

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

	(h)
	Cash
Calls and Cash Advances made pursuant thereto shall be subject to review and adjustment by the Operator's accounting staff. If any or all of the JV Participants Cash Advances
exceed their actual realized share of actual expenditures, the next succeeding Cash Calls, after such determination, shall be reduced accordingly. If a JV Participant's advances are determined to be
more or less than its share of actual expenditure, the deficiency shall, at Operator's option, 1) be adjusted to and offset against subsequent Cash Calls or 2) be the subject of a special Cash Call
made to the JV Participant for the purpose and being payable within 5 working days following the receipt of the billing for such deficiency, or 3) repaid by Operator to the JV Participant. In each
case a statement shall be provided by the Operator stating details of any variance between amounts advanced and amounts expended in appropriate classifications.

	(i)
	Subject
to paragraph (h) above, if, in the Committee's opinion, a significant excess of cash becomes evident, the Operator (which shall endeavor to maintain as low a cash balance
as is reasonably possible) will advise details of such excess to the contributors which may elect to have their share of such excess cash reimbursement by the Operator. If any JV Participant so elects
the Operator will refund all excess funds to all JV Participants entitled to such refunds. 

1  OPERATOR'S BANK ACCOUNTS FOR JOINT ACCOUNT TRANSACTIONS  

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

39

 

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

37  STATEMENTS AND JOINT INTEREST BILLINGS  

	(a)
	Within
40 days following the end of each calendar month, the accumulated charges and credits in the Joint Account will be determined, and the Operator will issue a "Joint Interest
Billing" or "JIB" consisting of three separate financial statements as follows:

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

	(ii)
	a
JV Activities statement summarizing all charges and credits incurred by the Joint Account by appropriate classifications indicative of the nature
thereof and by AFE or main budget heading as appropriate. Accruals forming part of the charges shall be allocated to each AFE or main Budget heading. The total accruals shall be deducted from total
incurred cost to adjust the amounts shown on the statement to a cash expenditure basis.

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

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

38  AUDITS AND ADJUSTMENTS  

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

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

	(c)
	Any
one or more of the Non-Operating Parties shall have the right to conduct an additional "External Audit" of the JV Accounts and JV Records of the Joint Account for each Year
maintained by the Operator in respect of the JV Activities and to obtain all necessary information for such
purposes, before the end of the 24th month following the end of such year. At least 30 days notice shall be given to the Operator of an intention to conduct an audit. The right of audit
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 

40

 

Non-Operating
Parties and will provide reasonable facilities and assistance to the Non-Operating Parties in the conduct of audits. 

	(e)
	At
the conclusion of each External Audit, the Parties who are participating in the External Audit will endeavor to settle outstanding matters and a written report by the
participating auditors will be circulated to all the Parties participating within a reasonable time of the conclusion of each audit. The report shall include all claims arising from such External
Audit together with comments pertinent to the operation of the accounts and records to the extent considered appropriate by the auditors. The Operator shall reply to the report in writing as soon as
possible and in any event not later than 2 months following receipt of the report. Notwithstanding that the said period of 24 months may have expired, if the Non-Operating Parties have reasonable
grounds to believe that the Operator has been guilty of fraud or Willful Misconduct, the Non-Operating Parties shall have the right to conduct further External Audits in respect of any earlier
periods. The costs incurred in connection with any External Audit shall be borne by the Parties participating in it in the proportion to which their respective Percentage Interests bear to each other
and shall not be charged to the Joint Account.

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

39  REPORTING—OPERATIONS BY LESS THAN ALL PARTIES  

    Within 30 days following the end of each calendar month during which the Operator is carrying out a Sole Risk Operation or a Non-Consent Operation or adjusting
the Records and the Joint Account with respect to same the Operator shall furnish the Parties with a statement of all costs and liabilities
incurred in such operation during that month and, if appropriate, a statement of the quantity and value of Petroleum produced from such operation during that month. 

40  TERMINATION  

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

41  OPERATING CHARGES AND CREDITS  

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

41

 

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.

	(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. 

42

 

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

	(m)
	Legal and Litigation Expenses—All costs and expenses of handling, investigating and settling litigation or claims against
the Parties or any of them relating to the Joint Account or necessary to protect or recover the JV Property or opine on or perfect titles, including, but not limited to, lawyers' fees, court costs,
cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims.

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

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

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

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. 

43

 
44  WARRANTY OF MATERIALS  

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

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

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

46  USE OF EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES  

    For services rendered to the JV Activities by plant, equipment or facilities exclusively owned by a Party, the owner will charge for such services at rates not
in excess of fair market value of such services, and the Operator will give consideration to rates charged by other potential suppliers, location, quality and timing of service and any other relevant
factors. The cost of repairing damage sustained to such equipment or facilities with the JV Activities shall be charged to the Joint Account provided always that, if the cost of such damage is
recoverable from any underwriters or any third party, the recovery will be credited to the Joint Account. 

47  DISPOSAL OF JV PROPERTY  

	(a)
	Section-10.1
of the Yapen 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. 

44

 

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

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

2  USE OF JV PROPERTY  

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

48  INVENTORIES  

Periodic Inventories, Notice and Presentation  

    At reasonable intervals inventories shall be taken by the Operator of the JV Activities warehouse stocks and materials which are ordinarily considered
controllable by operators of oil and gas properties. Once every year an inventory shall be taken by the Operator of the fixed assets of the JV Property. The cost of such inventories shall be charged
to the Joint Account. Written notice of the intention to take an inventory shall be given by the Operator at least 30 days before any inventory is to begin so that Parties may be represented when any
inventory is taken. Failure of a Party to be represented at an inventory shall bind that Party to accept the inventory taken by the Operator, who shall in that event furnish that Party with a copy
thereof. Each Party, at its own cost, also has the right to take an independent inventory once a year. 

Reconciliation and Adjustment of Inventories  

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

Special Inventories  

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

45

 
49  DISTINCTION OF PSC DEFINED COSTS  

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

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

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

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

50  DEPRECIATION  

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

—End
JV Accounting Procedure— 

46

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EXHIBIT 10.3

YAPEN BLOCK EXPLORATION JOINT VENTURE

JOINT OPERATING AGREEMENT

TABLE OF CONTENTS

YAPEN 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 YAPEN JV ACCOUNTING PROCEDURE

TABLE OF CONTENTS

ANNEX—"A" TO THE JOINT OPERATING AGREEMENT THE YAPEN JV ACCOUNTING PROCEDUREPrepared by MERRILL CORPORATION

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

EXHIBIT 10.4    
  

PRODUCTION SHARING CONTRACT  

 BENGARA II—DATED DECEMBER 4, 1997  

PRODUCTION SHARING CONTRACT  

between  

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA)

and

APEX (BENGARA-II) LTD.  

 Contract Area: BENGARA-II BLOCK  

 
 

INDEX    
  

	Section
 
	 	Title
	 	 

	I	 	SCOPE AND DEFINITIONS	 	01
	II	 	TERM	 	03
	III	 	EXCLUSION OF AREAS	 	03
	IV	 	WORK PROGRAM AND EXPENDITURES	 	04
	V	 	RIGHTS AND OBLIGATIONS OF THE PARTIES	 	05
	VI	 	RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION	 	10
	VII	 	VALUATION OF CRUDE OIL	 	13
	VIII	 	COMPENSATION, ASSISTANCE & PRODUCTION BONUS	 	15
	IX	 	PAYMENTS	 	16
	X	 	TITLE TO EQUIPMENT	 	16
	XI	 	CONSULTATION AND ARBITRATION	 	16
	XII	 	EMPLOYMENT & TRA1NING OF INDONESIAN PERSONNEL	 	17
	XIII	 	TERMINATION	 	17
	XIV	 	BOOKS, ACCOUNTS, AND AUDITS	 	17
	XV	 	OTHER PROVISIONS	 	18
	XVI	 	PARTICIPATION	 	19
	XVII	 	EFFECTIVENESS	 	20
	

EXHIBITS	
 	

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

  

PRODUCTION SHARING CONTRACT

between

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA)

and

APEX (BENGARA-II) LTD.  

    THIS CONTRACT, made and entered on this 4th day of December 1997, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA, a State Enterprise,
established on the basis of Law No. 8/1971 hereinafter called "PERTAMINA", party of the first part, and APEX (BENGARA-II) LTD., a corporation organized and existing under the laws of the British
Virgin Islands, hereinafter called "CONTRACTOR", party of the second part, both hereinafter sometimes referred to either individually as the "Party" or collectively as the "Parties". 

WITNESSETH:  

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

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

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

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

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

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

 
 

SECTION 1    
    
    SCOPE AND DEFINITIONS    
  

	1.1
	SCOPE

    This
Contract is a Production Sharing Contract. In accordance with the provisions herein contained, PERTAMINA shall have and be responsible for the management of the operations
contemplated hereunder. CONTRACTOR shall be responsible to PERTAMINA for the execution of such operations in accordance with the provisions of this Contract, and is hereby appointed and constituted
the exclusive company to conduct Petroleum Operations. 

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

1

 

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

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

	1.2
	DEFINITIONS
In the text of this Contract, the words and terms defined in Article 1 of Law No. 44 Prp/1960 shall have the same meaning in accordance with such definitions. 

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

 	
 	

1.2.2	
 	

Barrel means a quantity or unit of oil equal to forty-two (42) United States gallons at the temperature of sixty (60) degrees Fahrenheit.
	

 	
 	

1.2.3	
 	

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

 	
 	

1.2.4	
 	

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

 	
 	

1.2.5	
 	

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

 	
 	

1.2.6	
 	

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

 	
 	

1.2.7	
 	

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

 	
 	

1.2.8	
 	

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

 	
 	

1.2.9	
 	

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

 	
 	

1.2.10	
 	

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

 	
 	

1.2.11	
 	

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

2

 

	

 	
 	

1.2.12	
 	

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

 	
 	

1.2.13	
 	

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

 	
 	

1.2.14	
 	

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

 	
 	

1.2.15	
 	

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

 	
 	

1.2.16	
 	

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

 	
 	

1.2.17	
 	

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

 	
 	

1.2.18	
 	

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

 	
 	

 	
 	

 

 
 

SECTION II    
    
    TERM    
  

	2.1
	The
term of this Contract shall be thirty (30) years as from the Effective Date.

	2.2
	At
the end of the initial six (6) years as from the Effective Date CONTRACTOR shall have the option to request PERTAMINA for a four (4) years extension, the approval of such request
shall not be unreasonably withheld.

	2.3
	If
at the end of the initial six (6) years as from the Effective Date, or the extension thereof, no Petroleum is discovered in commercial quantities in the Contract Area, then
without prejudice to Section XII1 this Contract shall automatically terminate in its entirety.

	2.4
	If
Petroleum is discovered in any portion of the Contract Area within the initial six (6) years period, or the extension thereof, which in the judgment of PERTAMINA and CONTRACTOR
can be produced commercially, based on consideration of all pertinent operating financial data, then as to that particular portion of the Contract Area development will commence. In other portions of
the Contract Area exploration may continue concurrently without prejudice to the provisions of Section III regarding the exclusion of areas. 

 
 

SECTION III    
    
    EXCLUSION OF AREAS    
  

	3.1
	On
or before the end of the initial three (3) years' period as from the Effective Date, CONTRACTOR shall relinquish twenty five percent (25%) of the original Contract Area.

	3.2
	On
or before the end of the sixth (6th) Contract Year, CONTRACTOR shall relinquish an additional area equal to twenty five percent (25%) of the original Contract Area.

	3.3
	On
or before the end of the tenth (10th) Contract Year, CONTRACTOR shall relinquish an additional area so that the area retained thereafter shall not be in excess of nine hundred
seventy (970) square kilometers, or twenty percent (20%) of the original total Contract Area, whichever is less. 

3

 
	3.4
	CONTRACTOR's
obligation to relinquish parts of the original Contract Area under the preceding provisions shall not apply to any part of the Contract Area corresponding to the
surface area of any field in which Petroleum has been discovered.

	3.5
	With
regard to the remaining portion of the Contract Area left after the mandatory relinquishments as set forth in clauses 3.1, 3.2 and 3.3 above, the Parties shall maintain a
reasonable exploration effort. In respect of any part of such remaining unexplored portion of the Contract Area, for which CONTRACTOR does not during two (2) consecutive years submit an exploration
program, PERTAMINA may by written notice to CONTRACTOR require them either to submit an exploration program or to relinquish such part of the Contract Area.

	3.6
	Upon
thirty (30) days written notice to PERTAMINA prior to the end of the second Contract Year and prior to the end of any succeeding Contract Year, CONTRACTOR shall have the right
to relinquish any portion of the Area, and such portion shall then be credited against that portion of the Contract Area which CONTRACTOR is next required to relinquish under the provisions of clauses
3.1, 3.2 and 3.3 hereof.

	3.7
	CONTRACTOR
shall advise PERTAMINA in advance of the date of relinquishment of the portion to be relinquished. For the purpose of such relinquishments, CONTRACTOR mid PERTAMINA shall
consult with each other regarding the shape and size of each individual portion of the areas being relinquished; provided, however, that so far as reasonably possible, such portions shall each be of
sufficient size and convenient shape to enable Petroleum Operations to be conducted thereon. 

 
 

SECTION IV    
    
    WORK PROGRAM AND EXPENDITURES    
  

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

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

	Contract

Year
 
	 	Program
	 	Amount

	
 	
 	

 	
 	

 
	

First	
 	

G&G Studies	
 	

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

Second	
 	

Seismic Reprocessing	
 	

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

Third	
 	

Drill Two Wells	
 	

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

Fourth	
 	

G&G Studies	
 	

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

Fifth	
 	

Drill One Well	
 	

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

Sixth	
 	

Shoot 300Mn Seismic	
 	

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

Seventh	
 	

Drill One Well	
 	

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

Eighth	
 	

Evaluate Well Results	
 	

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

Ninth	
 	

G&G Studies	
 	

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

Tenth	
 	

G&G Studies	
 	

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

 	
 	

Total	
 	

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

4

 

    CONTRACTOR shall carry out Petroleum Operations during the first three (3) Contract Years, during which period CONTRACTOR shall spend at least Seven Million United
States Dollars (US$ 7,000,000), called the firm commitment. 

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

	4.3
	At
least three (3) months prior to the beginning of each Calendar Year or at such other time as may otherwise be mutually agreed to by the Parties, CONTRACTOR shall prepare and
submit for approval to PERTAMINA a Work Program and Budget of Operating Costs for the Contract Area setting forth the Petroleum Operations which CONTRACTOR proposes to carry out during the ensuing
Calendar Year.

	4.4
	Should
PERTAMINA wish to propose a revision as to certain specific features of said Work Program and Budget of Operating Costs, it shall within thirty (30) days after receipt
thereof so notify CONTRACTOR specifying in reasonable detail its reasons therefor. Promptly thereafter, the Parties will meet and endeavor to agree on the revisions proposed by PERTAMINA. In any
event, any portion of the Work Program as to which PERTAMINA has not proposed a revision shall insofar as possible be carried out as prescribed therein.

	4.5
	It
is recognized by the Parties that the details of a Work Program may require changes in the light of existing circumstances and nothing herein contained shall limit the right of
CONTRACTOR to make such changes, provided they do not change the general objective of the Work Program, nor increase the expenditures in the approved budget of Operating Costs.

	4.6
	It
is further recognized that in the event of emergency or extraordinary circumstances requiring immediate action, either Party may take all actions it deems proper or advisable to
protect their interests and those of their respective employees and any cost so incurred shall be included in the Operating Costs.

	4.7
	PERTAMINA
agrees that the approval of a proposed Work Program and Budget of Operating Costs will not be unreasonably withheld. 

 
 

SECTION V    
    
    RIGHTS AND OBLIGATIONS OF THE PARTIES    
  

	5.1
	Subject
to the provisions of clauses 5.2.6 and 5.2.7,

	5.2
	CONTRACTOR
shall: 

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

 	
 	

5.2.2	
 	

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

 	
 	

5.2.3	
 	

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

 	
 	

5.2.4	
 	

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

5

 

	

 	
 	

5.2.5	
 	

(a)	
 	

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

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(c)	
 	

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

 	
 	

 	
 	

(d)	
 	

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

 	
 	

 	
 	

(e)	
 	

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

 	
 	

5.2.6	
 	

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

 	
 	

5.2.7	
 	

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

6

 

	

 	
 	

5.2.8	
 	

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

 	
 	

5.2.9	
 	

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

 	
 	

5.2.10	
 	

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

 	
 	

5.2.11	
 	

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

 	
 	

5.2.12	
 	

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

 	
 	

5.2.13	
 	

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

 	
 	

5.2.14	
 	

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

 	
 	

5.2.15	
 	

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

 	
 	

 	
 	

(a)	
 	

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

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(c)	
 	

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

 	
 	

 	
 	

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

 	
 	

 	
 	

The price at which such Crude Oil shall be delivered and sold under this clause 5.2.15 shall be fifteen (15%) percent of the price as determined under clause 6.1.2 hereof. CONTRACTOR shall not be obligated to transport such Crude Oil beyond the point
of delivery, but upon request from PERTAMINA, shall assist in arranging transportation and such assistance provided shall be without cost or risk to CONTRACTOR.

7

 

	

 	
 	

 	
 	

Notwithstanding the foregoing, for a period of five (5) consecutive Years (meaning 60 consecutive calendar months) starting the month of the first delivery of Crude Oil produced and saved from each new field in the Contract Area, the fee per barrel
for the quantity of Crude Oil supplied to the Indonesian domestic market from each such new field shall be equal to the price determined in accordance with Section VII hereof for Crude Oil from such field taken for the recovery of Operating Costs.
The proceeds in excess of those arising due to the aforesaid fifteen percent (15%) shall preferably be used to assist financing of continued exploration efforts by CONTRACTOR in the Contract Area or in other areas of the Republic of Indonesia if such
opportunity exists. In case no such opportunity can be demonstrated to exist in accordance with good oil field practice, CONTRACTOR shall be free to use such proceeds at its own discretion;
	

 	
 	

5.2.16	
 	

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

 	
 	

5.2.17	
 	

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

 	
 	

5.2.18	
 	

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

 	
 	

5.2.19	
 	

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

5.3	
 	

PERTAMINA shall:
	

 	
 	

5.3.1	
 	

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

 	
 	

5.3.2	
 	

except with respect to CONTRACTOR's obligation to pay income tax and the final tax on profit after tax deduction as set forth in clause 5.2.17 herein above, assume and discharge other Indonesian taxes of CONTRACTOR including value added tax (VAT),
transfer tax, import and export duties on materials, equipment and supplies brought into Indonesia by CONTRACTOR, its contractors and subcontractors; exactions in respect of property, capital, net worth, operations, remittances or transactions
including any tax or levy on or in connection with operations performed hereunder by CONTRACTOR.
	

 	
 	

 	
 	

PERTAMINA shall not be obliged to pay CONTRACTOR's income tax and the final tax on profit after tax deduction, nor taxes on tobaccos, liquor and personal income tax and other taxes not listed above of contractors and subcontractors.

8

 

	

 	
 	

 	
 	

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

 	
 	

5.3.3	
 	

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

 	
 	

 	
 	

CONTRACTOR shall advance to PERTAMINA before the beginning of each annual Work Program a minimum amount of seventy five thousand United States Dollars (US$ 75,000) for the purpose of enabling PERTAMINA to meet Rupiah expenditures incurred pursuant to
this paragraph.
	

 	
 	

 	
 	

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

 	
 	

5.3.4	
 	

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

 	
 	

5.3.5	
 	

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

 	
 	

5.3.6	
 	

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

 	
 	

 	
 	

 	
 	

 

9

  

 
 

SECTION VI    
    
    RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION    
  

	6.1	 	CRUDE OIL
	

 	
 	

6.1.1	
 	

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

 	
 	

6.1.2	
 	

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

 	
 	

6.1.3	
 	

Of the Crude Oil remaining after deducting Operating Costs:
	

 	
 	

 	
 	

(a)	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

(e)	
 	

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

 	
 	

 	
 	

 	
 	

(i)	
 	

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

10

 

	

 	
 	

 	
 	

 	
 	

(ii)	
 	

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

 	
 	

 	
 	

 	
 	

(iii)	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

(d)	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

 	
 	

 	
 	

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

 	
 	

6.1.4	
 	

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

 	
 	

6.1.5	
 	

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

11

 

	

 	
 	

6.1.6	
 	

If PERTAMINA elects to take any of its portion of Crude Oil in kind, it shall so advise CONTRACTOR in writing not less than ninety (90) days prior to the commencement of each semester of each Calendar Year specifying the quantity which it elects to
take in kind, such notice to be effective for the ensuing semester of each Calendar Year provided, however, that such election shall not interfere with the proper performance of any Crude Oil sales agreement for Petroleum produced within the Contract
Area which CONTRACTOR has executed prior to the notice of such election. Failure to give such notice shall be conclusively deemed to evidence the election not to take in kind. Any sale of PERTAMINA's portion of Crude Oil shall not be for a term of
more than one Calendar Year without PERTAMINA's consent.
	

 	
 	

6.1.7	
 	

 	
 	

 	
 	

 
	

 	
 	

 	
 	

(a)	
 	

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

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

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

6.2	
 	

NATURAL GAS
	

 	
 	

6.2.1	
 	

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

 	
 	

6.2.2	
 	

Should PERTAMINA and CONTRACTOR consider that the processing and utilization of Natural Gas is economical and choose to participate in the processing and utilization thereof; in addition to that used in secondary recovery operations, then the
construction and installation of facilities for such processing and utilization shall be carried out pursuant to an approved Work Program.

12

 

	

 	
 	

 	
 	

It is hereby agreed that all costs and revenues derived from such processing, utilization and sale of Natural Gas shall be treated on a basis equivalent to that provided for herein concerning Petroleum Operations and disposition of Crude Oil except
of the Natural Gas, or the propane and butane fractions extracted from Natural Gas but not spiked in Crude Oil, remaining after deducting Operating Costs associated with the Natural Gas operations as stipulated in Exhibit "C"; PERTAMINA shall be
entitled to take and receive thirty seven point five zero zero zero percent (37.5000%) and CONTRACTOR shall be entitled to take and receive sixty two point five zero zero zero percent (62.5000%);
	

 	
 	

6.2.3	
 	

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

 	
 	

6.2.4	
 	

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

6.3	
 	

FIRST TRANCHE PETROLEUM
	

 	
 	

6.3.1	
 	

Notwithstanding anything to the contrary elsewhere contained in this Contract, the Parties shall be entitled to first take and receive each Year a quantity of Petroleum of Twenty Percent (20%) of the Petroleum production for each such Year, called
the "First Tranche Petroleum", before rely deduction for recovery of Operating Costs and handling of production as provided herein under this Section VI.
	

 	
 	

6.3.2	
 	

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

 	
 	

6.3.3	
 	

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

 
 

SECTION VII
  
  VALUATION OF CRUDE OIL    
  

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

 	
 	

7.1.1	
 	

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

 	
 	

7.1.2	
 	

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

 	
 	

7.1.3	
 	

PERTAMINA shall be duly advised before the sales referred to herein above in clauses 7.1.1 and 7.1.2 are made.

13

 

	

 	
 	

7.1.4	
 	

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

 	
 	

7.1.5	
 	

PERTAMINA's marketing of such Crude Oil as referred to in clause 7.1.4 shall continue until forty-five (451) days after PERTAMINA's net realized price on said Crude Oil becomes less favorable. CONTRACTOR's obligation to market said Crude Oil shall
not apply until after PERTAMINA has given CONTRACTOR at least forty-five (45) days advance notice of its desire to discontinue such sales. As long as PERTAMINA is marketing the Crude Oil referred to above, it shall account to CONTRACTOR on the basis
of the more favorable net realized price.
	

 	
 	

7.1.6	
 	

Without prejudice to any of the provisions of Section VI and Section VII, CONTRACTOR may at its option transfer to PERTAMINA during any Calendar Year the right to market any Crude Oil which is in excess of CONTRACTOR's normal and contractual
requirements provided that the price is not less than the net realized price from the Contract Area. PERTAMINA's request stating the quantity and expected loading date must be submitted in writing to CONTRACTOR at least thirty (30) days prior to
lifting said Crude Oil. Such lifting must not interfere with scheduled tanker movements. PERTAMINA shall account to CONTRACTOR in respect of any sale made by it hereunder.
	

 	
 	

7.1.7	
 	

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

7.2	
 	

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

 	
 	

7.2.1	
 	

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

 	
 	

7.2.2	
 	

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

7.3	
 	

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

14

 

	

7.4	
 	

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

7.5	
 	

During any given Calendar Year, the handling of production (i.e., the implementation of the provisions of Section VI hereof) and the proceeds thereof shall be provisionally dealt with on the basis of the relevant Work Program and Budget of Operating
Costs based upon estimates of quantities of Crude Oil to be produced, of internal consumption in Indonesia, of marketing possibilities, of prices and other sale conditions as well as of any other relevant factors. Within thirty (30) days after the
end of the said given Year, adjustments and cash settlements between the Parties shall be made on the basis of the actual quantities, amounts and prices involved, in order to comply with the provisions of this Contract.
	

7.6	
 	

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

 	
 	

7.6.1	
 	

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

 	
 	

7.6.2	
 	

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

 	
 	

 	
 	

(a)	
 	

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

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(e)	
 	

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

 	
 	

 	
 	

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

 	
 	

 	
 	

 	
 	

 

 
 

SECTION VIII    
    
    COMPENSATION, ASSISTANCE AND PRODUCTION BONUS    
  

	

8.1	
 	

CONTRACTOR shall pay to PERTAMINA as compensation for information now held by PERTAMINA the sum of Two Hundred Fifty Thousand United States Dollars (US$ 250,000) after approval of this Contract by the Government of the Republic of Indonesia in
accordance with the provisions of applicable law. Such payment shall be made within thirty (30) days after the Effective Date.
	

8.2	
 	

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

8.3	
 	

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

 	
 	

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

 	
 	

CONTRACTOR shall pay to PERTAMINA the sum of Two Million Five Hundred Thousand United States Dollars (US$ 2,500,000) within thirty (30) days after cumulative Crude Oil production from the Contract Area has reached one hundred million (100,000,000)
Barrels of Oil Equivalent (BOE).
	

8.4	
 	

Such compensation, assistance and production bonuses shall be borne solely by CONTRACTOR and shall not be included in the Operating Costs.

15

  

 
 

SECTION IX    
    
    PAYMENTS    
  

	9.1	 	All payments which this Contract obligates CONTRACTOR to make to PERTAMINA or the Government of the Republic of Indonesia shall be made in United States Dollar currency at a bank to be designated by each of them and agreed
upon by Bank Indonesia or at CONTRACTOR's election, other currency acceptable to them, except that CONTRACTOR may make such payments in Indonesian Rupiahs to the extent that such currencies are realized as a result of the domestic sale of Crude Oil
or Natural Gas or Petroleum products, if any.
	9.2	 	All payments due to CONTRACTOR shall be made in United States Dollars or at PERTAMINA's election, other currencies acceptable to CONTRACTOR at a bank to be designated by CONTRACTOR.
	9.3	 	Any payments required to be made pursuant to this Contract shall, unless otherwise specified, be made within thirty (30) days following the end of the month in which the obligation to make such payments occurs.

 
 

SECTION X    
    
    TITLE TO EQUIPMENT    
  

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

I0.2	
 	

The provisions of clause 10.1 above shall not apply to leased equipment belonging to third parties who perform services as a contractor, such equipment may be freely exported from Indonesia.

 
 

SECTION XI    
    
    CONSULTATION AND ARBITRATION    
  

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

11.2	
 	

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

11.3	
 	

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

11.4	
 	

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

 	
 	

 

16

 
 
 

SECTION XII    
    
    EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL    
  

	

12.1	
 	

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

12.2	
 	

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

 	
 	

 

 
 

SECTION XIII    
    
    TERMINATION    
  

	

13.1	
 	

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

13.2	
 	

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

13.3	
 	

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

13.4	
 	

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

 	
 	

 

 
 

SECTION XIV    
    
    BOOKS AND ACCOUNTS AND AUDITS    
  

	

14.1	
 	

BOOKS AND ACCOUNTS
	

 	
 	

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

 	
 	

 	
 	

 

17

 

	

14.2	
 	

AUDITS
	

 	
 	

14.2.1	
 	

CONTRACTOR shall have the right to inspect and audit PERTAMINA's books and accounts relating to this Contract for any Calendar Year within the one (1) year period following the end of such Calendar Year. Any such audit will be satisfied within twelve
(12) months after its commencement. Any exception must be made in writing within sixty (60) days following the end of such audit and failure to give such written exception within such time shall establish the correctness of PERTAMINA's books and
accounts.
	

 	
 	

14.2.2	
 	

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

 	
 	

 	
 	

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

 	
 	

 	
 	

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

 	
 	

 	
 	

 

 
 

SECTION XV    
    
    OTHER PROVISIONS    
  

	

15.1	
 	

NOTICES:
	

 	
 	

Any notices required or given by either Party to the other shall be deemed to have been delivered when properly acknowledged for receipt by the receiving Party. Either party may substitute or change such address on written notice thereof to the
other. All such notices shall be addressed to:
	

 	
 	

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

(PERTAMINA)

JL. MERDEKA TIMUR 1-A

Jakarta, 10110

INDONESIA

Attn: President Director and Chief Executive Officer
	

 	
 	

FAX:

PHONE:	
 	

62-21-310-6564

62-21-310-2101
	

 	
 	

APEX (BENGARA-II) LTD.

WISMA INDOCEMENT 6th Floor

JL. JENDRAL SUDIRMAN

Jakarta, INDONESIA

Attn: President and Chief Executive Officer
	

 	
 	

FAX:

PHONE:	
 	

62-21-251-0220

62-21-570-3778
	

15.2	
 	

LAWS AND REGULATIONS:

18

 

	

 	
 	

15.2.1	
 	

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

 	
 	

15.2.2	
 	

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

15.3	
 	

SUSPENSION OF OBLIGATIONS:
	

 	
 	

15.3.1	
 	

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

 	
 	

15.3.2	
 	

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

 	
 	

15.3.3	
 	

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

15.4	
 	

PROCESSING OF PRODUCTS:
	

 	
 	

15.4.1	
 	

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

 	
 	

15.4.2	
 	

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

 	
 	

 	
 	

(a)	
 	

PERTAMINA has first requested CONTRACTOR thereto;
	

 	
 	

 	
 	

(b)	
 	

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

 	
 	

 	
 	

(c)	
 	

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

 	
 	

15.4.3	
 	

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

 	
 	

15.4.4	
 	

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

 	
 	

 	
 	

 	
 	

 

 
 

SECTION XVI    
    
    PARTICIPATION    
  

	

16.1	
 	

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

19

 

	

16.2	
 	

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

16.3	
 	

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

16.4	
 	

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

16.5	
 	

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

16.6	
 	

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

16.7	
 	

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

 	
 	

16.7.1	
 	

either by a transfer of cash equal to the said amount by the Indonesian Participant within three (31) months after the date of its acceptance of CONTRACTOR's offer referred to in clause 16.3 herein above, to CONTRACTOR's account with the banking
institution to be designated by it, in the currency in which the relevant costs have been financed; or
	

 	
 	

16.7.2	
 	

by way of a "payment out of production" of fifty (50) percent of the Indonesian Participant's production entitlements under this Contract valued in the manner as described in Section VII of this Contract, equal in total to one hundred fifty percent
(150%) of the said amount set forth in the preceding clause 16.1 and commencing as from the first sale of Petroleum produced and saved from the Contract Area.
	

16.8	
 	

At the time of its acceptance of CONTRACTOR's offer the Indonesian Participant shall state whether it wishes to reimburse in cash or out of production in the manner indicated in clauses 16.7.1 or 16.7.2 above.
	

 	
 	

 	
 	

 

 
 

SECTION XVII    
    
    EFFECTIVENESS    
  

	

17.1	
 	

This Contract shall come into effect on the Effective Date.
	

17.2	
 	

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

 	
 	

 

20

 

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

	

PERUSAHAAN PERTAMBANGAN

MINYAK DAN GAS BUMI NEGARA

(PERTAMINA)	
 	

APEX (BENGARA-II) LTD.
	

«Signed by F. Abdoue»
 President Director and Chief Executive Officer	
 	

«Signed by Richard L. McAdoo»
 Director
	

 	
 	

 

APPROVED
BY THE MINISTER OF MINES AND ENERGY 

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

GOVERNMENT
OF THE REPUBLIC OF INDONESIA. 

«Signed by His Excellency LB. Sudjana» 

21

  

 
 

EXHIBIT "A"    
  

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

DESCRIPTION OF BENGARA-II CONTRACT AREA  

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

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

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

A–1

  

 
 

EXHIBIT "B"    
  

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

SKETCH
MAP OF BENGARA-II CONTRACT AREA 

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

EXHIBIT
"B" 

B–1

  

 
 

EXHIBIT "C"    
  

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

ACCOUNTING PROCEDURE  

 ARTICLE—I

GENERAL PROVISIONS  

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

1.2	
 	

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

ARTICLE—II

OPERATING COSTS  

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

2.2	
 	

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

 	
 	

2.2.1	
 	

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

 	
 	

2.2.2	
 	

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

C–1

 

	

 	
 	

2.2.3	
 	

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

 	
 	

2.2.4	
 	

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

 	
 	

2.2.5	
 	

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

 	
 	

2.2.6	
 	

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

 	
 	

2.27	
 	

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

2.3	
 	

Capital Costs
	 	 	Capital Costs means expenditures made for items which normally have a useful life beyond the year incurred. A reasonable annual allowance for depreciation of Capital Costs, computed as described in Article-III, Section 3.1
below, will be allowed as a recoverable Operating Costs for the current year. Capital Costs include classifications described herein but are not limited to the following specifications:
	

 	
 	

2.3.1	
 	

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

 	
 	

2.3.2	
 	

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

 	
 	

2.3.3	
 	

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

 	
 	

2.3.4	
 	

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

C–2

 
ARTICLE—III

ACCOUNTING METHODS TO BE USED TO CALCULATE

RECOVERY OF OPERATING COSTS  

	3.1	 	Depreciation
	 	 	Depreciation will be calculated beginning the Calendar Year in which the asset is placed into service with a full Calendar Year's depreciation allowed the initial Calendar Year. The method used to calculate each Calendar
Year's allowable recover), of Capital Costs is the declining balance depreciation method. Calculation of each such Calendar Year's allowable recovery of Capital Costs should be based on the individual asset's Capital Cost at the beginning of such
year multiplied by the depreciation factor as follows, for:

	Group 1 =	 	50	%
	Group 2 =	 	25	%
	Group 3 =	 	10	%

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

	Group -1	 	 	 	 
	Automobiles	 	1.5	 	years
	Trucks-light (13,000 pounds or less) and tractor units	 	2	 	years
	Trucks-heavy (more than 13,000 pounds) and trailers	 	3	 	years
	Buses	 	4.5	 	years
	Aircraft	 	3	 	years
	Construction Equipment	 	3	 	years
	Furniture and Office Equipment	 	5	 	years
	Group -2	 	 	 	 
	Construction utilities and auxiliaries	 	5	 	years
	Construction housing and welfare	 	10	 	years
	Production facilities	 	5	 	years
	Railroad cars and locomotives	 	7.5	 	years
	Vessels, barges, tugs, similar water transportation equipment	 	9	 	years
	Drilling and production tools, equipment and instruments	 	5	 	years

C–3

 

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

	Group 1	 	 	 	 
	Automobiles	 	3	 	years
	Trucks-light (13,000 pounds or less) and tractor units	 	4	 	years
	Trucks-heavy (more than 13,000 pounds) and trailers	 	6	 	years
	

Group 2	
 	

 	
 	

 
	Aircraft	 	6	 	years
	Vessels, barges, tugs, similar water transportation equipment	 	18	 	years
	Drilling and production tools, equipment and instruments	 	8	 	years
	Construction Equipment	 	6	 	years
	Furniture and Office Equipment	 	10	 	years
	

Group 3	
 	

 	
 	

 
	Construction utilities and auxiliaries	 	8	 	years
	Construction housing and welfare	 	20	 	years
	Production facilities	 	8	 	years
	Railroad cars and locomotives	 	15	 	years

	 	 	The balance of unrecovered Capital Costs is eligible for full depreciation at the end of the individual asset's useful life. The undepreciated balance of assets taken out of service will not be charged to Operating Costs
but will continue depreciating based upon the lives described above, except where such assets have been subjected to unanticipated destruction, for example, by fire or accident.
	

3.2	
 	

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

3.3	
 	

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

3.3	
 	

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

 	
 	

If after commencement of production the Natural Gas revenues do not permit full recovery of Natural Gas costs, as outlined above, then the excess costs shall be recovered from Crude Oil revenues. Likewise, if excess Crude Oil costs (Crude Oil costs
less Crude Oil revenues) exist, this excess can be recovered from Natural Gas revenues.

C–4

 

	

 	
 	

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

3.4	
 	

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

3.6	
 	

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

3.7	
 	

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

 	
 	

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

 	
 	

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

C–5

  

 
 

EXHIBIT "D"    
  

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

MEMORANDUM ON PARTICIPATION  

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

	1.
	CONTRACTOR
shaI1 be the Operator of the venture under properly defined rights and obligations.

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

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

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

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

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

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

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

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

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

D–1

QuickLinks

EXHIBIT 10.4

INDEX

SECTION 1 SCOPE AND DEFINITIONS

SECTION II TERM

SECTION III EXCLUSION OF AREAS

SECTION IV WORK PROGRAM AND EXPENDITURES

SECTION V RIGHTS AND OBLIGATIONS OF THE PARTIES

SECTION VI RECOVERY OF OPERATING COSTS AND HANDLING OF PRODUCTION

SECTION VII VALUATION OF CRUDE OIL

SECTION VIII COMPENSATION, ASSISTANCE AND PRODUCTION BONUS

SECTION IX PAYMENTS

SECTION X TITLE TO EQUIPMENT

SECTION XI CONSULTATION AND ARBITRATION

SECTION XII EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL

SECTION XIII TERMINATION

SECTION XIV BOOKS AND ACCOUNTS AND AUDITS

SECTION XV OTHER PROVISIONS

SECTION XVI PARTICIPATION

SECTION XVII EFFECTIVENESS

EXHIBIT "A"

EXHIBIT "B"

EXHIBIT "C"

EXHIBIT "D"

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