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 TABLE OF CONTENTS


PREAMBLE


SECTION I SCOPE AND DEFINITIONS


1.1 Scope


1.2 Definitions


SECTION H TERM, SURRENDER AND TERMINATION





2.1 Term


2.2 Exploration Period


2.3 Surrender during Exploration Period


2.4 Development and Production Period


2.5 Termination


SECTION HI GENERAL RIGHTS AND OBLIGATIONS OF THE CONTRACTOR





3.1 Rights of the Contractor


3.2 Obligations in respect of the conduct of Petroleum Operations


3.3 Abandonment and disposal of assets


3.4 Records and reports of Petroleum Operations


3.5 Joint liability and indemnity


3.6 Local employment, training and preference


3.7 Environmental and safety measures


3.8 Registration and office


SECTION IV GENERAL RIGHTS AND OBLIGATIONS OF THE GOVERNMENT


AND THE MINISTER


4.1 Rights of the Government and the Minister


4.2 Obligations of the Government and the Minister





SECTION V WORK AND EXPENDITURE OBLIGATIONS AND BUDGET


5.1 Exploration


5.2 Bank guarantee


5.3 Discovery and appraisal


5.4 Development and production


SECTION VI GOVERNMENT PARTICIPATION


6.1. Government participation


SECTION VH COST RECOVERY AND PRODUCTION SHARING





7.1. Cost recovery


7.2 Production sharing


SECTION Vffl PRODUCTION RATE AND MARKETING


8.1. Production rate


8.2. Marketing


SECTION IX UNITIZATION





9.1 Unitization




TABLE OF CONTENTS



PREAMBLE



SECTION I SCOPE AND DEFINITIONS



1.1 Scope

1.2 Definitions



SECTION II TERM, SURRENDER AND TERMINATION



2.1 Term

2.2 Exploration Period

2.3 Surrender during Exploration Period

2.4 Development and Production Period

2.5 Termination



SECTION III GENERAL RIGHTS AND OBLIGATIONS OF THE CONTRACTOR



3.1 Rights of the Contractor

3.2 Obligations in respect of the conduct of

Petroleum Operations

3.3 Abandonment and disposal of assets

3.4 Records and reports of Petroleum Operations

3.5 Joint liability and indemnity

3.6 Local employment, training and preference

3.7 Environmental and safety measures

3.8 Registration and office



SECTION IV GENERAL RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE MINISTER



4.1 Rights of the Government and the Minister

4.2 Obligations of the Government and the

Minister



SECTION V WORK AND EXPENDITURE OBLIGATIONS AND BUDGET



5.1 Exploration

5.2 Bank guarantee

5.3 Discovery and appraisal

5.4 Development and production



SECTION VI GOVERNMENT PARTICIPATION



6.1 Government participation



SECTION VII COST RECOVERY AND PRODUCTION SHARING



7.1 Cost recovery

7.2 Production sharing



SECTION VIII PRODUCTION RATE AND MARKETING



8.1 Production rate

8.2 Marketing



SECTION IX UNITIZATION



9.1 Unitization







21ETHIOPIA



1986 Model Production Sharing Petroleum Agreement Between The Government Of Ethiopia & International CompaniesETHIOPIA



1986 Model Production Sharing Petroleum Agreement Between The Government Of Ethiopia & International CompaniesSECTION X DOMESTIC CONSUMPTION


10.1 Domestic consumption


SECTION XI RENTALS, ROYALTIES AND BONUSES


11.1 Annual rentals


11.2 Royalties


11.3 Production bonuses


SECTION xn VALUATION AND MEASUREMENT


12.1 Valuation


12.2 Measurement





SECTION xm NATURAL GAS





13.1 Non-associated Natural Gas


13.2 Associated Natural Gas


13.3 Other provisions


SECTION XIV FINANCIAL AND FISCAL MATTERS AND ACCOUNTING


14.1 Finances


14.2 Taxation


14.3 Foreign exchange control


14.4 Accounting


SECTION XV IMPORTS AND EXPORTS


15.1 Imports


15.2 Exports


SECTION XVI GOVERNING LAW AND DISPUTES


16.1 Governing law


16.2 Arbitration


16.3 Force Majeure





SECTION XVH GENERAL


17.1 Confidentiality





17.2 Waiver


17.3 Notice


17.4 Headings and amendments


APPENDICES





I ACCOUNTING PROCEDURES





H CONTRACT AREA


SECTION X DOMESTIC CONSUMPTION



10.1 Domestic consumption



SECTION XI RENTALS, ROYALTIES AND BONUSES



11.1 Annual rentals

11.2 Royalties

11.3 Production bonuses



SECTION XII VALUATION AND MEASUREMENT



12.1 Valuation

12.2 Measurement



SECTION XIII NATURAL GAS



13.1 Non-associated Natural Gas

13.2 Associated Natural Gas

13.3 Other provisions



SECTION XIV FINANCIAL AND FISCAL MATTERS AND ACCOUNTING



14.1 Finances

14.2 Taxation

14.3 Foreign exchange control

14.4 Accounting



SECTION XV IMPORTS AND EXPORTS



15.1 Imports

15.2 Exports



SECTION XVI GOVERNING LAW AND DISPUTES



16.1 Governing law

16.2 Arbitration

16.3 Force Majeure



SECTION XVII GENERAL



17.1 Confidentiality

17.2 Waiver

17.3 Notice

17.4 Headings and amendments



APPENDICES



I ACCOUNTING PROCEDURES



II CONTRACT AREA



22MODEL PRODUCTION SHARING



PETROLEUM AGREEMENT



THIS AGREEMENT, made and entered into on this _____ day of ______ 198_ by and between:



THE GOVERNMENT OF SOCIALIST ETHIOPIA (herein referred to as the "Government"), represented for the purposes of this Agreement by the Minister of Mines and Energy (herein referred to as the "Minister"),



and



_____, a corporation duly organized and existing under the laws of _____ (herein referred to as the "Contractor"), represented for the purposes of this Agreement by ______, its ________.



The Government and the Contractor are herein referred to individually as "Party" or collectively as "Parties".



WITHNESSETH:



WHEREAS, the title to all Petroleum existing in its natural condition on, in or under the Territory of Ethiopia is vested in the State and the People of Ethiopia; and



WHEREAS, the Government wishes to promote the exploration, development and production of the Petroleum on, in or under the Contract Area and the Contractor desires to join and assist the Government in the exploration, development and production of potential Petroleum within the Contract Area; and



WHEREAS, the Contractor represents that it has the financial ability, technical competence and professional skills to carry out the Petroleum Operations herein described; and



WHEREAS, the Petroleum Operations Proclamation No. ___/ 1986 provides that a Petroleum Agreement may be entered into between the Government and any person;



NOW, THEREFORE, the Government hereby grants to the Contractor in consideration of the payments, covenants and agreements contained herein on the part of the Contractor, the sole right to explore, develop and produce Petroleum in the Contract Area and to exercise other rights granted by this Agreement, and, further in consideration of the undertakings and covenants contained herein, the Parties agree as follows:





23MODEL PRODUCTION SHARING



PETROLEUM AGREEMENT



THIS AGREEMENT, made and entered into on this _____ day of ______ 198_ by and between:



THE GOVERNMENT OF SOCIALIST ETHIOPIA (herein referred to as the "Government"), represented for the purposes of this Agreement by the Minister of Mines and Energy (herein referred to as the "Minister"),



and



_____, a corporation duly organized and existing under the laws of _____ (herein referred to as the "Contractor"), represented for the purposes of this Agreement by ______, its ________.



The Government and the Contractor are herein referred to individually as "Party" or collectively as "Parties".



WITHNESSETH:



WHEREAS, the title to all Petroleum existing in its natural condition on, in or under the Territory of Ethiopia is vested in the State and the People of Ethiopia; and



WHEREAS, the Government wishes to promote the exploration, development and production of the Petroleum on, in or under the Contract Area and the Contractor desires to join and assist the Government in the exploration, development and production of potential Petroleum within the Contract Area; and



WHEREAS, the Contractor represents that it has the financial ability, technical competence and professional skills to carry out the Petroleum Operations herein described; and



WHEREAS, the Petroleum Operations Proclamation No. ___/ 1986 provides that a Petroleum Agreement may be entered into between the Government and any person;



NOW, THEREFORE, the Government hereby grants to the Contractor in consideration of the payments, covenants and agreements contained herein on the part of the Contractor, the sole right to explore, develop and produce Petroleum in the Contract Area and to exercise other rights granted by this Agreement, and, further in consideration of the undertakings and covenants contained herein, the Parties agree as follows:





23







SECTION I: SCOPE AND DEFINITIONS







1.1. Scope



This Agreement is a production sharing agreeing and it shall cover

Petroleum Operations in the Contract Area. The Contract Area is described

and delineated in Appendix II hereto and is periodically adjusted in

accordance with the provisions of this Agreement. During the term of this

Agreement all Petroleum production resulting from the conduct of

Petroleum Operations shall be divided between the Parties in accordance

with the provisions of Sections VI through XIII hereof.



1.2. Definitions



In this Agreement, unless the context clearly indicates otherwise words in

the singluar include the plural, the plural indicates the singular, and words

that are not defined herein, but that are defined in the Petroleum

Proclamation, shall have the meanings set forth in that law.



1.2.1. "Accounting Procedures" means the accounting procedures and

reporting requirements set forth in Appendix I hereto.



1.2.2. "Affiliate" of any specified person means any person directly or

indirectly controlling or controlled by or under direct or indirect

common control of another person. For the purposes of this

definition, "control" means the power to direct, administer, or

dictate the management and policies of such person or the

ownership of fifty per cent (50 %) or more of voting rights in such

person; and the terms "controlling" and "controlled" have meanings

correlative to the foregoing.



1.2.3. "Appraisal Area" means the area within the Contract Area subject

to an appraisal work programme and budget as set forth in Section

5.3.2.



1.2.4. "Associated Natural Gas" means Natural Gas which exists in a

reservoir in solution with Crude Oil or, as gas-cap gas, in contact

with Crude Oil, and is or could be produced with Crude Oil.



1.2.5. "Barrel" means a quantity consiting of 158.984 litres at standard

atmospheric pressure of 1.01325 bar and temperature of fifteen

degrees Celsius (15° C).



1.2.6. "Calendar Quarter" means a period of three (3) consecutive months

beginning January 1, April 1, July 1, or October 1 and ending March

31, June 30, September 30 and December 31, respectively.













34

















 SECTION I: SCOPE AND DEFINITIONS











1.1. Scope


This Agreement is a production sharing agreement and it shall cover


Petroleum Operations in the Contract Area. The Contract Area is described


and delineated in Appendix II hereto and is periodically adjusted in


accordance with the provisions of this Agreement. During the term of this


Agreement all Petroleum production resulting from the conduct of


Petroleum Operations shall be divided between the Parties in accordance


with the provisions of Sections VI through XIII. hereof.








1.2. Definitions


In this Agreement, unless the. context clearly-. iqdicates otherwise, words in


the singular include the plt4r41i the plural indicates the singular, and words


that are not defined herein, but that'; ar6 defined in the Petroleum


Proclamation, shall have the meanitigs'set'forth in that law.


1.2.1. "Accounting Procedure's."-, rheans the accounting procedures and


reporting requirements set forth in Appendix I hereto.


1.2.2. "Affiliate” of any" specified person means any person directly or


indirectly controlling or controlled by or under direct or indirect


common control of another person. For the purposes of this


definition, "control" means the power to direct, administer, or


dictate the management and policies of such person or the


ownership of fifty per cent (50 %) or more of voting rights in such


person; and the terms "controlling" and "controlled" have meanings


correlative to the foregoing.


1.2.3. "Appraisal Area" means the area within the Contract Area subject


to an appraisal work programme and budget as set forth in Section


5.3.2.


1.2.4. "Associated Natural Gas" means Natural Gas which exists in a


reservoir in solution with Crude Oil or, as gas-cap gas, in contact


with Crude Oil, and is or could be produced with Crude Oil.


1.2.5. "Barrel" means a quantity consisting of 158.9S4 litres at standard


atmospheric pressure of 1.01325 bar and temperature of fifteen


degrees Celsius (15°C).


1.2.6. "Calendar Quarter" means a period of three (3) consecutive months


beginning January 1, April 1, July 1, or October 1 and ending March


31, June 30, September 30 and December 31, respectively.


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



1.2.8. "Commercial Discovery" means a discovery or an accumulation of discoveries of Petroleum that, in the judgment of the Contractor, can be demonstrated to be producible commercially based on consideration of all pertinent operating and financial data as set forth in Section 5.3.5.



1.2.9. "Contract Area" means the area described and delineated in Appendix II hereto as adjusted in accordance with the provisions of this Agreement regarding term, surrender and termination.



1.2.10. "Contractor" means the Contractor, its successors or any assignee or assignees of any interest of the Contractor.



1.2.11. "Crude Oil" means all hydrocarbons regardless of gravity which are produced at the wellhead in a liquid state at atmospheric pressure, asphalt and ozokerites and the liquid hydrocarbons known as distillate or condensate obtained from Natural Gas by condensation or extraction.



1.2.12. "Development Area" means an area within the Contract Area containing a Commercial Discovery as set forth in Section 5.4.3.



1.2.13. "Development and Production Period" means the period set forth in Sections 2.1 and 2.4.



1.2.14. "Effective Date" means the date this Agreement is signed by the Minister and the Contractor.



1.2.15. "Exploration Period" means the period set forth in Sections 2.1, 2.2 and 2.3.



1.2.16. "Minister" means the Minister of Mines and Energy or any successors in jurisdiction.



1.2.17. "Natural Gas" means hydrocarbons that are in a gaseous phase at atmospheric conditions of temperature and pressure including wet mineral gas, dry mineral gas, casing-head gas and residue gas remaining after the extraction or separation of liquid hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with liquid or gaseous hydrocarbons.



1.2.18 "Non-associated Natural Gas" means Natural Gas other than Associated Natural Gas.



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



1.2.8. "Commercial Discovery" means a discovery or an accumulation of discoveries of Petroleum that, in the judgment of the Contractor, can be demonstrated to be producible commercially based on consideration of all pertinent operating and financial data as set forth in Section 5.3.5.



1.2.9. "Contract Area" means the area described and delineated in Appendix II hereto as adjusted in accordance with the provisions of this Agreement regarding term, surrender and termination.



1.2.10. "Contractor" means the Contractor, its successors or any assignee or assignees of any interest of the Contractor.



1.2.11. "Crude Oil" means all hydrocarbons regardless of gravity which are produced at the wellhead in a liquid state at atmospheric pressure, asphalt and ozokerites and the liquid hydrocarbons known as distillate or condensate obtained from Natural Gas by condensation or extraction.



1.2.12. "Development Area" means an area within the Contract Area containing a Commercial Discovery as set forth in Section 5.4.3.



1.2.13. "Development and Production Period" means the period set forth in Sections 2.1 and 2.4.



1.2.14. "Effective Date" means the date this Agreement is signed by the Minister and the Contractor.



1.2.15. "Exploration Period" means the period set forth in Sections 2.1, 2.2 and 2.3.



1.2.16. "Minister" means the Minister of Mines and Energy or any successors in jurisdiction.



1.2.17. "Natural Gas" means hydrocarbons that are in a gaseous phase at atmospheric conditions of temperature and pressure including wet mineral gas, dry mineral gas, casing-head gas and residue gas remaining after the extraction or separation of liquid hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with liquid or gaseous hydrocarbons.



1.2.18 "Non-associated Natural Gas" means Natural Gas other than Associated Natural Gas.



251.2.19. "Operating Agreement" means the agreement set

forth in Section 6.1.



1.2.20. "Participating Interest" means the Government's

interest in Petroleum Operations for a

particular Development Area as set forth in

Section 6.1.



1.2.21 "Petroleum Proclamation" means the "Petroleum

Operations Proclamation No._/1986".



1.2.22 "Petroleum" means Crude Oil and Natural Gas and

excludes hydrocarbons produced from oil shales

or tar sands.



1.2.23 "Petroleum Operations" means the operations

authorized under this Agreement, related to the

exploration, development, extraction,

production, field separation, treatment (but

excluding refining), storage, transportation of

Petroleum up to the point of exportation or

entry into a system for domestic consumption,

and marketing of Petroleum, excluding, refining

of Crude Oil, but including the processing of

Natural Gas.



1.2.24 "Petroleum Operations Costs" means the costs

and expenses incurred by the Contractor for the

purposes of conducting Petroleum Operations

under this Agreement, as set forth in Appendix I

hereto.



1.2.25 "State" means the'State of Ethiopia.



1.2.26 "Subcontractor" means any person with whom the

Contractor establishes a relationship for the

provision of services required for performance

under this Agreement.









261.2.19. "Operating Agreement" means the agreement set

forth in Section 6.1.



1.2.20. "Participating Interest" means the Government's

interest in Petroleum Operations for a

particular Development Area as set forth in

Section 6.1.



1.2.21 "Petroleum Proclamation" means the "Petroleum

Operations Proclamation No._/1986".



1.2.22 "Petroleum" means Crude Oil and Natural Gas and

excludes hydrocarbons produced from oil shales

or tar sands.



1.2.23 "Petroleum Operations" means the operations

authorized under this Agreement, related to the

exploration, development, extraction,

production, field separation, treatment (but

excluding refining), storage, transportation of

Petroleum up to the point of exportation or

entry into a system for domestic consumption,

and marketing of Petroleum, excluding, refining

of Crude Oil, but including the processing of

Natural Gas.



1.2.24 "Petroleum Operations Costs" means the costs

and expenses incurred by the Contractor for the

purposes of conducting Petroleum Operations

under this Agreement, as set forth in Appendix I

hereto.



1.2.25 "State" means the'State of Ethiopia.



1.2.26 "Subcontractor" means any person with whom the

Contractor establishes a relationship for the

provision of services required for performance

under this Agreement.









26SECTION II: TERM, SURRENDER AND TERMINATION



2.1 Term



2.1.1. This Agreement shall consist of an Exploration Period, and a Development and Production Period, both of which may run concurrently.



2.1.2. This Agreement shall remain in effect during the initial term of the Exploration Period and all extensions thereof and shall automatically terminate in its entirety at the end of the Exploration Period, except as to any Development Area.



2.1.3. After expiration of the-Exploration Period, this Agreement shall remain in effect as to each Development Area during the Development and Production Period, for the Development Area and shall automatically terminate with respect to each Development Area upon the expiration of the Development and Production Period for the relevant Development Area.



2.2. Exploration Period



2.2.1. The initial term of the Exploration Period provided by this Agreement shall be ____________ (______) years, commencing on the Effective Date hereof.



2.2.2. The Contractor shall begin Petroleum Operations within ninety (90) days after the Effective Date. Petroleum Operations shall be deemed to have begun when the Contractor has actually commenced the movement of personnel and equipment to Ethiopia for the purposes of conducting Petroleum Operations and, specifically, on the date of departure for a direct Ethiopia destination of plane or vessel transporting such personnel or equipment or both.



2.2.3. The Exploration Period shall have a first extension and a second extension, following the initial term, for successive terms of _________ (______) years and _________ (_______) years, respectively, each upon the Contractor's application to the Minister at least sixty (60) days prior to the termination date of the current term of the Exploration Period, provided that the Contractor has fulfilled the exploration work and expenditure obligations set forth in Section 5.1 for the current term under this Agreement.



27SECTION II: TERM, SURRENDER AND TERMINATION



2.1 Term



2.1.1. This Agreement shall consist of an Exploration Period, and a Development and Production Period, both of which may run concurrently.



2.1.2. This Agreement shall remain in effect during the initial term of the Exploration Period and all extensions thereof and shall automatically terminate in its entirety at the end of the Exploration Period, except as to any Development Area.



2.1.3. After expiration of the-Exploration Period, this Agreement shall remain in effect as to each Development Area during the Development and Production Period, for the Development Area and shall automatically terminate with respect to each Development Area upon the expiration of the Development and Production Period for the relevant Development Area.



2.2. Exploration Period



2.2.1. The initial term of the Exploration Period provided by this Agreement shall be ____________ (______) years, commencing on the Effective Date hereof.



2.2.2. The Contractor shall begin Petroleum Operations within ninety (90) days after the Effective Date. Petroleum Operations shall be deemed to have begun when the Contractor has actually commenced the movement of personnel and equipment to Ethiopia for the purposes of conducting Petroleum Operations and, specifically, on the date of departure for a direct Ethiopia destination of plane or vessel transporting such personnel or equipment or both.



2.2.3. The Exploration Period shall have a first extension and a second extension, following the initial term, for successive terms of _________ (______) years and _________ (_______) years, respectively, each upon the Contractor's application to the Minister at least sixty (60) days prior to the termination date of the current term of the Exploration Period, provided that the Contractor has fulfilled the exploration work and expenditure obligations set forth in Section 5.1 for the current term under this Agreement.



27In order to enable the Contractor to complete drilling, logging,


testing or plugging of any exploratory well which is actually being


drilled, logged, tested or plugged at the end of the second extension


of the Exploration Period, the Minister shall grant a further


extension to such second extension for such a time as he determines


may be reasonable, which in any event shall not extend the term of


the second extension by more than six (6) months.


2.2A, In order to expeditiously complete the evaluation of a discovery, the


Minister shall extend the term of the Exploration Period for an


additional _ (_) months term beyond the second extension


period for each area designated as an Appraisal Area upon the


Contractor's submission to the Minister, .at least sixty (60) days prior


to the termination date of the second-extension, of an appraisal


work programme and budget under'S.e'ction'' 5.3.2; provided, however,


that the Contractor has fulfilled'"- the exploration work and


expenditure obligations set forth.in Sectipn; 5:1 for the curent term


under this Agreement. Thereafter, if the Contractor shall determine


that an Appraisal Area, does not contain a Commercial Discovery


and if no further'..extension is.-granted under Section 2.2.5, the


Exploration Period for the relevant Appraisal Area shall terminate.


2.2.5. Upon justification by ..th'e-.:-.Contractor and in addition to the


extensions set forth above,'the Minister may extend the term of the


Exploration Period in. respect to the Appraisal Area of a Natural Gas


discovery for a period up to_ (_) years for the purposes of


further appraising and evaluating the Natural Gas discovery and


establishing its economic viability as well as preparing a preliminary


development scheme of a Natural Gas project.








2.3. Surrender during Exploration Period


2.3.1. At or prior to the end of the initial term of the Exploration Period


the Contractor shall surrender at least_per cent (_) of the


original Contract Area.





2.3.2. At or prior to the end of the first extension of the Exploration


Period the Contractor shall surrender at least_per cent (_)


of the original Contract Area.


2.3.3. When calculating the surrender obligation under Sections 2.3.1 and


2.3.2, each area then designated as a Development Area shall be


deducted from the original Contract Area.


In order to enable the Contractor to complete

drilling, logging, testing or plugging of any

exploratory well which is actually being drilled,

logged, tested or plugged at the end of the

second extension of the Exploration Period, the

Minister shall grant a further extension to such

second extension for such a time as he determines

may be reasonable, which in any event shall not

extend the term of the second extension by more

than six (6) months.



2.2.4. In order to expeditiously complete the evaluation

of a discovery, the Minister shall extend the

term of the Exploration Period for an additional

_____ (__) months term beyond the second

extension period for each area designated as an

Appraisal Area upon the Contractor's submission

to the Minister, at least sixty (60) days prior

to the termination date of the second extension,

of an appraisal work programme and budget under

Section 5.3.2; provided, however, that the

Contractor has fulfilled the exploration work and

expenditure obligations set forth in Section 5.1

for the curent term under this Agreement.

Thereafter, if the Contractor shall determine

that an Appraisal Area does not contain a

Commercial Discovery and if no further extension

is granted under Section 2.2.5, the Exploration

Period for the relevant Appraisal Area shall

terminate.



2.2.5. Upon justificaiton by the Contractor and in

addition to the extensions set forth above, the

Minister may extend the term of the Exploration

Period in respect to the Appraisal Area of a

Natural Gas discovery for a period up to ____

(__) years for the purposes of further appraising

and evaluating the Natural Gas discovery and

establishing its economic viability as well as

preparing a preliminary development scheme of a

Natural Gas project.



2.3. Surrender during Exploration Period



2.3.1. At or prior to the end of the initial term of the

Exploration Period the Contractor shall surrender

at least ___ per cent (___) of the original

Contract Area.



2.3.2. At or prior to the end of the first extension of

the Exploration Period the Contractor shall

surrender at least ____ per cent (___) of the

original Contract Area.



2.3.3. When calculating the surrender obligation under

Sections 2.3.1 and 2.3.2, each area then

designated as a Development Area shall be deducted

the original Contract Area.



282.3.4. At or prior to the end of the second extension to the Exploration Period, the Contractor shall surrender the remainder of the original Contract Area which is not included within an Appraisal Area or Development Area.



2.3.5. The Contractor shall have the right to surrender at any time all or part of the Contract Area not designated as a Development Area, upon giving the Minister prior written notice.



2.3.6. The location and configuration of any area to be surrendered by the Contractor under this Section shall be submitted for approval to the Minister which approval shall not be unreasonably withheld, sixty (60) days prior to the date of each surrender and shall consist, as far as practicable, of reasonably contiguous area in order to facilitate further exploration.



2.3.7. No surrender shall reduce the minimum amount of Contractor's exploration work and expenditure obligations or the related bank guarantee in respect thereof as provided in Sections 5.1 and 5.2.



2.3.8. Any surrender under Section 2.3.5 shall be credited toward the Contractor's next surrender obligation under Sections 2.3.1 and 2.3.2.



2.4. Development and Production Period



2.4.1. The term of the Development and Production Period provided for by this Agreement in respect of a Commercial Discovery shall commence on the date of adoption of the development plan as set forth in Section 5.4.5 and shall continue until December 31 of the ___________ (_______) Calendar Year.



2.4.2. If, at the expiration of the Development and Production Period for any Development Area, commercial production remains economically feasible, the Minister shall, at the Contractor's request, enter into good faith negotiations regarding an extension of the Development and Production Period.



2.4.3. If, subsequent to the designation of the area encompassing a Commercial Discovery as a Development Area, the extent of the area encompassing the Commercial Discovery is demonstrated to be different than that designated in the development plan under Section 5.4.5, the Development Area shall be adjusted



292.3.4. At or prior to the end of the second extension to the Exploration Period, the Contractor shall surrender the remainder of the original Contract Area which is not included within an Appraisal Area or Development Area.



2.3.5. The Contractor shall have the right to surrender at any time all or part of the Contract Area not designated as a Development Area, upon giving the Minister prior written notice.



2.3.6. The location and configuration of any area to be surrendered by the Contractor under this Section shall be submitted for approval to the Minister which approval shall not be unreasonably withheld, sixty (60) days prior to the date of each surrender and shall consist, as far as practicable, of reasonably contiguous area in order to facilitate further exploration.



2.3.7. No surrender shall reduce the minimum amount of Contractor's exploration work and expenditure obligations or the related bank guarantee in respect thereof as provided in Sections 5.1 and 5.2.



2.3.8. Any surrender under Section 2.3.5 shall be credited toward the Contractor's next surrender obligation under Sections 2.3.1 and 2.3.2.



2.4. Development and Production Period



2.4.1. The term of the Development and Production Period provided for by this Agreement in respect of a Commercial Discovery shall commence on the date of adoption of the development plan as set forth in Section 5.4.5 and shall continue until December 31 of the ___________ (_______) Calendar Year.



2.4.2. If, at the expiration of the Development and Production Period for any Development Area, commercial production remains economically feasible, the Minister shall, at the Contractor's request, enter into good faith negotiations regarding an extension of the Development and Production Period.



2.4.3. If, subsequent to the designation of the area encompassing a Commercial Discovery as a Development Area, the extent of the area encompassing the Commercial Discovery is demonstrated to be different than that designated in the development plan under Section 5.4.5, the Development Area shall be adjusted



29(f) if Petroleum Operations are interrupted for more than one


hundred eight (180) days.


2.5.3. The period of notice with respect to a termination event under


Section 2.5.2 (a) above shall be thirty (30) days, and with respect to


any other termination event specified in Section 2.5.2 shall be


ninety (90) days. If, however, the Contractor remedies the


termination event within the period of the notice, the Minister shall


withdraw the notice to the same effect as if the termination event


had not occurred under this Agreement, unless a termination event


of the same type has previously occurred under this Agreement, in


which case the Minister may, but is not required to, withdraw the


notice.


2.5.4. If a termination event specified in Section 2.5.2 is the result of


Force Majeure as set forth in Section., 16.3^ then neither occurrence


of the termination event nor the'Cohtjriuance of. it-.unremedied shall


result in termination of this-Agreement for so\iong as such Force


Majeure continues.


2.5.5. When this Agreement \is tisrminated-.or expires, in whole or in part,


the Contractor shrill..‘conclude Petroleum Operations in the area as


to Which this Agreement has., terminated or expired in an orderly


manner calculated to miniinfee harm or loss to the State or any


person. Y\


In the event of surrender of an Appraisal Area or a Development


Area or termination of this Agreement, the Minister may require


the Contractor to continue, for the account of the Government,


Petroleum Operations for properties currently producing or capable


of producing Petroleum until the right and responsibility for


continuing such operations have been transferred to another person


or the Government or an agency thereof but for a period not to


exceed one hundred eighty (180) days after the date this Agreement


would otherwise terminate with respect to all or any portion of the


Contract Area concerned; provided, however, that the Government:


(a) shall bear all costs, risks and expenses of Petroleum


Operations during such take-over period to the extent this


period extends beyond the date that this Agreement would


otherwise terminate and shall be entitled during this same


period to all the production and proceeds from the sale


thereof;


(b) shall reimburse the Contractor within thirty (30) days after


the submission of an invoice specifying the costs and expenses


of such operations during such take-over period, such invoices


to be submitted no more than every thirty (30) days.

















3 0


(f) if Petroleum Operations are interrupted for more than one hundred eight (180) days.



2.5.3. The period of notice with respect to a termination event under Section 2.5.2 (a) above shall be thirty (30) days, and with respect to any other termination event specified in Section 2.5.2 shall be ninety (90) days. If, however, the Contractor remedies the termination event within the period of the notice, the Minister shall withdraw the notice to the same effect as if the termination event had not occurred under this Agreement, unless a termination event of the same type has previously occurred under this Agreement, in which case the Minister may, but is not required to, withdraw the notice.



2.5.4. If a termination event specified in Section 2.5.2 is the result of Force Majeure as set forth in Section 16.3, then neither occurrence of the termination event nor the continuance of it unremedied shall result in termination of this Agreement for so long as such Force Majeure continues.



2.5.5. When this Agreement is terminated or expires, in whole or in part, the Contractor shall conclude Petroleum Operations in the area as to which this Agreement has terminated or expired in an orderly manner calculated to minimize harm or loss to the State or any person.



In the event of surrender of an Appraisal Area or a Development Area or termination of this Agreement, the Minister may require the Contractor to continue, for the account of the Government, Petroleum Operations for properties currently producing or capable of producing Petroleum until the right and responsibility for continuing such operations have been transferred to another person or the Government or an agency thereof but for a period not to exceed one hundred eighty (180) days after the date this Agreement would otherwise terminate with respect to all or any portion of the Contract Area concerned; provided, however, that the Government:



(a) shall bear all costs, risks and expenses of Petroleum Operations during such take-over period to the extent this period extends beyond the date that this Agreement would otherwise terminate and shall be entitled during this same period to all the production and proceeds from the sale thereof;



(b) shall reimburse the Contractor within thirty (30) days after the submission of an invoice specifying the costs and expenses of such operations during such take-over period, such invoices to be submitted no more than every thirty (30) days.



30SECTION III: GENERAL RIGHTS AND OBLIGATION OF THE CONTRACTOR



3.1 Rights of the Contractor



3.1.1. The Contractor shall:

(a) have the sole and exclusive right to conduct Petroleum Operations in the Contract Area in accordance withthe provisions of this Agreement;



(b) have the right to enter upon the Contrac Area and conduct Petroleum Operations there, but notwithstanding this provision and the provisions of Section 3.1.1(a):

(i) permission may be granted to other persons to explore for, develop and produce minerals in the Contract Area other than Petroleum, so long as the activities of such persons do not unreasonably interfere with Petroleum Operations; and

(ii) easments and rights of ways in the Contract Area of reasonable scope and duration may be granted to other persons for the benefit of land adjacent to the Contract Area.



(c) subject to the approval of the Minister, which approval shall not be unreasonably withheld, have access over the Territory of Ethiopia for the purpose of constructing, laying, operating, and maintaining both onshore and offshore pipelines, cables and any other facilities required for Petroleum Operations;



(d) have the right, subject to approval of the minister, to use water in the Contract Area for operational purposes, but the Contractor shall not deprive any land, domestic settlement or livestock watering place of the water supply to which they are accustomed;



(e) have the right for the purposes of Petroleum Operations to use gravel, sand, clay, and stone in the Contract Area subject to the limitations set forth in Section 3.1.1 (b); and







3 SECTION HI: GENERAL RIGHTS AND





OBLIGATIONS OF THE CONTRACTOR

















3.1. Rights of the Contractor


3.1.1. The Contractor shall:


(a) have the sole and exclusive right to conduct Petroleum Operations


in the Contract Area in accordance..Vvith the provisions of this


Agreement;


(b) have the right to enter";.u'p6'r> the Contract Area and conduct


Petroleum Operations vtherdy-but notwithstanding this provision and


the provisions of Section 3.1.1(a):......


(i) permission may be granted ‘ to other persons to explore for,


develop and produce-.-mlperals in the Contract Area other than


Petroleum, so long'-; as the activities of such persons do not


unreasonably irttecfere with Petroleum Operations; and


(ii) easements and rights of ways in the Contract Area of


reasonable scope and duration may be granted to other persons


for the benefit of land adjacent to the Contract Area;


(c) subject to the approval of the Minister, which approval shall not be


unreasonably withheld, have access over the Territory of Ethiopia


for the purpose of constructing, laying, operating and maintaining


both onshore and offshore pipelines, cables and any other facilities


required for Petroleum Operations;


(d) have the right, subject to approval of the Minister, to use water in


the Contract Area for operational purposes, but the Contractor shall


not deprive any land, domestic settlement or livestock watering


place of the water supply to which they are accustomed;


(e) have the right for the purposes of Petroleum Operations to use


gravel, sand, clay and stone in the Contract Area subject to the


limitations set forth in Section 3.1.1 (b); and


(f) have the right, subject to the approval of

the concerned authorities, to install,

operate and use telecommunication facilities.



3.1.2. The Contractor shall not carry on Petroleum

Operations on any part of the land in the

Contract Area designated for a public purpose but

may have surface access over, on and through such

land for the purpose of conducting Petroleum

Operations to the extent such access does not

interfere with the public purpose.



3.1.3. The Contractor shall have the right to sell,

assign, transfer, convey or otherwise dispose of

all or any part of the rights and interests under

this Agreement to any Affiliate or other person

with the prior written consent of the Minister,

which consent shall not be unreasonably withheld.



3.2. Obligations in respect of the conduct of Petroleum

Operations



3.2.1. The Contractor shall carry out the Petroleum

Operations within the scope of this Agreement

diligently and In accordance with generally

accepted international petroleum industry

practice. The Contractor and its employees shall

perform no business activities in Ethiopia

outside the scope of this Agreement without

the prior written consent of the Minister.



3.2.2. Specifically, the Contractor shall in accordance

with generally accepted international petroleum

industry practice:



(a) ensure that all machinery, plant, equipment

and installations used in Petroleum

Operations are of proper and accepted

construction and are kept in good repair;



(b) ensure that all exploratory wells with

significant shows of Petroleum are properly

tested;



(c) use the resources of the Contract Area as

productively as practicable, prevent damage

to producing formations and ensure that

Petroleum discovered, mud or any other fluids

or substances do not escape or waste;



(d) prevent damage to Petroleum and water bearing

strata that are adjacent to a producing

formation or formations and prevent water

from entering any strata bearing Petroleum,

except where water injection methods are used

for secondary recovery operations or are

intended otherwise in accordance with

generally accepted international petroleum

industry practice;







32(f) have the right, subject to the approval of the concerned


authorities, to install, operate and use telecommunication


facilities*


3.1.2. The Contractor shall not carry on Petroleum Operations on any part


of the land in the Contract Area designated for a public purpose but


may have surface access over, on and through such land for the


purpose of conducting Petroleum Operations to the extent such


access does not interfere with the public purpose.


3.1.3. The Contractor shall have the right to sell, assign, transfer, convey


or otherwise dispose of all or any part of the rights and interests


under this Agreement to any Affiliate or other person with the prior


written consent of the Minister, which consent shall not be


unreasonably withheld.








3.2. Obligations in respect of the conduct of Petroleum Operations


3.2.1. The Contractor shall e^rry'out the Petroleum Operations within the


scope of this Agre.en?epf' diligently arid In accordance with generally


accepted international-petroleutfi.industry practice. The Contractor


and its employees shall perfbrnn no business activities in Ethiopia


outside the scope of this.'Agreement without the prior written


consent of the Minister'^


3.2.2. Specifically, thei Contractor shall in accordance with generally





accepted international petroleum industry practice:


(a) ensure that all machinery, plant, equipment and installations


used in Petroleum Operations are of proper and accepted


construction and are kept in good repair;


(b) ensure that all exploratory wells with significant shows of


Petroleum are properly tested;


(c) use the resources of the Contract Area as productively as





practicable, prevent damage to producing formations and


ensure that Petroleum discovered, mud or any other fluids or


substances do not escape or waste;


(d) prevent damage to Petroleum and water bearing strata that





are adjacent to a producing formation or formations and


prevent water from entering any strata bearing Petroleum,


except where water injection methods are used for secondary


recovery operations or are intended otherwise in accordance


with generally accepted international petroleum industry


practice;


(e) use its best efforts, including complying with the provisions of Section 9.1, to protect the State from loss of production by reason of production on adjacent areas under the control of authorities other than the State;



(f) properly store Petroleum in receptacles constructed for that purpose, and not store Crude Oil in an earthern reservoir, except temporarily in an emergency; and



(g) drain waste oil and salt water and place refuse into receptacles constructed for that purpose and situated at a safe distance from any tank, well, storage or other facility and dispose of waste oil, salt water and refuse in accordance with generally accepted international petroleum industry practice, avoiding pollution.



3.2.3. In conducting offshore operations, the Contractor shall ensure that works and installations erected shall be:



(a) constructed, plated, marked, buoyed, equipped and maintained so that there are safe and convenient channels for shipping;



(b) fitted with navigational aids approved by the appropriate Government authority;



(c) illuminated between sunset and sunrise in a manner approved by the appropriate Government authority; and



(d) kept in good repair and working order.



3.2.4. Prior to commencing the drilling of any well covered by this Agreement or reentering any well on which work has been discontinued for more than six (6) months, the Contractor shall give the Minister thirty (30) days written notice explaining the justification for such drilling and submit a drilling program with a well location report. The Minister may, in his discretion, waive this thirty (30) day notice requirement.



33(e) use its best efforts, including complying with the provisions of Section 9.1, to protect the State from loss of production by reason of production on adjacent areas under the control of authorities other than the State;



(f) properly store Petroleum in receptacles constructed for that purpose, and not store Crude Oil in an earthern reservoir, except temporarily in an emergency; and



(g) drain waste oil and salt water and place refuse into receptacles constructed for that purpose and situated at a safe distance from any tank, well, storage or other facility and dispose of waste oil, salt water and refuse in accordance with generally accepted international petroleum industry practice, avoiding pollution.



3.2.3. In conducting offshore operations, the Contractor shall ensure that works and installations erected shall be:



(a) constructed, plated, marked, buoyed, equipped and maintained so that there are safe and convenient channels for shipping;



(b) fitted with navigational aids approved by the appropriate Government authority;



(c) illuminated between sunset and sunrise in a manner approved by the appropriate Government authority; and



(d) kept in good repair and working order.



3.2.4. Prior to commencing the drilling of any well covered by this Agreement or reentering any well on which work has been discontinued for more than six (6) months, the Contractor shall give the Minister thirty (30) days written notice explaining the justification for such drilling and submit a drilling program with a well location report. The Minister may, in his discretion, waive this thirty (30) day notice requirement.



33 3.2.5. The Contractor shall be entitled to employ any person qualified in


the judgment of the Contractor to undertake Petroleum Operations


on the Contractor’s behalf.


Any Subcontractor retained by the Contractor shall have the





necessary professional experience to perform the task to be assigned


and the Contractor shall ascertain that any Subcontractor shall


abide by all applicable laws and regulations of Ethiopia and the


relevant provisions of this Agreement. The Contractor shall notify


the Minister in writing of the name and address of any


Subcontractor retained within thirty (30) days of such retention.


The employees of the Contractor and any Subcontractor shall abide


by the applicable laws of Ethiopia and\£hall respect local customs in


the country.








3.3. Abandonment and disposal of asSjets


3.3.1. The Contractor sh£Jl. rtbt,’ except;, wlrere there is danger to the safety


and health of human life or.- a/'-risk'of significant damage to the


environment or a risk of significant economic loss, abandon a well or


withdraw casing, tubing ::or.';%down-hole pumps or other down-hole


equipment therefrom; or remove surface equipment used or useful in


production therefrom;-if ’any, prior to giving the Minister (a) thirty


(30) days written notice of such action with respect to a well that is


or has been producing within a Development Area and (b) seventy-


two (72) hours written notice of such action with respect to any


other well.


3.3.2. The Contractor shall securely plug and clearly mark any well that it


abandons in accordance with generally accepted international


petroleum industry practice to prevent pollution, sub-sea damage or


damage to underground strata through the entry of water or


otherwise.


3.3.3. The Contractor shall state in its notice of abandonment of a well


whether the well is capable of providing a fresh water supply and if


required by the Minister, the Contractor shall complete such well


and render it operational for producing water at its own cost and


expense.


3.3.4. Where the Contractor applies to abandon an exploratory well in


which Petroleum of potentially commercial significance has not


been found, the Minister may request the Contractor to deepen,


sidetrack or test that well subject to the following provisions:


(a) any such additional Petroleum Operations shall be at the sole


cost, risk and expense of the Government, and the Government


shall advance to the Contractor the funds necessary to


conduct the drilling operations;


3.2.5. The Contractor shall be entitled to employ any person qualified in the judgment of the Contractor to undertake Petroleum Operations on the Contractor's behalf. Any Subcontractor retained by the Contractor shall have the necessary professional experience to perform the task to be assigned and the Contractor shall ascertain that any Subcontractor shall abide by all applicable laws and regulations of Ethiopia and the relevant provisions of this Agreement. The Contractor shall notify the Minister in writing of the name and address of any Subcontractor retained within thirty (30) days of such retention. The employees of the Contractor and any Subcontractor shall abide by the applicable laws of Ethiopia and shall respect local customs in the country. 3.3 Abandonment and disposal of assets 3.3.1. The Contractor shall not, except where there is danger to the safety and health of human life or a risk of significant economic loss, abandon a well or withdraw casing, tubing or down-hole pumps or other down-hole equipment therefrom or remove surface equipment used or useful in production therefrom, if any, prior to giving the Minister (a) thirty (30) days written notice of such action with respect to a well that is or has been producing within a Development Area and (b) seventy-two (72) hours written notice of such action with respect to any other well. 3.3.2. The Contractor shall securely plug and clearly mark any well that it abandons in accordance with generally accepted international petroleum industry practice to prevent pollution, sub-sea damage or damage to underground strata through the entry of water or otherwise. 3.3.3. The Contractor shall state in its notice of abandonment of a well whether the well is capable of providing a fresh water supply and if required by the Minister, the Contractor shall complete such well and render it operational for producing water at its own cost and expense. 3.3.4. Where the Contractor applies to abandon an exploratory well in which Petroleum of potentially commercial significance has not been found, the Minister may request the Contractor to deepen, sidetrack or test that well subject to the following provisions: (a) any such additional Petroleum Operations shall be at the sole cost, risk and expense of the Government, and the Government shall advance to the Contractor the funds necessary to conduct the drilling operations; 34(b) the Contractor shall not be obligated to undertake such additional work if it will materially interfere with the conduct of the Contractor's Petroleum Operations or if it is not technically or operationally feasible; and



(c) the Government shall keep the Contractor informed about such additional work and in the event that the operations undertaken under this Section 3.3.4 result in a discovery which the Contractor elects to evaluate and/or develop as a Commercial Discovery, the Contractor shall reimburse the Government _________ per cent (______ %) of the costs and expenses incurred by the Government for the conduct of the operations and such sum shall be paid within thirty (30) days of such election made by the Contractor. If the Contractor does not make such election, the Government may require the Contractor to surrender all its rights over such discovery.



3.3.5. The Contractor shall within sixty (60) days after termination or expiration of this Agreement or the surrender of part of the Contract Area, or the expiration of the take-over period in Section 2.5.5, if later, deliver to the Minister in good repair and working order, each well within the area covered by the termination, expiration, or surrender, then producing or capable of producing Petroleum, together with all casing, tubing and surface or sub-surface equipment used or useful in the conduct of producing operations, unless the Minister requires the Contractor to plug the well.



3.3.6. In the case of termination or expiration of this Agreement or the surrender of an area within the Contract Area pursuant to the terms hereof, if the area, or part thereof, subject to the termination, expiry or surrender has been determined to be capable of production or is currently producing or has previously produced Petroleum commercially, the Contractor shall transfer at no cost to the Government the plants, appliances and installations in the area subject to the termination, expiry or surrender. The Minister may decline the transfer and the Minister may require the Contractor to remove all or some of the plants, appliances and installations at no cost to the Government.



3.4. Records and reports of Petroleum Operations



3.4.1. The Contractor shall record, in an original or reproducible form of good quality and on tapes where relevant, all geological and geophysical information and data relating to the Contract Area obtained by the Contractor in the course of conducting Petroleum



35(b) the Contractor shall not be obligated to undertake such additional work if it will materially interfere with the conduct of the Contractor's Petroleum Operations or if it is not technically or operationally feasible; and



(c) the Government shall keep the Contractor informed about such additional work and in the event that the operations undertaken under this Section 3.3.4 result in a discovery which the Contractor elects to evaluate and/or develop as a Commercial Discovery, the Contractor shall reimburse the Government _________ per cent (______ %) of the costs and expenses incurred by the Government for the conduct of the operations and such sum shall be paid within thirty (30) days of such election made by the Contractor. If the Contractor does not make such election, the Government may require the Contractor to surrender all its rights over such discovery.



3.3.5. The Contractor shall within sixty (60) days after termination or expiration of this Agreement or the surrender of part of the Contract Area, or the expiration of the take-over period in Section 2.5.5, if later, deliver to the Minister in good repair and working order, each well within the area covered by the termination, expiration, or surrender, then producing or capable of producing Petroleum, together with all casing, tubing and surface or sub-surface equipment used or useful in the conduct of producing operations, unless the Minister requires the Contractor to plug the well.



3.3.6. In the case of termination or expiration of this Agreement or the surrender of an area within the Contract Area pursuant to the terms hereof, if the area, or part thereof, subject to the termination, expiry or surrender has been determined to be capable of production or is currently producing or has previously produced Petroleum commercially, the Contractor shall transfer at no cost to the Government the plants, appliances and installations in the area subject to the termination, expiry or surrender. The Minister may decline the transfer and the Minister may require the Contractor to remove all or some of the plants, appliances and installations at no cost to the Government.



3.4. Records and reports of Petroleum Operations



3.4.1. The Contractor shall record, in an original or reproducible form of good quality and on tapes where relevant, all geological and geophysical information and data relating to the Contract Area obtained by the Contractor in the course of conducting Petroleum



35 Operations thereon and shall deliver a copy of all such information


and data, including the interpretations thereof and logs and records


of wells, to the Minister as soon as practicable after the same has


come into the possession of the Contractor.


3.4.2. The Contractor shall keep logs and records of the drilling,


deepening, plugging or abandonment of wells consistent with


generally accepted international petroleum industry practice and


containing particulars of:


(a) the sub-surface strata through which the well was drilled;





(b) the casing, tubing and down-hole equipment run in the well and


modifications and alterations therecif;


(c) Petroleum, water and workable-rplnerals encountered; and


(d) any other information, 'reasonably required by the Minister.





The information required by Septiort 2.4.2 shall be submitted to the


3.4.3.


Minister in the form of. '-.completion reports as soon as


3.4.4. practicable.


The Contractor ..-maiy Femove, for the purpose of laboratory


examination or ^analysis, petrological specimens or samples of


Petroleum found in'the Contract Area and characteristic samples of


the strata or water encountered in a well and, as soon as


practicable, shall give the Minister, without charge, a


representative part of each specimen and sample removed.


3.4.5. The Contractor shall supply to the Minister:


(a) daily reports on drilling operations and weekly reports on


geophysical operations;


(b) within fifteen (15) days after the end of each Calendar


Quarter, a report on the progress of Petroleum Operations


during the preceding Calendar Quarter covering:


(i) a detailed description of the Petroleum Operations


carried out and the factual information obtained;


(ii) a description of the area in which the Contractor has


operated;


(iii) an account of the expenditure on Petroleum Operations


in accordance with the Accounting Procedures set forth


in Appendix !; and











3 6


Operations thereon and shall deliver a copy of all

such information and data, including the

interpretations thereof and logs and records of

wells, to the Minister as soon as practicable

after the same has come into the possession of the

Contractor.



3.4.2 The Contractor shall keep logs and records of the

drilling, deepening, plugging or abandonment of

wells consistent with generally accepted

international petroleum industry practice and

containing particulars of:



(a) the sub-surface strata through which the well

was drilled;



(b) the casing, tubing and down-hole equipment run

in the well and modifications and alterations

thereof;



(c) Petroleum, water and workable minerals

encountered; and



(d) any other information reasonably required

by the Minister.



3.4.3 The information required by Section 3.4.2 shall

be submitted to the Minister in the form of well

completion reports as soon as practicable.



3.4.4 The Contractor may remove, for the purpose of

laboratory examination or analysis, petrological

specimens or samples of Petroleum found in'the

Contract Area and characteristic samples of the

strata or water encountered in a well and, as soon

as practicable, shall give the Minister, without

charge, a representative part of each specimen and

sample removed.



3.4.5 The Contractor shall supply to the Minister:



(a) daily reports on drilling operations and

weekly reports on geophysical operations;



(b) within fifteen (15) days after the end of each

Calendar Quarter, a report on the progress of

Petroleum Operations during the preceding

Calendar Quarter covering:



(i) a detailed description of the Petroleum

Operations carried out and the factual

information obtained;



(ii) a description of the area in which the

Contractor has operated;



(iii) an account of the expenditure on Petroleum

Operations in accordance with the

Accounting Procedures set forth in

Appendix I; and









36(iv) a map indicating the location of all wells and other


Petroleum Operations;


(c) within three (3) months of the end of each Calendar Year, an


annual report covering the matters specified in paragraph (b)


for the preceding Calendar Year.


3.4.6. The Contractor shall submit copies of all contracts or agreements


with Subcontractors as soon as practicable after execution of such


contracts or agreements.


3.4.7. The Contractor shall supply any further information concerning the


Petroleum Operations that the Minister :'ma.y reasonably require.





3.5. Joint liability and indemnity





3.5.1. At any time where the-.Cpritractor consists of more than one person,


their liability shall'be 'joint: and several.


The Contractor shall supply ..-to., the Minister a copy of the joint


operating agreement between those persons as soon as it is


available.








3.5.2. The Contractor ..shall obtain and maintain for the Petroleum


Operations insurance of the type and for such reasonable amounts


and coverage as may be approved by the Minister. The said


insurance shall, inter alia, cover loss or damage to all installations


and equipment used in Petroleum Operations, pollution, property


insurance and third partly liability insurance.


3.5.3. The Contractor shall indemnify, defend and save the State harmless


against all claims, losses and damage of any nature whatsoever,


including without limitation, claims for loss or damage to property,


or death of or injury to persons caused by, or resulting from, any


operation conducted by or on behalf of the Contractor under the


terms of this Agreement.








3.6. Local employment, training and preference


3.6.1. The Contractor and the Subcontractors shall give preference to the


employment of Ethiopian nationals in all Petroleum Operations to


the fullest extent possible, provided such nationals have the required


qualifications and experience.




















3 7


(iv) a map indicating the location of all wells

and other Petroleum Operations;



(c) within three (3) months of the end of each

Calendar Year, an annual report covering the

matters specified in paragraph (b) for the

preceding Calendar Year.



3.4.6. The Contractor shall submit copies of all

contracts or agreements with Subcontractors as

soon as practicable after execution of such

contracts or agreements.



3.4.7. The Contractor shall supply any further

information concerning the Petroleum Operations

that the Minister may reasonably require.



3.5. Joint liability and indemnity



3.5.1. At any time where the Contractor consists of

more than one person, their liability shall be

joint and several.



The Contractor shall supply to the Minister a

copy of the joint operating agreement between

those persons as soon as it is available.



3.5.2. The Contractor shall obtain and maintain for

the Petroleum Operations insurance of the type

and for such reasonable amounts and coverage as

may be approved by the Minister. The said

insurance shall, inter alia, cover loss or damage

to all installations and equipment used in

Petroleum Operations, pollution, property

insurance and third partly liability insurance.



3.5.3. The Contractor shall indemnify, defend and save

the State harmless against all claims, losses and

damage of any nature whatsoever, including

without limitation, claims for loss or damage to

property, or death of or injury to persons caused

by, or resulting from, any operation conducted by

or on behalf of the Contractor under the terms of

this Agreement.



3.6. Local employment, training and preference



3.6.1. The Contractor and the Subcontractors shall give

preference to the employment of Ethiopian

nationals in all Petroleum Operations to the

fullest extent possible, provided such nationals

have the required qualifications and experience.









37 3.6.2. The Contractor shall establish a training and employment


programme, approved by the Minister, for Ethiopian nationals and


shall contribute a minimum of_(_) United States dollars


per year during the Exploration Period, increased to a minimum of


_ (_) United States dollars per year during the


Development and Production Period, for the training of Ethiopian


nationals as may be identified by the Minister.


3.6.3. The Contractor and the Subcontractors shall give preference to


Ethiopian materials, products and services used in Petroleum


Operations where those materials, products and services are of


comparable quality and are readily available at competitive prices.





3.6A. The Contractor shall submit a report oh‘a. regular basis detailing the


employment of Ethiopian national? arid t.bfe utilization of Ethiopian


materials, products and services ••ih-.;a';form to., be specified by the


Minister. In addition, the C.on-tiWtpr shall, within' thirty (30) days of


employing, notify the .. Minister the nairne \and the terms and


conditions of emploympnt of any Ethiopian national.








3.7. Environmental and safety measures.. V


3.7.1. The Contractor shalT'cbrrducit Petroleum Operations in a safe and


proper manner in accprdknce with generally accepted international


petroleum industry /practice and shall cause as little damage as


reasonably practicable to the general environment, including, inter


alia, the surface, air, seas, lakes, rivers, marine life, animal life,


plant life, crops, other natural ressources and property, and shall


forthwith repair any damage caused to the extent reparable, and


shall pay reasonable compensation for all damage which is beyond


repair.


3.7.2. In the event of a blow-out, accident or other emergency, the


Contractor shall take immediate steps to bring the emergency


situation under control and protect against loss of life and property


and prevent harm to natural resources and the general environment.


3.7.3. The Minister may, if he reasonably determines that the Petroleum





Operations may endanger persons or property, harm natural


resources or the general environment, cause pollution, harm marine


life, animal life or plant life, or interfere with navigation and


fishing, order the Contractor to take reasonable remedial measures


and order the Contractor to discontinue Petroleum Operations


pending the implementation of those measures.


3.6.2. The Contractor shall establish a training and employment programme, approved by the Minister, for Ethiopian nationals and shall contribute a minimum of _________ (________) United States dollars per year during the Exploration Period, increased to a minimum of ________ (_______) United States dollars per year during the Development and Production Period, for the training of Ethiopian nationals as may be identified by the Minister.



3.6.3. The Contractor and the Subcontractors shall give preference to Ethiopian materials, products and services used in Petroleum Operations where those materials, products and services are of comparable quality and are readily available at competitive prices.



3.6.4. The Contractor shall submit a report on a regular basis detailing the employment of Ethiopian nationals and the utilization of Ethiopian materials, products and services in a form to be specified by the Minister. In addition, the Contractor shall, within thirty (30) days of employing, notify the Minister the name and the terms and conditions of employment of any Ethiopian national.



3.7. Environmental and safety measures



3.7.1. The Contractor shall conduct Petroleum Operations in a safe and proper manner in accordance with generally accepted international petroleum industry practice and shall cause as little damage as reasonably practicable to the general environment, including, inter alia, the surface, air, seas, lakes, rivers, marine life, animal life, plant life, crops, other natural ressources and property, and shall forthwith repair any damage caused to the extent reparable, and shall pay reasonable compensation for all damage which is beyond repair.



3.7.2. In the event of a blow-out, accident or other emergency, the Contractor shall take immediate steps to bring the emergency situation under control and protect against loss of life and property and prevent harm to natural resources and the general environment.



3.7.3. The Minister may, if he reasonably determines that the Petroleum Operations may endanger persons or property, harm natural resources or the general environment, cause pollution, harm marine life, animal life or plant life, or interfere with navigation and fishing, order the Contractor to take reasonable remedial measures and order the Contractor to discontinue Petroleum Operations pending the implementation of those measures.



383.8. Registration and office



3.8.1. The Contractor shall register to do business with the appropriate Ethiopian authorities and shall establish and maintain an office in Ethiopia.



3.8.2. The Contractor shall notify the Minister, before Petroleum Operations begin, the name and address of the person resident in Ethiopia who will supervise the Petroleum Operations, and prior notice of any subsequent change shall be given to the Minister.















































393.8. Registration and office


3.8.1. The Contractor shall register to do business with the appropriate


Ethiopian authorities and shall establish and maintain an office in


Ethiopia.


3.8.2. The Contractor shall notify the Minister, before Petroleum


Operations begin, the name and address of the person resident in


Ethiopia who will supervise the Petroleum Operations, and prior


notice of any subsequent change shall be given to the Minister.


 SECTION IV; GENERAL RIGHTS AND OBLIGATIONS





OF THE GOVERNMENT AND THE MINISTER














4.1. Rights of the Government and the Minister


4.1.1. The Minister, or a person authorized by him in writing, may at all


reasonable times inspect Petroleum Operations, and any records of


the Contractor relating thereto, and the Contractor shall pay all


reasonable expenses connected with such an inspection.


4.1.2. The Minister may require the Contractor.-' to perform an obligation


which the Contractor has failed.-to-perfbrm under this Agreement by


giving reasonable written notice, and after- failure to comply with


that notice, may execute \-any necessary. Works for which the


Contractor shall pay forthwith. The Minister may give notice to the


Contractor to perforin Sn obligation, hereunder at any time, but not


later than ninety 00) days after the termination or expiration of


this Agreement or surrender* of\thO part of the Contract Area to


which the obligation relates;. Failure of the Minister to provide


notice to the Contractor; under this provision shall not constitute a


waiver of any .other.. .rights the Minister may have under this


Agreement in connection with the performance of any obligation of


the Contractor.








4.2. Obligations of the Government and the Minister


4.2.1. The Government shall not unreasonably refuse to grant or renew any


visas, work and entry or exit permits necessary for personnel


employed in the Petroleum Operations by the Contractor or its


Subcontractors, and their dependants; nor shall the Government


unreasonably refuse to grant any necessary rights of way and


easements as may be required by the Contractor or its


Subcontractors.


The Minister shall use his best efforts to assist and expedite the


4.2.2.


execution of Petroleum Operations carried on hereunder by


rendering all necessary assistance in obtaining visas, work or other


permits, authorizations, import or other licences, and rights of way


and easements as may be necessary.


SECTION IV: GENERAL RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE MINISTER



4.1. Rights of the Government and the Minister



4.1.1. The Minister, or a person authorized by him in writing, may at all reasonable times inspect Petroleum Operations, and any records of the Contractor relating thereto, and the Contractor shall pay all reasonable expenses connected with such an inspection.



4.1.2. The Minister may require the Contractor to perform an obligation which the Contractor has failed to perform under this Agreement by giving reasonable written notice, and after failure to comply with that notice, may execute any necessary works for which the Contractor shall pay forthwith. The Minister may give notice to the Contractor to perform an obligation hereunder at any time, but not later than ninety (90) days after the termination or expiration of this Agreement or surrender of the part of the Contract Area to which the obligation relates. Failure of the Minister to provide notice to the Contractor under this provision shall not constitute a waiver of any other rights the Minister may have under this Agreement in connection with the performance of any obligation of the Contractor.



4.2. Obligations of the Government and the Minister



4.2.1. The Government shall not unreasonably refuse to grant or renew any visas, work and entry or exit permits necessary for personnel employed in the Petroleum Operations by the Contractor or its Subcontractors, and their dependants; nor shall the Government unreasonably refuse to grant any necessary rights of way and easements as may be required by the Contractor or its Subcontractors.



4.2.2. The Minister shall use his best efforts to assist and expedite the execution of Petroleum Operations carried on hereunder by rendering all necessary assistance in obtaining visas, work or other permits, authorizations, import or other licences, and rights of way and easements as may be necessary.



40

SECTION V: WORK AND EXPENDITURE



OBLIGATIONS AND BUDGETS





5.1. Exploration



5.1.1. The Contractor shall carry out the following work

obligations and make the following exploration

expenditure during the initial term of the

Exploration Period:



(a) geological and geophysical operations,

including_(_) kilometers of seismic surveys

with minimum expenditure of ____ (____)

United States dollars for such seismic

operations; and



(b) drill_______ (____) exploratory well(s) to a

minimum depth of _____ (____) meters per well

with minimum drilling expenditure of

_____ (___) United States dollars for each

such well.



5.1.2. The Contractor shall carry out the following

work obligations and make the following

exploration expenditures during the first

extension to the Exploration Period:



(a) geological and geophysical operations,

including ___.(___) kilometers of seismic

surveys with minimum expenditure of ____

(___) United States dollars for such seismic

operations; and



(b) drill ____.(___) exploratory well(s) to a

minimum depth of ____.(___) meters per well

with minimum drilling expenditure of____.

(___) United States dollars for each

such well.



5.1.3. The Contractor shall carry out the following

work obligations and make the following

exploration expenditures during the second

extension to the Exploration Period:



(a) geological and geophysical operations,

including ____.(___) kilometers of seismic

surveys with minimum expenditure of

____.(___) United States dollars for such

seismic operations; and



(b) drill ____.(___) exploratory well(s) to a

minimum depth of ____.(___) meters per well

with minimum drilling expenditure of ____.

(___) United States dollars for each

such well.







41 SECTION V: WORK AND EXPENDITURE





OBLIGATIONS AND BUDGETS











5.1. Exploration


5*1.1. The Contractor shall carry out the following work obligations and


make the following exploration expenditure during the initial term


of the Exploration Period:


(a) geological and geophysical operations, including_(_)


kilometers of seismic surveys with--minimum expenditure of


_ (_) United/"States ' dollars:-.. fqr .. such seismic


operations; and


(b) drill_ (;••y ^ exploratory \yeli(s) to a minimum depth


of fe" X V )meters-per well with minimum drilling


expenditure of- , ... \C\ ; ) United States dollars for each


such well.


5.1.2. The Contractor shall carry out the following work obligations and


make the following •••exploration expenditures during the first


extension to the Exploration Period:


(a) geological and geophysical operations, including_(_)


kilometers of seismic surveys with minimum expenditure of


_ (_) United States dollars for such seismic


operations; and


(b) drill ^ (___) exploratory well(s) to a minimum depth of


l meters per well with minimum drilling


expenditure of_(_) United States dollars for each


such well.


5.1.3. The Contractor shall carry out the following work obligations and


make the following exploration expenditures during the second


extension to the Exploration Period:


(a) geological and geophysical operations, including __(_)


kilometers of seismic surveys with minimum expenditure of


_ (_) United States dollars for such seismic


operations; and


(b) drill (_) exploratory well(s) to a minimum depth of


~ ( ) meters per well with minimum drilling


expenditure of_ (_) United States dollars for each


such well.


5.1.4. The required minimum expenditure obligations set

forth in Sections 5.1.1, 5.1.2 and 5.1.3 are

expressed in constant United States dollars of

the month of the Effective Date and shall be

adjusted annually on the anniversary of the

Effective Date, so as to reflect the balance of

Contractor's minimum expenditure obligations, as

follows:



(a) at the end of each year of the Exploration

Period, the minimum expenditure obligations

for the initial term of the Exploration

Period, the first extension or second

extension, whichever is applicable, shall be

reduced in accordance with paragraph (b)

below by the amount of expenditure actually

made during that year on seismic-and

exploratory drilling work;



(b) in determining the amount of expenditure

actually made during a year on seismic and

exploratory drilling work and only for the

purpose of making the adjustment provided for

in Sections 5.1.4(a) and 5.1.5, no amount of

expenditure in excess of the amount

specified for each specific work in Sections

5.1.1, 5.1.2 and 5.1.3 (as adjusted for

inflation, in accordance with paragraph (c)

below, between (i) the month of the

Effective Date and (ii) the month in the

prior year corresponding to the month of the

Effective Date) shall be considered, unless

otherwise agreed to in writing by the

Minister;



(c) at the end of each year of the Exploration

Period, in order to determine the minimum

expenditure obligations for the remaining

years of the initial term of the Exploration

Period, the first extension or second

extension, whichever is applicable, the

balance of the minimum expenditure

obligations corresponding to such term at the

end of the prior year, as reduced for

expenditure under the provisions of Section

5.1.4 (a), shall be adjusted by multiplying

that amount by the number which is the sum of

one (1) and the decimal equivalent of the

percentage change in the monthly index of

U.S. Consumer Prices, seasonally adjusted, as

reported in the International Financial

Statistics” of the International Monetary

Fund between (i) the month in the year of the

adjustment corresponding to the month of the

Effective Date and (ii) the month in the

prior year corresponding to the month of the

Effective Date.



5.1.5. If, during the initial Exploration Period or the

first extension thereof, the Contractor exceeds

the expenditure obligations for such period, then

such excess may be credited toward the

expenditure obligations for the following

extension or extensions of the Exploration

Period.







425.1.4. The required minimum expenditure obligations set forth in Sections


5.1.1, 5.1.2 and 5.1.3 are expressed in constant United States dollars


of the month of the Effective Date and shall be adjusted annually on


the anniversary of the Effective Date, so as to reflect the balance


of Contractor's minimum expenditure obligations, as follows:


(a) at the end of each year of the Exploration Period, the


minimum expenditure obligations for the initial term of the


Exploration Period, the first extension or second extension,


whichever is applicable, shall be reduced in accordance with


paragraph (b) below by the amount of expenditure actually


made during that year on seishiic} and exploratory drilling


work;


(b) in determining the... anjount of expenditure actually made


during a year on. seisnhic and exploratory drilling work and only


for the purp.oses;. pi making ,the'-..adjustment provided for in


Sections 5.1.4.(a) and 5.l>5y.'hci amount of expenditure in


excess of the amount-‘ specified for each specific work in


Sections 5.1.1, 5.1,2'and 5.1.3 (as adjusted for inflation, in


accordance with- parag^aph (c) below, between (i) the month of


the Effective.. Date * and (ii) the month in the prior year


corresponding to" the month of the Effective Date) shall be


considered,- unless otherwise agreed to in writing by the


Minister;


(c) at the end of each year of the Exploration Period, in order to


determine the minimum expenditure obligations for the


remaining years of the initial term of the Exploration Period,


the first extension or second extension, whichever is


applicable, the balance of the minimum expenditure


obligations corresponding to such term at the end of the prior


year, as reduced for expenditure under the provisions of


Section 5.1.4 (a), shall be adjusted by multiplying that-amount


by the number which is the sum of one (1) and the decimal


equivalent of the percentage change in the monthly index of


U.S. Consumer Prices, seasonally adjusted, as reported in the


"International Financial Statistics" of the International


Monetary Fund between (i) the month in the year of the


adjustment corresponding to the month of the Effective Date


and (ii) the month in the prior year corresponding to the month


of the Effective Date.


5.1.5. If, during the initial Exploration Period or the first extension


thereof, the Contractor exceeds the expenditure obligations for such


period, then such excess may be credited toward the expenditure


obligations for the following extension or extensions of the


Exploration Period.











4 2


5.1.6. The fulfilment of any work obligations shall not relieve the Contractor of the corresponding expenditure obligations; nor shall the fulfilment of any expenditure obligations relieve the Contractor of the corresponding work obligations. If the continuation of any drilling activity is precluded for justifiable technical reasons, prior to reaching the minimum depth herein specified, the Minister shall authorize the Contractor to terminate such activity and may deem the Contractor to have met the work obligation in respect of that well or may specify an appropriate and reasonable substitute work obligation.



5.1.7. The Contractor shall prepare and submit to the Minister for discussion, thirty (30) days after the Effective Date, the following:



(a) a general statement of exploration work and budget for each year of the Exploration Period; and



(b) a detailed statement of the exploration work programme and budget for the first year of the initial term of the Exploration Period.



5.1.8. The Contractor shall prepare and submit to the Minister for discussion, ninety (90) days before the end of each year in the Exploration Period, the following:



(a) revisions, if any, to the general statement of exploration work and budget for the remaining years of the Exploration Period; and



(b) a detailed statement of the exploration work programme and budget for the next year in the Exploration Period.



5.1.9. The Contractor may make changes to the detailed statement of exploration work programme and budget therefor for any year of the Exploration Period, if those changes do not materially affect the original objectives of the statement. The Contractor shall notify the Minister of such changes as soon as practicable.



5.2. Bank guarantee



5.2.1. The Contractor shall provide to the Minister at the commencement of the initial term of the Exploration Period and each extension thereof, a bank guarantee for the minimum expenditure obligations set forth herein as adjusted under Sections 5.1.4 and 5.1.5, from an institution and in a form acceptable to the Minister, and in an amount which shall correspond to expenditure obligations for the applicable term of the Exploration Period.



43 5.1.6. The fulfilment of any work obligations shall not relieve the


Contractor of the corresponding expenditure obligations; nor shall


the fulfilment of any expenditure obligations relieve the Contractor


of the corresponding work obligations. If the continuation of any


drilling activity is precluded for justifiable technical reasons, prior


to reaching the minimum depth herein specified, the Minister shall


authorize the Contractor to terminate such activity and may deem


the Contractor to have met the work obligation in respect of that


well or may specify an appropriate and reasonable substitute work


obligation.





5.1.7. The Contractor shall prepare and siibmit to the Minister for


discussion, thirty (30) days after the Effective Date, the following:


(a) a general statement of expior&tion workvand budget for each


year of the Exploration Period; and


(b) a detailed statement of the exploration work programme and


budget for ftie'-flrst* year of-the initial term of the Exploration


Period.


5.1.8. The Contractor shall--.prepare and submit to the Minister for


discussion, ninety...(933) daiys before the end of each year in the


Exploration Period, tfre following:


(a) revisions, if any, to the general statement of exploration work


and budget for the remaining years of the Exploration Period;


and


(b) a detailed statement of the exploration work programme and


budget for the next year in the Exploration Period.


5.1.9. The Contractor may make changes to the detailed statement of


exploration work programme and budget therefor for any year of the


Exploration Period, if those changes do not materially affect the


original objectives of the statement. The Contractor shall notify the


Minister of such changes as soon as practicable.





5.2. Bank guarantee


5.2.1. The Contractor shall provide to the Minister at the commencement





of the initial term of the Exploration Period and each extension


thereof, a bank guarantee for the minimum expenditure obligations


set forth herein as adjusted under Sections 5.1.4 and 5.1.5, from an


institution and in a form acceptable to the Minister, and in an


amount which shall correspond to expenditure obligations for the


applicable term of the Exploration Period.


5.2.2. If, at the end of the initial term of the

Exploration Period, any extension thereof or

upon the date of expiration or termination of

this Agreement, the Contractor has not made the

minimum work obligations and/or the expenditure

obligations required during the initial term of

the Exploration Period or any applicable extension thereof, the Contractor or its guarantor shall immediately pay the amount corresponding to the unexpended obligations to the Government. If, however, as provided in Section 5.1.5, during the initial term of the Exploration Period or the first extension thereof, the Contractor exceeds its expenditure obligations for such period, the excess shall be credited toward the expenditure obligations for the following extension or extensions of the Exploration Period and the amount of the required guarante, shall be correspondingly reduced.



5.2.3. The amount of any bank guarantee for the initial term of the Exploration Period or any extension thereof shall be adjusted annually to reflect the amount of the expenditure actually made on seismic and exploratory drilling work and the inflation adjustment, all as determined under the provisions of Sections 5.1.4 and 5.1.5.



5.3. Discovery and appraisal



5.3.1. The Contractor shall notify the Minister as soon as practicable, but in no event later than (48) hours, after the discovery of Petroleum within the Contract Area. This notice shall include all available details of the discovery and particulars on any testing programme to be undertaken in order to allow the Minister to send a representative during testing operations.



5.3.2. Within ninety (90) days after the date of the notice of the discovery under Section 5.3.1, if the Contractor considers that a discovery merits appraisal, the Contractor shall submit to the Minister a detailed appraisal work programme and budget to evaluate as expeditiously as possible whether the discovery is a Commercial Discovery.



This work programme shall include an indication of the location, nature and size of the discovery, with a designation of the area to be included in the evaluation, which area shall be designated as an Appraisal Area. The appraisal work programme shall also include all drilling, testing and evaluation to be conducted in the Appraisal Area and the preparation of all technical and economic studies related to recovery, treatment and transportation of Petroleum







445.2.2. If, at the end of the initial term of the Exploration Period, any


extension thereof or upon the date of expiration or termination of


this Agreement, the Contractor has not made the minimum work


obligations and/or the expenditure obligations required during the


initial term of the Exploration Period or any applicable extension


thereof, the Contractor or its guarantor shall immediately pay the


amount corresponding to the unexpended obligations to the


Government. If, however, as provided in Section 5.1.5, during the


initial term of the Exploration Period or the first extension thereof,


the Contractor exceeds its expenditure obligations for such period,


the excess shall be credited toward the expenditure obligations for


the following extension or extensions of. the Exploration Period and


the amount of the required guarantee *, shall be correspondingly


reduced.


5.2.3. The amount of any bank ••.'guarantee for...-the \iriitial term of the


Exploration Period or •.;any\ extension -thereof shall be adjusted


annually to reflect the..ariidunt of the Expenditure actually made on


seismic and exploratory ’drilling..work' and the inflation adjustment,


all as determined under the provisions of Sections 5.1.4 and 5.1.5.








5.3. Discovery and appraisal ;


5.3.1. The Contractor shcdi notify the Minister as soon as practicable, but


in no event later than (48) hours, after the discovery of Petroleum


within the Contract Area. This notice shall include all available


details of the discovery and particulars on any testing programme to


be undertaken in order to allow the Minister to send a


representative during testing operations.





5.3.2. Within ninety (90) days after the date of the notice of the discovery


under Section 5.3.1, if the Contractor considers that a discovery


merits appraisal, the Contractor shall submit to the Minister a


detailed appraisal work programme and budget to evaluate as


expeditiously as possible whether the discovery is a Commercial


Discovery.





This work programme shall include an indication of the location,


nature and size of the discovery, with a designation of the area to


be included in the evaluation, which area shall be designated as an


Appraisal Area. The appraisal work programme shall also include all


drilling, testing and evaluation to be conducted in the Appraisal


Area and the preparation of all technical and economic studies


related to recovery, treatment and transportation of Petroleum




















4 4


from the Appraisal Area. The duration of this appraisal work programme shall not exceed __________ (____) months unless otherwise agreed in writing by the Minister and, in any event, it shall not exceed the remaining term of the Exploration Period as provided in Section 2.2 of this Agreement. Performance of the obligations under an appraisal work programme and budget shall not satisfy all or any part of the exploration work and expenditure obligations for the Exploration Period set forth in Section 5.1, as those obligations are separate and independent.



5.3.3. If the Minister does not request in writing any changes to the appraisal work programme and budget for any Appraisal Area within thirty (30) days after receipt thereof, the programme shall be deemed approved and adopted by the Minister.



If the Minister requests any changes to the appraisal work programme and budget for any Appraisal Area, then the Contractor and the Minister shall meet within fifteen (15) days after the Minister's written notification as to these requested changes to agree on an appraisal work programme and budget. The work programme and budget shall be approved and adopted by the Minister after such agreement has been reached, and, in any event, shall be deemed approved and adopted by the Minister thirty (30) days after written notification of the requested changes.



5.3.4. After adoption of the appraisal work programme and budget, the Contractor shall diligently continue to evaluate the discovery without undue interruptions until the Contractor determines whether the discovery is a Commercial Discovery.



Within thirty (30) days after the evaluation is completed, but in any event prior to the expiration of the Exploration Period, the Contractor shall notify and report to the Minister whether the Appraisal Area or any part thereof contains a Commercial Discovery. Such report shall include all relevant technical and economic data relating thereto.



5.3.5. For the purposes of this Section, the Contractor shall make a determination as to whether a discovery is a Commercial Discovery on the basis of whether that discovery can be produced commercially after consideration of all pertinent operating and financial data collected during the performance of the appraisal work programme and otherwise, including but not limited to Crude Oil or Natural Gas recoverable reserves, sustainable production levels and other relevant technical and economic factors, according to generally accepted international petroleum industry practice.



45from the Appraisal Area. The duration of this appraisal work programme shall not exceed __________ (____) months unless otherwise agreed in writing by the Minister and, in any event, it shall not exceed the remaining term of the Exploration Period as provided in Section 2.2 of this Agreement. Performance of the obligations under an appraisal work programme and budget shall not satisfy all or any part of the exploration work and expenditure obligations for the Exploration Period set forth in Section 5.1, as those obligations are separate and independent.



5.3.3. If the Minister does not request in writing any changes to the appraisal work programme and budget for any Appraisal Area within thirty (30) days after receipt thereof, the programme shall be deemed approved and adopted by the Minister.



If the Minister requests any changes to the appraisal work programme and budget for any Appraisal Area, then the Contractor and the Minister shall meet within fifteen (15) days after the Minister's written notification as to these requested changes to agree on an appraisal work programme and budget. The work programme and budget shall be approved and adopted by the Minister after such agreement has been reached, and, in any event, shall be deemed approved and adopted by the Minister thirty (30) days after written notification of the requested changes.



5.3.4. After adoption of the appraisal work programme and budget, the Contractor shall diligently continue to evaluate the discovery without undue interruptions until the Contractor determines whether the discovery is a Commercial Discovery.



Within thirty (30) days after the evaluation is completed, but in any event prior to the expiration of the Exploration Period, the Contractor shall notify and report to the Minister whether the Appraisal Area or any part thereof contains a Commercial Discovery. Such report shall include all relevant technical and economic data relating thereto.



5.3.5. For the purposes of this Section, the Contractor shall make a determination as to whether a discovery is a Commercial Discovery on the basis of whether that discovery can be produced commercially after consideration of all pertinent operating and financial data collected during the performance of the appraisal work programme and otherwise, including but not limited to Crude Oil or Natural Gas recoverable reserves, sustainable production levels and other relevant technical and economic factors, according to generally accepted international petroleum industry practice.



45











5.4. Development and production



5.4.1. If the Contractor reports that the discovery for any Appraisal Area

is a Commercial Discovery under Sections 5.3.4 and 5.3.5, a

development plan shall be prepared and submitted to the Minister

within six (6) months after the completion of the appraisal work

programme.



5.4.2. The development plan shall be prepared on the basis of sound

engineering and economic principles in accordance with generally

accepted international petroleum industry practice, shall ensure

that the Petroleum deposits do not suffer an excessive rate of

decline of production or an excessive loss of reservoir pressure and

shall adopt the optimum economic well spacing appropriate for the

development of those Petroleum deposits.



5.4.3. The development plan shall contain:



(a) details and the extent of the proposed development area

relating to the Commercial Discovery, which area shall

correspond as closely as possible to the geographical extension

of the Commercial Discovery in the Contract Area, and shall

be disgnated as the Development Area for the Commercial

Discovery concerned;



(b) proposals relating to the spacing, drilling and completion of

wells, the production and storage installations, and

transportation and delivery facilities required for the

production, storage and transportation of Petroleum;



(c) proposals relating to necessary infrastructure investments,

training and employment of Ethopian nationals, and plans to

maximize the use of Ethopian materials, products and

services in accordance with Section 3.6 herein;



(d) a production forecast and a detailed estimate of the

investment and expenses involved; and



(e) an estimate of the time required to complete each phase of

the development plan.



5.4.4. The Minister may require the Contractor to provide within a

specified time period such further information as the Minister may

reasonably need to evaluate the development plan for any

Development Area.



The Minister may also request that the Contractor makes such

revisions to the development plan as are reasonable to contribute to

the efficient development of Ethopian infrastructure and to assist

other national needs, without impairing the economic viability of

the development of the Development Area.







46











































5.4. Development and production


5.4.1. If the Contractor reports that the discovery for any Appraisal Area


is a Commercial Discovery under Sections 5.3A and 5.3.5, a


development plan shall be prepared and submitted to the Minister


within six (6) months after the completion of the appraisal work


programme.


5.4.2. The development plan shall be prepared on the basis of sound


engineering and economic principles in accordance with generally


accepted international petroleum industry practice, shall ensure


that the Petroleum deposits do not suffer an excessive rate of


decline of production or an excessive loss of reservoir pressure and


shall adopt the optimum economic well-', spacing appropriate for the


development of those Petroleum deposits....-'


5.4.3. The development plan shall cont^dnr


(a) details and the. ..extent' of the ..proposed development area


relating to -.they Commercial'-..Discovery, which area shall


correspond as ..closely as . possible to the geographical extension


of the Commercial Djstpv'ery in the Contract Area, and shall


be designated as the..Development Area for the Commercial


Discovery concerned;-.


(b) proposals relating to the spacing, drilling and completion of


wells, the "production and storage installations, and


transportation and delivery facilities required for the


production, storage and transportation of Petroleum;


(c) proposals relating to necessary infrastructure investments,


training and employment of Ethiopian nationals, and plans to


maximize the use of Ethiopian materials, products and


services in accordance with Section 3.6 herein;


(d) a production forecast and a detailed estimate of the


investment and expenses involved; and


(e) an estimate of the time required to complete each phase of


the development plan.


5.4.4. The Minister may require the Contractor to provide within a


specified time period such further information as the Minister may


reasonably need to evaluate the development plan for any


Development Area.


The Minister may also request that the Contractor makes such


revisions to the development plan as are reasonable to contribute to


the efficient development of Ethiopian infrastructure and to assist


other national needs, without impairing the economic viability of


the development of the Development Area.


5.4.5. If the Minister does not request in writing any changes to the


development plan within ninety (90) days after receipt thereof, the


plan shall be deemed approved and adopted by the Minister.


If the Minister requests any changes to the development plan, then


the Contractor and Minister shall meet within fifteen (15) days of


the Minister's written notification as to these requested changes to


agree on a development plan. The plan shall be approved and


adopted by the Minister after such agreement has been reached and,


in any event, shall be deemed approved and adopted by the Minister


sixty (60) days after written notification of the requested changes.


5.4.6. After the development plan has been adopted by the Minister, the


Contractor shall submit to the Minister-fpr discussion ninety (90)


days before the end of each CalendarV-Yeaf in the Development and


Production Period a detailed, statement of theV■•development work


programme and budget therefor-for the following year; provided,


however, that a detailed’: statement of the development work


programme and the..budget! therefor for-.thO. first full Calendar Year


of the Development-:'artd Production.‘•Period and the portion of the


year preceding thevfirst full- Calendar Year, shall be submitted


within ninety (90) days after.the date of adoption by the Minister of


the development plan under'Section 5.4.5.


Each such annual detailed statement of the development work


programme and budget therefor shall be consistent with the


development plan adopted by the Minister under Section 5.4.5.


5.4.7. The Contractor may submit, during the term of the Development


and Production Period, revisions to any development plan. These


revisions shall be consistent with the provisions of Section 5.4.2 and


shall be subject to the approval procedure set forth in Sections


5.4.5.


5.4.8. The Contractor shall commence development work no later than six


(6) months after the date of adoption of the development plan under


Section 5.4.5.


5.4.9. Where the Minister and the Contractor agree that a mutual


economic benefit can be achieved by constructing and operating


common facilities (including, but not limited to, roads, pipelines and


other transportation, communication and storage facilities), the


Contractor shall use its best efforts to reach agreement with other


producers on the construction and operation of such common


facilities.


Other producers may use the facilities of the Contractor where




















4 7


5.4.5. If the Minister does not request in writing any

changes to the development plan within ninety

(90) days after receipt thereof, the plan shall

be deemed approved and adopted by the Minister.



If the Minister requests any changes to the

development plan, then the Contractor and

Minister shall meet within fifteen (15) days of

the Minister's written notification as to these

requested changes to agree on a development plan.

The plan shall be approved and adopted by the

Minister after such agreement has been reached

and, in any event, shall be deemed approved and

adopted by the Minister sixty (60) days after

written notification of the requested changes.



5.4.6. After the development plan has been adopted by

the Minister, the Contractor shall submit to the

Minister far discussion ninety (90) days before

the end of each Calendar Year in the Development

and Production Period a detailed statement of

the development work programme and budget the

therefor for the following year; provided,

however, that a detailed statement of the

development work programme and the budget

therefor for the first full Calendar Year of the

Development and Production Period and the portion

of the year preceding the first full Calendar

Year, shall be submitted within ninety (90) days

after the date of adoption by the Minister of the

development plan under Section 5.4.5



Each such annual detailed statement of the

development work programme and budget therefor

shall be consistent with the development plan

adopted by the Minister under Section 5.4.5.



5.4.7. The Contractor may submit, during the term of the

Development and Production Period, revisions to

any development plan. These revisions shall be

consistent with the provisions of Section 5.4.2

and shall be subject to the approval procedure

set forth in Sections 5.4.5.



5.4.8. The Contractor shall commence development work no

later than six (6) months after the date of

adoption of the development plan under Section

5.4.5.



5.4.9. Where the Minister and the Contractor agree that

a mutual economic benefit can be achieved by

constructing and operating common facilities

(including, but not limited to, roads, pipelines

and other transportation, communication and

storage facilities), the Contractor shall use its

best efforts to reach agreement with other

producers on the construction and operation of

such common facilities.



Other producers may use the facilities of the

Contractor where













47

there exists excess capacity and on payment of a reasonable compensation which includes a reasonable return on investment to the Contractor and provided such use does not materially interfere with the Contractor's Petroleum Operations.



48 there exists excess capacity and on payment of a reasonable


compensation which includes a reasonable return on investment to


the Contractor and provided such use does not materially interfere


with the Contractor's Petroleum Operations.













































































J

















J








J











I








J








J











4 8


 SECTION VI: GOVERNMENT PARTICIPATION

















6.1. Government participation


6.1.1. The Government may participate in the Petroleum Operations in any


Development Area and acquire a Participating Interest not to


exceed _ per cent (_ ) therein. The Government may


acquire such interest either directly ...or through a specialized


Government entity.


6.1.2. The Government shall notify:*the Contractor-..in .writing of its


decision to participate within :6ne-hundred;;tWeh^y (120) days after


the date of adoption by 'ihe Minister of the development plan under


Section 5.4.5 for the particular Development Area concerned. The


notice shall speciiy-'tne percentage'ihterest to be acquired by the


Government and the'identity of\the Government entity that will


hold the interest if other than-tho Government itself.


6.1.3. If the Government (elects to participate with respect to any


particular Development-Area, then:


(a) the Government's participation shall be effective from the


date of adoption of the development plan under Section 5.4.5


for the particular Development Area concerned;


(b) the Government or the Government entity, whichever is


specified, and the Contractor shall within_(_) months


after the Government participation is effective enter into an


Operating Agreement in a mutually acceptable form


consistent with generally accepted international petroleum


industry practice and this Operating Agreement shall not


create or be considered as a partnership or any other similar


entity;


(c) the Government shall, within thirty (30) days after the end of


the Calendar Quarter in which it elected to participate,


reimburse the Contractor, without interest, for the


Government pro-rata share of expenditure incurred by the


Contractor in conducting Petroleum Operations in the


Development Area concerned from the date of adoption of the


development plan under Section 5.4.5 to the date of payment;






SECTION VI: GOVERNMENT PARTICIPATION





6.1. Government participation



6.1.1. The Government may participate in the Petroleum

Operations in any Development Area and acquire a

Participating Interest not to exceed ______

percent (_____ ) therein. The Government may

acquire such interest either directly or through

a specialized Government entity.



6.1.2. The Government shall notify the

Contractor in writing of its decision to

participate within one hundred twenty (120)

days after the date of adoption by the

Minister of the development plan under Section

5.4.5 for the particular Development Area

concerned. The notice shall specify the

percentage interest to be acquired by the

Government and the identity the Government

entity that will hold the interest if other

than the Government itself.



6.1.3. If the Government elects to participate with

respect to any particular Develop merit Area,

then:



(a) the Government's participation shall be

effective from the date of adoption of the

development plan under Section 5.4.5 for the

particular Development Area concerned;



(b) the Government or the Government entity,

whichever is specified, and the Contractor

shall within _____(_____) months after the

Government participation is effective enter

into an Operating Agreement in a mutually

acceptable form consistent with generally

accepted international petroleum industry

practice and this Operating Agreement shall

not create or be considered as a partnership

or any other similar entity;



(c) the Government shall, within thirty (30)

days after the end of the Calendar Quarter

in which it elected to participate,

reimburse the Contractor, without interest,

for the Government pro-rata share of

expenditure incurred by the Contractor in

conducting Petroleum Operations in the

Development Area concerned from the date of

adoption of the development plan under

Section 5.4.5 to the date of payment;







49(d) the person acting as operator shall remain as

operator of the Development Area in accordance with

the rights, authorities and obligations of the

operator under the Operating Agreement;



(e) the Government, as a party under the Operating

Agreement, shall in respect of the Development Area

concerned:



(i) have the right to vote in proportion to its

Participating Interest on all decisions made

under an Operating Agreement which permit a vote

by a party;



(ii) separately take and dispose of its Participating

Interest share of all Petroleum produced and

saved;



(iii) pay its proportionate part of the expenditure

incurred in conducting Petroleum Operations in

accordance with the Operating Agreement and

accounting procedures attached thereto;



(iv) own a Participating Interest share in all

materials and equipment acquired for use

under the Operating Agreement; and



(v) have the right common with all other parties

to carry out sole risk operations in accordance

with the provisions of the Operating Agreement;

and



(f) the Government may, upon reasonable written

notice, require the Contractor to lend to the

Government up to ___ percent (___%) of the funds

required to pay the Government's pro-rata share of

expenditure. The loan shall bear interest at

____ percent. The Government shall make repayments

of the loan on a quarterly basis in an amount equal

to __ percent (___) of the difference between the

gross receipts attributable to the Government's

Participating Interest in the Development Area and

the costs and expenses, including royalty but

excluding income taxes, attributable to the

Government's Participating Interest in the

Development Area for Petroleum Operations,

Repayments of the loan shall be applied first to

accrued and unpaid interest and the balance shall be

applied in reduction of the outstanding principal

balance.







50(d) the person acting as operator shall remain as

operator of the Development Area in accordance with

the rights, authorities and obligations of the

operator under the Operating Agreement;



(e) the Government, as a party under the Operating

Agreement, shall in respect of the Development Area

concerned:



(i) have the right to vote in proportion to its

Participating Interest on all decisions made

under an Operating Agreement which permit a vote

by a party;



(ii) separately take and dispose of its Participating

Interest share of all Petroleum produced and

saved;



(iii) pay its proportionate part of the expenditure

incurred in conducting Petroleum Operations in

accordance with the Operating Agreement and

accounting procedures attached thereto;



(iv) own a Participating Interest share in all

materials and equipment acquired for use

under the Operating Agreement; and



(v) have the right common with all other parties

to carry out sole risk operations in accordance

with the provisions of the Operating Agreement;

and



(f) the Government may, upon reasonable written

notice, require the Contractor to lend to the

Government up to ___ percent (___%) of the funds

required to pay the Government's pro-rata share of

expenditure. The loan shall bear interest at

____ percent. The Government shall make repayments

of the loan on a quarterly basis in an amount equal

to __ percent (___) of the difference between the

gross receipts attributable to the Government's

Participating Interest in the Development Area and

the costs and expenses, including royalty but

excluding income taxes, attributable to the

Government's Participating Interest in the

Development Area for Petroleum Operations,

Repayments of the loan shall be applied first to

accrued and unpaid interest and the balance shall be

applied in reduction of the outstanding principal

balance.







50SECTION VII: COST RECOVERY AND PRODUCTION SHARING



7.1. Cost recovery



7.1.1 The Contractor shall be entitled to recover its Petroleum Operations Costs from Crude Oil produced within the Contract Area and that is not used in Petroleum Operations, to the extent permitted by the provisions of this Section 7.1 and Appendix I.



7.1.2 The Contractor shall retain and dispose, in each Calendar Year, of that volume of Crude Oil (hereinafter referred to as "Cost Oil") the value of which is equal to the recoverable Petroleum Operations Costs for that Calendar Year, limited to an amount not exceeding the maximum share of production determined according to the following incremental scale:



Average daily production from the Contract Area | Maximum share of average daily production available for cost recovery



First 20,000 Barrels/day | _____%



Next 30,000 Barrels/day | _____%



Any volume over first 50,000 Barrels/day | _____%



7.1.3. To the extent that the recoverable Petroleum Operations Costs for any Calendar Year exceed the value of the maximum amount of Crude Oil available under Section 7.1.2, the excess shall be carried forward for recovery in the next succeeding Calendar Year or Calendar Years.



7.1.4. For the purpose of valuation of Cost Oil, the provisions of Section 12.1 shall apply.



51SECTION VII: COST RECOVERY AND PRODUCTION SHARING



7.1. Cost recovery



7.1.1 The Contractor shall be entitled to recover its Petroleum Operations Costs from Crude Oil produced within the Contract Area and that is not used in Petroleum Operations, to the extent permitted by the provisions of this Section 7.1 and Appendix I.



7.1.2 The Contractor shall retain and dispose, in each Calendar Year, of that volume of Crude Oil (hereinafter referred to as "Cost Oil") the value of which is equal to the recoverable Petroleum Operations Costs for that Calendar Year, limited to an amount not exceeding the maximum share of production determined according to the following incremental scale:



Average daily production from the Contract Area | Maximum share of average daily production available for cost recovery



First 20,000 Barrels/day | _____%



Next 30,000 Barrels/day | _____%



Any volume over first 50,000 Barrels/day | _____%



7.1.3. To the extent that the recoverable Petroleum Operations Costs for any Calendar Year exceed the value of the maximum amount of Crude Oil available under Section 7.1.2, the excess shall be carried forward for recovery in the next succeeding Calendar Year or Calendar Years.



7.1.4. For the purpose of valuation of Cost Oil, the provisions of Section 12.1 shall apply.



51



7.2 Production sharing



7.2.1 The balance of Crude Oil remaining in any Calendar

Year after deduction of the royalty payments under

Section 11.2 and after recoverable Petroleum

Operations Costs have been satisfied to the extent

and in the manner aforesaid in Section 7.1, shall

be referred to as "Profit Oil" and shall be

shared, taken and disposed of between the

Government and the Contractor as follows:



Increments Government's Contractor's

of Profit share share

Oil



First 20,000 ____ % ____ %

Barrels/day



Next 20,000

Barrels/day ____ % ____ %



Next 30,000

Barrels/day ____ % ____ %



Next 30,000

Barrels/day ____ % ____ %



Any volume over

first 100,000

Barrels/day ____ % ____ %



7.2.2 For the purpose of this Section, Cost Oil and

Profit Oil calculations shall be done for each

Calendar Quarter on an accumulative basis. To the

extent that actual quantities, prices and expenses

are not known on the date of said calculations,

provisional estimates shall be made based on the

annual development work programme and budget

submitted to the Minister under Section 5.4.6.

Within thirty (30) days of the end of each

Calendar Quarter, adjustments shall be made based

on actual quantities, prices and expenses in

relation to such Quarter.



Within sixty (60) days of the end of each Calendar

Year, a final calculation of Cost Oil and Profit

Oil based on actual data pertaining to that Year

shall be prepared and any necessary adjustments

shall be made.



The Government may elect to take in kind all or

any part of the total Government's share of Profit

Oil under this Section 7.2 or direct the

Contractor to lift and market all or any part of

such Crude Oil, all in accordance with the

provisions of Section 8.2.



If the Government elects not to take and receive

in kind all or part of the Government's share of

Profit Oil, the Contractor shall make payment to

the Government for the Government's share of

Profit Oil not taken in kind within thirty (30)

days after the end of each month.







52 7.2. Production sharing





7.2.1. The balance of Crude Oil remaining in any Calendar Year after


deduction of the royalty payments under Section 11.2 and after


recoverable Petroleum Operations Costs have been satisfied to the


extent and in the manner aforesaid in Section 7.1, shall be referred to


as "Profit Oil" and shall be shared, taken and disposed of between the


Government and the Contractor as follows:





Increments of Profit Oil Government's Contractor's


share. share





First 20,000 Barrels/day ... %


Next 20,000 Barrels/day .;•• •• \.,J % \ V - v'‘1 %





Next 30,000 Barrels/day V*.. .... '• %





Next 30,000 Barrels/day-: ' ... \ \ Y'v-% %





Any volume over first


100,000 Barrels/day V\ % %





7.2.2. For the purpose of this Section, Cost Oil and Profit Oil calculations





shall be done for each Calendar Quarter on an accumulative basis. To


the extent that actual quantities, prices and expenses are not known


on the date of said calculations, provisional estimates shall be made


based on the annual development work programme and budget


submitted to the Minister under Section 5.4.6. Within thirty (30) days


of the end of each Calendar Quarter, adjustments shall be made based


on actual quantities, prices and expenses in relation to such Quarter.


Within sixty (60) days of the end of each Calendar Year, a final





calculation of Cost Oil and Profit Oil based on actual data pertaining


to that Year shall be prepared and any necessary adjustments shall be


made.





7.2.3. The Government may elect to take in kind all or any part of the total


Government's share of Profit Oil under this Section 7.2 or direct the


Contractor to lift and market all or any part of such Crude Oil, all in


accordance with the provisions of Section 8.2.


7.2.4. If the Government elects not to take and receive in kind all or part of


the Government's share of Profit Oil, the Contractor shall make


payment to the Government for the Government's share of Profit Oil


not taken in kind within thirty (30) days after the end of each month.














5 2


SECTION VIII: PRODUCTION RATE AND MARKETING



8.1. Production rate



8.1.1. The Contractor shall produce Petroleum at the maximum economic efficient rate having consideration for generally accepted international petroleum industry practice and international standards for the conservation of Petroleum resources. The Contractor shall submit ninety (90) days before the start of each Calendar Year an estimated production schedule for each Development Area.



8.1.2. The Contractor shall submit Petroleum production reports on a regular basis and in a form to be designated by the Minister.



8.2. Marketing



8.2.1. The Contractor, if so directed by the Government, shall be obligated to market all or any part of the Petroleum produced and saved from the Contract Area subject to the provisions of this Agreement.



8.2.2. Except to the extent the provisions of Section 6.1 with respect to Government participation or Section 10.1 with respect to domestic consumption are applicable, or to the extent the Minister elects to take in kind all or any part of the royalty production under Section 11.2 or the Government's share of Profit Oil under Section 7.2, the Contractor shall be entitled to take and receive and freely export Petroleum produced under this Agreement.



8.2.3. Title to Petroleum produced to which the Contractor is entitled under this Agreement shall pass to the Contractor at the wellhead.



8.2.4. One hundred and eighty (180) days prior to the estimated date of commencement of regular production from the first Development Area, the Minister shall notify the Contractor in writing whether it elects to take in kind all or any part of the royalty production under Section 11.2 or the Government's share of Profit Oil under Section 7.2.



53 SECTION Vffls PRODUCTION RATE AND MARKETING

















8.1. Production rate


8.1.1. The Contractor shall produce Petroleum at the maximum economic


efficient rate having consideration for generally accepted


international petroleum industry practice and international


standards for the conservation of -.Petroleum resources. The


Contractor shall submit ninety (90) 4£ys-before The start of each


Calendar Year an estimated' production schedule for each


Development Area.


8.1.2. The Contractor shallV-subrrtit Petroleum:^production reports on a


regular basis and irt'’^.f'prrh to be designated by the Minister.








8.2. Marketing


8.2.1. The Contractor, if so. directed by the Government, shall be obligated


to market ail or any..part of the Petroleum produced and saved from


the Contract Area subject to the provisions of this Agreement.


8.2.2. Except to the extent the provisions of Section 6.1 with respect to


Government participation or Section 10.1 with respect to domestic


consumption are applicable, or to the extent the Minister elects to


take in kind all or any part of the royalty production under Section


11.2 or the Government’s share of Profit Oil under Section 7.2, the


Contractor shall be entitled to take and receive and freely export


Petroleum produced under this Agreement.


8.2.3. Title to Petroleum produced to which the Contractor is entitled


under this Agreement shall pass to the Contractor at the wellhead.


8.2.4. One hundred and eighty (180) days prior to the estimated date of


commencement of regular production from the first Development


Area, the Minister shall notify the Contractor in writing whether it


elects to take in kind all or any part of the royalty production under


Section 11.2 or the Government's share of Profit Oil under Section


7.2.




This election shall be effective until the

Minister elects in writing to change its election

with respect to taking in kind all or any part of

the royalty production or the Government's share

of Profit Oil in which case the new election shall

be effective one hundred eighty (180) days after

the date the Minister gives written notice of such

election; provided, however, that such election

shall not interfere with the proper performance of

any sales agreement for Crude Oil produced within

the Contract Area that the Contractor has executed

prior to the notice of such election.



Failure by the Minister to give timely notice of

its original election shall be conclusively deemed

to evidence the Minister's election not to take in

kind all or any part of the royalty production or

the Government's share of Profit Oil. Any sale by

the Contractor of the royalty production or the

Government's share of Profit Oil shall not be for

a term of more than twelve (12) months, without

the written consent of the Minister.



8.2.5. The Minister shall take, at the agreed upon

point of exportation or entry into a system, for

domestic consumption, regular delivery at

reasonable intervals during the period of its

election to take Crude Oil in kind as provided in

Section 8.2.4.



At a reasonable time prior to the date of

commencement of regular production from a

Development Area, the Parties shall agree on

procedures covering the scheduling, storage and

lifting of produced Crude Oil from the agreed

upon point of exportation or entry into a system

for domestic consumption.



8.2.6. If the Minister elects not to take and receive in

kind all or any part of the royalty production or

the Government's share of Profit Oil, then the

Minister may direct the Contractor to market or

itself buy such production, whichever the

Contractor shall elect to do, and the price paid

to the Government for such production shall not

be less than the value for that Petroleum

determined in accordance with Section 12.1. In

such event, the Contractor shall pay the royalty

and Government's share of Profit Oil in

accordance with the provisions of Sections 7.2,

11.2 and 14.1.2.











54This election shall be effective until the Minister elects in writing


to change its election with respect to taking in kind all or any part


of the royalty production or the Government's share of Profit Oil in


which case the new election shall be effective one hundred eighty


(180) days after the date the Minister gives written notice of such


election; provided, however, that such election shall not interfere


with the proper performance of any sales agreement for Crude Oil


produced within the Contract Area that the Contractor has


executed prior to the notice of such election.


Failure by the Minister to give timely notice of its original election


shall be conclusively deemed to evidence the Minister's election not


to take in kind all or any part of the royalty production or the


Government's share of Profit Oil. Any .sale by the Contractor of the


royalty production or the Government's share of Profit Oil shall not


be for a term of more than twelve(12) months, without the written


consent of the Minister.


8.2.5. The Minister shall take, 'at- the agreed-i-urpon point of exportation or


entry into a system, fpr domestic consumption, regular delivery at


reasonable intervals diiring the period -of its election to take Crude


Oil in kind as provided in Section 8,2.4.


At a reasonable time.-prior, t‘6 the date of commencement of regular


production from ..a-D$yeiopment Area, the Parties shall agree on


procedures covering /the scheduling, storage and lifting of produced


Crude Oil from the'agreed upon point of exportation or entry into a


system for domestic consumption.


8.2.6. If the Minister elects not to take and receive in kind all or any part


of the royalty production or the Government's share of Profit Oil,


then the Minister may direct the Contractor to market or itself buy


such production, whichever the Contractor shall elect to do, and the


price paid to the Government for such production shall not be less


than the value for that Petroleum determined in accordance with


Section 12.1. In such event, the Contractor shall pay the royalty and


Government's share of Profit Oil in accordance with the provisions


of Sections 7.2, 11.2 and 14.1.2.









































f





D 4




SECTION IX: UNITIZATION





9.1. Unitization



9.1.1. If commercially producible deposits extend

beyond the Contract Area into other parts of the

Territory of Ethiopia in which other persons

have contracts for the exploration and

production of Petroleum, or in which another

contract has been granted to the Contractor, the

Minister may require, that the Contractor

develop and produce Petroleum therefrom,

in co-operation with such other contractors. The

Minister may require the Contractor to adopt

similar arrangement for other areas within the

Contract Area where those areas, if developed

and produced in connection with Petroleum

deposits in any adjacent areas would be

commercially producible.



9.1.2. If the Minister so requires, the Contractor

shall co-operate with other contractors

in preparing a proposal for joint development

and production of such Petroleum deposits.

This proposal shall be submitted for approval

o£ the Minister within six (6) months after the

Contractor's receipt of the Minister's

notification, which approval shall not

be unreasonably withheld.



9.1.3. If the proposal is not submitted within the

period so stated or if the Minister does not

approve that proposal, the Minister may prepare

or cause to be prepared in accordance with the

generally accepted international petroleum

industry practice and at the cost of the

Contractor and the other contractors involved, a

plan for joint development and production.



If the Minister adopts such a plan, the

Contractor shall comply with all the conditions

contained therein, provided that those

conditions do not reduce the economic benefit to

the Contractor under this Agreement.



9.1.4. The provisions of Sections 9.1.1, 9.1.2 and

9.1.3 shall be applicable to deposits of

Petroleum within the Contract Area that extend

to areas outside the boundaries of the State;

provided, however, that in these cases the

Minister shall be empowered to impose the

special rules and conditions which may be

necessary to comply with the general principles

of international law and satisfy obligations

under an agreement with an adjacent state with

respect to the production of such Petroleum

deposits.















55 SECTION IX: UNITIZATION

















9.1. Unitization


If commercially producible deposits extend beyond the Contract


9.1.1.


Area into other parts of the Territory of Ethiopia in which other


persons have contracts for the exploration and production of


Petroleum, or in which another contract has been granted to the


Contractor, the Minister may require, tfictt the Contractor develop


and produce Petroleum therefrom, in. eo*:Pperation with such other


contractors. The Minister may'require the Contractor to adopt


similar arrangement for other-areas5 within the Contract Area where


those areas, if developed and. produced in connection with Petroleum


deposits in any adjacent areas'; would be-• c o m iner dally producible.


9.1.2. If the Minister so-:, requires, the! Contractor shall co-operate with


other contractors iri' preparing.a-.jjroposal for joint development and


production of such Petroleum deposits. This proposal shall be


submitted for approval"*of\the Minister within six (6) months after


the Contractor's- receipt of the Minister’s notification, which


approval shall not be/unreasonably withheld.


9.1.3. If the proposal is not submitted within the period so stated or if the


Minister does not approve that proposal, the Minister may prepare


or cause to be prepared in accordance with the generally accepted


international petroleum industry practice and at the cost of the


Contractor and the other contractors involved, a plan for joint


development and production.


If the Minister adopts such a plan, the Contractor shall comply with


all the conditions contained therein, provided that those conditions


do not reduce the economic benefit to the Contractor under this


Agreement.


9.1.4. The provisions of Sections 9.1.1, 9.1.2 and 9.1.3 shall be applicable


to deposits of Petroleum within the Contract Area that extend to


areas outside the boundaries of the State; provided, however, that in


these cases the Minister shall be empowered to impose the special


rules and conditions which may be necessary to comply with the


general principles of international law and satisfy obligations under


an agreement with an adjacent state with respect to the production


of such Petroleum deposits.


 SECTION X: DOMESTIC CONSUMPTION














10.1. Domestic consumption


10.1.1. The Minister may require the Contractor by written notice given


one hundred eighty (180) days in advance to supply Crude Oil to the


State to meet the State's domestic consumption needs. Such Crude


Oil shall be supplied from the Crude Oil..to which the Contractor is


otherwise entitled under this Agreement:-


10.1.2. The maximum amount of Crude Oif’^that the Contractor shall be


obligated to supply to the State -to' meet its domestic consumption


needs under Section 10.14 shali’be equal to the difference between:


(a) the total domestic consumptiqkneOds multiplied by a fraction


the numerator of which..is\the total Crude Oil production from


the Contract Area and' -the' kfenominator is the total Crude Oil


production in the..Terjritofy of Ethiopia; and


(b) the amount . of Crude Oil from the Contract Area to which the


Government ..is entitled under this Agreement, including


royalties in kind, Government participation production and


Government's share of Profit Oil.


Such determination shall be made on a quarterly basis.


10.1.3. If the Contractor supplies Crude Oil for domestic consumption, the


price paid to the Contractor shall be calculated in accordance with


Section 12.1 and paid in United States dollars or any other


currencies mutually agreed.


10.1.4* The Contractor may comply with Section 10.1.1, upon the written


consent of the Minister, by importing Crude Oil and exporting the


same amount, with adjustments to be made in price and volume to


reflect transportation costs, differences in quality, gravity and the


terms of the sale.





























o o






SECTION X: DOMESTIC CONSUMPTION







10.1. Domestic consumption



10.1.1. The Minister may require the Contractor by

written notice given one hundred eighty (180)

days in advance to supply Crude Oil to the State

to meet the State's domestic consumption needs.

Such Crude Oil shall be supplied from the Crude

Oil to which the Contractor is otherwise

entitled under this Agreement.



10.1.2. The maximum amount of Crude Oil that the

Contractor shall be obligated to supply to the

States ta’ meet its domestic consumption needs

under Section 10.1.1 shall be equal to the

difference between:



(a) the total do rustic consumption, needs

multiplied by a fraction the numerator of

which is the total Crude Oil production from

the Contract Area and the denominator is the

total Crude Oil production in the.

Territory of Ethiopia; and



(b) the amount of Crude Oil from the Contract

Area to which the Government is entitled

under this Agreement, including royalties in

kind, Government participation production

and Government's share of Profit Oil.



Such determination shall be made on a quarterly

basis.



10.1.3. If the Contractor supplies Crude Oil for

domestic consumption, the price paid to the

Contractor shall be calculated in accordance

with Section 12.1 and paid in United States

dollars or any other currencies mutually agreed.



10.1.4. The Contractor may comply with Section 10.1.1,

upon the written consent of the Minister, by

importing Crude Oil and exporting the same

amount, with adjustments to be made in price and

volume to reflect transportation costs,

differences in quality, gravity and the terms of

the sale.











56

 SECTION XI: BONUSES, RENTALS, ROYALTIES


AND PAYMENTS














11.1 Annual rentals


11.1.1. The Contractor shall pay to the Minister during the term of the


Exploration Period the following annual rentals for all unsurrendered


parts of the Contract Area that have not been designated as a


Development Area:


(a) during the initial term of.ExfJibration Period _(_)


United States dollars per..square kilometer?: >•


(b) during the first..extension to the...E.xploration Period _


(_) United .States dollars; p&;. squ&'fe kilometer;


(c) during the second extension-..-to the Exploration Period_


(_) United States ^ollars per square kilometer; and


(d) during any ..other extension to the Exploration Period_


(_) United States dollars per square kilometer.


11.1.2. The Contractor shall pay to the Minister during the term of the


Development and Production Period an annual rental of_(_)


United States dollars per square kilometer for each part of the


Contract Area that is designated as a Development Area .


11.1.3. The first annual rental payment shall be made within thirty (30) days


after the Effective Date of this Agreement. All subsequent annual


rental payments shall be made within thirty (30) days after the


anniversary of the Effective Date and shall be calculated on the


basis of the length of time during the year that any part of the


Contract Area was being held by the Exploration Period or the


Development and Production Period. If during any year a change


occurs with regard to the Contract Area that results in an increase


in the annual rental payment due, the payment for the following


year shall be adjusted to compensate for the difference.





























5 7




SECTION XI: BONUSES, RENTALS, ROYALTIES



AND PAYMENTS



11.1 Annual rentals



11.1.1. The Contractor shall pay to the Minister during

the term of the Exploration Period the following

annual rentals for all unsurrendered parts of

the Contract Area that have not been designated

as a Development Area:



(a) during the initial term of Exploration

Period __(__) United States dollars per

square kilometer.



(b) during the first extension to

the Exploration Period __(__) United-States

dollars per square kilometer;



(c) during the second extension to the

Exploration Period __(__) United States

dollars per square kilometer; and



(d) during any other extension to the

Exploration Period __(__) United States

dollars per square kilometer.



11.1.2. The Contractor shall pay to the Minister during

the term of the Development and Production

Period an annual rental of __(__) United States

dollars per square kilometer for each part of

the Contract Area that is designated as a

Development Area.



11.1.3. The first annual rental payment shall be made

within thirty (30) days after the Effective Date

of this Agreement. All subsequent annual rental

payments shall be made within thirty (30) days

after the anniversary of the Effective Date and

shall be calculated on the basis of the length

of time during the year that any part of the

Contract Area was being held by the Exploration

Period or the Development and Production Period.

If during any year a change occurs with regard

to the Contract Area that results in an increase

in the annual rental payment due, the payment

for the following year shall be adjusted to

compensate for the difference.





57

11.2. Royalties



11.2.1. The Contractor shall pay, within ten (10) days

after the end of each calendar month, to the

Minister a royalty at a rate depending on the

total daily production in a Development Area of

all Crude Oil and Natural Gas produced and saved

and not used in Petroleum Operations, and

determined according to the following

incremental scale:



Average Crude Oil production from a Royalty

Development Area



First 10,000 Barrels/day ____%

Between 10,000 and 20,000 Barrels/day ____%

Greater than 20,000 Barrels/day ____%



Average Natural Gas production from a Royalty

Development Area



First 50 million cubic feet/day ____%

Between 50 and 100 million cubic

feet/day ____%



Greater than 100 million cubic

feet/day ____%



11.2.2. The Minister may elect to take all or any

part of the royalty in kind from any Development

Area in accordance with the provisions of

Section 8.2. and unless the Minister elects to

take royalty in kind as provided in this

Section, the royalty shall be paid in cash.



11.2.3. The royalty taken in cash shall be valued, at

the agreed upon point of exportation or entry

into a system for domestic consumption, in

accordance with the appropriate provisions of

Section 12.1.



11.2.4. The title to the royalty production not taken in

kind shall pass to the Contractor at the

wellhead.



11.3. Production bonuses



11.3.1. The Contractor shall pay to the Minister the

following sums when production of Crude Oil from

the Contract Area attains the following levels

for the specified periods of time:



(a) ___(___) United States dollars after daily

production averages ___(___) barrels per day

for a period of ___(___) consecutive days;

and



(b) ___(___) United States dollars after daily

production averages ___(___) barrels per

day for a period of ___(___) consecutive

days.



11.3.2. The payment under Section 11.3.1 shall be made

within thirty (30) days after the last day of

the applicable ___(___) day period.







5811-2. Royalties





11.2.1. The Contractor shall pay, within ten (10) days after the end of each


calendar month, to the Minister a royalty at a rate depending on the


total daily production in a Development Area of all Crude Oil and


Natural Gas produced and saved and not used in Petroleum


Operations, and determined according to the following incremental


scale:





Average Crude Oil production from a


Development Area Royalty





First 10,000 Barrels/day %


Between 10,000 and 20,000 Barrels/day %


Greater than 20,000 Barrels/day %


Average Natural Gas production!rqrrva


Development Area Royalty





First 50 million cubic vfeet/day _%


Between 50 and 1Q0.-million cubic feet/day _%


Greater than 100 million cubic feet/day _%





11.2.2. The Minister may elect.tb-t^fce all or any part of the royalty in kind


from any Development Area in accordance with the provisions of


Section 8.2. and,.- unless-the Minister elects to take royalty in kind as


provided in this Section, the royalty shall be paid in cash.





11.2.3. The royalty taken in cash shall be valued, at the agreed upon point


of exportation or entry into a system for domestic consumption, in


accordance with the appropriate provisions of Section 12.1.


11.2.4. The title to the royalty production not taken in kind shall pass to the


Contractor at the wellhead.





11.3. Production bonuses


11.3.1. The Contractor shall pay to the Minister the following sums when


production of Crude Oil from the Contract Area attains the


following levels for the specified periods of time:


(a) _ (_) United States dollars after daily production


averages_(_) barrels per day for a period of_


(_) consecutive days; and


(b) _ (_) United States dollars after daily production


averages_(_) barrels per day for a period of _


(_) consecutive days.


11.3.2. The payment under Section 11.3.1 shall be made within thirty (30)


days after the last day of the applicable_(_) day period.








b 3


 SECTION XIIs VALUATION AND MEASUREMENT

















12.1. Valuation


12.1.1. The value of Crude Oil for all purposes shall be:


(a) if the Crude Oil is sold by the Contractor to third parties in arm's


length transactions, the net realized price (i.e., after deducting


commissions and brokerages) for that*, sale, at the F.O.B. point of


exportation or the point of entry vi'nto' a system for domestic


consumption; v-.. \ ..


(b) where Crude Oil is sold b.yth'£Con tractor. other than to third parties


in arm’s length transaction's or is relevantly appropriated without


being disposed off..that Crude Qil-.Shall be valued at the following


applicable price:


(i) if there have been -.Sale's of Crude Oil by the Contractor to


third Parties inf arrti's length transactions during the three (3)


months prececling-'that sale or appropriation, the weighted


average per ..unit price paid in these sales, net of commissions


and brokerages, at the F.O.B. point of exportation, adjusted


for quality, grade, quantity, transportation costs and any


special circumstances, unless less than twenty-five per cent


(25 96) by volume of Crude Oil sales during this period are


made to third parties, in which event Crude Oil sold other than


to third parties in arm's length transactions shall be valued


according to paragraph (b) (ii) below;


(ii) if there have been no sales of Crude Oil by the Contractor to


third Parties in arm's length transactions during the three (3)


months preceding that sale or appropriation, the average per


unit price for the prior three (3) months, net of commissions


and brokerages, at the F.O.B. point of exportation paid in


arm's length transactions of sales of Crude Oil of a similar


quality, grade, and quantity originating from countries in the


same general geographical area of Ethiopia, adjusted for


quality, grade, quantity, transportation costs and any special


circumstances;


(iii) provided that, if as a result of rapid fluctuations in prices


during the three (3) months period, or any other reason, the


price determined under (i) or (ii) above is not fair and


equitable, the market value shall be determined by reference


to prices during such period as may be appropriate.











5 9






SECTION XII: VALUATION AND MEASUREMENT







12.1. Valuation



12.1.1. The value of Crude Oil for all purposes shall

be:



(a) if the Crude Oil is sold by the Contractor

to third parties in arm's length

transactions, the net realized price (i.e.,

after deducting commissions and brokerages)

for that sale, at the F.O.B. point of

exportation or the point of entry into a

system for domestic consumption;.



(b) where Crude Oil is sold by the

Contractor, other than to third parties in

arm's length transactions or is relevantly

appropriated without being disposed

of, that Crude Oil shall be valued at

the following applicable price:



(i) if there have been sales of Crude Oil

by the Contractor to third Parties

in arm's length transactions during

the three (3) months preceding that

sale or appropriation, the weighted

average per unit price paid in these

sales, net of commissions and

brokerages, at the F.O.B. point of

exportation, adjusted for quality,

grade, quantity, transportation costs

and any special circumstances, unless

less than twenty-five per cent (25 %) by

volume of Crude Oil sales during this

period are made to third parties, in

which event Crude Oil sold other than to

third parties in arm's length

transactions shall be valued according

to paragraph (b) (ii) below;



(ii) if there have been no sales of Crude Oil

by the Contractor to third Parties in

arm's length transactions during the

three (3) months preceding that sale or

appropriation, the average per unit

price for the prior three (3) months,

net of commissions and brokerages, at

the F.O.B. point of exportation paid in

arm's length transactions of sales of

Crude Oil of a similar quality, grade,

and quantity originating from countries

in the same general geographical area of

Ethiopia, adjusted for quality, grade,

quantity, transportation costs and any

special circumstances;



(iii) provided that, if as a result of rapid

fluctuations in prices during the three

(3) months period, or any other reason,

the price determined under (i) or (ii)

above is not fair and equitable, the

market value shall be determined by

reference to prices during such period

as may be appropriate.











59(c) If the Minister and the Contractor cannot reach agreement on the value of Crude Oil within thirty (30) days, such determination shall be made by an internationally recognized expert appointed by the Contractor and the Minister, but if they fail to agree within thirty (30) days on the appointment of such expert, then such appointment shall be made by the International Chamber of Commerce. The expert shall report his determination within twenty (20) days of his appointment and his determination shall be final and binding upon the Government and the Contractor.



Pending the determination of the value of Crude Oil for a given period, the value of Crude Oil determined for the preceding Calendar Quarter will be provisionally applied to make calculation and payment until the applicable value for that period is finally determined. Any adjustment to provisional calculation and payment, if necessary, will be made within thirty (30) days after such applicable value is finally determined.



12.1.2. The value of Natural Gas for all purposes shall be:



(a) where Natural Gas is sold by the Contractor to third parties in arm’s length transactions, the net realized price obtained for such Natural Gas at the point where title and risk pass to the buyer;



(b) where Natural Gas is sold by the Contractor other than to third parties in arm's length transactions or is sold to the Government, that Natural Gas shall be valued at a price and in a currency to be determined by agreement between the Minister and the Contractor.



12.1.3. For the purposes of this Section 12.1:



(a) "relevantly appropriated" means appropriated to refining or to any use except Petroleum consumed in the course of Petroleum Operations;and



(b)a sale of Petroleum is a at "arm's length" if the following conditions are satisfied:



(i) the price is the sole consideration for the sale;



(ii) the terms of the sale are not affected by any commercial relationship, other than that created by the contract of sale itself, between the seller or an Affiliate and the buyer or an Affiliate;and



(iii) the seller or an Affiliate do not have, directly or indirectly, an interest in the subsequent resale or disposal of the Petroleum or any product derived therefrom.

















60(c) If the Minister and the Contractor cannot reach agreement on the value of Crude Oil within thirty (30) days, such determination shall be made by an internationally recognized expert appointed by the Contractor and the Minister, but if they fail to agree within thirty (30) days on the appointment of such expert, then such appointment shall be made by the International Chamber of Commerce. The expert shall report his determination within twenty (20) days of his appointment and his determination shall be final and binding upon the Government and the Contractor.



Pending the determination of the value of Crude Oil for a given period, the value of Crude Oil determined for the preceding Calendar Quarter will be provisionally applied to make calculation and payment until the applicable value for that period is finally determined. Any adjustment to provisional calculation and payment, if necessary, will be made within thirty (30) days after such applicable value is finally determined.



12.1.2. The value of Natural Gas for all purposes shall be:



(a) where Natural Gas is sold by the Contractor to third parties in arm’s length transactions, the net realized price obtained for such Natural Gas at the point where title and risk pass to the buyer;



(b) where Natural Gas is sold by the Contractor other than to third parties in arm's length transactions or is sold to the Government, that Natural Gas shall be valued at a price and in a currency to be determined by agreement between the Minister and the Contractor.



12.1.3. For the purposes of this Section 12.1:



(a) "relevantly appropriated" means appropriated to refining or to any use except Petroleum consumed in the course of Petroleum Operations;and



(b)a sale of Petroleum is a at "arm's length" if the following conditions are satisfied:



(i) the price is the sole consideration for the sale;



(ii) the terms of the sale are not affected by any commercial relationship, other than that created by the contract of sale itself, between the seller or an Affiliate and the buyer or an Affiliate;and



(iii) the seller or an Affiliate do not have, directly or indirectly, an interest in the subsequent resale or disposal of the Petroleum or any product derived therefrom.

















6012.2. Measurement





12.2.1. The volume and quality of Petroleum produced and saved by the


Contractor shall be measured by methods and appliances in


accordance with generally accepted international petroleum


industry practice, which shall be approved by the Minister.


12.2.2. The Minister may inspect the appliances used for measuring the


volume and determining the quality of Petroleum and may appoint


an inspector to supervise the measurement of volume and


determination of quality.


12.2.3. Where the method of measurement, or the appliances used therefor,


have caused an overstatement or understatement of royalties or


share of the production, the error shall be-presumed to have existed


since the date of the last calibratioh'-bf the measurement devices,


unless the contrary is shown; “arid., an appropriat6- kjUst‘ment shali be


made at the average value for the period '-of the error, or by an


adjustment in del i veries.iri'.kind over an dqdivadent period.


12.2.4. The Contractor and the. Minister'-shall'determine the point at which


production shall be measured;-... •



















































































6 ?


12.2.Measurement



12.2.1. The volume and quality of Petroleum produced and saved by the Contractor shall be measured by methods and appliances in accordance with generally accepted international petroleum industry practice, which shall be approved by the Minister.



12.2.2. The Minister may inspect the appliances used for measuring the volume and determining the quality of Petroleum and may appoint an inspector to supervise the measurement of volume and determination of quality.



12.2.3. Where the method of measurement, or the appliances used therefor, have caused an overstatement or understatement of royalties or share of the production, the error shall be presumed to have existed since the date of the last calibration of the measurement devices, unless the contrary is shown, and an appropriate adjustment shall be made at the average value for the period of the error, or by an adjustment in deliveries in kind over an equivalent period.



12.2.4. The Contractor and the Minister shall determine the point at which production shall be measured.

































61 SECTION XIII: NATURAL GAS



13.1. Non-associated Natural Gas



13.1.1. If Non-associated Natural Gas is discovered, the Contractor and the Minister shall engage in good faith discussion to determine whether the Natural Gas discovery should be appraised with a view to its eventual development and production. Such discussions shall take into consideration among other things the following factors:



(a) priority uses for Natural Gas will be (i) its use in Petroleum Operations, (ii) its utilization in Ethiopia, and (ii) its sale for export projects, depending on the existence or potential of the respective markets;



(b) the quality, minimum quantities and costs of facilities required to produce, develop, transport and market the Natural Gas;



(c) the pricing of the Natural Gas for domestic utilization at levels that will ensure the economic viability of the project and the economic utilization of the Natural Gas for each Particular use, including reference to the value of the energy it may displace;



(d) the willingness of the Government to enter into long term sales arrangements with adequate safeguards for and from the Contractor in order to promote and develop the use of indigenous resources of Natural Gas in Ethiopia, as well as to develop on a timely basis the necessary downstream components of the project.



13.1.2. If the Contractor, after discussion with the Minister under Section 13.1.1, considers that the Non-associated Natural Gas discovery merits appraisal, the Contractor shall proceed with the appraisal programme as stipulated under Section 5.3 and, if necessary, the provisions of Section 2.2.5 shall apply.



13.1.3. If the Contractor and the Minister agree, after discussion under 13.1.1 and the completion of the appraisal programme, that the Non-associated Natural Gas discovery constitutes a Commercial Discovery the Contractor could proceed with its development and production through submission of a development plan in accordance with the provisions of Section 5.4. The Contractor and the Minister shall enter into good faith negotiations for detailed separate agreements to govern the development, processing, utilization and disposition or sale of the Natural Gas concerned.



For the purpose of expediting the execution of a domestic Gas development project, a Gas development advisory committee shall be established with representatives of the Government and the



62 SECTION XIII: NATURAL GAS



13.1. Non-associated Natural Gas



13.1.1. If Non-associated Natural Gas is discovered, the Contractor and the Minister shall engage in good faith discussion to determine whether the Natural Gas discovery should be appraised with a view to its eventual development and production. Such discussions shall take into consideration among other things the following factors:



(a) priority uses for Natural Gas will be (i) its use in Petroleum Operations, (ii) its utilization in Ethiopia, and (ii) its sale for export projects, depending on the existence or potential of the respective markets;



(b) the quality, minimum quantities and costs of facilities required to produce, develop, transport and market the Natural Gas;



(c) the pricing of the Natural Gas for domestic utilization at levels that will ensure the economic viability of the project and the economic utilization of the Natural Gas for each Particular use, including reference to the value of the energy it may displace;



(d) the willingness of the Government to enter into long term sales arrangements with adequate safeguards for and from the Contractor in order to promote and develop the use of indigenous resources of Natural Gas in Ethiopia, as well as to develop on a timely basis the necessary downstream components of the project.



13.1.2. If the Contractor, after discussion with the Minister under Section 13.1.1, considers that the Non-associated Natural Gas discovery merits appraisal, the Contractor shall proceed with the appraisal programme as stipulated under Section 5.3 and, if necessary, the provisions of Section 2.2.5 shall apply.



13.1.3. If the Contractor and the Minister agree, after discussion under 13.1.1 and the completion of the appraisal programme, that the Non-associated Natural Gas discovery constitutes a Commercial Discovery the Contractor could proceed with its development and production through submission of a development plan in accordance with the provisions of Section 5.4. The Contractor and the Minister shall enter into good faith negotiations for detailed separate agreements to govern the development, processing, utilization and disposition or sale of the Natural Gas concerned.



For the purpose of expediting the execution of a domestic Gas development project, a Gas development advisory committee shall be established with representatives of the Government and the



62Contractor to coordinate all upstream and downstream components of the project and facilitate its evaluation and implementation.

Unless otherwise agreed, the adoption of the relevant development plan under section 5.4. shall be made only once all agreements for the disposition or sale of the Natural Gas concerned have been concluded.

13.1.4. If the Contractor elects not to develop a Non-associated Natural Gas discovery which has been appraised and found of potential commercial interest in accordance with the provisions of Section 13.1.3, the Government shall have the right to proceed with the development and productions of the discovery at its sole risk, cost and expense, and shall reimburse the Contractor the certified costs and expenses directly attributable to the appraisal of such discovery provided, however, that:

(a) the Contractor surrenders all its rights under this Agreement in respect of the area corresponding to the Non-associated Natural Gas discovery;

(b) the appraisal programme was approved in writing by the Minister;

(c) the Contract and Government agree, with the assistance of specialized third parties when necessary, that sufficient economically recoverable gas reserves have been proved to support the demand for and the economic viability of a pre-identified domestic Natural Gas project for a period of at least twenty five (25) years under the pricing principles specified under Section 13.1 and taking into account the reimbursement included herein; and

(d) such reimbursement to the Contractor shall be made in ____ (___) years, without interest, in equal quarterly installments starting six (6) months after the date of adoption by the Minister of the development plan for the particular Natural Gas discovery concerned. The Government may elect to make reimbursements either in cash of in Crude Oil valued pursuant to the provisions of Section 12.1.

13.1.5. If the Contractor decides, after discussions under Section 13.1.1. and the completion of the appraisal programme, that the Non-associated Natural Gas discovery is not a Commercial Discovery, the Government shall have the right to proceed with further appraisal and development of the reservoirs corresponding to the Natural Gas discovery at its sole risk, cost and expense. The Government may develop, produce, take, process and utilize or sell the Non-associated Natural Gas without compensation to the Contractor provided, however, that:

(a) the Government shall bear all costs for any new fixtures and installations required for the development, productions, transportation, processing and utilization thereof;

83Contractor to coordinate all upstream and downstream components


of the project and facilitate its evaluation and implementation.


Unless otherwise agreed, the adoption of the relevant development


plan under Section 5.4 shall be made only once all agreements for


the disposition or sale of the Natural Gas concerned have been


concluded.


13.1.4. If the Contractor elects not to develop a Non-associated Natural


Gas discovery which has been appraised and found of potential


commercial interest in accordance with the provisions of Section


13.1.3, the Government shall have the right to proceed with the


development and production of the discovery at its sole risk, cost


and expense, and shall reimburse the Contractor the certified costs


and expenses directly attributable to the..appraisal of such discovery


provided, however, that:


(a) the Contractor surrenders' all- its rights under, this Agreement


in respect of the area cbrrespondir\g to vthe Non-associated


Natural Gas discovery?


(b) the appraisal..-programme . -was approved in writing by the


Minister;


(c) the Contractor and fhei-Government agree, with the assistance


of specialize^ third parties when necessary, that sufficient


economically recoverable gas reserves have been proved to


support the -demand for and the economic viability of a pre¬


identified domestic Natural Gas project for a period of at


least twenty five (25) years under the pricing principles


specified under Section 13.1 and taking into account the


reimbursement included herein; and


(d) such reimbursement to the Contractor shall be made in_


(_) years, without interest, in equal quarterly instalments


starting six (6) months after the date of adoption by the


Minister of the development plan for the particular Natural


Gas discovery concerned. The Government may elect to make


reimbursements either in cash or in Crude Oil valued pursuant


to the provisions of Section 12.1.


13.1.5. If the Contractor decides, after discussions under Section 13.1.1 and


the completion of the appraisal programme, that the Non-associated


Natural Gas discovery is not a Commercial Discovery, the


Government shall have the right to proceed with further appraisal


and development of the reservoirs corresponding to the Natural Gas


discovery at its sole risk, cost and expense. The Government may


develop, produce, take, process and utilize or sell the Non-


associated Natural Gas without compensation to the Contractor


provided, however, that:


(a) the Government shall bear all costs for any new fixtures and


installations required for the development, production,


transportation, processing and utilization thereof;


 (b) the production of Natural Gas shall not materially interfere


with other Petroleum Operations; and


(c) rights of the Contractor under this Agreement in respect of





reservoirs other than the identified Non-associated Natural


Gas reservoirs will remain unaffected.





13.1.6. If after good faith discussions with the Minister under Section


13.1.1, the Contractor decides that there is no merit in appraising


the Non-associated Natural Gas discovery, the Contractor shall


submit to the Minister a report justifying its decision on the basis of


at least the following factors:


(a) evaluation of possible reserves taking into account test results





of the discovery well and any other..relevant information;


(b) market alternatives considered., for thie Non-associated Natural


Gas;


(c) investment and cost estimates; and \





(d) economic reserves under different, price assumptions.


If the Contractor fails to comply with this requirement within a





period of one (1) year..-afte'r-the date of the discovery, the Minister


may at his discretion terminate the rights of the Contractor in


respect of the area corresponding to the Non-associated Natural Gas


discovery.





13.2. Associated Natural Gas





13.2.1. Associated Natural Gas, which is not required for use in Petroleum


Operations and the development, production, processing and


utilization or sale of which the Contractor concludes is not


economical, shall be returned to the subsurface structure, but the


Contractor has the right to flare such Natural Gas in accordance


with generally accepted international petroleum industry practice,


provided the Contractor demonstrates that the flaring is required


for technical and economic reasons and the Minister appproves the


flaring, which approval shall not be unreasonably withheld.





If the Contractor determines to flare such Natural Gas, the


Government has the right to take such gas at no cost except to


compensate the Contractor for the additional costs to deliver the


Natural Gas to the Government.


13.2.2. If the Contractor and the Minister agree that the Associated





Natural Gas that is not required for Petroleum Operations may be


economically processed and utilized or sold other than in gas


recycling, reservoir pressure maintenance, gas lift or secondary


recovery operations, the Contractor and the Minister shall enter


into good faith negotiations for a separate agreement to govern the


processing, utilization and disposition or sale of the Natural Gas


concerned.


(b) the production of Natural Gas shall not materially interfere with other Petroleum Operations; and



(c) rights of the Contractor under this Agreement in respect of reservoirs other than the Identified Non-associated Natural Gas reservoirs will remain unaffected.



13.1.6 If after good faith discussions with the Minister under Section 13.1.1, the Contractor decides that there is no merit in appraising the Non-associated Natural Gas discovery, the Contractor shall submit to the Minister a report justifying its decision on the basis at least the following factors:



(a) evaluation of possible reserves taking into account test results of the discovery well and any other relevant information;



(b) market alternatives considered for the Non-associated Natural Gas;



(c) investment and cost estimates; and



(d) economic reserves under different price assumptions.



If the Contractor fails to comply with this requirement within a period of one (1) year after the date of the discovery, the Minister may at his discretion terminate the rights of the Contractor in respect of the area corresponding to the Non-associated Natural Gas discovery.



13.2 Associated Natural Gas



13.2.1 Associated Natural Gas, which is not required for use in Petroleum Operations and the development, production, processing and utilization or sale of which the Contractor concludes is not economical, shall be returned to the subsurface structure, but the Contractor has the right to flare such Natural Gas in accordance with generally accepted international petroleum industry practice, provided the Contractor demonstrates that the flaring is required for technical and economic reasons and the Minister approves the flaring, which approval shall not be unreasonably withheld.



If the Contractor determines to flare such Natural Gas, the Government has the right to take such gas to no cost except to compensate the Contractor for the additional costs to deliver the Natural Gas to the Government.



13.2.1 If the Contractor and the Minister agree that the Associated Natural Gas that is not required for Petroleum Operations may be economically processed and utilized or sold other than in gas recycling, reservoir pressure maintenance, gas lift or secondary recovery operations, the Contractor and the Minister shall enter into good faith negotiations for a separate agreement to govern the processing, utilization and disposition or sale of the Natural Gas concerned.





6413.3. Other provisions



13.3.1. The development and production of Natural Gas, whether associated or non-associated, shall be subject to this Agreement and the Accounting Procedures attached hereto as Appendix I as well as any special agreement entered into between the Minister and the Contractor pursuant to the provisions of Sections 13.1 and 13.2. However, the Minister and the Contractor may engage in good faith negotiations to modify the provisions of Section VII on cost recovery and production sharing in respect of Natural Gas, if the Minister determines that special circumstances relating to Natural Gas development and production exist which warrant such modification.



13.3.2. Except as otherwise agreed, the provisions of this Agreement shall apply mutatis mutandis to a production of Natural Gas and considering that six thousand (6000) cubic feet of Natural Gas at a temperature of fifteen degrees Celsius (15C) and standard atmospheric pressure of 1.01325 bar shall be deemed to be equivalent to one (1) Barrel of Crude Oil. Natural Gas liquids shall be treated as Crude Oil.



In the event that a Non-associated Natural Gas discovery is produced, the Petroleum Operations Costs incurred by the Contractor and directly attributable to the discovery shall be only recovered in accordance with Section 7.1 from part of the production from that discovery, unless an agreement made pursuant to this Section so provides.



13.3.3. The value of Natural Gas for all purposes shall be determined in accordance with the provisions of Section 12.1.



8513.3. Other provisions



13.3.1. The development and production of Natural Gas, whether associated or non-associated, shall be subject to this Agreement and the Accounting Procedures attached hereto as Appendix I as well as any special agreement entered into between the Minister and the Contractor pursuant to the provisions of Sections 13.1 and 13.2. However, the Minister and the Contractor may engage in good faith negotiations to modify the provisions of Section VII on cost recovery and production sharing in respect of Natural Gas, if the Minister determines that special circumstances relating to Natural Gas development and production exist which warrant such modification.



13.3.2. Except as otherwise agreed, the provisions of this Agreement shall apply mutatis mutandis to a production of Natural Gas and considering that six thousand (6000) cubic feet of Natural Gas at a temperature of fifteen degrees Celsius (15C) and standard atmospheric pressure of 1.01325 bar shall be deemed to be equivalent to one (1) Barrel of Crude Oil. Natural Gas liquids shall be treated as Crude Oil.



In the event that a Non-associated Natural Gas discovery is produced, the Petroleum Operations Costs incurred by the Contractor and directly attributable to the discovery shall be only recovered in accordance with Section 7.1 from part of the production from that discovery, unless an agreement made pursuant to this Section so provides.



13.3.3. The value of Natural Gas for all purposes shall be determined in accordance with the provisions of Section 12.1.



85SECTION XIV: FINANCIAL AND FISCAL MATTERS AND ACCOUNTING



14.1. Finances



14.1.1. The Contractor shall provide all funds necessary to conduct Petroleum Operations, shall bear the sole financial risk in carrying out such Petroleum Operations, and shall therefore have an economic interest in the development and production of Petroleum

from the Contract Area, except otherwise provided in this Agreement.



14.1.2. All payments under this Agreement by the Contractor to the Government or the Minister shall be made in United States dollars unless the Minister and the Contractor shall agree upon payment in other freely convertible foreign currency. Any delayed payments shall bear interest at_______ per cent(_________) per year.



14.1.3. Charges for services requested by the Contractor and actually rendered by the Government or its administrative or political subdivisions shall be made at generally applicable rates for such services.



14.2. Taxation



14.2.1. The Contractor and the Subcontractors shall be subject to, and comply with, all income tax laws and regulations of Ethiopia.



Unless otherwise agreed by the Parties, the provisions of Section 14.1.2 shall apply to income tax payments.



14.2.2. The salaries and other benefits in cash or in kind of expatriate employees of the Contractor and the Subcontractors derived from activities required for performance under this Agreement shall be exempt from personal income tax.



14.3. Foreign exchange control



14.3.1. The Contractor shall comply with the procedures and formalities required by the legislation and , regulations relating to foreign exchange in force from time to time in Ethiopia, provided, however, that the Contractor shall have the right:



(a) to open and keep one or more transferable or non-transferable Birr accounts with the Commercial Bank of Ethiopia. Such Birr accounts shall be credited with:



(i) the proceeds of the conversion into Birr pursuant to

paragraph (c) below of funds deposited in the external

accounts referred to in paragraph (b) below; and







66SECTION XIV: FINANCIAL AND FISCAL MATTERS AND ACCOUNTING



14.1. Finances



14.1.1. The Contractor shall provide all funds necessary to conduct Petroleum Operations, shall bear the sole financial risk in carrying out such Petroleum Operations, and shall therefore have an economic interest in the development and production of Petroleum

from the Contract Area, except otherwise provided in this Agreement.



14.1.2. All payments under this Agreement by the Contractor to the Government or the Minister shall be made in United States dollars unless the Minister and the Contractor shall agree upon payment in other freely convertible foreign currency. Any delayed payments shall bear interest at_______ per cent(_________) per year.



14.1.3. Charges for services requested by the Contractor and actually rendered by the Government or its administrative or political subdivisions shall be made at generally applicable rates for such services.



14.2. Taxation



14.2.1. The Contractor and the Subcontractors shall be subject to, and comply with, all income tax laws and regulations of Ethiopia.



Unless otherwise agreed by the Parties, the provisions of Section 14.1.2 shall apply to income tax payments.



14.2.2. The salaries and other benefits in cash or in kind of expatriate employees of the Contractor and the Subcontractors derived from activities required for performance under this Agreement shall be exempt from personal income tax.



14.3. Foreign exchange control



14.3.1. The Contractor shall comply with the procedures and formalities required by the legislation and , regulations relating to foreign exchange in force from time to time in Ethiopia, provided, however, that the Contractor shall have the right:



(a) to open and keep one or more transferable or non-transferable Birr accounts with the Commercial Bank of Ethiopia. Such Birr accounts shall be credited with:



(i) the proceeds of the conversion into Birr pursuant to

paragraph (c) below of funds deposited in the external

accounts referred to in paragraph (b) below; and







66







(ii) amounts received in Birr, subject to approval of the

National Bank of Ethiopia as to the source or origin;



(b) to open and keep foreign currency account with the

Commercial Bank of Ethiopia and freely dispose of the sums

deposited therein. Such account shall be credited only with

sums deposited in convertible currencies;



(c) to convert to Birr the foreign convertible currencies

acceptable to Ethiopian banks at rates of exchange quoted by

Commercial Banks operating in Ethiopia. Such rates shall not

be less favorable to the Contractor than the effective rate

applicable for similar transactions undertaken by any private

or state enterprise on the date of the transaction;





(d) to open and freely maintain foreign bank accounts outside

Ethiopia. Said bank accounts may be credited, with funds from

any source, except that such accounts shall not be credited

with the proceeds of the sale of Birr without the prior

approval of the National Bank of Ethiopia. Save in respect of

Ethiopia under this Agreement, the Contractor shall have the

right to retain abroad all proceeds and payments under this

Agreement received in said bank accounts, including but not

limited to the proceeds of sales of Petroleum here under, and

to dispose freely of the same without any obligation to

repatriate the same or any part thereof to Ethiopia;



(e) pay directly outside Ethiopia foreign Subcontractors for

purchase of goods and services necessary to carry out

Petroleum Operations here under; and



(f) freely repatriate abroad all proceeds from Contractor's

Petroleum Operations within Ethiopia.



Foreign Subcontractors of the Contractor shall have the same rights

and obligations specified above as the Contractor.





14.3.2. Any foreign Subcontractor of the Contractor and any of the

expatriate personnel of the Contractor or of any of its

Subcontractors, shall be entitled to receive outside Ethiopia the

whole or any part of his compensation provided, however, that such

foreign Subcontractor and expatriate personnel shall be required to

bring into Ethiopia such freely convertible currencies to meet

payments of Ethiopian taxes, living and other expenses.





14.3.3. The payment of principal, interest and/or costs due on funds and

loans in foreign currency shall not be made out of funds deposited in

the accounts opened and kept under Section 14.3.1 (a) above.









67











 (ii) amounts received in Birr, subject to approval of the


National Bank of Ethiopia as to the source or origin;


(b) to open and keep foreign currency account with the


Commercial Bank of Ethiopia and freely dispose of the sums


deposited therein. Such account shall be credited only with


sums deposited in convertible currencies;


(c) to convert to Birr the foreign convertible currencies


acceptable to Ethiopian banks at rates of exchange quoted by


commercial banks operating in Ethiopia. Such rates shall not


be less favourable to the Contractor than the effective rate


applicable for similar transactions undertaken by any private


or state enterprise on the date of the transaction;


(d) to open and freely maintain., fpj^eigh bank .accounts outside


Ethiopia. Said bank accounts rnay- be credited, ..with funds from


any source, except that;-such' accounts ‘•shall not be credited


with the proceeds."of ‘••‘.the sale of Birr 'without the prior


approval of the National Bank .of Ethiopia. Save in respect of


funds needed'.by. the' ContracWr tq discharge its obligations in


Ethiopia under..this Agreement, the Contractor shall have the


right to retain abroad'all proceeds and payments under this


Agreement receiye<3‘.i h‘>.said bank accounts, including but not


limited to the proceeds of sales of Petroleum hereunder, and


to dispose /‘freely-’’of the same without any obligation to


repatriate the..same or any part thereof to Ethiopia;


(e) pay directly outside Ethiopia foreign Subcontractors for


purchases of goods and services necessary to carry out


Petroleum Operations hereunder; and


(f) freely repatriate abroad all proceeds from Contractors


Petroleum Operations within Ethiopia.


Foreign Subcontractors of the Contractor shall have the same rights


and obligations specified above as the Contractor.


14.3.2. Any foreign Subcontractor of the Contractor and any of the


expatriate personnel of the Contractor or of any of its


Subcontractors, shall be entitled to receive outside Ethiopia the


whole or any part of his compensation provided, however, that such


foreign Subcontractor and expatriate personnel shall be required to


bring into Ethiopia such freely convertible currencies to meet


payments of Ethiopian taxes, living and other expenses.


14.3.3. The payment of principal, interest and/or costs due on funds and


loans in foreign currency shall not be made out of funds deposited in


the accounts opened and kept under Section 14.3.1 (a) above.


14.3.4. The Contractor and the Subcontractors shall, within thirty (30) days after the end of each Calendar Quarter, submit to the National Bank of Ethiopia, with a copy to the Minister, a summary of all currency received, imported, remitted and maintained abroad pursuant to Section 14.3.1 during the relevant quarter.



14.3.5. Except as otherwise provided herein, expatriate employees of the Contractor and the Subcontractors shall comply with applicable foreign exchange legislation and regulations.



14.4. Accounting



14.4.1. The Contractor shall keep in Addis Ababa complete financial accounts and records in English and in United States dollars reflecting all Petroleum Operations.



If payments are made in other than United States dollars, such payments shall be recorded in United States dollars based on the exchange rate for the currency in which the payments are made, as quoted by ______ on the date of the actual transfer of funds.



Such accounts and records shall be prepared and maintained in accordance with generally accepted international petroleum industry practice and as prescribed in Appendix I to this Agreement and as may be prescribed in regulations issued pursuant to the Petroleum Proclamation.



14.4.2. The Contractor shall prepare on a Calendar Year bass an annual balance sheet and profit and loss statement in accordance with the Accounting Procedures set forth in Appendix I hereto and the generally applicable laws of Ethiopia. Such accounts and the reports to the Minister derived therefrom shall be certified by an independent auditor acceptable to the Minister and shall be submitted, along with the auditor's report, to the Minister and other appropriate authorities within ninety (90) days after the end of the Calendar Year to which they pertain.



14.4.3. The Government shall have the right, at its cost and expense, to carry out additional audits of the Contractor's books, records and accounts relating to this Agreement for any Calendar Year.





6814.3.4. The Contractor and the Subcontractors shall, within thirty (30) days after the end of each Calendar Quarter, submit to the National Bank of Ethiopia, with a copy to the Minister, a summary of all currency received, imported, remitted and maintained abroad pursuant to Section 14.3.1 during the relevant quarter.



14.3.5. Except as otherwise provided herein, expatriate employees of the Contractor and the Subcontractors shall comply with applicable foreign exchange legislation and regulations.



14.4. Accounting



14.4.1. The Contractor shall keep in Addis Ababa complete financial accounts and records in English and in United States dollars reflecting all Petroleum Operations.



If payments are made in other than United States dollars, such payments shall be recorded in United States dollars based on the exchange rate for the currency in which the payments are made, as quoted by ______ on the date of the actual transfer of funds.



Such accounts and records shall be prepared and maintained in accordance with generally accepted international petroleum industry practice and as prescribed in Appendix I to this Agreement and as may be prescribed in regulations issued pursuant to the Petroleum Proclamation.



14.4.2. The Contractor shall prepare on a Calendar Year bass an annual balance sheet and profit and loss statement in accordance with the Accounting Procedures set forth in Appendix I hereto and the generally applicable laws of Ethiopia. Such accounts and the reports to the Minister derived therefrom shall be certified by an independent auditor acceptable to the Minister and shall be submitted, along with the auditor's report, to the Minister and other appropriate authorities within ninety (90) days after the end of the Calendar Year to which they pertain.



14.4.3. The Government shall have the right, at its cost and expense, to carry out additional audits of the Contractor's books, records and accounts relating to this Agreement for any Calendar Year.





68SECTION XV: IMPORTS AND EXPORTS



15.1 Imports



15.1.1. Subject to the local purchase obligations of the Section 3.6, the Contractor and each Subcontractor shall be entitled to import into Ethiopia any and all drilling, geological, geophysical, production, treating, processing, transportation and other machinery and equipment necessary for Petroleum Operations, including aircraft, vessels, vehicles and other transportation equipment and parts therefor (other than sedan cars and fuel therefor), fuels, chemicals, lubricants, films, seismic tapes, house trailers, office trailers, disassembled prefabricated structures and other materials necessary for Petroleum Operations free of import taxes, charges, duties, levies and imposts of any kind, provided, however, that this shall not preclude the Contractor and the Subcontractor from paying charges to the Government for services actually rendered by any appropriate Government agency.



15.1.2. Other than as specified in this Agreement and the Petroleum Proclamation, all other imports by the Contractor, each Subcontractor and their employees shall be subject to all generally applicable import duties and taxes of Ethiopia.



15.1.3. Each expatriate employee of the Contractor and Subcontractors may, in accordance with prevailing regulations, import household goods and personal effects including one (1) sedan car per employee, within six (6) months of its arrival, free of import taxes, charges, duties, levies and imposts of any kind, provided, however, that such properties are imported for the sole use of the employee and his family.



15.2. Exports



15.2.1. All items imported under Section 15.1, and taken out from Ethiopia shall be exempt from export duties and other taxes and duties levied on exports, provided, however, that if these items are disposed of within Ethiopia, the Contractor, Subcontractors and expatriate employees, as the case may be, shall pay customs duties and taxes in accordance with the applicable laws.



15.2.2. The Contractor may export from Ethiopia, exempt of all export duties and other taxes levied on exports, the Petroleum produced from the Contract Area to with the Contractor is entitled in accordance with the provisions of the Agreement.

 SECTION XV: IMPORTS AND EXPORTS








15.1 Imports


15.1.1. Subject to the local purchase obligations of Section 3.6, the


Contractor and each Subcontractor shall be entitled to import into


Ethiopia any and all drilling, geological, geophysical, production,


treating, processing, transportation and other machinery and


equipment necessary for Petroleum Operations, including aircraft,


vessels, vehicles and other transportation equipment and parts


therefor (other than sedan cars and fuel-therefor), fuels, chemicals,


lubricants, films, seismic tapes, house''^trailers, office trailers,


disassembled prefabricated structures;'and’’other materials necessary


for Petroleum Operations free of: ifnport taxes*-.charges, duties,


levies and imposts of any kitidi; provided, h.o.weyet', that this shall not


preclude the Contractor-arid the Subcontractor from paying charges


to the Government .for‘ services actually>endered by any appropriate


Government agency.-'-.


15.1.2. Other than as specified iri .- this’ Agreement and the Petroleum


Proclamation, all other - imports by the Contractor, each


Subcontractor and.their employees shall be subject to all generally


applicable import* duties'and taxes of Ethiopia.


15.1.3. Each expatriate employee of the Contractor and Subcontractors


may, in accordance with prevailing regulations, import household


goods and personal effects including one (1) sedan car per employee,


within six (6) months of its arrival, free of import taxes, charges,


duties, levies and imposts of any kind, provided, however, that such


properties -are imported for the sole use of the employee and his


family.








15.2. Exports


15.2.1. All items imported under Section 15.1, and taken out from Ethiopia





shall be exempt from export duties and other taxes and duties levied


on exports, provided, however, that if these items are disposed of


within Ethiopia, the Contractor, Subcontractors and expatriate


employees, as the case may be, shall pay customs duties and taxes


in accordance with the applicable laws.


15.2.2. The Contractor may export from Ethiopia, exempt of all export





duties and other taxes levied on exports, the Petroleum produced


from the Contract Area to which the Contractor is entitled in


accordance with the provisions of this Agreement.

















8 9


15.2.3. Notwithstanding any other provision of this Agreement, the Contractor shall not make shipments of Petroleum produced from Petroleum Operations in Ethiopia to or through countries whose export destinations are proscribed by the State.



















7015.2.3. Notwithstanding any other provision of this Agreement, the Contractor shall not make shipments of Petroleum produced from Petroleum Operations in Ethiopia to or through countries whose export destinations are proscribed by the State.



















70SECTION XVI: GOVERNING LAW AND DISPUTES



16.1. Governing law



16.1.1. This Agreement shall be governed by, interpreted and construed in accordance with the laws of Ethiopia.



16.1.2. The Contractor agrees that it will abide by all laws and regulations in force in Ethiopia.



16.1.3. In the event that after the Effective Date of this Agreement the economic benefits to be derived by a Party from the Petroleum Operations under this Agreement are substantially affected by the promulgation of new laws and regulations of Ethiopia and if the affected Party so requests, the Parties shall agree to make the necessary adjustments to the relevant provisions of this Agreement, in order to ensure that the affected Party is restored to the same economic condition it would have been in if such change in the applicable laws had not taken place.



16.2. Arbitration



6.2.1. Except as otherwise provided in this Agreement, if, during the term of this Agreement or thereafter, any difference or dispute arises with respect to the construction, meaning or effect of this Agreement or arising out of or related or in connection with this Agreement or concerning the rights and obligation hereunder, which difference or dispute cannot be mutually resolved by the Parties within ninety (90) days, either Party shall have the right to submit the difference or dispute to a formal settlement process under this Section 16.2.



16.2.2. The difference or dispute referred to under Section 16.1.1 shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law as at present in force.



16.2.3. The arbitration, including the rendering of the award, shall take place in Addis Ababa, Ethiopia and shall be in English. The decision of a majority of the arbitrators shall be final and binding upon the Parties.





71SECTION XVI: GOVERNING LAW AND DISPUTES



16.1. Governing law



16.1.1. This Agreement shall be governed by, interpreted and construed in accordance with the laws of Ethiopia.



16.1.2. The Contractor agrees that it will abide by all laws and regulations in force in Ethiopia.



16.1.3. In the event that after the Effective Date of this Agreement the economic benefits to be derived by a Party from the Petroleum Operations under this Agreement are substantially affected by the promulgation of new laws and regulations of Ethiopia and if the affected Party so requests, the Parties shall agree to make the necessary adjustments to the relevant provisions of this Agreement, in order to ensure that the affected Party is restored to the same economic condition it would have been in if such change in the applicable laws had not taken place.



16.2. Arbitration



6.2.1. Except as otherwise provided in this Agreement, if, during the term of this Agreement or thereafter, any difference or dispute arises with respect to the construction, meaning or effect of this Agreement or arising out of or related or in connection with this Agreement or concerning the rights and obligation hereunder, which difference or dispute cannot be mutually resolved by the Parties within ninety (90) days, either Party shall have the right to submit the difference or dispute to a formal settlement process under this Section 16.2.



16.2.2. The difference or dispute referred to under Section 16.1.1 shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law as at present in force.



16.2.3. The arbitration, including the rendering of the award, shall take place in Addis Ababa, Ethiopia and shall be in English. The decision of a majority of the arbitrators shall be final and binding upon the Parties.





71 Any judgement upon the award of the arbitrators may be entered in


any court having jurisdiction thereof.





16.2.4. The number of arbitrators shall be three (3) and shall be appointed


as follows:


(a) each Party shall appoint one (1) arbitrator and so notify the


other Party of such appointment and those two (2) arbitrators


shall appoint the third arbitrator;





(b) if any of the arbitrators shall not have been appointed within


thirty (30) days after receipt of written request to do so,


either Party may request in writing the Secretary-General of


the International Centre for \ Settlement of Investment


Disputes to appoint the .arbitrator** or arbitrators not yet


appointed and to designate an’:arbitrator td bei-.the Chairman of


the arbitral tribunal.-'.' The-• Secretary^GenWral shall forthwith


send a copy of that\r$gties't to the other Party.


The SecretaryHieneral shall-.comply with the request within


thirty (30) days’from the receipt thereof or such longer period


as the Parties may agree. '*•


The Secretary-GenerM shall promptly notify the Parties of any





appointment or’ designation made by him pursuant to the


aforesaid request.


(c) if the arbitrator fails or is unable to act, his successor shall be


appointed in the same manner as the arbitrator whom he


succeeds.





16.3. Force Majeure





16.3.1. In this Agreement "Force Majeure" means an occurrence beyond the


reasonable control of the Contractor, the Minister .or the


Government, which hinders or prevents any of them from


performing their obligations under this Agreement, including but not


limited to occurrences such as riots, strikes, wars (declared or


undeclared), insurrections, rebellions, terrorist acts, civil


disturbances, orders of any governmental authority, whether such


authority be actual or assumed, natural phenomena or calamities;


provided, however, that the inability to obtain equipment, supplies,


or fuel shall not be a cause of Force Majeure, and provided further


that if any failure to comply with the provisions of this Agreement


is occasioned by a law, regulation or order of the Government, and


the Contractor is operating in accordance with generally accepted


international petroleum industry practice in the Contract Area and


is making reasonable efforts to comply with such law, regulation or


order, the occurrence shall be deemed beyond the reasonable control


of the Contractor.


Any judgement upon the award of the arbitrators

may be entered in any court having jurisdiction

thereof.



16.2.4. The number of arbitrators shall be three (3) and

shall be appointed as follows:



(a) each Party shall appoint one (1) arbitrator

and so notify the other Party of such

appointment and those two (2) arbitrators

shall appoint the third arbitrator;



(b) if any of the arbitrators shall not have

been appointed within thirty (30) days after

receipt of written request to do so, either

Party may request in writing the Secretary-

General of the International Centre for

Settlement of Investment Disputes to appoint

the arbitrator or arbitrators not yet

appointed and to designate arbitrator

to be the Chairman of the arbitral

tribunal. The Secretary-General shall

forthwith send a copy of that request to the

other Party.



The Secretary-General shall comply with the

request within thirty (30) days from the

receipt thereof or such longer period as

the Parties may agree.



The Secretary-General shall promptly notify

the Parties of any appointment or

"designation made by him pursuant to the

aforesaid request.



(c) if the arbitrator fails or is unable to act,

his successor shall be appointed in the same

manner as the arbitrator whom he succeeds.



16.3. Force Majeure



16.3.1. In this Agreement "Force Majeure" means an

occurrence beyond the reasonable control of the

Contractor, the Minister or the Government,

which hinders or prevents any of them from

performing their obligations under this

Agreement, including but not limited to

occurrences such as riots, strikes, wars

(declared or undeclared), insurrections,

rebellions, terrorist acts, civil disturbances,

orders of any governmental authority, whether

such authority be actual or assumed, natural

phenomena or calamities; provided, however, that

the inability to obtain equipment, supplies, or

fuel shall not be a cause of Force Majeure, and

provided further that if any failure to comply

with the provisions of this Agreement is

occasioned by a law, regulation or order of the

Government, and the Contractor is operating in

accordance with generally accepted international

petroleum industry practice in the Contract Area

and is making reasonable efforts to comply with

such law, regulation or order, the occurrence

shall be deemed beyond the reasonable control of

the Contractor.







7 216.3.2. If the Contractor, the Minister or the Government is prevented from

complying with this Agreement, in whole or in part, by Force

Majeure, the Party claiming Force Majeure shall give written notice

to the other Party as soon as practicable after its occurrence and

the obligations of the affected person which are directly related to

the Force Majeure shall be suspended during the continuance of the

the Force Majeure.



13.3.3. Subject to Section 16.3.4., the term of this Agreement shall be

automatically extended for the period of Force Majeure.



16.3.4. If an obligation is suspended by Force Majeure for more than one (1)

year, the Contractor and the Minister may enter into good faith

negotiations on the continuation of the Agreement.16.3.2. If the Contractor, the Minister or the Government is prevented from


complying with this Agreement, in whole or in part, by Force


Majeure, the Party claiming Force Majeure shall give written notice


to the other Party as soon as practicable after its occurrence and


the obligations of the affected person which are directly related to


the Force Majeure shall be suspended during the continuance of the


Force Majeure.


16.3.3. Subject to Section 16.3.4., the term of this Agreement shall be


automatically extended for the period of Force Majeure.


16.3.4. If an obligation is suspended by Force Majeure for more than one (1)


year, the Contractor and the Minister ..may enter into good faith


negotiations on the continuation of this\Agreement.


SECTION XVII: GENERAL



17.1 Confidentiality



17.1.1. Any information which the Contractor may supply to the Minister under this Agreement shall be supplied at the expense of the Contractor and the Minister shall, except with the consent of the Contractor, which shall not be unreasonably withheld, keep such information confidential, and shall riot disclose such information other than to a person employed by or on behalf of the Government.



17.1.2. Notwithstanding the provisions of Section 17.1.1, the Minister may use any information supplied, for the purpose of preparing and publishing any reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature.



17.1.3. The Minister may publish any information of a geological, scientific or technical nature which relates to a surrendered area at any time after the surrender, and in any other case, three (3) years after the information was received unless the Minister determines, after representations by the Contractor, that a longer period shall apply.



17.1.4. The Minister may disclose such information obtained pursuant to this Agreement as required by lending institutions.



17.1.5. The Contractor shall not disclose to third parties such information obtained pursuant to this Agreement without the consent of the Minister, which consent shall not be unreasonably withheld.



17.2. Waiver



17.2.1. Any waiver of an obligation of the Contractor shall be in writing and signed by the Minister. No waiver shall be implied if the Minister does not exercise a remedy under this Agreement.



17.3. Notice



17.3.1. Any and all notices, requests, demands and other communications required or permitted to be made or given under this Agreement shall be in writing and shall be deemed to have been duly made or given if delivered by hand, mail, cable or telex as follows:





74 SECTION XVII: GENERAL



17.1 Confidentiality



17.1.1. Any information which the Contractor may supply to the Minister under this Agreement shall be supplied at the expense of the Contractor and the Minister shall, except with the consent of the Contractor, which shall not be unreasonably withheld, keep such information confidential, and shall riot disclose such information other than to a person employed by or on behalf of the Government.



17.1.2. Notwithstanding the provisions of Section 17.1.1, the Minister may use any information supplied, for the purpose of preparing and publishing any reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature.



17.1.3. The Minister may publish any information of a geological, scientific or technical nature which relates to a surrendered area at any time after the surrender, and in any other case, three (3) years after the information was received unless the Minister determines, after representations by the Contractor, that a longer period shall apply.



17.1.4. The Minister may disclose such information obtained pursuant to this Agreement as required by lending institutions.



17.1.5. The Contractor shall not disclose to third parties such information obtained pursuant to this Agreement without the consent of the Minister, which consent shall not be unreasonably withheld.



17.2. Waiver



17.2.1. Any waiver of an obligation of the Contractor shall be in writing and signed by the Minister. No waiver shall be implied if the Minister does not exercise a remedy under this Agreement.



17.3. Notice



17.3.1. Any and all notices, requests, demands and other communications required or permitted to be made or given under this Agreement shall be in writing and shall be deemed to have been duly made or given if delivered by hand, mail, cable or telex as follows:





74(a) If to the Minister ________________________



(b) If to the Contractor: ____________________



Either Party may designate in writing, in conformance with the above, another address at which it should receive all future notices, requests, demands and other communications required or permitted to be made or given under this Agreement.



17.3.2. All notices, requests, demands and other communications required or permitted to be made or given under this Agreement shall be in English. All reports, agreements, or other documents produced by the Contractor in connection with this Agreement shall be in English.



17.3.3. A notice shall be effective upon receipt.



17.4. Headings and amendme



17.4.1. Headings are inserted in this Agreement for convenience only and shall not affect the construction or interpretation hereof.



17.4.2. This Agreement shall not be amended, modified or supplemented except by an instrument in writing signed by the Parties.



SIGNED on the day and year first before written:





The Minister _______________________



_______________________





The Contractor _______________________



_______________________















75(a) If to the Minister ________________________



(b) If to the Contractor: ____________________



Either Party may designate in writing, in conformance with the above, another address at which it should receive all future notices, requests, demands and other communications required or permitted to be made or given under this Agreement.



17.3.2. All notices, requests, demands and other communications required or permitted to be made or given under this Agreement shall be in English. All reports, agreements, or other documents produced by the Contractor in connection with this Agreement shall be in English.



17.3.3. A notice shall be effective upon receipt.



17.4. Headings and amendme



17.4.1. Headings are inserted in this Agreement for convenience only and shall not affect the construction or interpretation hereof.



17.4.2. This Agreement shall not be amended, modified or supplemented except by an instrument in writing signed by the Parties.



SIGNED on the day and year first before written:





The Minister _______________________



_______________________





The Contractor _______________________



_______________________















75 APPENDIX I

ACCOUNTING PROCEDURES

Section I: Introduction and definitions







1.1. Purpose



1.1.1. The Contractor shall maintain a separate set of accounts and records for its Petroleum Operation under the Agreement to which this Appendix is attached, in accordance with generally accepted international petroleum industry practice as more particularly, but not exclusively, set out in these Accounting Procedures. Accounts and records are required for several proposes, including, but not limited to:



(a) reporting to the Minister expenditure and receipts; (b) reporting actual expenditures to the Minister for comparison with minimum exploration obligations;

(c) calculating royalties;

(d) calculating cost recovery and production sharing as set forth in the relevant Sections of the Agreement;

(e) calculating Income taxes;

(f) preparation of the annual balance sheet and profit and loss account required by the relevant provisions of the Agreement; and

(g) any other requirements under the Agreement.



1.1.2. The Contractor may act as agent for the Government or for any other party in a number of matters. In such cases the Minister shall Separately determine, as appropriate, in consultation with the Contractor, the requisite accounting procedures. Such cases may include, but not be limited to, sales of Petroleum on behalf of the Government.













76 APPENDIX I

ACCOUNTING PROCEDURES

Section I: Introduction and definitions







1.1. Purpose



1.1.1. The Contractor shall maintain a separate set of accounts and records for its Petroleum Operation under the Agreement to which this Appendix is attached, in accordance with generally accepted international petroleum industry practice as more particularly, but not exclusively, set out in these Accounting Procedures. Accounts and records are required for several proposes, including, but not limited to:



(a) reporting to the Minister expenditure and receipts; (b) reporting actual expenditures to the Minister for comparison with minimum exploration obligations;

(c) calculating royalties;

(d) calculating cost recovery and production sharing as set forth in the relevant Sections of the Agreement;

(e) calculating Income taxes;

(f) preparation of the annual balance sheet and profit and loss account required by the relevant provisions of the Agreement; and

(g) any other requirements under the Agreement.



1.1.2. The Contractor may act as agent for the Government or for any other party in a number of matters. In such cases the Minister shall Separately determine, as appropriate, in consultation with the Contractor, the requisite accounting procedures. Such cases may include, but not be limited to, sales of Petroleum on behalf of the Government.













761.2. Definitions





1.2.1. The definitions set forth in Section 1.2 of the Agreement shall apply


to this Appendix I. In the event of any inconsistency or conflict


between the provisions of this Appendix and the Agreement, the


provisions of the Agreement shall prevail. Subject to this and for the


purpose of the Agreement and these Accounting Procedures, the


following terms shall have the meanings set forth below.


1.2.2. ’The Account" means the accounts and records maintained for the


Petroleum Operations.


1.2.3. "Petroleum Operations Costs" ...nife^ing the costs and expenses


incurred by the Contract^ (for} the purposes'-. of conducting


Petroleum Operations underbills' Agreement;}’all ais more specifically


set forth in Section IV .of these Accounting-.Procedures.


1.2.4. "Party" means each.legal entity constituting the Contractor.


1.2.5. "Operator" means the Party-. Appointed to carry out the Petroleum


Operations on behalf of-t-he Other Parties.







































































7 7


1.2. Definitions

1.2.1. The definitions set forth in Section 1.2 of the Agreement shall apply to this Appendix I. In the event of any inconsistency or conflict between the provisions of this Appendix and the Agreement, the provisions of the Agreement shall prevail. Subject to this and for the purpose of the Agreement and these Accounting Procedures, the following terms shall have the meanings set forth below.

1.2.2. "The Account" means the accounts and records maintained for the Petroleum Operations.

1.2.3. "Petroleum Operations Costs" means the costs and expenses incurred by the Contractor for the purposes of conducting Petroleum Operations under this Agreement, all as more specifically set forth in Section IV of these Accounting Procedures.

1.2.4. "Party" means each legal entity constituting the Contractor.

1.2.5. "Operator" means the Party appointed to carry out the Petroleum Operations on behalf of the other Parties.

77Section II: General principles of entries to the accounts



2.1.1. Receipts from sales or disposals of Petroleum shall not be credited to The Account. Each Party shall advise the Operator of such revenues, and of any other matter required, in sufficient detail to allow the Operator to maintain a memorandum record thereof in order to meet the legal and contractual reporting requirements under the Agreement



2.1.2. Each Party shall account individually to the Government for income tax.



2.1.3. The Contractor shall account to the Government for royalties as set forth in the relevant provisions of the Agreement.



2.1.4. The Contractor shall charge to The Account only those expenditure incurred for Petroleum Operations. The application of this principle to specific Petroleum Operations Costs is set forth in Section IV of these Accounting Procedures.



2.1.5. The Operator shall deal at arm's length whenever possible, and the price in dealings not at arm's length shall be no less favourable than if such dealings were conducted at arm's length.



2.1.6. The Operator shall not make a profit or loss from the diligent exercise of his duties as Operator and, in particular, the Operator shall charge to Petroleum Operations Costs:



(a) an equitable proportion of the costs of services provided by the Operator;

(b) a rental for use of the assets of the Operator; and

(c) administrative overhead, either as a fee approved in the annual budget, or as an agreed percentage of direct costs or by charging an equitable proportion of each element of cost incurred.



2.1.7. The Contractor shall maintain accounts in a single language and a single currency which shall be English and United States dollars respectively.







78Section II: General principles of entries to the accounts



2.1.1. Receipts from sales or disposals of Petroleum shall not be credited to The Account. Each Party shall advise the Operator of such revenues, and of any other matter required, in sufficient detail to allow the Operator to maintain a memorandum record thereof in order to meet the legal and contractual reporting requirements under the Agreement



2.1.2. Each Party shall account individually to the Government for income tax.



2.1.3. The Contractor shall account to the Government for royalties as set forth in the relevant provisions of the Agreement.



2.1.4. The Contractor shall charge to The Account only those expenditure incurred for Petroleum Operations. The application of this principle to specific Petroleum Operations Costs is set forth in Section IV of these Accounting Procedures.



2.1.5. The Operator shall deal at arm's length whenever possible, and the price in dealings not at arm's length shall be no less favourable than if such dealings were conducted at arm's length.



2.1.6. The Operator shall not make a profit or loss from the diligent exercise of his duties as Operator and, in particular, the Operator shall charge to Petroleum Operations Costs:



(a) an equitable proportion of the costs of services provided by the Operator;

(b) a rental for use of the assets of the Operator; and

(c) administrative overhead, either as a fee approved in the annual budget, or as an agreed percentage of direct costs or by charging an equitable proportion of each element of cost incurred.



2.1.7. The Contractor shall maintain accounts in a single language and a single currency which shall be English and United States dollars respectively.







78 2.1.8. Accounts shall be maintained on an accrual basis whereby entries are recorded in the period in which title or liability passes without the need to distinguish whether cash is disbursed or received in connection with the transaction. Petroleum Operations Costs shall include only the costs of materials consumed on leaving inventory. The costs of materials entering inventory will be included in working capital.



2.1.9. The Operator may dispose of minor assets and credit the proceeds to The Account; provided, however, that Petroleum or major equipment, the disposal of which would jeopardise the Petroleum Operations, shall not be considered a minor asset.



2.1.10. The accounts of the individual operations shall be maintained in a separable form, with reasonable allocations of common costs where necessary, in order to meet the several purposes of such accounts and to allow changes in the relationships between the Parties to be accounted for equitably and in particular to allow:



(a) the consideration for transfers or participating interests to be determined; and

(b) the costs of sole risk operations to be determined;

(c) the costs associated with different Development Areas to be identified.



2.1.11. If Petroleum Operations are to be abandoned, the Operator shall prepare a plan for the disposal of assets and an equitable settlement for the approval of the Parties.



2.1.12. The Contractor shall appoint an auditor, approved by the Minister to audit annually the accounts and records, including production records, of the Petroleum Operations and report thereon. The cost of such audit shall be borne by the Contractor.



73



2.1.8. Accounts shall be maintained on an accrual basis whereby entries are recorded in the period in which title or liability passes without the need to distinguish whether cash is disbursed or received in connection with the transaction. Petroleum Operations Costs shall include only the costs of materials consumed on leaving inventory. The costs of materials entering inventory will be included in working capital.



2.1.9. The Operator may dispose of minor assets and credit the proceeds to The Account; provided, however, that Petroleum or major equipment, the disposal of which would jeopardise the Petroleum Operations, shall not be considered a minor asset.



2.1.10. The accounts of the individual operations shall be maintained in a separable form, with reasonable allocations of common costs where necessary, in order to meet the several purposes of such accounts and to allow changes in the relationships between the Parties to be accounted for equitably and in particular to allow:



(a) the consideration for transfers or participating interests to be determined; and

(b) the costs of sole risk operations to be determined;

(c) the costs associated with different Development Areas to be identified.



2.1.11. If Petroleum Operations are to be abandoned, the Operator shall prepare a plan for the disposal of assets and an equitable settlement for the approval of the Parties.



2.1.12. The Contractor shall appoint an auditor, approved by the Minister to audit annually the accounts and records, including production records, of the Petroleum Operations and report thereon. The cost of such audit shall be borne by the Contractor.



73















Section III : Accounting treatment and specific purposes









3.1. Reports of revenues and expenditure to the Minister



Reports to the Minister shall show all required items, without

special adjustment, whether these items cover:



(a) receipts;

(b) Petroleum Operations Costs;

(c) cost recovery;

(d) production sharing;

(e) taxes, royalties and bonuses; or

(f) other transactions.



3.2. Reports concerning exploration obligations



3.2.1. Reports of actual expenditure on seismic and exploratory drilling

work shall be as recorded in The Account with adjustments

according to Sections 5.1 and 5.2 of the Agreement shown

separately.



3.2.2. Records shall be maintained in a separable form to allow reporting

and verification thereof by individual obligation.



3.2.3. Only Petroleum Operations Costs incurred in connection with

exploration activity shall be included for purposes of meeting

minimum exploration expenditure obligations. Costs incurred on

appraisal, development or production activity shall be excluded for

purposes of meeting minimum exploration expenditure obligations.



3.3. Royalty



The Contractor shall account to the Government for royalties.



3.4. Reports concerning cost recovery



The Contractor shall submit quarterly reports to the Minister

containing the following informations:



(a) recoverable Petroleum Operations Costs carried forward from

the previous Calendar Quarter, if any;

(b) recoverable Petroleum Operations Costs incurred and paid

during the Calendar Quarter in question;











80



























 Section in : Accounting treatment and specific purposes








3.1. Reports of revenues and expenditure to the Minister


Reports to the Minister shall show all required items, without


special adjustment, whether these items cover:


(a) receipts;


(b) Petroleum Operations Costs;


(c) cost recovery;


(d) production sharing;


(e) taxes, royalties and bonuses;.br \ * \


(f) other transactions.


3.2. Reports concerning exploration obligations \


3.2.1. Reports of actual\expenditure on' seismlc and exploratory drilling


work shall be as recorded in \The Account with adjustments


according to Sections 5.1.\and 5,2 of the Agreement shown


separately.


3.2.2. Records shall be xnaintaihed in a separable form to allow reporting


and verification thereof by individual obligation.


3.2.3. Only Petroleum Operations Costs incurred in connection with


exploration activity shall be included for purposes of meeting


minimum exploration expenditure obligations. Costs incurred on


appraisal, development or production activity shall be excluded for


purposes of meeting minimum exploration expenditure obligations.


3.3. Royalty


The Contractor shall account to the Government for royalties.


3A* Reports concerning cost recovery


The Contractor shall submit quarterly reports to the Minister


containing the following information:


(a) recoverable Petroleum Operations Costs carried forward from


the previous Calendar Quarter, if any;


(b) recoverable Petroleum Operations Costs incurred and paid


during the Calendar Quarter in question;

















8 0


(c) total recoverable Petroleum Operations Costs for the


Calendar Quarter in question;


(d) quantity and value of Cost Oil taken and separately disposed


of by the Contractor for the Calendar Quarter in question;


(e) Petroleum Operations Costs recovered for the Calendar


Quarter in question and total cumulative amount of Petroleum


Operations Costs recovered up to the end of the Calendar


Quarter; and


(f) amount of recoverable Petroleum Operations Costs to be


carried forward into the next Calendar Quarter, if any.


Income tax


The accounts and records of the Petroleum-Operations shall be made


available to the Parties to allow them..to complete their individual


income tax returns in compliance with-applicable legislation relating


thereto.


Other purposes of accounts. '


The accounts and records of the\Cctntr'actor shall be maintained in


accordance with these Accounting'Procedures. Specific adjustments


to meet other purposes. Shalj\be shown separately in the reports


prepared.














(c) total recoverable Petroleum Operations Costs for the

Calendar Quarter in question;

(d) quantity and value of Cost Oil taken and separately disposed

of by the Contractor for the Calendar Quarter in question;

(e) Petroleum Operations Costs recovered for the Calendar

Quarter in question and total cumulative amount of Petroleum

Operations Costs recovered up to the end of the Calendar

Quarter; and

(f) amount of recoverable Petroleum Operations Costs to be

carried forward into the next Calendar Quarter, if any.



3.5. Income tax



The accounts and records of the Petroleum Operations shall be made

available to the Parties to allow them to complete their individual

income tax returns in compliance with applicable legislation relating

thereto.



3.6. Other purposes of accounts



The accounts and records of the Contractor shall be maintained in

accordance with these Accounting Procedures. Specific adjustments

to meet other purposes shall be shown separately in the reports

prepared.

















Section IV - Charges and credits to Petroleum Operations Costs





4.1. General



4.1.1. The principles of charges to Petroleum Operations Costs shall be interpreted as set out in this Section IV for the specific cases covered. Transactions not covered by this Section shall be treated in accordance with the general principles of these Accounting Procedures.



4.1.2. The identified costs of goods and services provided by the Contractor or by third parties for the purposes of conducting Petroleum Operations under this Agreement, to be included in Petroleum Operations Costs, are set out in the remaining articles of this Section IV.



4.2. Goods and services provided by the Parties



4.2.1. The goods and services required for the purposes of carrying out Petroleum Operations may be supplied by third parties or the Contractor. When supplied by third parties the costs included in Petroleum Operations Costs shall be those actually incurred by the Contractor. Where supplied by the Contractor the cost to be included may be either:



(a) an agreed total charge determined within a competitive bidding process; or

(b) the identified costs to the Contractor plus a mark up or apportionment of the Contractor's administrative overhead costs.



4.2.2. Any mark up or apportionment of overhead costs shall not exceed three per cent (3 %) of identified costs and shall be determined on a basis agreed in advance in the budget eqch year.



4.3. Labour and related costs



4.3.1. The costs of salaries and wages of the Party's employees for the portion of their time directly employed in Petroleum Operations wether:









82 Section IV - Charges and credits to Petroleum Operations Costs











4-1- General


4.1.1. The principles of charges to Petroleum Operations Costs shall be


interpreted as set out in this Section IV for the specific cases


covered. Transactions not covered by this Section shall be treated in


accordance with the general principles of these Accounting


Procedures.


4.1.2. The identified costs of goods'‘ ahd '* services., provided by the


Contractor or by third parties, for the purpose^”'bf conducting


Petroleum Operations under.;"this Agreement,, ' to be included in


Petroleum Operation Gostsj'-are set out-;in;.the remaining articles of


this Section IV. ..... \.*


4.2. Goods and services proyided.by. the Parties


4.2.1. The goods and services.-required for the purposes of carrying out


Petroleum Operations may be supplied by third parties or the


Contractor. When supplied by third parties the costs included in


Petroleum Operation Costs shall be those actually incurred by the


Contractor. Where supplied by the Contractor the cost to be


included may be either:


(a) an agreed total charge determined within a competitive


bidding process; or


(b) the identified costs to the Contractor plus a mark up or


apportionment of the Contractor’s administrative overhead


costs.


4.2.2. Any mark up or apportionment of overhead costs shall not exceed


three per cent (3 96) of identified costs and shall be determined on a


basis agreed in advance in the budget each year.


4.3. Labour and related costs


4.3.1. The costs of salaries and wages of the Party's employees for the


portion of their time directly employed in Petroleum Operations


whether:

















8 2


(a) carrying out managerial, administrative, legal, accounting, treasury auditing, tax, planning, personnel, data processing, engineering, purchasing, geological, geophysical or other functions for the benefit of the Petroleum Operations;



(b) such functions are carried out in Ethiopia or another country;



(c) the employee is assigned temporarily or‘ permanently to Petroleum Operations.



4.3.2. The costs of holidays, sickness, living and housing allowances, travel time, bonuses, personal expenses incurred, pension contributions and social security benefits which are customarily granted to the Party's employees and their families engaged on similar ventures in similar conditions together with the 'costs of,.,any amounts imposed by government authorities applicable to such-employments.



14.3.3. Relocation costs to the Contract Area vicinity of the employees of a Party permanently or temporarily assigned to the Petroleum Operations. Relocation costs from the Contract Area vicinity, except when an employee is reassigned to another location classified as a foreign location by the Party. Such costs include transportation of employees families and their personal and household effects and all other relocation costs in accordance with the usual practice of the Party.



4.3.4. The costs of such transportation of employees of the Party as is required in the conduct of Petroleum Operations.



4.4. Materials



4.4.1. Material costs will be charged to Petroleum Operations Costs when consumed from inventory. Material costs shall be calculated on a FIFO (first in first out) basis.



4.4.2. The costs of purchases of materials, equipment, machines, tools and any other goods of a similar nature shall be charged to inventory subject to the following:



(a) Acquisition - the Operator shall only purchase materials for use in Petroleum Operations that may be used in the foreseeable future. The accumulation of surplus stocks and inventory shall be avoided. Inventory levels shall, however, take into account the time lag for replacement, emergency needs and similar considerations.





83(a) carrying out managerial, administrative, legal, accounting,


treasury auditing, tax, planning, personnel, data processing,


engineering, purchasing, geological, geophysical or other


functions for the benefit of the Petroleum Operations;


(b) such functions are carried out in Ethiopia or another country;


(c) the employee is assigned temporarily or permanently to


Petroleum Operations.


4.3.2. The costs of holidays, sickness, living and housing allowances, travel


time, bonuses, personal expenses incurred, pension contributions and


social security benefits which are customarily granted to the Party's


employees and their families engaged on similar ventures in similar


conditions together with the costs of ...any amounts imposed by


government authorities applicable to such-employments.


4.3.3. Relocation costs to the Contract Area vicinity of the employees of


a Party permanently or temporarily assigned Vto the Petroleum


Operations. Relocation .Costs "from the.’ Contract Area vicinity,


except when an employee is reassigned tb another location classified


as a foreign location'- by the Party.--Such costs include transportation


of employees' families and theii\ personal and household effects and


all other relocation costs in'-accordance with the usual practice of


the Party.


4.3.4. The costs of such’ transportation of employees of the Party as is


required in the conduct of Petroleum Operations.





4.4. Materials





4.4.1. Material costs will be charged to Petroleum Operations Costs when


consumed from inventory. Material costs shall be calculated on a


FIFO (first in first out) basis.


4.4.2. The costs of purchases of materials, equipment, machines, tools and


any other goods of a similar nature shall be charged to inventory


subject to the following:


(a) Acquisition - the Operator shall only purchase materials for





use in Petroleum Operations that may be used in the


foreseeable future. The accumulation of surplus stocks and


inventory shall be avoided. Inventory levels shall, however,


take into account the time lag for replacement, emergency


needs and similar considerations.


(b) Components of costs- in addition to the invoice price the costs of material purchased by the Operator may include freight, transportation and related costs such as expediting, crating, dock charges, forwarders charges, customs clearance fees, inspection costs, insurance (provided that such costs are included in the invoice price), custom duties, taxes and other items that may be charged to imported materials or to materials purchased in Ethiopia.



(c) Supply of materials by all Parties - materials supplied by the parties shall be charged to the inventory at prices no higher than the prices for comparable material purchased on competitive basis from third party suppliers. This criterion shall apply to both new and used materials.



(d) Inventories - the Operator shall maintain both physical and accounting inventory of all materials in stock in accordance with generally accepted practices in the international petroleum industry and shall take a physical inventory of all such materials at least twice in any calendar year.



4.5. Technical services



4.5.1. The costs of technical services (whether or not associated with the ancilliary supply of goods) such as, but not limited to, the provision, construction, maintenance or operation of:



(a) utilities and auxiliaries - workshops, power and water facilities, warehouses, field roads, crude oil jetties and anchorages, treating plants and equipment, secondary recovery systems, Natural Gas plants and steam systems;



(b) production facilities - offshore platforms (including the costs of labour, 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, production tubing, sucker rods, surface pumps, flow lines, gathering equipment, delivery lines and storage facilities;



(c) movables - surface and subsurface drilling and production tools, equipment and instruments, badges, floating craft, automotive equipment, aircraft, construction equipment, furniture and office equipment, and miscellaneous equipment; I








1


I








(b) Components of Costs - in addition to the invoice price the


costs of materials purchased by the Operator may include


freight, transportation and related costs such as expediting,


crating, dock charges, forwarders charges, customs clearance


fees, inspection costs, insurance (provided that such costs are


included in the invoice price), customs duties, taxes and other


items that may be charged to imported materials or to


materials purchased in Ethiopia.


(c) Supply of materials by the Parties - materials supplied by the





Parties shall be charged to inventory at prices no higher than


the prices for comparable material.purchased on a competitive


basis from third party suppliers, This. criterion shall apply to


both new and used materials.


(d) Inventories - the Operator shall maintain both a physical and





accounting inventory pf' all materials in stock in accordance


with generally ^accepted practices in the international


petroleum industry and shall--take, a physical inventory of all


such materials'-at least twice. inf any Calendar Year.








♦•5. Technical services


4.5.1. The costs of technical services (whether or not associated with the


ancilliary supply of goods) such as, but not limited to, the provision,


construction, maintenance or operation of:


(a) utilities and auxiliaries - workshops, power and water





facilities, warehouses, field roads, crude oil jetties and


•d anchorages, treating plants and equipment, secondary recovery


systems, Natural Gas plants and steam systems;





(b) production facilities - offshore platforms (including the costs


of labour, 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


j equipment, production tubing, sucker rods, surface pumps,


flow lines, gathering equipment, delivery lines and storage


facilities;


i (c) movables - surface and subsurface drilling and production





tools, equipment and instruments, barges, floating craft,


automotive equipment, aircraft, construction equipment,


i furniture and office equipment and miscellaneous equipment;








j








S 4


 (d) development and production drilling - labour, materials and


services used in drilling wells with the object of penetrating a


proven reservoir, including the drilling of delineation wells as


well as redrilling, deepening or recompleting wells, and access


roads, if any, leading directly to wells;


(e) exploration drilling - labour, materials and services used in the


drilling of wells with the object of finding unproven reservoirs


of Crude Oil and Natural Gas, and access roads, if any, leading


directly to wells;


(f) surveys - labour, materials and.-.services used in aerial,





geological, topographical, geophysldal and seismic surveys, and


core hole drilling; and





(g) interpretation - laborafoiy"analysis, .drafting, geophysical and


geological interpretation,' engineering, and related data


processing. ' V'





4.5.2. The costs included iri-. Petroleum 'Operations Costs shall be:





(a) in the case of technical '• services performed by third parties


directly subcontracted, including outside consultants,


contractors / and ‘ utilities, the price paid by the Operator,


provided that such prices are no higher than the prices charged


by other suppliers for comparable work and services;


(b) in the case of technical services performed by the Parties,


prices which are no higher than the most favourable prices


charged to or by third parties for comparable services;


(c) in the case of equipment and facilities being furnished by a





Party the rates charged shall be commensurate with the cost


of ownership, or rented, and the cost of operation thereof, but


such rates shall not exceed those currently prevailing, in the


general vicinity of the Contract Area.





4.6. Insurance





4.6.1. Premiums for insurance required by the Parties and actual


expenditures incurred in the settlement of all losses, claims,


damages, judgments, and other expenses for the benefit of the


Petroleum Operations.























3 b


(d) development and production drilling - labour, materials and services used in drilling wells with the object of penetrating a proven reservoir, including the drilling of delineation wells as well as redrilling, deepening or recompleting wells, and access roads, if any, leading directly to wells;

(e) exploration drilling - labour, materials and services used in the drilling of wells with the object of finding unproven reservoirs of Crude Oil and Natural Gas, and access roads, if any, leading directly to wells;

(f) surveys - labour, materials and services use din aerial, geological interpretation, engineering, and related data processing.

(g) interpretation - laboratory analysis, drafting, geophysical and geological interpretation, engineering, and related data processing.

4.5.2. The costs included in Petroleum Operations Costs shall be:

(a) in the case of technical services performed by third parties directly subcontracted, including outside consultants, contractors and utilities, the price paid by the Operator, provided that such prices are no higher than the prices charged by other suppliers for comparable work and services;

(b) in the case of technical services performed by the Parties, prices which are no higher than the most favourable prices charged to or by third parties for comparable services;

(c) in the case of equipment and facilities being furnished by a Party the rates charged shall be commensurate with the cost of ownership, or rental, and the cost of operation thereof, but such rates shall not exceed those currently prevailing in the general vicinity of the Contract Area.

4.6. Insurance

4.6.1. Premiums for insurance required by the Parties and actual expenditures incurred in the settlement of all losses, claims, damages, judgments, and other expenses for the benefit of the Petroleum Operations.

854.6.2. Credits for settlements received from insurance companies in connection with the insurance required by the Parties.



4.6.3. Where insurance is not compulsory under the laws of Ethiopia a Party may opt not to participate in insurance. A Party so opting shall not share in either the costs of or settlements for the insurance.



4.7 Legal expenses



All costs or expenses of litigation or legal services otherwise necessary or expedient for the protection of the Petroleum Operations or other interest of the Parties under this Agreement, including but not limited to the fees of legal representatives, court costs, costs of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims, but excluding any costs incurred in arbitration or litigation between the Parties on terms of this Agreement.



4.8. Other goods and services



4.8.1. The cost of all services and goods (other than materials purchased for inventory) purchased for proper use in Petroleum Operations shall be charged directly to Petroleum Operations Costs.



4.8.2. Such purchases may include, inter alia, the costs of establishing, maintaining and operating any offices, suboffices, camps warehouses, shore bases, water power and communication systems, roads, bridges, housing, recreational and others facilities directly serving the Petroleum Operations and where such facilities also serve other operations the costs shall be allocated to the operations served on an equitable basis.



4.9 General and administrative expenses



General and administrative expenses of the Contractor attributable to the Petroleum Operations under this Agreement shall be recoverable Petroleum Operations Costs, subject to the limitations set forth in the Petroleum Operations Income Tax Proclamation.



4.10. Interest payments



Interest payments on loans raised by the Contractor for the purpose of conducting Petroleum Operations under this Agreement other







864.6.2. Credits for settlements received from insurance companies in connection with the insurance required by the Parties.



4.6.3. Where insurance is not compulsory under the laws of Ethiopia a Party may opt not to participate in insurance. A Party so opting shall not share in either the costs of or settlements for the insurance.



4.7 Legal expenses



All costs or expenses of litigation or legal services otherwise necessary or expedient for the protection of the Petroleum Operations or other interest of the Parties under this Agreement, including but not limited to the fees of legal representatives, court costs, costs of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims, but excluding any costs incurred in arbitration or litigation between the Parties on terms of this Agreement.



4.8. Other goods and services



4.8.1. The cost of all services and goods (other than materials purchased for inventory) purchased for proper use in Petroleum Operations shall be charged directly to Petroleum Operations Costs.



4.8.2. Such purchases may include, inter alia, the costs of establishing, maintaining and operating any offices, suboffices, camps warehouses, shore bases, water power and communication systems, roads, bridges, housing, recreational and others facilities directly serving the Petroleum Operations and where such facilities also serve other operations the costs shall be allocated to the operations served on an equitable basis.



4.9 General and administrative expenses



General and administrative expenses of the Contractor attributable to the Petroleum Operations under this Agreement shall be recoverable Petroleum Operations Costs, subject to the limitations set forth in the Petroleum Operations Income Tax Proclamation.



4.10. Interest payments



Interest payments on loans raised by the Contractor for the purpose of conducting Petroleum Operations under this Agreement other







86than exploration shall be recoverable Petroleum Operations Costs, subject to the limitations set forth in the Petroleum Operations Income Tax Proclamation.



4.11 Payments to the Government of Ethiopia



4.11.1. Contract, licence or permit necessary to acquire and maintain rights to the Contract Area shall be recoverable Petroleum Operations Costs.



4.11.2. All duties, taxes, fees and government assessments, but excluding income tax, royalties and Government's share of Profit Oil, shall be recoverable Petroleum Operations Costs.



4.12. Miscellaneous transactions



4.12.1. All costs or expenses necessary for the repair or replacement of the property used in Petroleum Operations resulting from uninsured damages or losses incurred by fire, flood, storm, accident, or any other cause.



4.12.2. Any gain or loss in the currency of account caused by the holding of balances of foreign exchange shall be entered to Petroleum Operations Costs although excessive such balances shall not be maintained.



4.12.3. The net proceeds of the following transactions shall be credited to Petroleum Operations Costs:



(a) the net proceeds of any insurance or claim in connection with the Petroleum Operations or any assets charged to Petroleum Operations Costs;



(b) revenue received from other persons for the use of property or assets charged to Petroleum Operations Costs;



(c) proceeds from all sales of material or assets charged to Petroleum Operations Costs;



(d) any rentals, refunds, adjustments or other credits received by the Contractor which apply to any charge which has been made to Petroleum Operations Costs.













87than exploration shall be recoverable Petroleum Operations Costs, subject to the limitations set forth in the Petroleum Operations Income Tax Proclamation.



4.11 Payments to the Government of Ethiopia



4.11.1. Contract, licence or permit necessary to acquire and maintain rights to the Contract Area shall be recoverable Petroleum Operations Costs.



4.11.2. All duties, taxes, fees and government assessments, but excluding income tax, royalties and Government's share of Profit Oil, shall be recoverable Petroleum Operations Costs.



4.12. Miscellaneous transactions



4.12.1. All costs or expenses necessary for the repair or replacement of the property used in Petroleum Operations resulting from uninsured damages or losses incurred by fire, flood, storm, accident, or any other cause.



4.12.2. Any gain or loss in the currency of account caused by the holding of balances of foreign exchange shall be entered to Petroleum Operations Costs although excessive such balances shall not be maintained.



4.12.3. The net proceeds of the following transactions shall be credited to Petroleum Operations Costs:



(a) the net proceeds of any insurance or claim in connection with the Petroleum Operations or any assets charged to Petroleum Operations Costs;



(b) revenue received from other persons for the use of property or assets charged to Petroleum Operations Costs;



(c) proceeds from all sales of material or assets charged to Petroleum Operations Costs;



(d) any rentals, refunds, adjustments or other credits received by the Contractor which apply to any charge which has been made to Petroleum Operations Costs.













874.13. Recoverability and deductibility ofPetroleum Operations Costs



4.13.1 The determination of whether the costs and expenses set forth herein are recoverable Petroleum Operations Costs shall not be interpreted to preclude the Contractor from deducting said amounts in computing its taxable income under the apllicable laws of Ethiopia.



4.13.2 For the purpose of cost recovery under this Agreement, no depreciation shall aplly to recoverable Petroleum Operations Costs, as such Costs are, subject to the maximum percentage limit specfied in Section 7.1 of this Agreement, recoverable either in the Calendar Year in ehich these Costs are incurred or the Calendar Year in which regular production commences whichever is the later.





APPENDIX II



CONTRACT AREA



88

4.13. Recoverability and deductibility of Petroleum Operations Costs


4.13.1. The determination of whether the costs and expenses set forth


herein are recoverable Petroleum Operations Costs shall apply only


to the purpose of cost recovery under this Agreement, and shall not


be interpreted to preclude the Contractor from deducting said


amounts in computing its taxable income under the applicable laws


of Ethiopia.


4.13.2. For the purpose of cost recovery under this Agreement, no


depreciation shall apply to recoverable Petroleum Operations Costs,


as such Costs are, subject to the rnaximum percentage limit


specified in Section 7.1 of this Agreement*-.recoverable either in the


Calendar Year in which these Cost.sv-4re-Incurred or the Calendar


Year in which regular production’: Commences* , whichever is the


later. \* V-- .\ V'


















































APPENDIX H


CONTRACT AREA









































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