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CONCESSION AGREEMENT

FOR

ETROLEUM EXPLORATION AND EXPLOITATION

BETWEEN

THE ARAB REPUBLIC OF EGYPT

AND

GANOUB EL-WADI HOLDING PETROL

COMPANY

AND

QUADRA EGYPT LIMITED

IN

NUQRA AREA BLOCK-1

GANOUB EL WADI



A.R.E.



INDEX



ARTICLE



TITLE



PAGE



Definitions



v

VI

VII

VIII.

IX

X

XI

XI1

XI11

XIV



xv



XVI

XVII

XVIII

XIX

XX

XXI

XXII

XXIII

XXIV



xxv



XXVI

XXVII



5



5



Annexes to the Agreement

10

Grant of Rights and Term

11

Work Program and Expenditures During

Exploration Period

21

Mandatory and Voluntary Relinquishments 27

Operations After Commercial Discovery

29

Recovery of Costs and Expenses and

Production Sharing

32

Title to Assets

53

Bonuses

54

55

Office and Service of Notices

Saving of Petroleum and Prevention of Loss 56

Customs Exemptions

57

Books of Account: Accounting and Payments60

Records, Reports and Inspection

61

Responsibility for Damages

63

Privileges of Government Representatives 63

Employment Rights and Training of Arab

Republic Of Egypt Personnel

64

Laws and Regulations

65

Stabilization

67

Right of Requisition

68

Assignment

69

Breach of Agreement and Power to Cancel 70

Force Majeure

72

Disputes and Arbitration

73

Status of Parties

75

Local Contractors and Locally Manufactured

Material

75

Arabic Text

2



XXVIII

XXIX



General

Approval of the GOVERNMENT



ANNEXES TO THE CONCESSION

AGREEMENT.



Annex " A " Boundary Description of the Concession Area



Annex " B "

Annex " C "

Annex " D "

Annex " E "

Annex " F "



78



Illustrative Map showing Area Covered

80

Letter of Guarantee

81

Charter of Operating Company

83

Accounting Procedure

87

Map of the National Gas Pipeline Grid System



THE ARAB REPUBLIC OF EGYPT

AND

GANOUB EL-WADI HOLDING PETROLEUM COMPANY

AND

QUADRA EGYPT LIMITED

IN

NUQRA AREA "BLOCK 1"

GANOUB EL WADI

A. R.E.

This Agreement made and entered on this

day of

2003, by and between the ARAB REPUBLIC OF EGYPT (hereinafter

referred to variously as "A.R.E." or as the "GOVERNMENT"),

GANOUB EL-WADI HOLDING PETROLEUM COMPANY, a legal

entity created by Prime Minister Decree No. 1755 of 2002, and

pursuant to Law No. 203 of 1991 and its amendments (hereinafter

referred to as "GANOPE") and QUADRA EGYPT LIMITED (A limited

company incorporated under the laws of England in Virgin Islands,

hereinafter referred to as

QUADRA

or

as

IICONTRACTOR'I).

I



11



"



WHEREAS, all minerals including petroleum, existing in mines and

quarries in A.R.E., including the territorial waters, and in the seabed

subject to its jurisdiction and extending beyond the territorial waters,

are the property of the State; and

WHEREAS, GANOPE has applied for an exclusive concession for

the exploration and exploitation of petroleum in and throughout the

area referred to in Article II, and described in Annex " A and shown

approximately on Annex "B", which are attached hereto and made

part hereof (hereinafter referred to as the "Area") ; and

WHEREAS, "QUADRA" agrees to undertake its obligations provided

hereinafter as a CONTRACTOR with respect to the Exploration,

development and production of petroleum in

NUQRA AREA



f



"BLOCK-I" ,

-.



WHEREAS, the GOVERNMENT desires hereby to grant such

Concession; and



-,



.



,



-



.



.



.



- .



.



WHEREAS, the Minister of Petroleum pursuant to the provisions of

Law No. 86 of 1956,. may enter into a concession agreement with

GANOPE, and with QUADRA as a CONTRACTOR in the said Area.

NOW, THEREFORE, the parties hereto agree as fdllows:



ARTICLE I



.



--



DEFINITIONS

(a) "Exploration" shall include such geological, geophysical,

aerial and other surveys as may be contained in the

approved Work Programs and Budgets, and the drilling of

such shot holes, core holes, stratigraphic tests, holes for

the discovery of Petroleum or the appraisal of Petroleum

discoveries and other related holes and wells, and the

PI-~rchase

or acquisition of such supplies, materials, services

and equipments therefore, all as may be contained in the

approved Work Programs and Budgets. The verb "explore"

means the act of conducting Exploration.

(b) "Development" shall include, but not be lirr~itedto, all the

operations and activities pursuant to approved Work

Programs and Budgets under this Agreement with respect

to:

(i)



the drilling, plugging, deepening, side tracking, redrilling, completing, equipping of development

wells and the changing of the status of a well, and



(ii) design,



engineering,



construction,

5



installation,



servicing and maintenance of equipments, lines,

systems facili,l:ies, plants and related operations to

produce and operate said development wells,

taking, saving,

treating, handling, storing,

transporting and

delivering Petroleum, repressuring, recycling and other

secondary

recovery projects, and

(iii) transportation, storage and any other ;work or

activities necessary or ancillary to the 'activities

specified in (i) and (ii).

(c) "Petroleum" nieans Liquid Crude Oil of various densities,

asphalt, Gas, casing head gas and all other hydrocarbon

substances that may be found in, and produced, or

otherwise obtained and saved from the Area under this

Agreement, and all substances that may be extracted

therefrom.

(d) "Liquid Crude Oil" or "Crl-lde Oil" or "Oil" means any

hydrocarbon produced from the Area which is in a liquid

state at the wellhead or lease separators or which is

extracted from the Gas or casing head gas in a plant. Such

liquid state shall exist at sixty degrees Fahrenheit (60'~)

and atmospheric pressure of 14.65 PSIA. Such term

includes distillate and condensate.

(e) "Gas" means natural gas both associated and nonassociated, and all of its constituent elements produced

from any well in the Area (other than Liquid Crude Oil) and

all non-hydrocarbon substances therein. Said term shall

include residual gas, that Gas remaining after removal of

LPG.



(f) "LPG" means liquefied petroleum gas, which is a mixture

principally of butane and propane liquefied by pressure and

temperature.



( g ) A "Barrel" shall consist of forty-two (42) United States

gallons, liquid measure, corrected to a temperature of sixty



gallons, liquid measure, corrected to a temperature of sixty

degrees Fahrenheit (60'~) at atmospheric pressure of 14.65

PSIA.



(h)



( I ) "Commercial Oil Well" means the first well on

any geological feature which after testing for a

period of not more than thirty (30) consecutive

days where

practical, but in any event in

accordance with sound and accepted industry

production practices, and verified by GANOPE,

is found to be capable of producing at the

average rate of not less than eight hundred (800)

Barrels of oil per day (BOPD). The date of

discovery of a "Commercial Oil Well" is the date

on which such well is tested and completed

according to the above.

(2)



(i)



"Commercia,l Gas Well" nieans the first well on

any geological feature which after testing for a

period of not more than thirty (30) consecutive

days where

practical, but in any event in

accordance with sound and accepted industry

production practices and verified by GANOPE,

is found to be capable of producing at the

average rate of not less than ten million

(10,000,000) standard cubic feet of Gas per day

(MMSCFD). The date of discovery of a

"Commercial Gas Well" is the date on which

such well is tested and completed according to

the above.



"A.R.E." means ARAB REPUBLIC OF EGYPT ,"EGPC"

means Egyptian General Petroleum Corporation, "Egas"

means Egyptian Gas Holding Company.



(j) "Effective Date" means the date on which the text of this

Agreement is signed by the GOVERNMENT, GANOPE and

CONTRACTOR, after the relevant Law is issued.



(k)

-



(1)



"Year" means a period of twelve (12) months

according to the Gregorian Calendar.



(2) "Calendar Year" means a period of twelve (12)

months according to the Gregorian Calendar

being 1st January to 31st December.

(I)



"Financial Year" means the GOVERNMENT'S financial

year according to the laws and regi~lationsof the A.R.E.



(m) "Tax Year" means the period of twelve (12) months

according to the laws and regulations of the A.R.E.

(n) An "Affiliated Company" means a company:

(i) of which the share capital, conferring a majority of

votes at stockholders' meetings of such company, is

owned directly or indirectly by a party hereto; or

(ii) which is the owner directly or indirectly of share

capital conferring a majority of votes at stockholders'

meetings of a party hereto; or

(iii)of which the share capital conferring a majority of

votes at stockholder's meetings of such company and

the share capital conferring a majority of votes at

stockholders' meetings of a party hereto are owned

directly or indirectly by the same company.



..#F'



(0) "Exploration Block" shall mean an area, the corner points of

which have to be coincident with three (3)minutes by three (

3 ) minutes latitude and longitude divisions, according to the

International Grid System where possible or with the

existing boundaries of the Area covered by this Concession

Agreement as set out in Annex " A .



-



-



(p) "Development Block" shall mean an area, the corner points

of which have to be coincident with one ( 1 ) minute by one

( 1 ) minute latitude and longitude divisions, according to

the International Grid System where possible or with the

existing boundaries of the Area covered by this Concession

Agreement as set out in Annex " A .



(q) "Development Lease(s)" shall mean the Development Block

or Blocks covering the geological structure capable of

production, the corner points of which have to be coincident

with one (1) minute by one (1) minute latitude and longitude

divisions according to the International Grid System where

possible or with the existing boundaries of the Area covered

by this Concession Agreement as set out in Annex " A .

(r) "Agreement" shall mean this Concession Agreement and its

Annexes.

(s) "Gas Sales Agreement" shall mean a written agreement

between GANOPE and CONTRACTOR (as sellers) and

GANOPE or EGPC or The Egyptian Natural Gas Holding

Conipany "EGAS" or mutually agreed third party (as buyer),

which contains the terms and conditions for Gas sales from

a Development Lease entered into pursuant to Article VII

(el.

(t)



"Standard Cubic Foot" (SCF) is the amount of Gas

necessary to fill one (1) cubic foot of space at atmospheric

pressure of 14.65 PSlA at a base temperature of sixty

degrees Fahrenheit (60' F).



ARTICLE II



ANNEXES TO THE AGREEMENT

Annex " A is a description of the Area covered and affected by this

Agreement, hereinafter referred to as the "Area".

Annex "B" is a provisional illustrative map on the scale of

1:2,000,000 indicating the Area covered and affected by this

Agreement and described in Annex " A .

Annex "C"

is the form of a letter of guarantee to be submitted

day before the time of

by CONTRACTOR to GANOPE one (I)

signature by the Minister of Petroleum of this Agreement, for the sum

of

two millions U.S. Dollars ($2,000,000) guaranteeing the

execution of CONTRACTOR'S rrrir~imum Exploration obligations

hereunder for the initial

two ( 2 ) years Exploration period. In

case CONTRACTOR extends the initial Exploration Period for Two

(2) additional periods of three (3) years each, each in accordance

with Article Ill (b) of this Agreement, a similar Letter of Guarantee

shall be issued and be submitted by CONTRACTOR on the day the

CON-TRACTOR exercises its option to extend. The first such Letter

of Guarantee shall be for the sum of four million U.S. Dollars

($4,000,000) and the second such Letter of Guarantee shall be for

the sum of five million U.S. Dollars ($5,000,000) less in both

instances any excess expenditures of the preceding Exploration

period permitted for carry forward in accordance with Article IV (b)

third paragraph of this Agreement. Each of the three Letters of

Guarantee shall remain effective for six (6) months after the end of

the relevant Exploration period for which it has been issued except as

it may be released prior to that time in accordance with the terms

thereof.

Annex "D" is the form of a Charter of the Operating Company to be

formed as provided for in Article VI hereof.



System established by the Government.



-



-



The point of delivery for gas shall be agreed upon by GANOPE and

CONTRACTOR under a Gas Sales Agreement, which point of

delivery shall be located at the flange cor~nectingthe development

lease pipeline to the nearest point on the National Gas pipeline Grid

System as depicted in Annex "F" or as otherwise agreed by GANOPE

and CONTRACTOR.

Annexes "A", "B", "C", "D","E" and "F" to this Agreement are hereby

made part hereof, and they shall be considered as having equal force

and effect with the provisions of this Agreement.



ARTICLE Ill



GRANT OF RIGHTS AND TERM

The GOVERNMENT hereby grants GANOPE and CONTRACTOR

subject to the terms, covenants and conditions set out in this

Agreement, which insofar as they are contrary to or inconsistent with

any provisions of Law No. 66 of 1953, as amended, shall have the

force of Law, an exclusive concession in and to the Area described

in Annexes "A" and "B".

(a) The GOVERNMENT shall own and be entitled, as

hereinafter provided to a royalty in cash or in kind of ten

percent (10%) of the total quantity of Petroleum produced

and saved from the Area during the Development period

including renewal. Said royalty shall be borne and paid by

GANOPE and

shall not be the obligation of

CONTRACTOR. The payment of royalties by GANOPE

shall not -be deemed to result in income attributable to the



(b) An initial Exploration period of two ( 2 ) years shall start

from the Effective Date. Two (2) successive extensions to

the initial Exploration period, each of three ( 3 ) years, shall

be granted to CONTRACTOR at its option, upon not less

than thirty (30) days prior written notice to GANOPE, such

notice to be given not later than the end of the then current

period, as may be extended pursuant to the provisions of

Article V (a), and subject only to its having fulfilled its

obligations hereunder for that period. This Agreement shall

be terminated if neither a Commercial Oil Discovery nor a

Commercial Gas Discovery is established by the end of the

eighth (8) year of the Exploration period, as may be

(a).The election by

extended pursuant to Article V

GANOPE to undertake a sole risk vent1.1t-e under paragraph

(c) shall not extend the Exploration period nor affect the

terrnina.tion of this Agreement as to CONTRACTOR.



(c) Commercial Discovery:

(i)A Commercial Discovery - whether of Oil or Gas - may

consist of one producing reservoir or a group of

producing reservoirs which is worthy of being

developed commercially.

After discovery of a

Commercial Oil or Gas Well CONTRACTOR shall,

unless otherwise agreed upon with GANOPE,

undertake as part of its Exploration program the

appraisal of the discovery by drilling one or more

appraisal wells, to determine whether such discovery is

worthy of being developed commercially, taking into

consideration the recoverable reserves, production,

pipeline and terminal facilities required, estimated

Petroleum prices, and all other relevant technical and

economic factors.

(ii) The provisions laid down herein postulate the unity

and indivisibility of the concepts of Commercial



p



r

-



7



Discovery and Development Lease. They shall

apply uniformly to Oil and Gas unless otherwise

s~ecified.

(iii) CONTRACTOR shall give notice of a Commercial

Discovery to GANOPE irr~niediately after the

discovery is considered by CONTRACTOR to be

worthy of commercial development but in any event

with respect to a Commercial Oil Well not later than

thirty (30) days following the conipletion of the

second appraisal well or twelve (12) months

following the date of the discovery of the Commercial

Oil Well, whichever is earlier or with respect to a

Commercial Gas Well not later than twenty four (24)

months following the date of the discovery of the

Commercial Gas Well (unless GANOPE agrees that

such period may be extended) except that

CONTRACTOR shall also have the right to give such

notice of Commercial Discovery with respect to any

reservoir or reservoirs even if the well or wells

thereon are not "Commercial" within the definition of

"Comniercial Well" if, in its opinion, a reservoir or a

group of reservoirs, considered collectively, could be

worthy of commercial development.

CONTRACTOR may also give a notice of a Commercial Oil

Discovery in the event it wishes to undertake a Gas Recycling

Project.



.

.



A notice of Com.merciai Gas Discovery shall contain all

detailed particulars of the discovery and especially the area of

Gas reserves, the estimated production potential and profile

and field life.

Within sixty (60) days following receipt of a notice of a

Commercial Oil or Gas Discovery, GANOPE and

CONTRACTOR shall meet and review all appropriate data

with a view to mutually agreeing upon the existence of a

Commercial Discovery. The date of Commercial Discovery

shall be the date GANOPE and CONTRACTOR jointly agree

in writing that a Commercial Discovery exists.



-,

i'



(iv) If Crude Oil is discovered but is not deemed by

CONTRACTOR to be a Commercial Oil Discovery under the

above provisions of this paragraph (c), GANOPE shall one

(1) month after the expiration of the period specified above

within which CON-TRACTOR can give notice of a

Commercial Oil Discovery, or thirteen (13) mdnths after the

completion of a well not considered to be a "~ommercialOil

Well", have the right, following sixty (60) days notice in

writing to CON-TRACTOR, at its sole cost, risk and expense,

to develop, produce and dispose of all Crude Oil from the

geological feature on which the well has been drilled. Said

notice shall state the specific area covering said geological

feature to be developed, the wells to be drilled, the

production

facilities to be installed and GANOPE's

estimated cost thereof. Within thirty (30) days after receipt of

said notice CONTRACTOR may, in writing, elect to develop

such area as provided for in 'the case of Corr~mercial

Discovery hereunder. In such event all terms of this

Agreement shall continue to apply to the specified area.

If CONTRACTOR elects not to develop such area, the

specific area covering said geological feature shall be

set aside for sole risk operations by GANOPE, such area

to be mutually agreed upon by GANOPE and

CONTRACTOR on the basis of good petroleum industry

practice. GANOPE shall be entitled to perform or in the

event Operating Company has come into existence, to have

Operating Company perform such operations for the

account of GANOPE and at GANOPE's sole cost, risk and

expense. When GANOPE has recovered from the Crude

Oil produced from such specific area a quantity of Crude Oil

equal in value to three hundred percent (300%) of the cost

it has incurred in carrying out the sole risk operations,

CONTRACTOR shall have the option, only in the event

there has been a separate Commercial Oil Discovery,

elsewhere within the Area, to share in further development

and production of that specific area upon paying GANOPE

one hundred percent (100%) of such costs incurred by



Such one hundred percent (100%) payment shall not be

recovered by CONTRACTOR. Immediately following such

payment the specific area shall either (i) revert to the status

of an ordinary Development Lease under this Agreement

and thereafter shall be operated in accordance with the

terms hereof; or (ii) alternatively, in the eveit that at such

time GANOPE or its Affiliated Company is conducting

Development operations in the area at its sole expense and

GANOPE elects to continue operating, the area shall

remain set aside and CONTRACTOR shall only be entitled

to its production sharing percentages of the Crude Oil as

specified in Article VII (b). The sole risk Crude Oil shall be

valued in the manner provided in Article VII (c). In the

event of any termination of this Agreement under the

provisions of Article Ill (b), this Agreement shall, however,

continue to apply to GANOPE's operations of any sole risk

venture heremder, although such Agreement shall have

been terminated with respect to CONTRACTOR pursuant to

the provisions of Article Ill (b) .

(d) Conversion to a Development Lease:

(ii) Following a Commercial Oil Discovery or a Commercial

Gas Discovery the extent of the whole area capable of

production to be covered by a Development Lease shall

be mutually agreed upon by GANOPE and

CONTRACTOR and be subject to the approval of the

Minister of Petroleum. Such area shall be converted

automatically into a Development Lease without the

issue of any additional legal instrument or permission.



-



(iii) Following the conversion of an area to a Development

Lease based on a Commercial Gas Discovery(or upon

the discovery of Gas in a Development Lease granted

following a Commercial Oil Discovery), GANOPE and

CONTRACTOR shall endeavor with diligence to find

adequate markets capable of absorbing the production



(iv) of Gas and with respect to the local market , GANOPE

shall advise CONTRACTOR of the potential outlets for

such Gas and the expected annual schedule of

demand. Thereafter, GANOPE and CONTRACTOR

shall meet with a view to assessing whether the outlets

for such Gas and other relevant factors warrant the

development and production of the Gas and in case of

agreement the Gas thus made available shall be

disposed of to GANOPE or EGPC or EGAS under a

long-term Gas Sales Agreement in accordance with

and subject to the conditions set forth in Article VII .

(v) The Development period of each Development Lease

shall be as follows:

(aa)ln respect of a Commercial Oil Discovery,

twenty

(20) years from the date of such

Commercial

Discovery plus the Extension

Period (as defined below) provided that, in the

event that, subsequent to the conversion of a

Corrrniercial Oil Discovery into a Development

Lease, Gas is discovered in the same

Development Lease and is used or is capable of

being used locally or for export hereunder, the

period of the Development Lease shall be

extended only with respect to such Gas, LPG

extracted from such Gas and Crude Oil in the

form of condensate produced with such Gas for

twenty (20) years from the date of first deliveries

of Gas locally or for export plus the Extension

Period (as defined below) provided that the

duration of such Development Lease based on a

Commercial Oil Discovery may not be extended

beyond thirty-five (35) years from the date of

such Commercial Oil Discovery, unless

otherwise agreed upon between GANOPE and

CONTRACTOR.



CONTRACTOR

shall

immediately

notify

GANOPE of any Gas Discovery but shall not

be required to apply for a new Development

Lease in respect of such Gas.

(bb)ln respect of a Commercial Gas Discovery, twenty

(20) years from the date of first deliveries of Gas

locally or for export plus the Extension ;Period (as

defined below) provided that, if subsequent to the

conversion of a Commercial Gas Discovery into a

Development Lease, Crude Oil is discovered in the

same Development Lease, CON'rRACTOR's share of

such Crude Oil from the Development Lease (except

LPG extracted from Gas or Crude Oil in the form of

condensate produced with Gas) and Gas associated

with such Crude Oil shall revert entirely to GANOPE

upon the lapse of twenty (20) years from the date of

such Crude Oil Discovery plus the Extension Period

(as defined below).

(bb)Notwithstanding, anything to the contrary under

this Agreement, the duration of a Development

Lease based on a Commercial Gas Discovery

shall in no case exceed thirty-five (35) years

from the date of such Corr~niercial Gas

Discovery , unless otherwise agreed upon

between GANOPE and CONTRACTOR and

subject to the approval of the Minister of

Petroleum.

CONTRACTOR shall immediately notify GANOPE of

any Oil Discovery but shall not be required to apply for

a new Development Lease in respect of such Crude

Oil. The " Extension Period" shall niean a period of

five (5) years which may be elected by CONTRACTOR

upon six (6) months written request sent by

CONTRACTOR to GANOPE prior to the expiry of the

relevant twenty (20) year period supplemented by

technical studies including evaluation of production,

expected levels of production during extension period,

CONTRACTOR'S obligations and relevant economic

consideration. This extension period is subject to the

approv I of the Minister of Petroleum.



A



(e) Development operations shall upon the issuance of a

Development Lease granted following a Comnlercial Oil

Discovery, be started promptly by Operating Company and

be conducted in accordance with good oil field practices

and accepted petroleum engineering principles, until the

field is considered to be fully developed, it being understood

that if associated gas is not utilized, GANOPE and

CONTRACTOR shall negotiate in good faith on the best way

to avoid impairing the production in the interests of the

parties.

In the event no Commercial Production of Oil in regular

shipments or Gas deliveries from any Development Block

within four (4) years from the date of the commercial

discovery, or from the date of first Gas deliveries for local or

export , such Development Block shall immediately be

relinquished, unless there is a Commercial Oil or Gas

discovery in the Development Lease. Each Development

Block in a Development Lease being partly within the radius

of drainage of any producing well in such Development

Lease shall be considered as participating in the

Commercial Production referred to above .

Development operations in respect of Gas and Crude Oil in

the form of condensate or LPG to be produced with or

extracted from such Gas shall, upon the signature of a Gas

Sales Agreement or corr~mencementof a scheme to dispose

of the Gas, whether for export as referred to in Article VII or

otherwise, be started promptly by Operating Company and

be conducted in accordance with good gas field practices

and accepted petroleuni engineering principles and the

provisions of such agreement or scheme. In the event no

Commercial Production of Gas is established in accordance

with such Gas Sales Agreement or scheme, the

Development Lease relating to such Gas shall be

relinquished, unless otherwise agreed upon by GANOPE.



If, upon application by CONTRACTOR it is recognized by

GANOPE that Crude Oil or Gas is being drained from the

Exploration

block under

this Agreement into a

Development Block on an adjoining concession area held

by CONTRACTOR, the Block being drained shall be

considered as participating in the Commercial, Production of

the Development Block in question and the Block being

drained shall be converted into a Development Lease with

the ensuing allocation of costs and production (calculated

from the Effective Date or the date such drainage occurs,

wlichever is later) between the two Concession Areas.

The allocation of such costs and production under each

Concession Agreement shall be in the same portion that the

recoverable reserves in the drained geological structure

underlying each Concession Area bears to the total

recoverable reserves of such structure underlying both

Concession Areas.

The production allocated to a

concession area shall be priced according to the concession

agreement covering that concession area.

CONTRACTOR shall bear and pay all the costs and

expenses required in carrying out all the operations under

this Agreement but such costs and expenses shall not

include any interest on investment. CONTRACTOR shall

look only to the Petroleum to which it is entitled under this

Agreement to recover such costs and expenses. Such costs

and expenses shall be recoverable as provided in Article

V11. During the term of this Agreement and its renewal, the

total production achieved in the conduct of such operations

shall be divided between GANOPE and CONTRACTOR in

accordance with the provisions of Article VI I.

(1)



(2)



Unless otherwise provided, CONTRACTOR

shall be subject to Egyptian income tax laws

and shall comply with the requirements of

such laws with respect to the filing of returns,

the assessment of tax, and keeping and

showing of books and records.

ACTOR'S



annual



income



for



Egyptian income tax purposes under this

Agreement shall be an amount calculated

as follows:

The total of the sums received by CONTRACTOR from the

sale or other disposition of all Petroleum acquired by

CONTRACTOR pursuant to Article VI I (a) and (b);



Reduced by:

(i)



The costs and expenses of CONTRACTOR;



(ii)



The value as determined according to Article

VII (c), of GANOPE's share of the Excess

repaid to GANOPE

Cost Recovery Petrole~~m

in cash or in kind, if any,



Plus:

An amount equal to CONTRACTOR'S Egyptian income

taxes grossed up in the manner shown in Article VI of

Annex "E" .

For purposes of above tax deductions in any Tax Year,

Article VII (a) shall apply only in

respect of

classification of costs and expenses and rates of

anlortization, without regard to the percentage

limitation referred to in the first paragraph of Article VII

(a) (1). All costs and expenses of CONTRACTOR in

conducting the operations under this Agreement which

are not controlled by Article VII (a) as above qualified

shall be deductible in accordance with the provisions

of the Egyptian Income Tax Law.

(3) GANOPE shall assume, pay and discharge, in the name

and

on behalf of CONTRACTOR, CONTRACTOR'S

Egyptian income tax out of GANOPE's share of the

Petroleum produced and saved and not used in operations

under Article VII. All taxes paid by GANOPE in the name

and on behalf of CONTRACTOR shall be considered

income m O N T R A C T O R



-



to CONTRACTOR the proper official

receipts evidencing the payment of CONTRACTOR'S

Egyptian income tax for each- ax Year within ninety (90)

days following the receipt by GANOPE of CONTRACTOR'S

tax declaration for the preceding Tax Year. Such receipts

shall be issued by the proper Tax Authorities and shall state

the amount and other particulars customary for such

receipts.



(5) As used herein, Egyptian Income Tax shall be inclusive of

all income taxes payable in the.A.R.E. (including tax on tax)

such as the tax on income from movable capital and the tax

on profits from commerce and industry and inclusive of

taxes based on income or profits including all dividends,

wi'tt- holding with respect to shareholders and other

taxes irr~posed by the GOVERNMENT of A.R.E. on the

distribution of income or profits by CONTRACTOR.

(6) In calculating its A.R.E. income taxes, GANOPE shall be

entitled to deduct all royalties paid by GANOPE to the

GOVERNMENT and CONTRACTOR'S Egyptian income

taxes paid by GANOPE on CONTRACTOR'S behalf.



ARTICLE IV

WORK PROGRAM AND EXPENDITURES

DURING EXPLORATION PERIOD

(a) CONTRACTOR shall corlimence Exploration operations

hereunder not later than six (6) months after the Effective

Date. GANOPE shall make available for CONTRACTOR'S

use all seismic, wells and other Exploration data in

GANOPE's possession with respect to the Area as

GANOPE is entitled to so do.



(b) The initial Exploration period shall be two ( 2 ) years.

CONTRACTOR may extend this Exploration period for two(2)

successive extension periods each of three ( 3 ) years , in

accordance with Article Ill (b), each of which upon at least

thirty (30) days prior written notice to GANOPE, subject to its

expenditure of its minimum Exploration obligations and of its

fulfillment of the drilling obligations hereunder; for the then

current period.

-



CON-TRACTOR shall spend a rninimuni of two niillion U.S. Dollars

($2,000,000) on Exploration operations and activities related thereto

during the initial two (2) years Exploration period; provided that

CONTRACTOR shall acquire geophysical survey, processing,

reprocessing and evaluation studies. For the first three (3) years

extension period that CONTRACTOR elects to extend beyond the initial

Exploration period , CONTRACTOR shall spend a minimum of four

rrrillion U.S. Dollars ($4,000,000) and for the second three ( 3 ) years

extension period 'that CONTRACTOR elects to extend beyond the

three ( 3 ) year first extension period, CONTRACTOR shall also

spend a minimum of five million U.S. Dollars. ($5,000,000) During each

of the first and second extension periods that CONTRACTOR elects to

extend beyond the initial Exploration period, CONTRACTOR shall drill

two (2 ) wells in each.

Should CONTRACTOR spend more than the minimum amo~int

required to be expended or dl-ill more wells than the minimum

required to be drilled or other surveys than the mininiun~required

during the initial two (2) years Exploration period, or during the first

extension period, the excess may be subtracted from the minimum

amount of money required to be expended by CONTRACTOR or

minimum number of

wells required to be drilled during any

succeeding Exploration period(s) , as the case may be.

. .



-



In case CON-TRACTOR surrenders its Exploration rights under this

Agreement as set forth above before or at the end of the second

(2nd)year of the initial Exploration period, having expended less than

the total sum of two million ($2,000,000) U.S. Dollars, on Exploration

or in the event at the end of the second (2nd) year, CONTRACTOR

has expended less than said sum in the Area, an amount equal



A



-



tween the said two million ( $2,000,000) U.S.

unt actually spent on Exploration shall be paid

by CONTRACTOR to GANOPE at the time of surrendering or within

six (6) months from the end of the second (2"d) year of the initial

Exploration period, as the case may be. Any expenditure deficiency

by CONTRACTOR at the end of any additional period for the reasons

above noted shall similarly result in a payment byCONTRACTOR to

GANOPE of such deficiency. Provided this Agreement is still in force

as to CONTRACTOR, CONTRACTOR shall be entitled to recover

any such payments as Exploration Expenditure in the manner

provided for under Article VII in the event of Commercial Production.

Without prejudice to Article Ill (b), in case no Commercial Oil

Discovery is established or no notice of Corr~niercialGas Discovery

is given by the end of the eighth (8" ) year, as may be extended

pursuant to Article V (a) or in case CONTRACTOR surrenders the

Area under this Agreement prior to such time, GANOPE shall not

bear any of the aforesaid expenses spent by CONTRACTOR.

(c) At least four (4) months prior to the beginning of each

Financial Year or at such other times as may mutually be

agreed

to

by

GANOPE

and

CONTRACTOR,

CONTRACTOR shall prepare an Exploration Work Program

and Budget for the Area setting forth the Exploration

operations which CONTRACTOR proposes to carry out

during the ensuing Year.

The Exploration Work Program and Budget shall be

reviewed by a joint committee to be established by

GANOPE and CONTRACTOR after the Effective Date of

this Agreement. This Committee, hereinafter referred to as

the "Exploration Advisory Comn~ittee",shall consist of six

(6) members, three (3) of whom shall be appointed by

GANOPE and three (3) by CONTRACTOR. The Chairman

of the Exploration Advisory Committee shall be designated

by GANOPE froni aniong the members appointed by it.



The Exploration Advisory Committee shall review and give

such advice as it deems appropriate with respect to the

proposed Work Program and Budget. Following review by

the Exploration Advisory Committee, CONTRACTOR shall

make such revisions as CONTRACTOR deems appropriate

and submit the Exploration Work Program qnd Budget to

GANOPE for its approval.



- .



Following such approval, it is further agreed ,that:

(i) CONTRACTOR shall not substantially revise or modify

said Work Program and Budget nor reduce the

approved budgeted expenditure without the approval

of GANOPE;



(ii)ln the event of emergencies involving danger of loss of

lives or property, CONTRACTOR may expend such

additional unbudgeted amounts as may be required to

alleviate such danger. Such expenditure shall be

considered in all aspects as Exploration Expenditure

and shall be recovered pursuant to the provisions of

Article VI I hereof.

(d) CONTRACTOR shall advance all necessary funds for all

materials, equipments, supplies, persorrnel administration

and operations pursuant to the Exploration Work Program

and Budget and GANOPE shall not be responsible to bear

or repay any of the aforesaid costs.

(e) CONTRACTOR shall be responsible for the preparation and

performance of the Exploration Work Program which shall

be implemented in a workmanlike manner and consistent

with good industry practices.

Except as is appropriate for the processing of data,

specialized laboratory engineering and development studies

thereon, to be made in specialized centers outside A.R.E.,

nd geophysical studies as well as any other



24



studies related to the performance of this Agreement, shall

be made in the A.R.E.

CONTRACTOR shall entrust the management of

Exploration operations in the A.R.E. to its technically

competent General Manager and Deputy General Manager.

l

The names of such Manager and Deputy ~ e d e r aManager

shall, upon appointment, be forthwith notified to the

GOVERNMENT and to GANOPE. The General Manager

and, in his absence, the Deputy General Manager shall be

entrusted by CONTRACTOR with sufficient powers to carry

out immediately all lawful written directions given to them by

the GOVERNMENT or its representative under the terms of

this Agreement. All lawful regulations issued or hereafter to

be issued which are applicable hereunder and not in conflict

with this Agreement shall apply to CONTRACTOR.



(f)



CONTRACTOR shall supply GANOPE, within thirty (30)

days from the end of each calendar quarter, with a

Statement of Exploration activity showing costs incurred by

CONTRACTOR during such quarter. CONTRACTOR'S

records and necessary supporting documents shall be

available for inspection by GANOPE at any 'time during

regular working hours for three (3) months from the date of

receiving each statement.

Within the three (3) months from the date of receiving such

Statement, GANOPE shall advise CONTRACTOR in writing

if it considers:

(1)



that the record of costs is not correct; or



(2)



that the costs of goods or services supplied

are not in line with the international market

prices for goods or services of similar quality

supplied on similar terms prevailing at the

time such goods or services were supplied,

provided however, that purchases made and



services performed within the A.R.E. shall be

subject to Article XXVl;or



(3)



that the condition of the materials furnished by

CONTRACTOR does not tally with their prices;

;

or



(4)



that the costs incurred are not reasonably

required for operations.



CONTRACTOR shall confer with GANOPE in connection

with the- problem thus presented, and the parties shall

attempt to reach a settlement which is mutually satisfactory.

Any reimbursement due to GANOPE out of the Cost

Recovery Petroleuni as a result of reaching agreement or of

an arbitral award shall be promptly made in cash to

GANOPE, plus simple interest at LlBOR plus two and half

percent (2.5 %) per annum from the date on which the

disputed amount(s) would have been paid to GANOPE

according to Article VII (a) (2) and Annex "E" of this

Agreement (i.e., the date of rendition of the relevant Cost

Recovery Statement) to the date of payment. The LlBOR

rate applicable shall be the average of the figure or figures

published by the Financial Times representing the mid-point

of the rates (bid and ask) applicable to one month U.S.

Dollars deposits in the London lnterbank Eurocurrency

Market on each fifteenth (15th) day of each month occurring

between the date on which the disputed amount(s) would

have been paid to GANOPE and the date on which it is

settled.

If the LlBOR rate is available on any fifteenth (15th) day but

is not published in the Financial Times in respect of such

day for any reason, tlie LlBOR rate chosen shall be that

offered by Citibank N.A. to other leading banks in the

London lnterbank Eurocurrency Market for one month U.S.

Dollar deposits.

If such fifteenth (15th) day is not a day on which LlBOR

rates are quoted in the London lnterbank Eurocurrency



Market, the LIBOR rate to be used shall be that quoted on

the next following day on which such rates are quoted.

If within the time limit of the three (3) month period provided

for in this paragraph, GANOPE has not advised

CONTRACTOR of i t s objection to any Statement, such

Statement shall be considered as approied. j



'P



-



-



(g) CONTRACTOR shall supply all funds necessary for its

operations in the A.R.E. under this Agreement in freely

convertible currency froni abroad. CONTRACTOR shall

have the right to freely purchase Egyptian currency in the

amounts necessary for its operations in the A.R.E. from any

bank or entity authorized by the GOVERNMENT to conduct

foreign currency exchanges.

(h) GANOPE is authorized to advance to CONTRACTOR the

Egyptian currency required for the operations under this

Agreement against receiving from CONTRACTOR an

equivalent amount of U.S. Dollars at the official A.R.E. rate

of exchange, such amol-~ntin U.S. Dollars shall be deposited

in a GANOPE account abroad with a correspondent bank of

the National Bank of Egypt, Cairo. Withdrawals from said

account shall be used for financing GANOPE's and its

Affiliated Companies' foreign currency requirements subject

to the approval of the Minister of Petroleum.

ARTICLE V



MANDATORY AND VOLUNTARY RELINQUISHMENTS

(a)



MANDATORY:

At the end of the second (2"d ) year after the Effective Date

shall

relinquish

to

the

hereof,

CONTRACTOR

GOVERNMENT a total of twenty five percent (25%) of the

original Area on the Effective date not then converted to a

Development Lease or Leases. Such relinquishment shall

be in a single unit of whole Exploration Blocks not converted



to Developnient Leases unless otherwise agreed upon

between GANOPE and CONTRACTOR so as to enable the

relinquishment requirements to be precisely fulfilled.

At the end of the fifth ( 5th ) year after the Effective Date

hereof,

CONTRACTOR

sliall

relinquish to

the

GOVERNMENT an additional twenty five petcent (25%) of

the original Area on the Effective date not then converted to

a Development Lease or Leases. Such relinquishment shall

be in a single unit of whole Exploration Blocks not converted

to Development Leases unless otherwise agreed upon

between GANOPE and CONTRACTOR so as to enable the

relinquishment requirements to be precisely fulfilled.

Without prejudice to Articles Ill and XXlll and the last three

paragraphs of this Article V (a), at the end of the eighth (8" )

year of the Exploration period, CONTRACTOR shall

relinquish the remainder of the Area not then converted to a

Development Leases.

It is understood that at the time of any relinquishment the

areas to be converted into Development Leases and which

are subrr~ittedto the Minister of Petroleum for his approval

according to Article Ill (d) shall, subject to such approval, be

deemed converted to Development Leases.

CONTRACTOR shall not be required to relinquish any

Exploration Block or Blocks on which a Commercial Oil or

Gas Well is discovered before the period of time referred to

in Article Ill (c) given to CONTRACTOR to determine

whether such Well is a Commercial Discovery worthy of

Development or to relinquish an Exploration Block in

respect of which a notice of Commercial Gas Discovery has

been given to GANOPE subject to GANOPE's right to

agree on the existence of a Commercial Discovery pursuant

to Article Ill (c), and without prejudice to the requirements of

Article Ill (e).

In the event at the end of the initial Exploration period or

either of the two successive extensions of the initial



Exploration period, a well is actually drilling or testing,

CONTRACTOR shall be allowed up to six (6) months to

enable it to discover a Commercial Oil or Gas Well or to

establish a Conimercial Discovery, as the case may be.

However, any such extension of up to six (6) months shall

reduce the length of the next succeeding Expl~rationperiod,

as applicable, by that amount.

(b)



VOLUNTARY:

CONTRACTOR may, voluntarily, during any period

relinquish all or any part of the Area in whole Exploration

Blocks or parts of Exploration Blocks provided that at the

time

of such voluntary relinquishment its Exploration

obligations under Article IV (b) have been satisfied for such

period.

Any relinquishments hereunder shall be credited toward the

mandatory provisions of Article V (a) above .

Following

Commercial

Discovery,

GANOPE

and

CONTRACTOR shall mutually agree upon any area to be

relinquished thereafter,

except for 'the relinquishnient

provided for above at the end of the total Exploration

period.



ARTICLE VI



OPERA1-IONS AFTER COMMERCIAL DISCOVERY

(a) On Cow~mercialDiscovery, GANOPE and CONTRACTOR

may form in the A.R.E. an operating company pursuant to

Article VI (b) and Annex (D) (hereinafter referred to as

"Operating Company") which company shall be named by

mutual agreenient between GANOPE and CONTRACTOR

and such name shall be subject to the approval of the



Minister of Petroleum. Said con-lpany shall be a private

sector company. Operating Company shall be subject to the

laws and regulations in force in the A.R.E. to the extent that

such laws and regulations are not inconsistent with the

provisions of this Agreement or the Charter of Operating

Company.

i

P



However, Operating Company and CONTRACTOR shall, for

the purpose of this Agreement, be exempted from the

following laws and regulations as now or hereafter amended

or substituted:

- Law No. 48 of 1978, on the employee regulations of

public sector companies;



-



Law No. 159 of 1981, proniulgating the law on joint

stock companies, partnership limited by shares and

limited liability companies;



-



Law No. 97 of 1983 promulgating the law concerning

public sector orgar~izationsand companies;



-



Law No. 203 of 1991 prom~~lgating

the law on public

business sector companies; and



-



Law No. 88 of 2003 promulgating the law of Central

Bank,

banking organization and currency.

organizationj

'



(b) The Charter of Operating Corr~panyis hereto attached as

Annex "DM. Within thirty (30) days after 'the date of

Commercial Oil Discovery or within thirty (30) days after

signature of a Gas Sales Agreement or commencement of a

scheme to dispose of Gas (unless otherwise agreed upon

by GANOPE and CONTRACTOR), the Charter shall take

effect and Operating Company shall automatically come into

existence without any further procedures. The Exploration

Advisory Committee shall be dissolved forthwith upon the

coming into existence of the Operating Company.

(c) Ninety (90) days after the date Operating Company comes



57-



into existence in accordance with paragraph (b) above, it

shall prepare a Work Program and Budget for further

Exploration and Development for the remainder of the year

in which the Conimercial Discovery is made; and not later

than four (4) months before the end of the current Financial

Year (or such other date as may be agreed upon by

fou( (4) months

GANOPE and CONTRACTOR) and

preceding the conimencenient of each succeeding Financial

Year thereafter (or such other date as may be agreed upon

by GANOPE and CONTRACTOR), Operating Company

shall prepare an annual Production Schedule, Work

Prograni and Budget for further Exploration and

Development for the succeeding Financial Year. The

Production Schedule, Work Program and Budget shall be

submitted to the Board of Directors for approval.

(d) Not later than the twentieth (20th) day of each month,

Operating Company shall furnish to CONTRACTOR a

written

estimate of its total cash requirements for

expenditure for the first half and the second half of the

succeeding nionth expressed in U.S. Dollars having regard

to the approved Budget. Such estimate shall take into

consideration any cash expected to be on hand at month

end.

Payment for the appropriate period of such month shall be

made to the correspondent bank designated in paragraph

(e) below on the first (1st) day and fifteenth (15th) day

respectively, or the next following business day, if such day

is not a business day.

(e) Operating Company is authorized to keep at its own

disposal abroad in an account opened with a correspondent

bank of the National Bank of Egypt, Cairo, the foreign funds

advanced by CONTRACTOR. Withdrawals from said

account shall be used for payment for goods and services

acquired abroad and for transferring to a local bank in the

A.R.E. the required amount to meet the expenditures in

Egyptian Pounds for Operating Company in connection with

its activities under this Agreement.



Within sixty (60) days after the end of each Financial Year,

Operating Company shall submit to the appropriate

exchange control authorities in the A.R.E. a statement, duly

certified by a recognized firm of auditors, showing the funds

credited to that account, the disbursements made out of

that account and the balance outstanding at the end of the

Year.

If and for as long during the period of production operations

there exists an excess capacity in facilities which can not

during the period of such excess be used by the Operating

Company , GANOPE shall use the excess capacity if it so

desires without any financial or operational disadvantage to

the CONTRACTOR or Operatirlg Company.



ARTICLE VII

RECOVERY OF COSTS AND EXPENSES AND

PRODUCTION SHARING

(a)



(1)



Cost Recovery Petroleum:

Subject to the auditing provisions under this

Agreement, CONTRACTOR shall recover

quarterly all costs, expenses and expenditures

in respect of all the Exploration, Developn~ent

and related operations under this Agreement

to the extent and out of forty percent (40%)

of all Petroleum produced and saved from all

Development

Leases within the Area

hereunder and not used in Petroleum

operations. Such Petroleum is hereinafter

referred to as "Cost Recovery Petroleum".

For the purpose of determining the

classification of all costs, expenses and

expenditl-~resfor their recovery, the following

terms

shall apply:

/



*.



1.



"Exploration Expenditures" shall mean all

costs and expenses for Exploration and

the related portion of indirect expenses

and overheads.



2.



"Development Expenditures" shall dean

all costs and expenses for Development

(with the exception

of Operating

Expenses) and the related portion of

indirect expenses and overheads.



3.



"Operating Expenses" shall mean all

costs, expenses and expenditures made

after initial Corr~mercialProduction, which

costs, expenses and expenditures are not

normally depreciable.



However, Operating Expenses shall include workover, repair and

maintenance of assets but shall not include any of the following:

sidetracking, redrilling and changing of the status of a well,

replacement of assets or part of an asset, additions, improvements,

renewals or major overhauling that extend the life of the asset.

Exploration Expenditures, Development Expenditures and Operating

Expenses shall be recovered from Cost Recovery Petroleum in the

following manner:(i) "Exploration

Expenditures",

including

those

accumulated prior to the commencement of initial

Commercial Production, which for the purposes of this

Agreement shall mean the date on which the first

regular shipment of Crude Oil or the first deliveries of

Gas are made , shall be recoverable at the rate of

twenty five percent (25 %) per annum starting either in

the Tax Year in which such expenditures are inc~irred

and paid or the Tax Year in which initial Commercial

Production commences, whichever is the later date.



"Development Expenditures", including those

accumulated prior to the comniencernent of initial

Commercial Production which for the purposes of

this Agreement shall mean the date on which the

first regular shipment of Crude Oil or the first

niade,

shall

be

deliveries of Gas

are

recoverable at the rate of twenty f i v i percent

(25%) per annum starting either in the ~ a x ~ e ina r

which such expenditures are incurred and paid or

the Tax Year in which initial Commercial

Production commences, whichever is the later

date.

(iii) "Operating Expenses", incurred and paid after the

date of initial Commercial Production, which for the

purposes of this Agreement shall mean the date

on which the first regular shipment of Crude Oil or

the first deliveries of Gas are made, shall be

recoverable either in the Tax Year in which such

costs and expenses are incurred and paid or the

Tax Year in which initial Commercial Production

occurs, whichever is the later date.

(iv)To the extent 'that, in a Tax Year, costs, expenses

or expenditures recoverable per paragraphs (i), (ii)

and (iii) preceding, exceed the value of all Cost

Recovery Petroleum for such Tax Year, the excess

shall be carried forward for recovery in the next

succeeding Tax Year(s) until fully recovered, but in

no case after the termination of this Agreement, as

to CONTRACTOR.

(v) The recovery of costs and expenses, based upon

the rates referred to above, shall be allocated to

each quarter proportionately (one fourth to each

quarter). However, any recoverable costs and

expenses not recovered in one quarter as thus

allocated, shall be earl-ied forward for recovery in



(2) Except as provided in Article VII (a) (3) and Article VII (e) (1),

CONTRACTOR shall each quarter be entitled to take and own

all Cost Recovery Petroleum, which shall be taken and

disposed of in the manner determined pursuant to Article VII

(e). To the extent that the value of all Gost Recovery

Petroleum [as determined in Article VI I (c)] exc'eeds the actual

recoverable costs and expenditures, including any carry

forward under Article VII (a) (1) (iv), to be recovered in that

quarter, then the value of such Excess Cost Recovery

Petrole~~m

shall be divided between CONTRACTOR and

GANOPE in the manner set forth in Article VII (b) 1. (i) below

and Ganopels share shall be paid either (i) in cash by

CONTRACTOR to GANOPE in .the manner set forth in Article

IV of the Accounting Procedures contained in Annex "En or (ii)

in kind.

(3)Ninety (90) days prior - t o the commencement of each

Calendar Year GANOPE shall be entitled to elect by notice in

writing to CONTRACTOR to require payment of up to one

hundred percent (100%) of GANOPE's share of Excess Cost

Recovery Petroleum in kind. Such payment will be in Crude

Oil from the Area F.O.B. export terminal or other agreed

delivery point provided that the amount of Crude Oil taken by

GANOPE in kind in a quarter shall not exceed the value of

Cost Recovery Crude Oil actually taken and separately

disposed of by CONTRACTOR from the Area during the

previous quarter. If GANOPE's entitlement to receive payment

of its share of Excess Cost Recovery Petrole~~m

in kind is

limited by the foregoing provision, the balance of such

entitlement shall be paid in cash.

(b)



Production Sharing

(1)The remaining sixty percent (60%)of the

Petroleum shall be divided between GANOPE and

the CONTRACTOR according to the following

shares: Such shares shall be taken and disposed

of pursuant to Article VII (e):



--



-



Crude Oil produced and

saved under this Agreement

and not used in Petroleum

operations. Barrels oil per day

(BOPD)(quarterly average).

That portion or increment

less than 25,000 BOPD

25,000 BOPD and above



GANOPE

SHARE



.'



CONTRACTOR

SHARE



(percent )

(70 %)



(percent )

( 3 0 %)



(80%)



(20%)



GANOPE

SHARE



CONTRACTOR

SHARE



( percent)

(65 %)



( percent )

( 35 %)



(75%)



(25%)



(ii) Gas and LPG

.,

.



.



.



.



.



.



Gas and LPG produced and

saved under this Agreement

and not used in Petroleun~

operations (SCFD)

(quarterly average)

Less than 150 MMSCFIday

150 MMSCFIday and above



(2)After the end of each contractual year during the term

of any Gas Sales Agreement entered into pursuant to

Article VII (e), GANOPE and CON-TRACTOR (as

sellers) shall render to GANOPE or EGPC or EGAS

(as buyer) a statement for an amount of Gas, if

any , equal to the amount by

which the

quantity of Gas of

which GANOPE or EGPC

or EGAS (as buyer) has taken delivery falls below

seventy five percent (75%) of the Contract quantities

of Gas as established by the applicable Gas Sales

Agreement (the "Shortfall"), provided the Gas is

available. Within sixty (60) days of receipt of the



E or EGPC or EGAS (as

buyer)

shall

Pay

GANOPE

and

CONTRACTOR (as sellers) for the amount of the

Shortfall, if any. The Shortfall shall be included in

GANOPE1sand CONTRACTOR'S entitlement to Gas

pursuant to Article VII (a) and Article VII (b) in the

fourth (4th) quarter of such contractual ye&.

Quantities of Gas not taken but to be paid for shall be

recorded in a separate "Take-or-Pay Account ".

Quantities of Gas ("Make Up Gas") which are

delivered in subsequent years in excess of seventy

five percent (75%) of the contract quantities of Gas

as established by the applicable Gas Sales

Agreement, shall be set against and reduce

quantities of Gas in the "Take-or-Pay" account to the

extent thereof and, to that extent, no payment shall

be due in respect of such Gas. Such Make Up Gas

shall not be included in CONTRACTOR'Sentitlement

to Gas pursuant to Article VII

(a) and (b).

CONTRACTOR shall have no rights to such Make

Up Gas.

If at the end of any Contract year ,GANOPE and

CONTRACTOR (as sellers) fail to deliver seventy five percent

(75%) of the annual contract quantity as defined in the Gas

Sales Agreement with GANOPE or EGPC or EGAS (as

buyer), the difference between seventy five percent (75%) of

the annual contract quantity and the actual gas quantity

delivered shall be referred to as the "Deliver- or- Pay Shortfall

Gas". GANOPE or EGPC or EGAS (as buyer) shall have the

right to take a quantity of Gas equal to Deliver-or- Pay the

Shortfall Gas and such quantity shall be priced at ninety

percent (90%) of the Gas price as defined in the Gas Sales

Agreement . The mechanism for the delivery-or-pay concept

will be determined in the Gas Sales Agreement.

- .



The percentages set forth in Article VII (a) and (b) in

respect of LPG produced from a plant constructed

and operated by or on behalf of GANOPE and

CONTRACTOR shall apply to all LPG available for

delivery.



-.



,



(c) Valuation of Petroleum:

(I)



Crude Oil:

(i)The Cost Recovery Crude Oil to which

CONTRACTOR is entilled hereunder shall be

valued by GANOPE and CONTRACTOR at

"Market Price" for each calendar quarter.

(ii) "Market Price" shall mean the weighted

average prices realized from sales by

GANOPE or CONTRACTOR during the

quarter, whichever is higher, provided that

the sales to be used in arriving at the

weighted average(s) shall be sales of

comparable quantities on comparable credit

terms in freely convertible currency from

F.O.B. point of export sales to non-affiliated

corlipanies at arm's length under all Crude

Oil sales contracts then in effect, but

excluding Crude Oil sales contracts

involving barter and,

(1) Sales, whether direct or indirect,

through brokers or otherwise, of

GANOPE or CON-TRACTOR to

any Affiliated Company.



(2) Sales involving a quid pro quo

other than payment in a freely

convertible currency or motivated

in whole

or

in

part

by

considerations other than the usual

economic

incentives

for

corr~niercialarm's length crude oil

sales.



,,.



.,iat in the case of "C.I.F."

sales, appropriate deductions shall be made

for transport and insurance charges to

calc~~late

the F.O.B. point of export price;

and always taking

into account the

appropriate adjustment for quality of prude

Oil, freight advantage or disadvantage of

port of loading and other

appropriate

adjustments. Market Price shall be

determined separately for each Crude Oil or

Crude Oil mix, and for each port of loading.

(iv) If during any calendar quarter, there are no

and/or

such

sales

by

GANOPE

CONTRACTOR under the Crude Oil sales

contracts

in effect,

GANOPE and

CONTRACTOR shall mutually agree upon

the Market Price of the barrel of Crude Oil

to be used for such quarter, and shall be

guided by all relevant and available

evidence including current prices in freely

convertible currency of leading crude oils

produced by major oil producing countries

(in the Arabian Gulf or the Mediterranean

Area), which are regularly sold in the open

market according to actual sales contracts

terms but excluding paper sales and sales

promises where no crude oil is delivered, to

the extent that such sales are effected

under such terms and conditions (excluding

the price) not significantly different from

those under which the crude oil to be

valued, was sold, and always taking into

consideration appropriate adjustments for

crude oil quality, freight advantage or

disadvantage of port of loading and other

appropriate adjustments, as the case may

be, for differences in gravity, sulphur, and

other factors generally recognized by sellers

and purchasers, as reflected in crude prices,



-. . ,.,.iety (90) days insurance

premiums, ~ ~ n u s ufees

a l borne by the seller,

and for credit terms in excess of sixty (60)

days, and the cost of loans or guarantees

granted for the benefit of the sellers at

prevailing interest rates.

i

It is the intent of the Parties that the value of

the Cost Recovery Crude Oil shall reflect

the prevailing market price for such Crude

Oil.

(v) If either GANOPE or CONTRACTOR

considers that the

Market Price as

determined under sub-paragraph (ii) above

does not rel'lect the prevailing Market Price

or

in

the

event

GANOPE

and

CONTRACTOR fail to agree on Market

Price for any Crude Oil produced under this

Agreement for any quarter within fifteen (15)

days after the end thereof, any party

may

elect at any time thereafter to

submit to a single arbitrator the question,

what single price per barrel, in the

arbitrator's judgment, best represents for the

pertinent quarter 'the Market Price for the

Crude Oil in question. The arbitrator shall

make his determination as soon as possible

following the quarter in question. His

determination shall be final and binding

upon all the parties. 'The arbitrator shall be

selected in the manner described below.

In 'the event GANOPE and CONTRACTOR

fail to agree on the arbitrator within thirty

(30) days from the date any party notifies

the other that it has decided to submit the

determination of the Market Price to an

arbitrator, such arbitrator shall be chosen by

the appointing authority designated in



Article XXlV (e), or such

other appointing authority with access to

such expertise

as may be agreed to

between GANOPE and CONTRACTOR,

with regard to the qualifications for

arbitrators set forth below, upon written

application of one or both of GANOPE and

CONTRACTOR. Copy of such application

by one of them shall be promptly sent to the

other.

., ,,,



VVILII



'The arbitrator shall be as nearly as possible

a person with an established reputation in

the international petroleum industry as an

expert in pricing and marketing crude oil in

international commerce. The arbitrator shall

not be a citizen of a country which does not

have diplomatic relations with both the

A.R.E., Canada & England. He may not be,

at the time of selection, employed by, or an

arbitrator or consultant on a continuing or

frequent basis to, the American Petroleum

Institute,

the

Organization

of the

Petroleum Exporting Countries or the

Exporting

Organization of Arab Petrole~~m

Countries, or a consultant on a continuing

basis to GANOPE, CONTRACTOR or an

Affiliated Company of either, but past

occasional

consultation

with

such

companies,

with

other

petroleum

companies, governmental agencies or

organizations shall not be a ground for

disqualification. He may not have been, at

any tinie during the two (2) years before

selection, an employee of any petroleum

agency or

company or of any goverr~n~ental

organization.



z.d,,,,,

person decline or be

unable to serve as arbitrator or should the

position of arbitrator fall vacant prior to the

decision called for, another person shall be

chosen in the same manner provided in this

paragraph. GANOPE and CONTRACTOR

shall share equally the expenses b f the

arbitrator.

The arbitrator shall make his determination

in accordance with the provisions of this

paragraph, based on the best evidence

available to him. He will review oil sales

contracts as well as other sales data and

inforniation but shall be free to evaluate the

extent to which any contracts, data or

information is substantiated or pertinent.

Representatives

of

GANOPE

and

CONTRACTOR shall have the right to

consult with the arbitrator and furnish him

written materials provided the arbitrator may

impose reasonable limitations on this right.

GANOPE and CONTRACTOR each shall

cooperate with the arbitrator to the fullest

extent and each shall insure such

cooperation of its trading companies. The

arbitrator shall be provided access to crude

oil sales contracts and related data and

information which

GANOPE

and

CONTRACTOR

or

their trading

companies are able to make available and

which in the judgment of the arbitrator might

aid the arbitrator in making a

valid

determination.



(vi) Pending Market Price agreement

GANOPE and

CONTRACTOR

determination

by the arbitrator,



by

or

as



~~,arket

Price agreed for the

quarter preceding the quarter in question

shall remain temporarily in effect. In the

event either GANOPE or CON'TRACTOR

should incur a loss by virtue of the

temporary continuation of the Market, Price

of the previous quarter, it shall promptly be

reimbursed such loss by the other party plus

simple interest at the LlBOR plus two and

one - half percent (2.5%) per annum rate

provided for in Article IV (f) from the date on

which the disputed amount(s) should have

been paid to the date of payment.

,,



(2)Gas and LPG



(i)The Cost Recovery and Production Sharing Gas Price

will be agreed upon between CON-TRACTOR and

GANOPE or EGPC or EGAS after the Corr~mercial

Discovery and before converting an area to a

development lease(s) according to the average

prevailing gas price of the Mediterranean region at that

time . Except gas for export (LNG), where production

sharing gas price will be at net back price .

(ii)The Cost Recovery and Production Shares of (LPG)

produced from a plant constructed and operated by

or on behalf of GANOPE and CONTRACTOR shall

be separately valued for Propane and Butane at the

outlet of such LPG plant according to the following

formula (unless otherwise agreed between GANOPE

and CONTRACTOR):

PLPG =0.95 PR - (J X 0.85 X



F



)

6



42.96 X 10



Where

PLPG = LPG price (separately determined for

Propane and Butane) in U.S. Dollars

per metric ton.

i

e



PR =The average over a period of a month of

the figures representing the mid-point

between the high and low prices in U.S.

Dollars per metric ton quoted in "Platt's

LPGaswire" during such month

for

Propane and Butane FOB Ex-RefIStor.

West Mediterranean.

J = BTU's removed from the Gas stream by the

LPG plant

per nietric ton of LPG

produced.

F = a value in U.S. Dollars per metric ton of the

crude oil of Gulf of Suez Blend "FOB Ras

Shukheir" A. R.E. calculated by referring to

"Platt's Oilgram Price Report" during a

month under the heading "Spot Crude Price

Assessment for Suez Blend". 'This value

reflects the total averages of the published

low and high values for a Barrel during

such month divided by the number of days

in such month for which such values were

quoted. The value per metric ton shall be

calculated on the basis of a conversion

factor to be agreed upon annually between

GANOPE and CONTRACTOR.

In the event that "Platt's LPGaswire" is

issued on certain days during a month but

not on others, the value of (PR) shall be

calculated using only those issues which

are published during such month. In the

event that the value of (PR) can not

be determined because "Platt's LPGaswire"



.-..YlluJ at all during a month,

GAAOPE and CONTRACTOR shall meet

and agree to the value of (PR) by

reference to other published sources. In the

event that there are no such other published

sources or if the value of (PR) cannot be

determined pursuant to the foregohg for

any other reason , GANOPE and

CONTRACTOR shall meet and agree the

value of (PR) by reference to the value of

LPG (Propane and Butane) delivered FOB

from the Mediterranean Area.

Such valuation of LPG is based upon

delivery at the delivery point specified in

Article VII (e) (2) (iii).



(d)



(iii)



The prices of Gas and LPG so calculated

shall apply during the same month.



(iv)



The Cost Recovery and Production Shares

of Gas and LPG disposed of by GANOPE

and CONTRACTOR other than to GANOPE

or EGPC or EGAS pursuant to Article VII (e)

shall be valued at their actual realized price.



Forecasts:



Operating Company shall prepare (not less than ninety

(90) days prior to the beginning of each calendar

semester following first regular production) and furnish in

writing to CONTRACTOR and GANOPE a forecast

setting out a total quantity of Petroleum that Operating

Company estimates can be produced, saved and

transported hereunder during such calendar semester in

accordance with good oil and gas industry practices.

Operating Company shall endeavor to produce each

calendar semester the forecast quantity. The Crude Oil



~anksor offshore loading facilities

constructed, maintained and operated according to

Government Regulations, by Operating Company in

which said Crude Oil shall be metered or otherwise

measured for royalty, and other purposes required by this

Agreement.

Gas shall be handled

by Operating

Company in accordance with the provisions of Article VII

(e)

(e) Disposition of Petroleum:

-



age



(I)

GANOPE and CONTRACTOR shall have the right and

the obligation to separately take and freely export or

otherwise dispose of, currently all of the Crude Oil to

which each is entitled under Article VII (a) and (b).

Subject to payment of SI-lms due to GANOPE under

Article VII (a) (2) and Article IX, CONTRACTOR shall

have the right to remit and retain abroad all funds

acquired by it including the proceeds froni the sale of its

share of Petroleum.

Notwithstanding anything to. the contrary under this

Agreement, priority shall be given to meet the

requirements of the A.R.E.

market

from

CONTRACTOR'S share under Article VII ( b ) of the

Crude Oil produced from the Area and GANOPE shall

such Crude Oil

have the preferential right to p~~rchase

at a price to be determined pursuant to Article VII ( c )

. The amount of Crude Oil so purchased shall be a

portion of CONTRACTOR'S share under Article VII (b).

Such amount shall be proportional to CONTRACTOR'S

share of the total production of crude oil from the

concession areas in the A.R.E. that are also subject to

GANOPE's preferential right to purchase. -The payment

for such purchased amount shall be made by GANOPE

in U.S. Dollars or in any other freely convertible

currency rerr~itta

ble by CONTRACTOR abroad.

It is agreed upon that GANOPE shall notify

CONTRACTOR, at least forty-five (45) days prior to the

beginning of the Calendar Semester, of the amount to

be purchased during such semester under this Article



(2) With respect to Gas and LPG produced from the

Area:

(i)Priority shall be given to meet the requirements of

the local market as determined by GANOPE.

(ii) In the event that GANOPE or EGPC or EGAS is to be

the buyer of Gas, the disposition of Gas to the local

markets as indicated above shall be by virtue of long

term Gas Sales Agreements to be entered into

between GANOPE and CONTRACTOR (as sellers)

and GANOPE or EGPC or EGAS (as buyer).

GANOPE and CON-TRACTOR (as sellers) shall have

the obligation to deliver Gas to the following point

where such Gas shall be metered for sales, royalty,

and other purposes required by this Agreement:

(a) In the event no LPG plant is constructed to

process such Gas, the delivery point shall be

at the flange connecting the Lease pipeline to

the nearest point on the

National Gas

Pipeline Grid System as depicted in Annex

"F" hereto, or as othewise agreed

by

GANOPE and CONTRACTOR.

(b) In the event an LPG plant is constructed to

process such Gas, such Gas shall, for the

purposes of valuation and sales, be metered

at the inlet to such LPG Plant. However,

notwithstanding the fact that the metering

shall take place at the LPG Plant inlet,

CONTRACTOR shall through the Operating

Company build a pipeline suitable for transport

of the processed Gas from the LPG Plant

outlet to the nearest point on the National Gas

Pipeline Grid System as depicted in Annex

"F" hereto, or otherwise agreed by GANOPE



.- , -1R. Such pipeline shall be



owned in accordance with Article Vlll (a) by

GANOPE, and its cost shall be financed and

recovered by CONTRACTOR as Development

Expenditures pursuant to Article VII.

(iii) GANOPE and CON'TRACTOR shall! consult

together to determine whether to buildpan LPG

plant for

recovering LPG from any Gas

produced hereunder. In the event GANOPE and

CONTRACTOR decide to build such a plant,

the plant shall, as is appropriate, be in the

vicinity of the point of delivery as determined in

Article II and Article Vll(e)2(ii). The delivery of

LPG for, royalty and other purposes required by

this Agreement shall be at the outlet of the LPG

plant. The costs of any such LPG plant shall be

recoverable in accordance with the provisions of

this Agreement unless the Minister of Petroleum

agrees to accelerated recovery.

(iv) GANOPE or EGPC or EGAS (as buyer) shall have

the option to elect, by ninety (90) days prior written

notice to GANOPE and

CONTRACTOR (as

sellers), whether payn~entfor the Gas which is

subject to a Gas Sales Agreement between

GANOPE and CONTRACTOR (as sellers) and

GANOPE or EGPC or EGAS (as buyer) and LPG

produced from a plant constructed and operated

by or on behalf of GANOPE and CONTRACTOR,

as valued in accordance with Article VII (c), and to

which CONTRACTOR is entitled under the Cost

Recovery and Production Sharing provisions of

Article VII, of this Agreement, shall be made (1) in

cash or (2) in kind.

Payments in cash shall be made by GANOPE or

EGPC or EGAS (as buyer) at intervals provided

for in the relevant Gas Sales Agreement in U.S.

Dollars, remittable by CONTRACTOR abroad.



. ...,



311dllbe calculated by converting

the value of Gas and LPG to which

CONTRACTOR is entitled into equivalent barrels

of Crude Oil to

be taken concurrently by

CONTRACTOR from the Area, or to the extent that

such Crude Oil is insufficient, Crude ,Oil from

CONTRACTOR'S other concession are& or such

other areas as may be agreed. Such Crude Oil

shall be added to the Crude Oil

that

CONTRACTOR is otherwise entitled to lift under

this Agreement. Such equivalent barrels shall be

calculated on the basis of the provisions of Article

VII (c) relating to the valuation of Cost Recovery

Crude Oil.

.



#U



Provided that:

(aa) Payment of the value of Gas and LPG shall

always be made in cash in U.S. Dollars

remittable by CONTRACTOR abroad to the

extent that there is insufficient Crude Oil

available for conversion as provided for

above;

(bb) Payment of the value of Gas and LPG shall

always be made in kind as provided for above

to the extent that payments in cash are not

made by GANOPE.

Payments to CONTRACTOR (whether in cash or

kind), when related to CONTRACTOR'S Cost

Recovery Petroleum, shall be included in

CONTRACTOR'S Statement of Recovery of

Costs and of Cost Recovery Petroleum referred

to in Article IV of Annex "E" of this Agreement.

(v) Should GANOPE or EGPC or EGAS (as buyer)

fail to enter into a

long-term Gas Sales

Agreement with GANOPE and CONTRACTOR

(as sellers) within four (4) years from a notice of

Commercial Gas Discovery pursuant to Article



J N T R A C T O R shall have the

right to take and freely dispose of the qaantity of

Gas and LPG in respect of which the notice of

Commercial Discovery is given by exporting

such Gas and LPG.

(vi) The proceeds of sale of CONTR~CTOR'S

share of Gas and LPG disposed of pursuant to

the above sub-paragraph (v) may be freely

remitted or retained abroad by CONTRACTOR.

(vii) In the event GANOPE and CON'TRACTOR

agree to accept new Gas and LPG producers

to join in an ongoing export project, such

producers shall have to contribute a fair and

equitable share of the investment made.

(viii) (aa)Upon the expiration of the four (4) year

period referred to in Article VII (e) (2)

(v), CON-TRACTOR shall have the

obligation to exert its reasonable efforts

to find an export market for Gas

reserves.

(bb)ln the event at the end of the four (4)

years period referred to under Article

Vll (e) (2) (v), CONTRACTOR and

GANOPE have not entered into a Gas

Sales Agreement, CONTRACTOR shall

retain its rights to such Gas reserves for

a further period of up to four (4) years,

subject to Article VII (e) (2) (viii)(cc),

during which period GANOPE shall

attempt to find a market for Gas

reserves.

(cc) In the event that CONTRACTOR is

not

exporting

the Gas and

CONTRACTOR has not entered into



-



sales Agreement pursuant to

Article VII (e) (2) prior to the expiry of

eight

(8)

years

from

CONTRACTOR'S

notice

of

Commercial

Gas

Discovery,

CONTRACTOR shall surrender the

Gas reserves in respect of whbh

such notice has been given.

It

being

understood

that

CONTRACTOR shall, at any time

prior to the expiry of such eight ( 8 )

years

period , surrender the

Gas reserves, if

CONTRACTOR

is

not exporting the Gas and

CONTRACTOR does not accept an

offer of a Gas Sales Agreement from

GANOPE wiGtt- in six (6) months 'from

the date such offer is made provided

that the Gas Sales Agreement

offered to CONTRACTOR shall take

into. consideration the relevant

techr~ical and economic factors to

en.able a commercial contract

including :



-



A sufficient delivery rate.



- Delivery pressure to enter the National Gas

Pipeline Grid System at the point of delivery.



-



-



Delivered Gas quality specifications not

more stringent than those imposed or

required for the National Gas Pipeline

Grid System.



The Gas

Agreement .



prices as specified in this



(dd) In the event that CONTRACTOR has not

entered into a Gas Sales Agreement

pursuant to Article VII (e) (2)or otherwise

found an acceptable scheme for conimercial



disposal of such Gas , at the time of the

expiration of eight ( 8 ) years from

CONTRACTOR'S notice of Commercial

Discovery of Gas or failing agreement with

GANOPE on gas disposal at the expiration

of eight ( 8 ) years , CONTRACTOR shall

surrender to GANOPE such Develo~ment

Lease (s) in which Gas discovery is mide.

(ix) CON-TRACTOR shall not be .obligated to

surrender a Development Lease based on a

Commercial Gas Discovery, if Crude Oil has

been discovered in commercial quantities in

the same Development Lease.

(f)



Operations:



If following the reversion to GANOPE of any rights to

Crude Oil hereunder, CON-TRACTOR retains rights to

Gas in the same Development Lease, or if, following

surrender of rights to Gas hereunder, CONTRACTOR

retains rights to Crude Oil in the same Development

Lease, operations to explore for or exploit the Petroleum,

the rights to which have reverted or been surrendered

(Oil or Gas as the case may be) may only be carried out

by Operating Company which shall act on behalf of

GANOPE alone, unless CONTRACTOR and GANOPE

agree otherwise.



g)



Tanker Scheduling:



At a reasonable time prior to the commencement of

Commercial Production GANOPE and CONTRACTOR

shall meet and agree upon a procedure for scheduling

tanker liftings from the agreed upon point of export.



ARTICLE Vlll

TITLE TO ASSETS

(a)GANOPE shall become the owner of all CONTRACTOR

acquired and owned assets which assets were charged to

Cost Recovery by CONTRACTOR in connection with the

operations carried out by CONTRACTOR 'or Operating

Company in accordance with the following:



(1) Land shall become the property of GANOPE as soon

as it is purchased.

(2) Title to fixed and movable assets shall be transferred

automatically and gradually from CONTRACTOR to GANOPE

as they become subject to recovery in accordance with the

provisions of Article VII; however the full title to fixed and

movable assets shall be transferred automatically from

CONTRACTOR to GANOPE when its total cost has been

recovered by CONTRACTOR in accordance with the

provisions of Article VII or at the time of termination of this

Agreement with respect to all assets chargeable to the

operations whether recovered or not, whichever first occurs.

The book value of the assets created during each calendar

quarter shall be communicated by CONTRACTOR to

GANOPE or by Operating Company to GANOPE and

CONTRACTOR within thirty (30) days of the end of each

quarter.



(b) During the term of this Agreement and the renewal period

GANOPE, CONTRACTOR and Operating Company are

entitled to the full use and enjoyment of all fixed and

movable assets

referred to above in connection with

operations hereunder or under any other

Petroleum

agreement

entered into by the Parties.



ConCeSn



Proper

accounting

adjustment

shall

be

made.

CONTRACTOR and GANOPE shall not dispose of the same

except with agreement of the other.

- ,



.,



-



(c) CONTRACTOR and Operating Company may freely import

into the A.R.E., use therein and freely export>atthe end of

such use, machinery and equipments which t6ey either rent

or lease in accordance with good industry practices, including

but not limited to the lease of computer hardware and

software.



ARTICLE IX

BONUSES



(a)



CON-TRACTOR shall pay to GANOPE the sum of two

millions and half U.S. Dollars ($2,500,000) as a

production bonus when the daily production rate .from

the Area first reaches the rate of twenty five thousands

(25,000) Barrels of oil or 150 MMSCF per day. Payment

will be made within fifteen (15) days thereafter.



(b) CONTRACTOR

shall also pay to GANOPE the

additional sum of five millions U.S. Dollars ( $5,000,000)

as a production bonus when the daily production rate

from the Area first reaches the rate of fifty thousand

(50,000 ) Barrels of oil or 250 MMSCF per day. Payment

will be made within fifteen (15) days thereafter.

(c)



CONTRACTOR shall pay to GANOPE as a bonus

the sum of five millions U.S. Dollars ($5,000,000) upon

approval to enter into five (5) years extension period

pursuant to Article Ill paragraph (d) (3) (bb) .



(d) All the above mentioned bonuses shall in no event be

recovered by CONTRACTOR.



-



d



-



(e) In the event that GANOPE elects to develop any part of the

Area pursuant to the sole risk provisions of Article Ill (c)

(iv), production from such sole risk area shall be

considered for the purposes of this ~ r t i c l kIX only if

CONTRACTOR exercises its option to share in such

production, and only from the initial date of sharing.

(f)



Gas

shall

be

taken

into account

for

purposes

of determining

the daily production

IX a & b by

rate from the Area

under Article

converting daily Gas delivered into equivalent barrels of

daily Crude Oil production in accordance with the

following formula:

MSCF x H x 0.167 = equivalent barrels of Crude Oil

where

MSCF = one thousand Standard Cubic Feet of Gas.



H



= the number of million British Thermal

Units (BTU's per MSCF).



ARTICLE X

OFFICE AND SERVICE OF NOTICES

CONTRACTOR shall maintain an office in A.R.E. at which notices

shall be validly served.

The General Manager and Deputy General Manager shall be

entrusted by CONTRACTOR with sufficient power to carry out



-



-/



immediately all



local written directions given to them by the



-.



Government or its

representatives under the terms of this

Agreement. All lawful regulations issued or hereafter to be issued

which are applicable

hereunder and not in conflict with this

Agreement shall apply to the duties and activities of the General

Manager and Deputy General Manager.



-



All matters and notices shall be deemed to be vdlidly served which

are delivered to the office of the General Manager or which are sent

to him by registered mail to CONTRACTOR'S office in the A.R.E.



L



A



-- ,



- .

-,



-.



-.



All matters and notices shall be deemed to be validly served which

are delivered to the office of the Chairman of GANOPE or which are

.sent to him by registered mail at GANOPE's main office in Cairo.



ARTICLE XI



- .



- .



SAVING OF PETROLEUM AND PREVENTION OF LOSS

(a) Operating Company shall take all proper measures,

according to generally accepted methods in use in the oil

and gas industry to prevent loss or waste of Petroleum

above or under the ground in any form during drilling,

producing, gathering, and distributing or storage operations.

The GOVERNMENT has the right to prevent any operation

on any well that it might reasonably expect would result in

loss or damage to the well or the Oil or Gas field.

(b) Upon completion of the drilling of a productive well,

Operating Company shall inform the GOVERNMENT or its

representative of the time when the well will be tested and

.the production rate ascertained.

(c) Except in instances where multiple producing formations in

the same well can only be produced economically through a

single tubing string, Petroleun~shall not be produced from

A



multiple oil bearing zones through one string of tubing at the

same time, except with the prior approval of the

GOVERNMENT or its representative, which shall not be

unreasonably withheld.

>



-.



(d) Operating Company shall record data regarding the



.,



quantities of Petroleum and water produced ;monthly from

each Development Lease. Such data shall be sent to the

GOVERNMENT or its representative on the special forms

provided for that purpose within thirty .(30) days after the

data are obtained. Daily or weekly statistics regarding the

production from the Area shall be available at all

reasonable tinies for examination by authorized

representatives of the GOVERNMENT.



=



-



A



-



(e) Daily drilling records and the graphic logs of wells must

show the quantity and type of cement and the amount of any

other materials used in the well for the purpose of protecting

Petroleum, gas bearing or fresh water strata.

(f) Any substantial change of mechanical conditions of the well

after its completion shall be subject to the approval of the

representative of the GOVERNMENT.

ARTICLE XI1

CUSTOMS EXEMPTIONS

(a) GANOPE, CONTRACTOR, and Operating Company shall

be permitted to import and shall be exempted from customs

duties, any taxes, levies or fees (including fees irr~posedby

Ministerial Decision No. 254 of 1993 issued by the

Minister of Finance, as now or hereafter a.mended or

substituted) of any nature

and from the importation rules with respect to the

importation of machinery, equipment, appliances, materials,



P@/

<-



/=



33'd



57

I'



27-'



-



items, means of transport and transportation (the exemption

from taxes and duties for cars shall or~lyapply to cars to be

used in operations), electric appliances, air conditioners for

offices, field housing and facilities, electronic appliances,

computer hardware and software, as well as spare parts

required for any of the in- ported items, all subject to a duly

approved

certificate

issued

by the

responsible

representative nominated by GANOPE for 4uch purpose,

which states that the imported items are required for

conducting the operations pursuant to this Agreement .

Such certificate shall be final and binding and shall

automatically result in the importation and the exemption

without any further approval, delay or procedure.

(b) Machinery, equipment, appliances and means of transport

GANOPE1s,

and

transportation

imported

by

CONTRACT0 R's and Operating Company's contractors

and sub-contractors temporarily engaged in any activity

pursuant to the operations which are the subject of this

Agreement, shall be cleared under the "Temporary Release

System" without payment of customs duties, any taxes,

levies or fees (including fees imposed by Ministerial

Decision No. 254 of 1993 issued by the Minister of Finance,

as now or hereafter amended or substituted) of any nature

,upon presentation of a duly approved certificate issued by a

GANOPE responsible representative nominated by

GANOPE for such purpose which states, that the imported

items are required for conducting the operations pursuant to

this Agreement. Items (excluding cars not to be used in

operations) set out in Article XI1 (a) imported by GANOPE's,

CONTRACTOR'S and Operating Company's contractors

and sub-contractors for the aforesaid operations, in order

to be installed or used permanently or consumed shall meet

the conditions for exemption set forth in Article XI1 (a) after

being duly certified by an GANOPE responsible

representative to be used for conducting operations

pursuant to this Agreement.

(c) The expatriate employees of CONTRACTOR, Operating

contractors and su b-contractors shall



58

CS



-_./



.-



+

I

-



not be entitled to any exemptions from customs duties and

other ancillary taxes and charges except within the limits of

the provisions of the laws and regulations applicable in the

A.R.E. However, personal household goods and furniture

(including one (I)

car) for each expatriate err~ployee of

CONTRACTOR andlor Operating company shall be cleared

under the "Temporary Release System" (without payment of

any customs duties and other ancillary :taxes) upon

presentation of a letter to the appropriate customs

authorities by CONTRACTOR or Operating Company

approved by a GANOPE responsible representative that the

imported items are irr~ported for the sole use of the

expatriate employee and his family, and that such imported

items shall be re-exported outside the A.R.E. upon the

repatriation of the concerned expatriate employee.

(d) Items imported into the A.R.E. whether exempt or not exempt

from customs duties and other ancillary taxes and charges

hereunder, may be exported by the importing party at any

time after obtaining GANOPE's approval, which approval

shall not be unreasonably withheld, without any export

duties, taxes or charges or any taxes or charges from which

such items have been already exenipt, being applicable.

Such items may be sold within the A.R.E. after obtaining the

approval of GANOPE which approval shall not be

unreasonably withheld. In this event, the purchaser of such

items shall pay all applicable customs duties and other

ancillary taxes and charges according to the condition and

value of such items and the tariff applicable on the date of

sale, unless such items have already been sold to an

Affiliated Compa~iyof CONTRACTOR, if any, or GANOPE,

having the same exemption, or unless title to sucli items

(excluding cars not used in operations) has passed to

GANOPE.

In the event of any such sale under this paragraph (d), the

proceeds from such sale shall be divided in the following

manner:

CONTRACTOR shall be entitled to reimbursement of its

unrecovered cost, if any, in such items and the excess, if any,



59

,



--,+



-



(e) The exemption provided for in Article XI1 (a) shall not apply to

any imported items when items of the same or substantially

the same kind and quality are manufactured locally meeting

CONTRACTOR'S and/or Operating Company's specifications

for quality and safety and are available for timely purchase

and delivery in the A.R.E. at a price not higher than ten

percent (10%) of the cost of the imported! item, before

customs duties but after freight and insurance costs if any

have been added.

(f) CONTRACTOR, GANOPE and their respective buyers shall

have the right to freely export the Petroleum produced from

the Area pursuant to this Agreement; no license shall be

required, and such petroleum shall be exerr~ptedfrom any

customs duties, any taxes, levies or any other imposts in

hereunder.

respect of the export of Petrole~~m

ARTICLE Xlll

BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS



(a) GANOPE, CONTRACTOR and Operating Company shall

each maintain at their business offices in the A.R.E. books of

account, in accordance with the Accounting Procedure in

Annex "EMand accepted accounting practices generally used

in the petroleum industry, and such other books and records

as may be necessary to show the work perfornied under this

Agreement, including the amol-~ntand value of all Petroleum

produced and saved hereunder. CONTRACTOR and

Operating Company shall keep their books of account and

accounting records in United States Dollars.

Operating Company shall furnish to the GOVERNMENT or its

representatives monthly returns showing the amount of

Petroleum produced and saved hereunder. Such returns shall

be prepared in the form required by the GOVERNMENT, or its

representative and shall be signed by the General Manager or

by the Deputy General Manager or a duly designated deputy

and delivered to the GOVERNMENT or its representative

within thirty (30) days after the end of the month covered in



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I-



-



(b) The aforesaid books of account and other books and records



referred to above shall be available at all reasonable times for

inspection by duly authorized representatives of the

GOVERNMENT.

(c) CONTRACTOR shall submit to GANOPE a Profit and Loss

Statement of its Tax Year not later than four (4) months

after the commencement of the following Taxiyear to show

its net profit or loss from the Petroleum operations under

this Agreement for such Tax Year.

CONTRACTOR shall at the same time submit a year-end

Balance Sheet for the same Tax Year to GANOPE. The

Balance Sheet and financial statements shall be certified by

an Egyptian certified accounting firm.

ARTICLE XIV



RECORDS, REPORTS AND INSPECTION

(a) CONTRACTOR and/or Operating Company shall prepare

and, at all times while 'this Agreement is in force, maintain

accurate and current records of its operations in the Area.

CONTRACTOR and/or Operating Company shall furnish the

GOVERNMENT or its representative, in conformity with

applicable regulations or as the GOVERNMENT or its

representative may reasonably require information and data

concerning its operations under this Agreement. Operating

Corr~panywill perform the functions indicated in this Article

XIV in accordance with its role as specified in Article VI.

(b) CONTRACTOR and/or Operating Company shall save and

keep for a reasonable period of time a representative portion

of each sample of cores and cuttings taken from drilling wells,

to be disposed of, or forwarded to the GOVERNMENT or its

representative in the manner directed by the GOVERNMENT.

All samples acquired by CONTRACTOR and/or Operating

Company for their own purposes shall be considered available

for inspection at any reasonable time by the GOVERNMENT

or its represen



a



-.' ( c ) Unless otherwise agreed to by GANOPE, in case of exporting

.-53-



48



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s"'



-



any rock samples outside A.R.E., samples equivalent in size

and quality shall, before such exportation, be delivered to

GANOPE as representative of the GOVERNMENT.



(d) Originals of records can only be exported with the permission

of GANOPE; provided, however, that magnetic ,tapes and any

other data which must be processed or analyied outside the

A.R.E. may be exported if a monitor or a comparable record, if

available, is maintained in the A.R.E. and provided that such

exports shall be repatriated to A.R.E. promptly following such

processing or analysis on the understanding that they belong

to GANOPE.

(e) During the period CONTRACTOR is conducting the

Exploration

operations, GANOPE's duly authorized

representatives or employees shall have the right to full and

conc~pleteaccess to the Area at all reasonable times with the

right to observe the operations being conducted and to

inspect all assets, records and data kept by CONTRACTOR.

GANOPE's representative, in exercising its rights under the

preceding sentence of this paragraph (e), shall not interfere

with CONTRACTOR'S operations. CONTRACTOR shall

provide GANOPE with copies of any and

all

data

(including, but not limited to, geological and geophysical

reports, logs and well surveys) information and interpretation

of such data, and other information in CONTRACTOR'S

possession.

For the purpose of obtaining new offers, the GOVERNMENT

andlor GANOPE may, after the eight (8) years of the

Exploration period or the date of termination of this

Agreement, whichever is the earlier, show any other party

uninterpreted basic geophysical and geological data (such

data to be not less than one ( I ) year old unless

CONTRACTOR agrees to a shorter period, which agreement

shall not be unreasonably withheld) with respect to the Area,

62



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2



L.



provided that the GOVERNMENT and/or GANOPE may at

any time show another party such data directly obtained over

or acquired from those parts of the Area which

CONTRACTOR has relinquished as long as such data is at

least one (I)

year old.



7.



.



ARTICLE XV

i



>



RESPONSIBILITY FOR DAMAGES

-



CONTRACTOR shall entirely and solely be responsible in law toward

third parties for any damage caused by CONTRACTOR'S Exploration

operations and shall indemnify the GOVERNMENT and/or GANOPE

against all damages for which they may be held liable on account of

any such operations. CONTRACTOR should respect and adhere to

all current and future laws and decrees of environment and

antiquities issued and applied in Arab Republic of Egypt.



.,



ARTICLE XVI



-.



PRIVILEGES OF GOVERNMENT REPRESENTAl'IVES

Duly authorized representatives of the GOVERNMENT shall have

access to the Area covered by this Agreement and to the Operations

conducted thereon. Such representatives may examine the books,

registers and records of GANOPE, CONTRACTOR and Operating

Company and make a reasonable number of surveys, drawings and

tests for the purpose of enforcing this Agreement. They shall, for this

purpose, be entitled to make reasonable use of the machinery and

instruments of CONTRACTOR or Operating Company on the

condition that no danger or impediment to the operations hereunder

shall arise directly or indirectly from such use. Such representatives

shall be given reasonable assistance by the agents and employees of

CONTRACTOR or Operating Company so that none of the activities

shall endanger or hinder the safety or efficiency of the operations.

CONTRACTOR or Operating Company shdll offer such

representatives all privileges and facilities accorded to its own

employees in the field and shall provide them, free of charge, the use



of reasonable office space and of adequately furnished housing while



they are in the field for the purpose of facilitating the objectives of this

Article. Without prejudice to Article XIV (e) any and all

information obtained by the GOVERNMENT or its representatives

under this Article XVI shall be kept confidential with respect to the

Area.



ARTICLE XVll

EMPLOYMENT RIGHTS AND TRAINING OF

ARAB REPUBLIC OF EGYPT PERSONNEL

(a) It is the desire of GANOPE and CONTRACTOR that

operations hereunder be conducted in a business-like and

efficient manner.

(1)The expatriate administrative, professional and

technical personnel employed by CONTRACTOR or

Operating

Company and the personnel of its

contractors for the

conduct of the operations

hereunder, shall be granted a residence as provided

for in Law No. 89 of 1960 as amended and

Ministerial Order No. 280 of 1981 as amended, and

CONTRACTOR agrees that all immigration,

passport, visa and err~ploymentregulations of the

A.R.E., shall be applicable to all alien employees of

CONTRACTOR working in the A.R.E.

(2) A minimum of twenty-five percent (25%) of the

combined

salaries and wages of each of the

expatriate administrative, professional and technical

personnel employed by CON'TRACTOR or Operating

Company shall be

paid monthly in Egyptian

Currency.

(b) CONTRACTOR and Operating Company shall each select its

employees and determine the number thereof, to be used for

operations hereunder.



-



-



-.



-



.



>



(c) CONTRACTOR, shall after consultation with GANOPE,

prepare and carry out specialized training programs for all its

A.R.E. employees engaged in operations hereunder with

respect to applicable aspects of the petroleum industry.

CONTRACTOR and

Operating Company undertake to

replace gradually their non-executive expaJriate staff by

qualified nationals as they are available.

(d) During any of the Exploration phases, CONTRACTOR shall

give mutually agreed numbers of GANOPE employees an

opportunity to attend and participate in CONTRACTOR'S and

CON'rRACTOR's Affiliated Cornparries training programs

relating to Exploration and Development operations. In the

event that the total cost of such programs is less than fifty

thousand (50,000) United States Dollars in any Financial Year

during such period, CONTRACTOR shall pay GANOPE the

amount of the shortfall within thirty (30) days following the

end of such Financial Year. However, GANOPE shall have

the right that said amount (U.S.$50,000) allocated for training,

be paid directly to GANOPE for such purpose.



ARTICLE XVI1.I



LAWS AND REGULATIONS

(a) CONTRACTOR and Operating Company shall be subject to

Law No. 66 of 1953 (excluding Article 37 thereof) as aniended

by Law No. 86 of 1956 and the regulations issued for the

implementation thereof, including the regulations for the safe

and efficient performance of operations carried out for the

execution of this Agreement and for the conservation of the

petroleum resources of the A.R.E. provided that no

regulations, or modification or interpretation thereof, shall be

contrary to or inconsistent with the provisions of this

Agreement.



,



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+'



-.



-



a-



the provisions of the Law ,No. 4 of 1994 concerning the

environment and its executive regulation as may be amended

, as well as any laws or regulations may be issued ,

concerning the protection of the environment



(c) Except as provided in Article Ill (g) for Income Taxes,

GANOPE, CONTRACTOR and Operating Cot-jlpany shall be

exempted from all taxes and duties, whether imposed by the

GOVERNMENT or municipalities including among others,

Sales Tax, Value Added Tax and Taxes on the Exploration,

Development, extracting, producing, exporting or transporting

of Petroleum and LPG as well as any and all withholding

taxes that might otherwise be imposed on dividends, interest,

technical service fees, patent and trademark royalties, and

similar items. CONTRACTOR shall also be exempted from

any tax on the liquidation of CONTRACTOR, or distributions

of any income to the shareholders of CONTRACTOR, and

from any tax on capital.

(d) The rights and obligations of GANOPE and CONTRACTOR

under, and for the effective term of this Agreement shall be

governed by and in accordance with the provisions of this

Agreement and can only be altered or amended by the

written mutual agreement of the said contracting parties in

the same procedures by which the original Agreement has

been issued .

(e)The contractors and sub-contractors of CONTRACTOR and

Operating Company shall be subject to the provisions of this

Agreement which affect them. Insofar as all regulations which

are duly issued by the GOVERNMENT apply from time to

time and are not in accord with the provisions of this

Agreement, such regulations shall not apply to

CONTRACTOR, Operating Company and their respective

contractors and sub-contractors, as the case may be.

(f) GANOPE, CONTRACTOR, Operating Company and their

respective contractors and sub-contractors shall for the



professional stamp duties, imposts and levies iniposed by

syndical laws with respect to their documents and activities

hereunder.

(g) All the exemptions from the application of the A.R.E. laws or

regulations granted to GANOPE, CONTRACTOR, the

Operating Company, their contractors and sub-contractors

under this

Agreement shall include such laws and

regulations as presently in effect or hereafter amended or

substituted.



ARTICLE XIX

STABILIZATION

In case of changes in existing legislation or regulations

applicable to the conduct of Exploration, Development and

production of Petroleum, which take place after the Effective

Date, and which significantly affect the economic interest of

this Agreement to the detriment of CONTRACTOR or which

imposes on CONTRACTOR an obligation to remit to the

A. R. E. the proceeds from sales of CONTRACTOR'S

Petroleum, CONTRACTOR shall notify GANOPE of the

subject legislative or regulatory measure. In such case, the

Parties shall negotiate possible modifications to this

Agreement designed to restore the economic balance thereof

which existed on the Effective Date.

The Parties shall use their best efforts to agree on

amendments to this Agreement within ninety (90) days from

aforesaid notice.

These amendments to this Agreement shall not in any event

diminish or increase the rights and obligations of

CONTRACTOR as these were agreed on the Effective Date.

Failing agreement between the Parties during the period

referred to above in this Article XIX , the dispute may be



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F

submitted



to arbitration, as provided in Article XXlV of this



Agreement.



ARTICLE XX

RIGHT OF REQUISITION

(a) In case of national emergency due to war or imminent

expectation of war or internal causes, the GOVERNMENT

may requisition all or part of the production from the Area

obtained hereunder and require Operating Company to

increase such production to the utmost possible maximum.

The GOVERNMENT may also requisition the Oil and/or Gas

field itself and, if necessary, related facilities.

(b) In any such case, such requisition shall not be effected

except after inviting GANOPE and CONTRACTOR or their

representative by registered letter, with acknowledgement of

receipt, to express their views with respect to such

requisition.

(c) The requisition of production shall be effected by Ministerial

Order. Any requisition of an Oil and/or Gas field, or any

related facilities shall be effected by a Presidential Decree

duly notified to GANOPE and CONTRACTOR.

(d) In the event of any requisition as provided above, the

GOVERNMENT shall indemnify in full GANOPE and

CONTRACTOR for the period during which the requisition

is maintained, including:

(I) All damages which result from such requisition; and



(2)



.



F



Full repayment each month for all Petroleum

extracted by the GOVERNMENT less the

royalty share of such production.



However, any damage resulting from enemy attack is not within the

meaning of this paragraph (d). Payment hereunder shall be made to

CONTRACTOR in U.S. Dollars remittable abroad. ;The price paid to

CONTRACTOR for Petroleum taken shall be calculated in

accordance with Article VII (c).

ARTICLE XXI



..



ASSIGNMENT

-



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*



>



(a) Neither GANOPE nor CONTRACTOR may assign to a

person, firm or corporation, in whole or in part, any of its

rights, privileges, duties or obligations under this Agreement

either directly or indirectly without the written consent of the

Goverrlment and in all cases priority shall be given to

GANOPE if it so desire to obtain the interest intended to be

assigned.

(b) To enable consideration to be given to any request for such

consent, the following conditions must be fulfilled:

(1) The obligations of the assignor deriving from this

Agreement must have been duly fulfilled as of the

date such request is made.

The instrument of assignment must include

provisions stating precisely that the assignee is

bound by all

covenants contained in this

Agreement and any modifications or additions in

writing that up to such time may have been made.

A draft of such instrument of assignment shall be

submitted to GANOPE for review and approval

before being formally executed .

(c) Any assignment, sale, transfer or other such conveyance

niade pursuant to the provisions of this Article XXI shall be



n



7



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7



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-.



free of any transfer, capital gains taxes or related taxes,

charges or fees including without limitation, all Income Tax,

Sales Tax, Value Added Tax, Stamp Duty, or other Taxes or

similar payments.

(d)As long as the assignor shall hold any interest under this

Agreement, the assignor together with the assignee shall be

jointly and severally liable for all duties and! obligations of

CONTRACTOR under this Agreement.



BREACH OF AGREEMENT AND POWER TO CANCEL

.



*



-.

-



,



(a) The GOVERNMENT shall have the right to cancel this

Agreement by Order or Presidential-Decree, with respect to

CONTRACTOR, in the following instances:

(1)lf it knowingly has submitted any false statements to the

GOVERNMENT which were of a material consideration

for the execution of this Agreement;

(2)lf it assigns any interest hereunder contrary to the

provisions of Article XXI;



(3) If it is adjudicated bankrupt by a court of competent

jurisdiction;

(4) If it does not comply with any final decision reached as

the result of court proceedings conducted under Article

XXIV(a);



(5) If it intentionally extracts any mineral other than

Petroleum not authorized by this Agreement or without

the authority of the GOVERNMENT, except such

extractions as may be unavoidable as the result of the

operations conducted hereunder in accordance with

accepted petroleum industry practice and which shall

be notified to the GOVERNMENT or its representative



as soon as possible; and



L



,



-,



-



>



(6) If it commits any material breach of this Agreement or

of the provisions of Law No. 66 of 1953, as amended by

Law No. 86 of 1956, which are not contradicted by the

provisions of this Agreement.

Such cancellation shall take place without prejudice to

any rights which may have accrued to the

GOVERNMENT

against

CO.NTRACTOR

in

accordance with the provisions of this Agreement, and,

in the event of such cancellation, CONTRACTOR, shall

have the right to remove froni the Area all its personal

property.

(b) If the GOVERNMENT deems that one of the aforesaid causes

(other than a force majeure cause referred to in Article XXIII)

exists to cancel this Agreement, the GOVERNMENT shall

give CONTRACTOR ninety (90) days written notice personally

served on CONTRACTOR'S General Manager in the legally

official manner and receipt of which is acknowledged by him

or by his legal agents, to remedy and remove such cause; but

if for any reason such service is impossible due to

unnotified change of address, publication in the Official

Journal of the GOVERNMENT of such notice shall be

considered as valid service upon CONTRACTOR. If at the

end of the said ninety (90) day notice period such cause has

not been remedied and removed, this Agreement may be

canceled forthwith by Order or Presidential Decree as

aforesaid; provided however, that if such cause, or the failure

to remedy or remove such cause, results from any act or

omission of one party, cancellation of this Agreement shall be

effective only against that party and not as against any other

party hereto.



ARTICLE XXlll

FORCE MAJEURE

(a) The non-performance or delay in performance by GANOPE

and CON'TRACTOR, or either of them of any obligation under

this Agreement shall be excused if, and to the extent that,

such non-performance or delay is caused by: force majeure.

The period of any such non-performance or delay, together

with such period as may be necessaryfor the restoration of

any damage done during such delay, shall be added to the

time given in this Agreenient for the performance of such

obligation and for the performance of any obligation

dependent thereon and consequently, to the term of this

Agreement, but only with respect to the block or blocks

affected.

(b) "Force Majeure" within the meaning of this Article XXIII, shall

be any order, regulation or direction of the GOVERNMENT of

the ARAB REPUBLIC OF EGYPT, or with respect to

CON-TRACTOR, the Government of England whether

promulgated in the form of a law or otherwise or any act of

God, insurrection, riot, war, strike, and other labor

disturbance, fires, floods or any cause not due to the fault or

negligence of GANOPE and CONTRACTOR or either of

them, whether or not similar to the foregoing, provided that

any such cause is beyond the reasonable control of GANOPE

and CONTRACTOR, or either of them.

(c) Without prejudice to the above and except as may be

otherwise provided herein, the GOVERNMENT shall incur no

responsibility whatsoever to GANOPE and CONTRACTOR, or

either of them for any damages, restrictions or loss arising in

consequence of such case of force majeure except a force

majeure caused by the order, regulations or direction of the

GOVERNMENT of the ARAB REPUBLIC OF EGYPT.

(d)If the force majeure event occurs during the initial Exploration

period or any extension thereof and continues in effect for a

period of six (6) months CONTRACTOR shall have the option

upon ninety (90) days prior written notice to GANOPE to



terminate its obligations hereunder without further liability of

any kind.



ARTICLE XXlV

DISPUTES AND ARBITRATION,

(a) Any dispute, controversy or claim arising. out of or relating to

this Agreement or the breach, terminqtion or invalidity thereof,

between the GOVERNMENT and the parties shall be

referred to the jurisdiction of the appropriate A. R. E. Courts

and shall be finally settled by such Courts.

(b) Any dispute, controversy or claim arising out of or relating to

this Agreement, or breach, termination or invalidity thereof

between GANOPE and CONTRACTOR shall be settled by

arbitration in accordance with the Arbitration Rules of the

Cairo

Regional Center for International Commercial

Arbitration (the Center) in effect on the date of this

Agreement. The award of the arbitrators shall be final and

binding on the parties.

(c) The number of arbitrators shall be three (3).

(d) Each party shall appoint one arbitrator. If, within thirty (30)

days after receipt of the claimant's notification of the

appointment of an arbitrator the respondent has not notified

the claimant in writing of the name of the arbitrator he

appoints, the claimant may request the Center to appoint the

second arbitrator.

(e) The two arbitrators thus appointed shall choose the third

arbitrator who will act as the presiding arbitrator of the

tribunal. If within thirty (30) days after the appointment of the



< >



-,



-



-



2



second arbitrator, the two arbitrators have not agreed upon

the choice of the presiding arbitrator, then either party may

request the Secretary General of the Permanent Court of

Arbitration at the Hague to designate the appointing

authority. Such appointing authority shall appoint the

presiding arbitrator in the same way as a sole arbitrator

would be appointed under Article 6.3 of the UNCITRAL

Arbitration Rules. Such presiding arbitrator' shall be a

person of a nationality other than the A.R.E. or England

and of a country which has

diploniatic relations with

both A.R.E. and England and who shall have no economic

interest in the Petroleum business of the signatories hereto.

(f) Unless otherwise agreed by the parties to the arbitration, the

arbitration, including the making of the award, shall take place

in Cairo, A.R.E.

(g) The decision of a majority of the arbitrators shall be final and

binding upon the Parties and the arbitral award rendered shall

be final and conclusive. Judgment on the arbitral award

rendered, may be entered in any court having Jurisdiction or

application may be made in such court for a judicial

acceptance of the award and for enforcement, as the case

may be.

(h) Egyptian Law shall apply to the dispute except that in the

event of any conflict between Egyptian Laws and this

Agreement, the provisions of this Agreement (including the

arbitration provision) shall prevail. The arbitration shall be

conducted in both English and Arabic languages.

(i)



GANOPE and CONTRACTOR agree that if, for whatever

reason, arbitration in accordance with the above procedure

cannot take place, or is likely to take place under

circumstances for CONTRACTOR which could prejudice

CONTRACTOR'S right to fair arbitration, all disputes,

controversies or claims arising out of or relating to this

Agreement or the breach, termination or invalidity thereof

shall be settled by ad hoc arbitration in accordance with the

les in effect on the Effective Date.

UNCITRAm



ARTICLE XXV

STATUS OF PARTIES

(a) The rights, duties, obligations and liabilities jn respect of

GANOPE and CONTRACTOR hereunder shall'be several and

not joint or collective, it being understood that this Agreement

shall not be construed as constituting an association or

corporation or partnership.

(b) CONTRACTOR shall be subject to the laws of the place

where it is incorporated regarding its legal status or creation,

organization, charter and by-laws, shareholding, and

ownership.

CONTRACTOR'S shares of capital which are entirely held

abroad shall not be negotiable in the A.R.E. and shall not be

offered for public subscl-iption nor shall be subject to the

stamp tax on capital shares nor any tax or duty in the A.R.E.

CON'TRACTOR shall be exempted from the application of

Law No. 159 of 1981 as amended.

(c) In case CONTRACTOR consists of more than one member,

all CONTRACTOR Members shall be joir~tlyand severally

liable for the performance of the obligations of

CONTRACTOR under this Agreement.



ARTICLE XXVl

LOCAL CONTRACTORS AND

LOCALLY MANUFACTURED MATERIAL

CONTRACTOR or Operating Company, as the case may be, and

their contractors shall:



75



(a)Give priority to local contractors and sub-contractors, including

GANOPE's Affiliated Compar~iesas long as their performance

is comparable with international performance and the prices of

their services are not higher than the prices of other

contractors and sub-contractors by more than ten percent

(I

0%).

(b)Give preference to locally manufactured material, equipment,

machinery and consumables so long as their quality and time

of delivery are comparable to internationally available

material, equipment, machinery and consumables. However,

such material, equipment, machinery and consumables may

be imported for operations conducted hereunder if the local

price of such items at CONTRACTOR'S or Operating

Company's operating base in A.R.E. is more than ten percent

(10%) higher than the price of such imported items before

customs duties, but after transportation and insurance costs

have been added.



ARABIC TEXT

The Arabic version of this Agreement $hall, before the courts of

A.R.E. be referred to in c~ngtrulngorinterpreting this Agreement;

provided however , that in any erbltration pursuant to Article XXlV

herein above between GANOPE and CONTRACTOR the

English and Arabic versions .sh@11both be referred to as having

equal force in c~nstruingor interpreting the Agreement.



ARTICLE XXVlll

GENERAL

-



\



.,



The headings or titles to each of the Articles to this Agreement are

solely for the convenience of the parties hereto and shall not be used

with respect to the interpretation of said Articles.

7!



ARTICLE XXlX

APPROVAL OF THE GOVERNMENT

This Agreenient shall not be binding upon any of the parties hereto

unless and until a law is issued by the competent authorities of the

A.R.E. authorizing the Minister of Petroleum to sign this Agreement

and giving this Agreement full force and effect of law notwithstanding

any countervailing Governmental enactment , and the Agreement is

signed by the GOVERNMENT, GANOPE, and CONTRACTOR

6 b 2 3 ~ k



GANOUB EL-WADI HOLDING PETROLEUM COMPANY



JL-dp '



BY: -



I



-



ANNEX "A"

CONCESSION AGREEMENT

BETWEEN

THE ARAB REPUBLIC OF EGYPT

AND

GANOUB EL-WADI HOLDING PETROLEUM COMPANY

AND

QUADRA EGYPT LIMITED

IN

NUQRA

AREA

A.R.E.



Boundary Description of the concession Area

Annex "6" is an illustrative map scaled 1:2,000,000 showing the Area

covered and affected by this Agreement..

The Area measures approximately 30027 squared Kilometers East of

Nile River. It is composed of all or part of 1135 Exploration Blocks

defined on a 3min. by 3min. grid . Using Latitude 26' North and

Longitude 34' East as reference lines as shown in Annex B .

It is to be noted that the delineation lines of the individual Exploration

Blocks in Annex " B " are intended to be only illustrative and

provisional and may not show accurately their true position in relation

to existing monuments and geographical features . The Area is

bounded by a group of straight lines .



Coordinates of the corner point of the Area are given in the following

table which forms an integral part of Annex "A"

BOUNDARY COORDINATES

OF NUQRA AREA BLOCK 1

GANOUB EL WADI



IN A.R.E.

i



Point

*I

2

3

4

5

6

7

8

9

10

11

12

13

* I4



*

*



Latitude

North

26' 00' 00"

26' 00' 00"

24' 35' 00"

24' 35' 00"

24' 27' 00"

24' 27' 00"

23' 45' 00''

23' 45' 00"

23' 15' 00"

23' 15' 00"

23' 52' 00"

23' 52' 00"

23' 58' 00"

23' 58' 00"



Longitude

East

App. 32' 48'

33' 40'

33' 40'

33' 47'

33' 47'

34' 17'

34' 17'

34' 30'

34' 30'

33' 40'

33' 40'

33' 33'

33' 33'

App. 32' 55'



Due

00"

00"

00"

00"

00"

00"

00"

00"

00"

00"

00"

00"

00"

00"



East to Point 2

South to Point 3

East to Point 4

South to Point 5

East to Point 6

South to Point 7

East to Point 8

South to Point 9

West to Point 10

North to Point 11

West to Point 12

North to Point 13

West to Point 14



Point 1 is Located at the intersection of Lat 26 0 00' 00" with the

Nile River east bank at the following Approximate coordinates Lat

26 O 00' 00" N Long 32 O 48' 00" E

Point 14 is Located at the intersection of Lat 23O 58' 00" with the

Naser Lake east bank at the following Approximate coordinates

Lat 23O 58' 00" N Long 32O 55' 00" E



ANNEX "6"

Map of Concession Agreement



Nuqra Area Block- 1

Ganoub El Wadi - A.R.E



33'00'

ANNEX "B"

CONCESSION AGREEMENT

Between

A.R.E. And Ganoub EL Wadi Holding

Petroleum Company

AND

QUADRA EGYPT LIMITED



rN

Nuqra Area Block-1 Ganoub El Wadi

A.R.E

Scale 1 :2,000,000



ANNEX "C"

LETTER OF GUARANTEE

Letter of Guarantee No. --- (Cairo ------------ 200--), GANOUB ELWADI HOLDING PETROLEUM COMPANY.

Gentlemen,



i



The undersigned, National Bank of Egypt as Guarantor, hereby

guarantees to GANOUB EL-WADI HOLDING

PETROLEUM

COMPANY( hereinafter referred to as " GANOPE " ) to the limit

of two millions ($ 2,000,000 ) U.S. Dollars , the performance by

"QUADRA EGYPT LIMITED "

(hereinafter referred to as

"CONTRACTOR") of its obligations required for Exploration

operations to spend a minimum of two millions ($ 2,000,000 ) U.S.

Dollars during the initial two (2) years of the Exploration period

under Article IV of that certain Concession Agreement (hereinafter

referred to as the "Agreement") covering that Area described in

Annexes "A" and "6" of said Agreement, by and between the Arab

Republic of Egypt (hereinafter referred to as "A.R.En), GANOPE and

CONTRACTOR, dated ------- .

It is understood that this Guarantee and the liability of the Guarantor

hereunder shall be reduced quarterly, during the period of

expenditure of said two millions ( $ 2,000,000) U.S. Dollars by the

amount of money expended by CONTRACTOR for such Exploration

operations during each such quarter. Each such reduction shall be

established by the joint written statement of CONTRACTOR and

GANOPE.

In the event of a claim by GANOPE of non-performance or surrender

of the Agreement on the part of CONTRACTOR prior to fulfillment of

said minimum expenditure obligations under Article IV of the

Agreement, there shall be no liability on the undersigned Guarantor

for payment to GANOPE unless and until such liability has been

established by written statement of GANOPE setting forth the

amount due under the Agreement.



(1) This Letter of Guarantee will become available only provided

that the Guarantor will have been informed in writing by

CONTRACTOR and GANOPE that the Agreement between

CONTRACTOR, A.R.E. and GANOPE has become effective

according to its terms, and said Guarantee shall become

effective on the Effective Date of said Agreement.

(2) This Letter of Guarantee shall in any event automatically expire:

( ) years and six (6) months after

the date it becomes effective, or

(b) At such time as the total of the amounts

shown on

quarterly joint statements of

GANOPE and CONTRACTOR equals or

exceeds the amount of said minimum

expenditure obligation, whichever is earlier.

(a)



(3) Consequently, any claim, in respect thereof should be made

to the Guarantor prior to either of said expiration dates at the

latest accompanied by GANOPE's written statement, setting

forth the amount of under-expenditure by CONTRACTOR to

the effect that:

(a) CONTRACTOR has failed to perform its expenditure

obligations referred to in this Guarantee, and

(b) CONTRACTOR has failed to pay the expenditure

deficiency to GANOPE.

Please return to us this Letter of Guarantee in the event it does not

become effective, or upon the expiry date.

Yours Faithfully,



Manager : ...................................

ANNEX "DM



ANNEX "D"

CHARTER OF OPERATING COMPANY

ARTICLE I

A joint stock company having the nationality of the ARAB REPUBLIC

OF EGYPT shall be formed with the authorization of the

GOVERNMENT in accordance with the provisions of this Agreement

referred to below and of this Charter.

The Corr~panyshall be subject to all laws and regulations in force in

the A.R.E. to the extent that such laws and regulations are not

inconsistent with the provisions of this Charter and the Agreement

referred to below.

ARTICLE II

'The name of the Operating Company shall be mutually agreed upon

between GANOPE and CONTRACTOR on the date of the

Commercial Discovery and shall be subject to the approval of the

Minister of Petroleum.

ARTICLE Ill

The Head Office of Operating Company shall be in the A.R.E. in

Cairo.

ARTICLE IV

The object of Operating Company is to act as the agency through

which GANOPE and CONTRACTOR, carry out and conduct 'the

Development operations required in accordance with the provisions

by and

of the Agreement signed on the ------ day of

between the ARAB REPUBLIC OF EGYPT, GANOUB EL-WADI

HOLDING PETROLEUM COMPANY and CONTRACTOR covering

Petroleum operations in Nuqra Area Block-I , described therein.

-me------------



Operating Company shall be the agency to carry out and conduct



exploration operations after the date of Commercial Discovery

pursuant to Work Programs and Budgets approved in accordance

with the Agreement.

Operating Company shall keep account of all costs, expenses and

expenditures for such operations under the termsiof the Agreement

and Annex "E" thereto.

Operating Conipany shall not engage in any business or undertake

any activity beyond the performance of said operations unless

otherwise agreed upon by GANOPE and CONTRACTOR.

ARTICLE V

The authorized capital of Operating Company is twenty thousand

Egyptian Poundsdivided into five thousand shares of common stock

with a value of four Egyptian Pounds per share having equal voting

rights, fully paid and non-assessable.

GANOPE and CONTRACTOR shall each pay for, hold and own,

throughout the life of Operating Company, one half (112) of the capital

stock of Operating Company provided that only in the event that

either party should transfer or assign the whole or any percentage of

its ownership interest in the entirety of -the Agreement, may such

transferring or assigning party transfer or assign any of the capital

stock of Operating Company and, in that event, such transferring or

assigning party (and its successors

and assignees) must

transfer and assign a stock interest in Operating Company equal to

the transferred or assigned whole or percentage of its ownership

interest in the entirety of the said Agreement.

ARTICLE VI

Operating Company shall not own any right, title, interest or estate in

or under the Agreement or any Development Lease created

thereunder or in any of the Petroleum produced from any Exploration

Block or Development Lease thereunder or in any of the assets,

equipment or other property obtained or used in connection

therewith, and shall not be obligated as a principal for the financing



or performance of any of the duties or obligations of either GANOPE

or CONTRACTOR under the Agreement. Operating Company shall

not make any profit from any source whatsoever.

ARTICLE VII

Operating Company shall be no more than an agent for GANOPE

and CONTRACTOR. Whenever it is indicated herein that Operating

Company shall decide, take action or make a proposal and the like, it

is understood that such decision or judgment is the result of the

decision or judgment of GANOPE, CONTRACTOR or GANOPE and

CONTRACTOR, as may be required by the Agreement.

ARTICLE VIII

Operating Company shall have a Board of Directors consisting of

eight (8) members, four (4) of whom shall be designated by GANOPE

and the other four (4) by CONTRACTOR. The Chairman shall be

designated by GANOPE and shall also be a Managing Director.

CON-TRACTOR shall designate the General Manager who shall also

be a Managing Director.

ARTICLE IX

Meetings of the Board of Directors shall be valid if a majority of the

Directors are present and any decision taken at such meetings must

have the affirmative vote of five (5) or more of the Directors; provided,

however, that any Director may be represented and vote by proxy

held by another Director.

ARTICLE X

General meetings of the Shareholders shall be valid if a majority of

the capital stock of Operating Company is represented thereat. Any

decision taken at such meetings must have the affirmative vote of

Shareholders owning or representing a majority of the capital stock.



ARTICLE XI



-<



..,



The Board of Directors shall approve the regulations covering the

terms and conditions of employment of the personnel of Operating

Company employed directly by Operating Company and not assigned

thereto by CONTRACTOR and GANOPE.

The Board shall, in due course, draw up the BY-Laws of Operating

Company, and such By-Laws shall be effective upon being approved

by a General Meeting of the Shareholders, in accordance with the

provisions of Article X hereof.

ARTICLE XI1

Operating Company shall come into existence within thirty (30) days

after the date of Commercial Oil Discovery or within thirty (30) days

after signature of a Gas Sales Agreement or commencement of a

scheme to dispose of Gas, as provided for in the Agreement (unless

otherwise agreed by GANOPE and CONTRACTOR).

The duration of Operating Company shall be for a period equal to the

duration of the said Agreement, including any renewal thereof.

The Operating Company shall be wound up if the Agreement

to above is terminated for any reason as provided for therein.



GANOUB EL-WADI HOLDING PETROLEUM COMPANY



The Board of Directors shall approve the regulations covering the

terms and conditions of employment of the personnel of Operating

Company employed directly by Operating Company and not assigned

thereto by CONTRACTOR and GANOPE.

of sOperating

The Board shall, in due course, draw up the ~ ~ - i a w

Company, and such By-Laws shall be effective upon being approved

by a General Meeting of the Shareholders, in accordance with the

provisions of Article X hereof.

ARTICLE XI1

Operating Company shall come into existence within thirty (30) days

after the date of Commercial Oil Discovery or within thirty (30) days

after signature of a Gas Sales Agreement or commencement of a

scheme to dispose of Gas, as provided for in theAgreement (unless

otherwise agreed by GANOPE and CONTRACTOR).

The duration of Operating Company shall be for a period equal to the

duration of the said Agreement, including any renewal thereof.

The Operating Company shall be wound up if the Agreement referred

to above is terminated for any reason as provided for therein.

QUADRA EGYPT LIMITED



GANOUB EL-WADI HOLDING PETROLEUM COMPANY

By



:---.................................................



ANNEX "EM

ACCOUNTING PROCEDURE



ARTICLE I



!



GENERAL PROVISIONS

(a)



Definitions:



The definitions contained in Article I of the Agreement shall apply

to this Accounting Procedure and-have the same meanings.

(b)



Statements of activity:



( I ) CONTRACTOR shall, pursuant to Article IV of this

Agreement, and until the coming into existence of the

Operating Company - in accordance with Article VI of the

Agreement - render to GANOPE within thirty (30) days of

the end of each calendar quarter a Statement of Exploration

Activity reflecting all charges and credits related to 'the

Exploration Operations for that quarter summarized by

appropriate classifications indicative of the nature thereof.

(2) Following its coming into existence, Operating Conipany

shall render to GANOPE and CONTRACTOR within fifteen

(15) days of the end of each calendar quarter a Statement

of Development and Exploration Activity reflecting all

charges and credits related to the Development and

Exploration operations for that quarter summarized by

appropriate classifications indicative of the nature thereof,

except that items of controllable material and unusual

charges and credits shall be detailed.



(c)



Adjustments and Audits:



( I ) Each quarterly Statement of Exploration Activity pursuant

to Article I (b) (1) of this Annex shall conclusively be



presumed to be true and correct after three (3) months

following the receipt of each Statement by GANOPE unless

within the said three (3) months GANOPE takes written

exception thereto pursuant to Article IV (f) of the

Agreement. During the said three (3) month period

supporting documents will be available for inspection by

GANOPE during all working hours.

!



CONTRACTOR will have the

same audit rights on

Operating Company Statements as GANOPE under this

sub-paragraph.

(2) All Statements of Development and Exploration Activity for

any calendar quarter pursuant to Article I (b) (2) of this

Annex, shall conclusively be presumed to be true and

correct three (3) months following the receipt of such

Statement, unless within the said three (3) months period

GANOPE or CONTRACTOR takes written exception

thereto. Pending expiration of said three (3) months

GANOPE or CONTRACTOR or both of them shall have the

right to audit Operating Company accounts, records and

supporting documents for such quarter in the same manner

as provided in Article IV (f) of the Agreement.



(d) C,urrency Exchange:

CONTRACTOR'S books for Exploration and Operating

Company's books for Development and Exploration, if any,

shall be kept in the A.R.E. in U.S. Dollars. All U.S. Dollars

expenditures shall be charged in the amount expended. All

Egyptian Pounds expenditures shall be converted to U.S.

Dollars at the applicable rate of exchange issued by the

Central Bank of Egypt on the first day of the month in which

expenditures are recorded, and all other non-U.S. Dollars

expenditures shall be translated to U.S. Dollars at the

buying rate of exchange for such currency as quoted by

National Westminster Bank Limited, London at 10.30 a.m.

G.M.T., on the first day of the month in which expenditures

are recorded. A record shall be kept of the exchange rates

used in translating Egyptian Pounds or other non-U.S

Dollars expenditures to U.S. Dollars.



(e)



Precedence of Documents:

In the event of any inconsistency or conflict.!between the

provisions of this Accounting Procedure and the provisions

of the Agreement treating the same subject differently, then

the provisions of the Agreement shall prevail.



(f)



Revision of Accounting Procedure:

By

mutual

agreement

between

GANOPE

and

CONTRACTOR, this Accounting Procedure may be revised

time in the light of future

in writing from time to

arrangements.



(g)



No Charge for lnterest on Investment:

lnterest on investment or any bank fees, charges or

commissions related to any bank guarantees shall not at

any time be charged as recoverable costs under the

Agreement.

ARTICLE II

COSTS, EXPENSES AND EXPENDITURES



Subject to the provisions of the Agreement, CONTRACTOR shall

alone bear and, directly or tl-trough Operating Company, pay the

following costs and expenses, which costs and expenses shall be

classified and allocated to the activities according to sound and

generally accepted accounting principles and treated and recovered

in accordance with Article VII of this Agreement:



(a)



Surface Rights:

All direct cost attributable to the acquisition, renewal or

relinquishment of surface rights acquired and maintained in

force for the Area.



(b)



Labor and Related Costs:



(1) Salaries and Wages of CONTRACTOR'S or Operating

Company's employees, as the case may be, directly

engaged in the various activities under the Agreement

including salaries and wages paid to geologists and other

employees who are temporarily assigned to and employed

in such activities. Such salaries and wages to be certified

by a certified public accounting firm.

Reasonable revisions of such salaries and wages shall be

effected to take into account changes in CONTRACTOR'S

policies and amendments of laws applicable to salaries. For

the purpose of this Article II (b) and Article II (c), salaries

and wages shall mean the assessable amounts for A.R.E.

Income Taxes, including the salaries during vacations and

sick leaves, but excluding all the amounts of the other items

covered by the percentage fixed under (2) below.

(2) For expatriate employees permanently assigned to Egypt:

1.



All allowances applicable to salaries and wages;



2.



Cost of established plans; and



3. All travel and relocation costs of such



expatriate employees and their

families

to

and from

the

employee's country or point of

origin at the time ofemployment, at

the time of separation, or as a

result of transfer from one location



to another and for vacation

(transportation costs for employees

and their farr~ilies,transferring from

the A.R.E. to another location

other than their country of origin

shall not be charged to A.R.E.

Operations).

I



Costs under this Article II ( b ) ( 2 ) shall be deemed to be equal

to fourty seven percent (47%) of basic salaries and wages paid for

such expatriate persor~nelincluding those paid during vacations and

sick leaves as established in CONTRACTOR'S international policies,

chargeable under Article II (b) (I), Article 11 (i), Article II (k) (1) and

Article II (k)(3) of this Annex.

However, salaries and wages during vacations, sick leaves and

disability are covered by the foregoing percentage. The percentage

outlined above shall be deemed to reflect CONTRACTOR'S actual

costs as of the Effective Date with regard to the following benefits,

allowances and costs :I.

2.

3.

4.

5.

6.

7.



8.

9.

10.

11.

12.

13.



Housing and Utilities Allowance.

Commodities and Services Allowance.

Special Rental Allowance .

Vacation Transportation Allowance.

Vacation Travel Expense Allowance.

Vacation Excess Baggage Allowance.

Education Allowances (Children of

Expatriate Employees).

Hypothetical U.S. Tax Offset (which

results in a

reduction of the

chargeable percentage).

Storage of Personal Effects.

Housing Refurbishment Expense.

Property Management Service Fees.

Recreation Allowance.

Retirement Plan.



Group Life Insurance.

Group Medical Insurance.

Sickness and Disability.

Vacation Plans Paid (excluding

Allowable

Vacation

Travel

Expenses).

i

Savings Plan.

Educational Assistance.

Military Service Allowance.

F.I.C.A.

Workman's Corr~pensation.

Federal and State Unemployment Insurance.

Personnel Transfer Expense.

National Insurance.

Any other Costs, Allowances and

Benefits of a like

nature as

established in CONTRACTOR'S

International Policies.

$



The percentages outlined above shall be reviewed at

intervals of three (3) years from the Effective Date and at

such time CONTRACTOR and GANOPE will agree on

new percentages to be used under this paragraph.

Revisions of the percentages will take into consideration variances

in costs and changes in CONTRACTOR'S international policies which

change or exclude any of the above allowances and benefits.

The revised percentages will reflect as nearly as possible

CONTRACTOR'S actual costs of all its established allowances and

benefits and of personnel transfers.

(3) For expatriate employees temporarily assigned to Egypt

all allowances, costs of established plans and all travel

relocation costs for such expatriates as paid in

accordance with

CONTRACTOR'S international

policies. Such costs shall not include any administrative

overhead other than what is mentioned in Article II (k)

(2) of this Annex.



(4) Costs of expenditure or conatributionsmade pursuant to

law or assessment imposed by Governmental authority

which are applicable to labor cost of salaries and wages

er

II (b) (I), Article II (b) (2), Article

as provided ~ ~ n dArticle

II (i), Article II (k) (1) and Article II (k) (3) of this Annex.

(c) Benefits, allowances and related costs of national

employees :

Bonuses, overtime, customary allowances and benefits on

a basis similar to that prevailing for oil compar~ies

operating in the A.R.E., all as chargeable under Article II

(b) (I), Article II (i), Article II (k) ( I ) and Article II (k) (3) of

this Annex. Severance pay will be charged at a fixed rate

applied to payrolls which will equal an amount equivalent

to the maximum liability for severance payment as

required under the A.R.E. Labor Law.

(d)



Material



Material, equipment and supplies purchased or furnished as

such by CONTRACTOR or Operating Company.

(1) Purchases:

Material, equipment and supplies purchased shall be at

the price paid by CONTRACTOR or Operating

Corr~panyplus any related cost and after deduction of

all discounts actudlly received.

(2) Material Furnished by CONTRACTOR:

Material required for operations shall be purchased

directly

whenever

practicable,

except

that

CONTRACTOR may furnish such material from

CONTRACTOR'S or CONTRACTOR'S

Affiliated

Companies stocks outside the A.R.E. under the

following conditions:



1.



New Material (Condition "A")

New Material transferred from

Contractor's or

Contractor's

Affiliated Companies warehouse or

other properties shall be priced at

cost, provided that the cost of

material supplied is not higher than,

international prices for material ofsimilar quality supplied on similar

terms, prevailing at the time such

material was supplied.



2.



Used Material (Conditions "B" and "C")

a)Materiall which is in sound and

serviceable condition and is

suitable

for

reuse

without

reconditior~ingshall be classed as

Condition "B" and priced at seventy

- five percent (75%) of the price of

new material.

b) Material which cannot be classified

as Condition "B" but which is

serviceable for original function but

substantially not suitable for

reconditioning, shall be classed as

Condition "C" and priced at fifty

percent (50%) of the price of new

material.

c) Material which cannot be classified

as Condition "B" or Condition "C"

shall be priced at a value

commensurate with its use.

d)Tanks,

buildings

and

other

equipment involving erection costs

shall be charged at applicable

percentage of knocked - down new

price.



(3)



Warranty of Materials Furnished by CONTRACTOR



CONTRACTOR does not warrant the material furnished beyond

or back of the dealer's or manufacturer's Guarantee; and in case

of defective material, credit shall not be recorded until adjustment

has been received by CONTRACTOR from manufacturers or their

agents.

6



(e)



Transportation and Employee Relocation Costs:



(1) Transportation of eql-ripment, materials and supplies

necessary for the conduct of CONTRACTOR'S or Operating

Company's activities.

(2) Business travel and transportation expenses to the extent

covered by established policies of CONTRACTOR or with

regard to expatriate and national employees, as incurred

and paid by, or for, employees in the conduct of

CONTRACTOR'Sor Operating Company's business.

(3) Employees transportation and relocation costs for national

employees to the extent covered by established policies.



(f)



Services:

(1) Outside services: The costs of contracts for consultants,

services and utilities procured from third parties.

(2) Cost of services performed by GANOPE or by

CONTRACTOR, or their Affiliated Companies in facilities

inside or outside the A.R.E. Regular, recurring, routine

services, such as interpreting magnetic tapes and/or other

analyses, shall be performed and charged by GANOPE

and/or CONTRACTOR or their Affiliated Companies at an

agreed contracted price. Major projects involving

engineering and design services shall be performed by



GANOPE and/or CONTRACTOR or

their Affiliated

Companies at a negotiated contract amount.



(3) Use of GANOPE's, CONTRACTOR'S or their Affiliated

Companies' wholly owned equipment shall be charged at

a rental rate commensurate with the cost of ownership

and operation, but not in excess of competitive rates

currently prevailing in the A.R.E.

I



(4) CONTRACTOR'S and CONTRACTOR'S Affiliated

Companies' rates shall not include any administrative or

overhead costs other than what is mentioned in Article II

(k) (2).

(g)



Damages and Losses:



All costs or expenses, necessary to replace or repair damages

or losses incurred by fire, flood, storm, theft, accident or any

other cause not controllable by CONTRACTOR or Operating

Company through the exercise of reasonable diligence.

CONTRACTOR or Operating Company shall furnish GANOPE

and CON'TRACTOR written notice of damages or losses

incurred in excess of ten thousand ($A0,000) U.S. Dollars per

occurrence, as soon as practicable after report of the same has

been received by CONTRACTOR or Operating Company.



(h)



Insl.~ranceand Claims:



The cost of any public liability, property damage and other

insurance against liabilities of CONTRACTOR, Operating

Company and/or the parties or any of them to their

employees and/or outsiders as may be required by the

laws, rules and regulations of the GOVERNMENT or as the

parties may agree upon. The proceeds of any such

insurance or claim collected, less the actual cost of making

a claim, shall be credited against operations.



If no insurance is carried for a particular risk, in accordance

with good international oil field practices, all related actual

expenditures incurred and paid by CONTRACTOR or

Operating Company in settlement of any and all losses,

claims, damages, judgments and any other expenses,

including legal services.

(i)



Indirect Expenses:

Canip overhead and fac'ilities such as shore base,

warehouses, water systems, road systems, salaries and

expenses of field

supervisory personnel, field clerks,

assistants, and other general employees indirectly serving

the Area.



(j)



Legal Expenses:

All costs and expenses of litigation, or legal services

othewise necessary or expedient for the protection of the

Area, including attorney's fees and expenses as hereinafter

provided, together with all judgments obtained against the

parties or any of them on account of the operations under

the Agreement, and actual expenses incurred by any party

or parties hereto in securing evidence for the purpose of

defending against any action or claim prosecuted or urged

against the operations or the subject matter of the

Agreement. In the event actions or claims affecting the

interests hereunder shall be handled by the legal staff of one

or more of the parties hereto, a charge commensurate with

cost of providing and furnishing such services may be made

to operations.



(k)



Administrative Overhead and General Expenses:



(1)While CON-TRACTOR is conducting Exploration

operations, the cost of staffing and maintaining

CONTRACTOR'S head office in the A.R.E. and/or other

offices established in the A.R.E. as appropriate other than

field offices which will be charged as provided in Article II

(i), and excepting salaries of employees of CONTRACTOR



who are temporarily assigned to and directly serving on the

Area, which will be charged as provided in Article II (b) of

this Annex.

(2) CONTRACTOR'S administrative overhead outside the A. R. E.

applicable to Exploration operations in the A.R.E. shall be

charged each month at the rate of five percent (5%) of total

Exploration expenditures, provided that i o administrative

overhead of CONTRACTOR outside the A.R.E. applicable to

A.R.E. Exploration operations will be charged for Exploration

operations conducted by Operating Conlpany. No other direct

charges as such for CONTRACTOR'S administrative overhead

outside the A.R.E. will be applied against the Exploration

obligations. Exarr~plesof the type of costs CONTRACTOR is

incurring and charging hereunder due to activities under this

Agreement and covered by said percentage are:

1. Executive - Time of executive officers.

2. Treasury - Financial and exchange problems.

3. Purchasing - Procuring materials, equipment and supplies.

4. Exploration and Production-Directing, advising and controlling

the entire project.

5. Other departments such as legal, comptroller and engineering

which contribute time, knowledge and experience to the

operations.

The foregoing does not preclude charging for direct service

under Article II (f) (2) of this Annex.

(3)While Operating Company is conducting operations,

Operating Company's personnel engaged in general clerical

and office work, supervisors and officers whose time is

generally spent in the main office and not the field, and all

employees generally considered as

general and

administrative and not charged to other types of expense

will be charged to operations. Such expenses shall be

allocated each month between Exploration and

Development operations according to sound and practicable

accounting methods.



..

- ,



(I)



All taxes, duties or levies paid in the A.R.E. by

CONTRACTOR or Operating Company with respect

to this Agreement other than those covered by Article Ill

(g) (1) of the Agreement.



.,



.,

-



Taxes:



(m) Continuing CONTRACTOR Costs:



i



.



Costs of CONTRACTOR activities required under the

Agreement and incurred exclusively in the A.R.E. after

Operating Company is formed. No sales expenses incurred

outside or inside the A.R.E. may be recovered as a cost.

(n)



Other Expenditures:

Any costs, expenses or expenditures, other than those

which are covered and dealt with by the foregoing

provisions of this Article II, incurred by CONTRACTOR or

Operating Company under approved Work Programs and

Budgets.



ARTICLE Ill

INVENTORIES

(a)



Periodic Inventories, Notice and Representation:

At reasonable intervals as agreed upon by GANOPE and

CONTRACTOR inventories shall be taken by Operating

Company of the operations materials, which shall include all

such materials, physical assets and construction projects.

Written notice of intention to take inventory shall be given

by Operating Company to GANOPE and CONTRACTOR at

least thirty (30) days before any inventory is to begin so that

GANOPE and CON-TRACTOR may be represented when

any inventory is taken. Failure of GANOPE and/or

CONTRACTOR to be represented at an inventory shall bind

them to accept the inventory taken by Operating Company,



who shall in that event furnish the party not represented

with a copy #thereof.

(b)



Reconciliation and Adjustment of Inventories:



Reconciliation of inventory shall be made

by

CONTRACTOR and GANOPE, and a list of overages and

shortages shall be jointly

determined by Operating

Company and CONTRACTOR and GANOPE,and the

inventory adjusted by Operating Company.

ARTICLE IV

COST RECOVERY

(a) Statements of Recovery of Costs and of Cost Recovery

Petroleum:



CON-TRACTOR shall, pursuant to Article VII of the

Agreement, render to GANOPE as prorr~ptlyas practicable

but not later than fifteen (15) days after receipt from

Operating Company of the Statements for Development

and Exploration Activity for the

calendar quarter a

Statement for that quarter showing:

1. Recoverable costs carried forward from the previous

quarter, if any.

2. Recoverable costs incurred and paid during the

quarter.

3. Total recoverable costs for the quarter (1) + (2).

4. Value of Cost Recovery Petroleum taken and

separately disposed of by CONTRACTOR for the

quarter.

5. Amount of costs recovered for the quarter.

6. Amount of recoverable costs carried into the

succeeding quarter, if any.

7. Excess, if any, of the value of Cost Recovery

Petroleum taken and separately disposed of by

CONTRACTOR over costs recovered for the quarter.



(b)



Payments:

If such Statenlent shows an amount due GANOPE,

payment of that amount shall be made in U.S. Dollars by

CONTRACTOR with the rendition of such Statement. If

CONTRACTOR fails to make any such bayment to

GANOPE on the date when such payment is due, then

CONTRACTOR shall pay interest of two and one half

percent (2.5%)

per annum higher than the London

Interbank Borrowing Offered Rate (LIBOR) for three

(3) months U.S. Dollars deposits prevailing on the date

such interest is calculated. Such interest payment shall

not be recoverable.



(c)



Settlement of Excess Cost Recovery Petroleum:

GANOPE has the right to take its entitlement of Excess

Cost Recovery Petroleum under Article VII (a) (2) of the

Agreement in kind during the said quarter . A settlement

shall be required with the rendition of such Statements in

case CONTRACTOR has taken more than its own

entitlement of such Excess Cost Recovery Petroleum.



(d)



Audit Right:

GANOPE shall have a period of twelve (12) months from

receipt of any Statement under this Article IV in which to

audit and

raise objection to any such Statement.

GANOPE and CONTRACTOR shall agree on any

required adjustments. Supporting documents

and

accounts will be available to GANOPE during said twelve

(12) months period.



ARTICLE V

CONTROL AND MAJOR ACCOUNTS



(a)



Exploration Obligation Control Accounts:

CONTRACTOR will establish an Exploration Obligation

Control Account and an offsetting contra accoint to control

therein

the total amount of Exploration expenditures

reported on Statements of activity prepared per Article I (b)

(1) of this Annex, less any reductions agreed to by

GANOPE and CONTRACTOR following written exceptions

taken by a non-operator pursuant to Article I (c) (1) of this

Annex, in order to determine when minimum Exploration

obligations have been met.



(b)



Cost Recovery Control Account:

CONTRACTOR will establish a Cost Recovery Control

Account and an off-setting contra account to control

therein the amount of cost remaining to be recovered, if

any, the amount of cost recovered and the value of

Excess Cost Recovery Petroleum, if any.



(c)



Major Accounts:

For the purpose of classifying costs, expenses and

expenditures for Cost Recovery as well as for the purpose of

establishing when the minimum Exploration obligations have

been met, costs, expenses and expenditures shall be recorded

in major accounts including the following:



-



Exploration Expenditures;

Development Expenditures other

than Operating Expenses;

Operating Expenses;



Necessary sub-accounts shall be used.



Revenue

accounts

shall

be

maintained

by

CONTRACTOR to the extent necessary for the control of

recovery of costs and the treatment of Cost Recovery

Petroleum.



ARTICLE VI

TAX IMPLEMENTA'TION PROVISIONS

It is understood that CONTRACTOR shall be subject to

Egyptian lncome Tax Laws except as otherwise provided in the

Agreement, that any A.R.E. lncome Taxes paid by GANOPE on

CONTRACTOR'S behalf

constitute additional income to

CONTRACTOR, and this additional income is also subject to A.R.E.

income tax, that is "grossed up".

"CONTRACTOR'S annual income", as determined in Article Ill (g) (2)

of this Agreement, less the amount equal to CONTRACTOR'S

grossed-up Egyptian income tax liability, shall be CONTRACTOR'S

"Provisional Income".

The "gross-up value" is an amount added to Provisional lncome to

give "Taxable Income", such that the grossed-up value is equivalent

to the A.R.E. lncome Taxes.

THEREFORE:

Taxable l ncome = Provisional l ncome plus Grossed-up Value

and

Grossed-up Value = A.R.E. lncome Tax on Taxable Income.

If the "A.R.E. lncome Tax rate", which means the effective

or composite tax rate due to the various A.R.E. taxes levied

on income or profits, is constant and not dependent on the



-



level of income, then:

Grossed-up Value = A.R.E. income tax rate

TIMES Taxable Income.

Combining the first and last equations above

Grossed-up Value=



Provisional income X Tax Rate

1 - Tax Rate



where the tax rate is expressed as a decimal.

The above computations are illustrated by the following

numerical example. Assuming that the Provisional lncome is

$10 and the A.R.E. lncome Tax rate is forty percent (40%),

then the Grossed-up Value is equal to:



'Therefore:



Provisional income

Plus Grossed-up Value

Taxable lncome

Less: A.R.E. lncome Taxes at 40%

CON-TRACTOR'S Inconie after taxes



ANNEX "F'



MAP OF NATIONAL GAS PIPELINE GRID SYSTEM

MEDITERRANEAN



WESTERN



SEA



DESERT



'0

GAS PROCESSING FACILITIES -..----.

PRODUCERS PIPELIhTS

IM D E R CAPACITY

)



-NATIONAL GAS PlPELlXE