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 PRODUCTION SHARING CONTRACT





BETWEEN


NIGERIAN NATIONAL PETROLEUM


CORPORATION


AND


1. GAS TRANSMISSION AND


POWER LIMITED


2. ENERGY 905 SUNTERA LIMITED





3. IDEAL OIL AND GAS LIMITED








COVERING BLOCK 905 ANAMBRA


BASIN














I


I


 CONTENTS





Clause Title


1 ..................Definitions


2 ..................Bonuses


3 ..................Scope


4 ..................Term .


5 ..................Exclusion and Relinquishment of Areas


6 ..................Work Programme and Expenditure/Incremental Investment


7 ..................Management Committee


8 ..................Rights and Obligations of the Parties


9 ..................Recovery of Operating Costs and Crude Oil Allocation


10 ................Valuation of Available Crude Oil


11 ................Payment


12 ................Title to Equipment/Decommissioning


13 ................Employment and Training of Personnel


14 ................Local Content Policy


15 ................Books, Accounts and Audits


16 ................Royalty and Taxes


17 ................Insurance


18 ................Confidentiality and Public Announcements


19 ................Assignment


20 ................Termination


21 ................Force Majeure


22 ................Laws and Language


23 ................Natural Gas


24 ................Representations and Warranties


25 ................Conciliation and Arbitration


26 ................Effective Date '


27 ................Changes in Legislation


28 ................Operator


29 ................Non-Gratification


30 ................Notices


ANNEXES


Annex A.......Contract Area ^ -


Annex B.......Accounting Procedure


Annex C.......Allocation Procedure


Annex D.......Nomination, Ship Scheduling, and Lifting Procedure


 Annex E......Procurement and Project Implementation Procedure


Annex F.......Performance Bond


Annex G.......Work Programme and Budget


Annex H......OPl 905 Minimum Financial Commitment











APPENDIX


Appendix 1......Participating Interest





Appendix 2......Signature Bonus


Appendix 3......Prospectivity Bonus


Appendix 4......Parent Company/Affiliate Guarantee













































































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'A-


 

THIS CONTRACT is made this 23rd Day of April 2007 BETWEEN the NIGERIAN


NATIONAL PETROLEUM CORPORATION, a Corporation established under the


laws of the Federal Republic of Nigeria, with its head office at NNPC Towers,


Herbert Macaulay Way, Central Business District, Abuja (hereinafter referred to as


"the CORPORATION" which expression shall, where the context so admits, include


its successors-in-title and assigns) of the one part,





and





GAS TRANSMISSION AND POWER LIMITED a company incorporated under the


laws of the Federal Republic of Nigeria having Its registered office at Plot 515 Usuma


Close, Maitama, Abuja Nigeria (hereinafter referred to as “GTPL” which expression


shall, where the context so admits, include Its successors-in-title and assigns);


ENERGY 905 SUNTERA LIMITED a company incorporated under the laws of the


Federal Republic of Nigeria having its registered office at 2, Siji Soetan Street, Off


Onikepo Akande Street, Off Admiralty Way, Lekkl Peninsula, Lagos, Nigeria


(hereinafter referred to as “ENERGY 905” which expression shall, where the context


so admits, include its successors-ln-title and assigns) and IDEAL OIL AND GAS, a


company Incorporated under the laws of the Federal Republic of Nigeria having its


registered office at 17 New Court Road, Ibadan, Oyo State, Nigeria (hereinafter


referred to as “IDEAL OIL” (“LCV”) which expression shall, where the context so


admits, include its successors-in-title and assigns) of the other part.





GTPL, ENERGY 905 and IDEAL OIL are hereinafter collectively referred to as


“CONTRACTOR”.





IDEAL OIL is also hereinafter referred to as LCV.





WHEREAS, by virtue of Section 1 of the Petroleum Act Cap 350 Laws of the


Federation of Nigeria ("LFN") 1990 as amended, the Federal Government of the


^Federal Republic of Nigeria is vested with the entire ownership and control of all


petroleum In, under or upon any land which is in Nigeria or under the territorial


waters of Nigeria or forms part of the continental shelf of Nigeria or within the


Exclusive Economic Zone of Nigeria; and





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WHEREAS, the CORPORATION is entitled to hold the Oil Prospecting


License (OPL) No. 905 described in Annex A hereto and any subsequent Oil Mining


Lease (OML) derived therefrom; and





WHEREAS, by virtue of the Nigerian National Petroleum Corporation Act 1977 Cap


320 LFN 1990, the CORPORATION has the right, power and authority to enter into


this Contract; and


WHEREAS, pursuant to the 2005 Nigeria Bidding Round, the CONTRACTOR has


been selected to be a CONTRACTOR to the CORPORATION for OPL No.905


subject to terms contained herein and


WHEREAS, the CONTRACTOR represents that it together with its Affiliates, has the


technical competence and professional skills necessary to conduct Petroleum


Operations and has the funds, both local and foreign for carrying on the said


operations and'has agreed to conduct the said operations; and


WHEREAS, the said area of the OPL No. 905 and any subsequent OML emanating


from the OPL and issued for this Contract shall constitute the Contract Area; and


WHEREAS, GTPL is designated Operator under Clause 28 of this Contract.


NOW THEREFORE, in consideration of the premises and the mutual covenants


herein reserved and contained, It is hereby agreed as follows:


CLAUSE 1: DEFINITIONS


As used in this Contract, unless otherwise specified, the following terms shall have


the respective meaning herein ascribed to them.





(a) “Accounting Procedure” means, the rules and procedures as set forth in


Annex B and attached to and forming part of this Contract.








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(b) “Affiliate” means, a company or other entity that controls or is controlled by a


Party to this Contract, or which is controlled by a company or other entity which


controls a Party to this Contract, It being understood that control shall mean


ownership by one company or entity of at least fifty (50%) percent of:


(I) the voting stock, if the company is a corporation issuing stock; or


(II) the controlling rights or interests, If the entity is not a corporation.


(c) "Appraisal Well" means, any well whose purpose at the time of


commencement of drilling such well is the determination of the extent or volume


of hydrocarbons contained In a discovery;


(d) “Available Crude Oil" means, the Crude Oil won and saved from the Contract


Area.


(e) “Barrel” means, a quantity or unit of Crude Oil, equal to forty-two (42) United


States gallons at the temperature of sixty degrees (60*) Fahrenheit at normal


atmospheric pressure.


(f) “Budget” means, the cost estimate of activities relating to Petroleum


Operations included in a Work Programme.


(g) “Calendar Year” means, a period of twelve (12) months commencing from


January 1 and ending the following December 31, according to the Gregorian


Calendar.


(h) “Capital Cost” means, those expenditures Incurred and obligations made In


accordance with Article II.2 of the Accounting Procedures.





(i) “Commercial Quantity” means, the quantity of Crudd Oil discovered in the


Contract Area, which the Parties agree shall be economically, and profitably


produced to the benefit of the Parties but shall not in any event be lower than


the commercial quantity as defined In the Petroleum Act Cap 350 LFN 1990.





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 (j) “Concession Rentals” means, the rents payable annually on the OPL and any


OML derived therefrom under the Petroleum Act CAP 350 LFN 1990.


(k) “Contract” means, this Production Sharing Contract, together with the





Annexures and Appendices attached to this Contract, and any extension,


renewal or amendment hereof agreed to in writing by the Parties.





(l) “Contract Area” means, in relation to the OPL as described In Annex A, the


area of the OPL and in relation to the OML, the area of the OML derived from


the OPL in line with the Oil Prospecting Licences (Conversion to Oil Mining


Leases, etc) Regulation 2004.


(m) “Contractor" means, all of the Contractor Parties jointly and collectively.





(n) “Contractor Party” means, any one of GTPL, ENERGY 905 and IDEAL OIL


and any of their successors or permitted assignees and “Contractor Parties”


means, ail of GTPL, ENERGY 905 and IDEAL OIL and any of their successors


or permitted assignees.


(o) “Contract Year” means, a period of twelve (12) consecutive months according


to the Gregorian Calendar, from the Effective Date of this Contract or from the


anniversary of the Effective Date.


(p) “Cost Oil” means, the quantum of Available Crude Oil allocated to the


CONTRACTOR for recovery of Operating Costs incurred in respect of


Petroleum Operations after the allocation of Royalty Oil to the CORPORATION.


(q) “Crude Oil" means, the liquid petroleum, which has been treated but not,


refined and includes condensates but excludes basic sediments and water.





(r) “Decommissioning” means, the plugging and abandonment of wells; the


removal and disposal of equipment and facilities including well heads,


processing and storage facilities, platforms, pipelines, transport and export





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 facilities, plants, machinery, fixtures, the restoration of sites and structures


including the payment of damages relating thereto;








(s) “Deep Offshore” means, any water depth beyond 200 metres.


(t) “Department” means, the Department of Petroleum Resources of the Ministry


of Petroleum Resources referred to as Petroleum Inspectorate under the


Nigerian National Petroleum Corporation Act CAP 320 LFN 1990 or any


successor thereof delegated with the Department's responsibility.


(u) “Effective Date” means, the date of this Contract.


(w) "Exploration Period” shall have the same meaning as described in Clause


4.2.





(x) "Exploratory Well" means, the well on any geological structure(s), which at the


time of commencement of drilling is to explore- for an accumulation of


hydrocarbons whose existence at the time was unproven by drilling;


(y) “Field Development Programme” means, the programme of activities


presented by the CONTRACTOR to the Management Committee and approved


by the Management Committee outlining the plans for the development of a


Commercial Quantity, Such programme of activities shall Include, but not be


limited to:


a. reservoir, geological and geophysical studies and surveys;


b. drilling of production and Injection wells;


c. design, construction, Installation, connection and Initial testing of


equipment, pipelines, systems, facilities, plants and related activities


necessary to produce and operate said wells,


d. undertake re-pressurising, recycling and other secondary or tertiary


recovery projects;





(z) "Foreign Currency” means, currency other than that of Nigeria.








8


(aa) “Government” means, the Government of the Federal Republic of Nigeria.





(ab) “Gross Negligence” means, any act or failure to act of any Senior Supervisory


Personnel (whether sole, Joint or concurrent) which was Intended to cause, or


which was in reckless disregard of or wanton Indifference to the harmful


consequences such act or failure to act would have on (a) the safety of


personnel or property or (b) Petroleum Operations or (c) books and accounts


and oil industry accounting standards and procedures.


(ac) “Joint Operating Agreement (JOA)” has the meaning assigned to it in Clause


14.3.


(ad) “Lifting Procedure” means, the Rules and Procedures set forth in Annex D


and attached to and forming part of this Contract.


(ae) “Local Content” means the quantum of composite value added to, or created


In the Nigerian economy through a deliberate utilization of Nigerian human and


material resources and services in the Nigerian petroleum Industry which


includes all activities connected with the exploration, development, exploitation,


transportation and sale of Nigerian Crude Oil and Natural Gas resources.


(af) “Minister” means, the Minister charged with the responsibility for Petroleum


Resources in Nigeria.


(ag) “Ministry” means, the Ministry charged with the responsibility for Petroleum


Resources in Nigeria.


(ah) “Natural Gas” means, all gaseous hydrocarbons produced in association with


the Crude Oil and/or from reservoirs, which produce mainly gaseous


hydrocarbons.


%


V


(ai) “Non-Capital Costs” means, those expenditures Incurred and obligations made


in accordance with Article 11.1 of the Accounting Procedures.





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(aj) "OH Mining Lease” (*'OML”) means, a lease granted by the Minister under the


Petroleum Act CAP 350, LFN 1990 as amended, to a lessee to search for, win,


work, carry away and dispose of petroleum.


(ak) “Oil Prospecting License” ("OPL”) means a license granted by the Minister





under the Petroleum Act CAP 350, LFN 1990 to a licensee to prospect for


petroleum.


(ai) "Operating Costs” means, expenditures incurred and obligations made as





determined in accordance with Article II of the Accounting Procedure.


(am) “Operator” means, the company designated as Operator in accordance with


Clause 28.


(an) “Participating Interest” means, the rights and obligations of the Contractor


Parties under this Contract, which shall be held in the respective Participating


Interests described in Appendix 1.


(ao) “Party” means, either the CORPORATION or the CONTRACTOR and "Parties”


means, the CORPORATION and the CONTRACTOR.


(ap) “Petroleum Operations” means, the winning or obtaining and transportation


of petroleum or chargeable oil In Nigeria by or on behalf of a company for Its


own account by any drilling, mining, extracting or other like operations or


process, not including refining at a refinery, In the course of business carried on


by the company engaged in such operations, and all operations incidental


thereto and any sale of or any disposal of chargeable oil by or on behalf of the


company.


(aq) “Petroleum Profit Tax” or "PPT” means, the tax pursuant to the Petroleum


Profits Tax Act CAP 354 LFN 1990. ' "


 (ar) “Proceeds” means, the amount in U.S, Dollars determined by multiplying the


Realizable Price by the number of Barrels of Available Crude Oil lifted by either


Party,


(as) “Profit Oil” means, the balance of Available Crude Oil after the allocation of


Royalty Oil, Tax Oil, and Cost Oil.


(at) “Realizable Price” means, the price In U.S. Dollars per Barrel determined


pursuant to Clause 10.





(au) “Relinquished Area” means, the 50% of the Contract Area that is relinquished


at the end of the Exploration Period, subject to Clause 5 hereof.


(av) “Royalty" means, the amount of Royalty payable to the Government in Nigeria


as fully described in Clause 16.1 hereof.


(aw) “Royalty OH” means, the quantum of Available Crude Oil produced from the





Contract Area that will generate an amount of Proceeds equal to the actual


payment of Royalty.





(ax) “Senior Supervisory Personnel” means, with respect to a Contractor Party, or


any of its Affiliates or sub-contractor providing services, any senior supervisory


employee who functions in Petroleum Operations and who is in charge of on-site


drilling, construction, production, installations or facilities and related operations,


or any other field operations, or employee who functions at a management level


equivalent to or superior to the described positions, any person to whom such


person reports (such as an officer or director of such Contractor Party or of any


such Affiliate of such Contractor Party).


(ay) “Tax Oir means, the quantum of Available Crude OH produced from the


Contract Area and allocated to the CORPORATION which will generate an


'amount of Proceeds equal to the actual payment of PPT under this Contract.














n





^7^ Vs? -


(ba) “Work Programme” means activities relating to Petroleum Operations defined


in Clause 6 and Exploration Periodfdetalled in Annex G, which shall be carried


out by the Contractor in the Contract Area for the applicable period,


(bb) “Year” means, a period ot twelve (12) consecutive months according to the


Gregorian Calendar.


Reference to the singular includes a reference to the plural and vice versa.


The headings used In this Contract are tor convenience only and shall not be used to


construe or interpret the Contract.


Any law, statute or regulation referred to in this Contract shall mean the law, statute


or regulation as It exists on the date of execution of this Contract and any


amendment(s) thereto.


CLAUSE 2: BONUSES


2.1 CONTRACTOR shall pay to the Department, Signature Bonus In the amount


specified in Appendix 2 upon initialling but prior to the date of execution of this


Agreement. The Bonus referred to in this Clause 2.1 shall be paid into an


account to be designated in writing by the Department.


CONTRACTOR shall submit to the CORPORATION evidence of payments of


the Bonus specified In Clause 2.1 prior to the execution of this Contract.


2.2 CONTRACTOR shall pay to the CORPORATION a Production Bonus as


follows:


(a) One hundred thousand barrels (iOO.OOObbls) or cash equivalent on


attainment of cumulative production of one million barrels (1,000,000


bbls).





(b) One million barrels (1,000,000 bbls) or cash equivalent on attainment" of


cumulative production of two hundred and twenty million barrels


(220,000,000 bbls).





12


 (c) One million barrels (1,000,000 bbls) or cash equivalent on attainment of


cumulative production of five hundred million barrels (500,000,000 bbls).


2.3 The Production Bonus provided for in this Clause 2.2 hereof shall be payable


within thirty (30) days of such production level being first attained.


2.4 The Bonuses provided for in this Clause 2 shall not be recoverable as Cost OH.


2.5 The Bonuses referred to in Clause 2.2 above shall be paid into an account to


be designated in writing by the CORPORATION.


CLAUSE 3: SCOPE


3.1 This Contract is a Production Sharing Contract, governed in accordance with


the terms and provisions hereof. Petroleum Operations and provision of


financial and technical requirements by the CONTRACTOR under this Contract


shall be with the prior approval of the CORPORATION as required in Clauses


6.3(4), 7.2(c), (e), (f) and (g), 8.4,12.1, 12.6,12.7,13.5, 19, 20.2, 23.5(d) and


Annex E, Article 1.3 (a) and (b) and Articles 2.5,3.3,3.6 and 5.6 and any other


clause requiring approval of CORPORATION under this Contract. The


CORPORATION, as holder of all rights in and to the Contract Area, hereby


appoints and conveys to the CONTRACTOR, the exclusive right to conduct


Petroleum Operations in the Contract Area.


3.2 During the term of this Contract the total Available Crude Oil shall be allocated


to the Parties In accordance with the provisions of Clause 9, the Accounting


Procedure (Annex B) and the Allocation Procedure (Annex C).


3.3 The CONTRACTOR together with its Affiliates shall provide funds and bear


interest on funds, in addition to bearing the risk of Operating Costs and the risk


required to carry but Petroleum Operations and shall therefore have an


economic Interest in the development of Crude Oil and Natural Gas discovered


subject to the provisions of Clause 23 of this Contract.








13


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3.4 The CONTRACTOR is engaged in Petroleum Operations pursuant to


Petroleum Profits Tax Act Cap 354 LFN 1990 (“PPT Act") and accordingly, the


Companies Income Tax Act 1979 Cap 60 LFN 1990, shall have no application.


CLAUSE 4: TERM


4.1 The term of this Contract, subject to Clause 20 herein, shall be for a period of


thirty (30) years commencing from the Effective Date, inclusive of ten (10)


years Exploration Period and twenty (20) years OML period.


4.2 a) CONTRACTOR shall commence operations not Idler than thirty (30) days


after the Management Committee approves the first Work Programme.





b) The ten (10) years Exploration Period shall be divided into two separate


phases as follows;


Phase l - Years 1 to 5 commencing from the Effective Date.


Phase II - Years 6 to 10 commencing from the end of Phase l.


4.3 If in the opinion of CORPORATION, CONTRACTOR has fulfilled its


obligations under Phase I as described in Clause 6.2. CONTRACTOR may


enter Phase II, provided however that CONTRACTOR gives the


CORPORATION thirty (30) days written notice of its intention thereof.


4.4 Provided the CONTRACTOR has fulfilled its obligaiions relative to the current


phase of the Exploration Period as described in Clause 6 hereof,


CONTRACTOR may terminate the Contract at the end of any phase during


the Exploration Period, according to Clause 20 hereof.





4.5 Upon the discovery of Commercial Quantity, CONTRACTOR shall


recommend to the'C'ORPORATION conversion of the OPL to OML. Such


recommendation shall Include delineation of the proposed OML area. The


CORPORATION shall review CONTRACTOR'S recommendation and if


satisfied apply for the conversion of the OPL to OML.


14


St.


% *


 4.6 At the end of the twenty (20) year OMl period, the CORPORATION shall


seek the maximum allowed renewal period of the OML subject to the


performance of all the CONTRACTOR'S obligations, to the satisfaction of the


CORPORATION during the expiring period of the OML. If such renewal Is


granted, the terms of this Contract shall be revised and agreed by the Parties


for the duration of such renewal at the option of either Party.


Parties hereby agree that the new terms shall be based on prevailing





conditions obtainable in the global oil and gas Industry and shall not be less


favourable to Government and CORPORATION than the terms contained in


this Contract.





CLAUSE 5:EXCLUSION AND RELINQUISHMENT OF AREAS


5.1 CONTRACTOR shall relinquish fifty per cent (50%) of the Contract Area





upon conversion from OPL to OML or at the expiration of the Exploration


Period whichever Is earlier.





5.2 The fifty percent (50%) of the Contract Area to be relinquished shall be


agreed by the Parties and shall as much as possible under the relevant


regulations, exclude part of the Contract Area corresponding to surface areas


of fields in which petroleum has been discovered in Commercial Quantity.


5.3 Any excluded and/or Relinquished Area shall revert to the Government.





CLAUSE 6: WORK PROGRAMME AND EXPENDITURE


6.1 Within two (2) months after the Effective Date and thereafter at least three (3)





months prior to the beginning of each Calendar Year the CONTRACTOR shall


prepare and submit for review and approval by the Management Committee,


pursuant to Clause 7, a Work Programme and Budget for the Contract Area jfor


the Exploration Period, such Work Programme and Budget shall not be less than


the Work Programme and Budget in Annex G) setting forth the Petroleum


Operations which CONTRACTOR proposes to carry out during the ensuing


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Calendar Year, or In case of first Work Programme and Budget, during the


remainder of the current Calendar Year. The Management Committee shall


review and approve such Work Programme and Budget In accordance with


Clause 7.4(e) prior to presentation of the Work Programme and Budget to the


Department.


6.2 The minimum Work Programme to be executed by the CONTRACTOR


during the exploration period of this Contract shall be as follows:


a) Phase I - Drill two (2) Exploratory Wells and acquire and process 500km


of 2D seismic data and 50 sq. km of 3D seismic data in the Contract Area.


The seismic acquisition shall be designed to capture deep potentials.


b) Phase II - Drill two (2) Exploratory and/or Appraisal Wells and acquire


and process 500 km of 2D seismic data and 50 sq. km of 3D seismic data


In the Contract Area. The seismic acquisition shall be designed to capture


deep potentials.


c) The minimum Work Programme referred to in clauses 6.2(a) and (b) is as


detailed In Annex G and attached to this Contract.


6.3 Minimum Financial Commitment


1. CONTRACTOR shall be obligated to incur the following Minimum Financial


Commitment:


Phase I - fifteen million seven hundred and fifty thousand US


Dollars (USD15,750,000)


Phase (I - fifteen million seven hundred and fitly thousand US Dollars


(USDl 5,750,000)


2. If CONTRACTOR fulfils the minimum Work program set forth In Clause 6.2


above for each phase ot the Exploration Period, then CONTRACTOR shall


* V.


be deemed to have satisfied the minimum financial commitment for each


such phase.











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 3. If at the end of the period of Phase I or II, CONTRACTOR fails to fulfil the


minimum Work Programme as specified in this Clause 6, CONTRACTOR


shall forfeit and pay to the CORPORATION the amount of money left


outstanding under the Performance Bond pursuant to Clause 6.5.


4. Petroleum Operations and expenditures carried out and Incurred under this


Contract shall be with the prior approval of the CORPORATION and in


accordance with the provisions of this Contract;


In the event that CONTRACTOR carries out Petroleum Operations without


the prior approval of the CORPORATION or, not in accordance with the


provisions of this Contract, or incurs budgetary overruns in excess of 10%


of an approved budget, without the CORPORATION'S prior approval, all


costs arising from any or all of the above, shall not form part of the


Operating Costs and shall not be recoverable from Cost OK.


6,4 An Exploratory Well or an Appraisal Well shall be considered to have satisfied


the minimum Work Programme If any one of the following events occurs:


a) A discovery is made and further drilling may cause Irreparable damage to





such discovery; or


[


b) Basement is encountered; or


c) CORPORATION and CONTRACTOR agree that the well Is drilled for the





purpose of fulfilling the obligation to complete the minimum Work


Programme; or





d) Technical difficulties are encountered which, In the judgment of


CONTRACTOR and to the satisfaction of the CORPORATION, In


accordance with reasonable and prudent international oilfield practice,


makes further drilling Impracticable, uneconomic, unsafe or a danger to


the environment,











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6.5 Performance Bond





(a) Within thirty (30) days from the execution of this Contract, CONTRACTOR


shall submit to the CORPORATION a performance bond from a reputable


international financial institution acceptable to the CORPORATION in the sum of


fifteen million US Dollars (USD15,000,000) to cover the Minimum Work


Programme for Phase I. The Performance Bond to be submitted to the


CORPORATION shall be in the format depicted in Annex F.


(b) Should the CONTRACTOR satisfy the conditions for continuing exploration In


Phase II pursuant to Clause 6.2 above, CONTRACTOR shad submit to the


CORPORATION a new performance bond In the sum of fifteen million US Dollars


(USD15,000,000) within thirty (30) days commencing from date that


CONTRACTOR entered Into Phase II to cover the minimum Work Programme for


Phase II.


(c) The Performance Bond that CONTRACTOR shall submit herein shall be provided


by the Operator. The other Contractor Party(ies) shall submit to the Operator a


back to back performance bond from a financial Institution or a bank acceptable


to the Operator.


6.6 The value of the Performance Bonds shall be reduced annually by deducting


from the Performance Bond the verified expenditures incurred by the


CONTRACTOR. The Performance Bond shall terminate at the end of each


phase, if the minimum financial commitment for that phase has been fulfilled.


6.7 Guarantee


Within thirty days from the execution of this Contract, each Contractor Party


shall, submit a guarantee from Its parent company for such Contractor Party's


obligations under this Contract. Where a parent company is not applicable, a


Corporate Guarantee from an Affiliate or a company acceptable to the


CORPORATION shall be submitted by the Contractor Party. The guarantee to


be submitted shall be in the format specified in Appendix 4. Except in the event





18


 ot an assignment pursuant to Clause 19, such guarantee shall survive the term


of this Contract for a period of five (5) years.





6.8 Incremental Investment.


(i) If CONTRACTOR has established that additional capital investment


(Incremental Investment) is required for the purposes of increasing production


in the Contract Area, CONTRACTOR shall develop a programme for such


Incremental Investment and submit same to the CORPORATION for review


and approval. The CORPORATION shall on receipt of the programme either


approve or disapprove such Incremental Investment.


(ii) Incremental Investment shall include but shall not be limited to installation of


additional facilities to an existing facility, plants, machinery or the undertaking


of a new project within the Contract Area.


(iii) If the programme developed by the CONTRACTOR is approved by the


CORPORATION pursuant to Clause 6.8(l), CONTRACTOR shall within


eighteen (18) months from the date of receipt of such approval, commence


implementation of such Incremental Investment.


(iv) In the event that the CORPORATION refuses to approve the Incremental


Investment, such Incremental Investment shall not be undertaken by the


CONTRACTOR.


(v) Cost incurred with respect to the incremental Investment shall be segregated


from all costs incurred prior to such Incremental Investment and shall be


recovered from production realised from such project.


(vl) For the avoidance of doubt the terms of this Contract shall mutatis mutandis


apply to the Incremenlal Investment.














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 CLAUSE 7: MANAGEMENT COMMITTEE





7.1 A Management Committee shall be established within thirty (30) days from the


date of execution of this Contract for the purpose of providing orderly direction


of all matters pertaining to the Petroleum Operations and Work Programme.





7.2 The powers and duties of the Management Committee shall Include but not be


limited to the following:





a) the revision, and approval of all proposed Work Programmes and Budgets


in accordance with Clauses 6.1 and 7.4(e);


b) the revision, and approval of any proposed recommendations made by





either Party or by any sub-committee, pursuant to Clause 7.7 with respect


to Petroleum Operations;


c) determine, with' the approval of the CORPORATION when a commercial





discovery Is to be declared;


d) ensuring that the CONTRACTOR carries out the decisions of the


Management Committee and conducts Petroleum Operations pursuant to


this Contract;








e) the consideration of and decision on matters relating to the relinquishment


of areas in the Contract Area pursuant to Clause 5; and in accordance


with the petroleum laws;





f) settlement of claims and litigations in excess of ten million Naira


(N10,000,000) or the equivalent thereof in foreign currency, or such other


amount as may be approved by the Management Committee provided,


however, for such claims or settlements, any single or aggregate claims or


settlements which exceed twenty five million Naira (N25,000,000) or the


equivalent in foreign currency thereof shall be with the prior approval of


the CORPORATION;





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g) consideration and approval of the sale or disposal of any items or


movable property relating to Petroleum Operations in accordance with the


provisions of this Contract, except for Items of historic costs of less than


one million (N1,000,000) Naira (or such other amount as may be


approved by the Management Committee) provided that any intention to


sell or dispose of fixed assets shall be with prior approval of the


CORPORATION;


h) settlement of unresolved audit exceptions arising from audits as provided


for in Clause 15.3 of this Contract;


I) ensuring that the CONTRACTOR implements the provisions of the





Accounting Procedure (Annex B), the Lifting Procedure (Annex D), and


the Procurement and Project Implementation Procedures (Annex E) and


all amendments and revisions thereto as agreed by the Parties;


]) any other matters relating to Petroleum Operations except:





a. those matters, reserved to the Parties in their respective rights


pursuant to Clause 8; or


b. those matters elsewhere provided for in this Contract;


k) consideration and approval of the sale, disposal or exchange of information to





third parties other than routine exchange of seismic data and other such data


commonly exchanged within the industry; and


l) consideration and determination of any other matter relating to the Petroleum


Operations which may be referred to it by any Party (other than any proposal


to amend this Contract) or which is otherwise designated under this Contract


for reference to it.


* >.


m) to give effect to clause 13.8 of this Contract, ensuring that CONTRACTOR


shall provide an annual budget for capacity building of the CORPORATION’S


personnel in ail facets of Petroleum Operations.





2)


 7.3a) The Management Committee shall consist of ten (10) persons appointed by


the Parties as follows:


CORPORATION- 5


CONTRACTOR - 5





Each Party, including the LCV, shall designate by notice In writing to the


b)


other Parties, the names of its representatives to serve as members of the


Management Committee as provided in Clause 7.3(a) hereof and their


respective alternates, which members or alternates shall be authorised to


represent that Party with respect to the decisions of the Management


Committee. Such notice shall give the names, titles and addresses of the


designated members and alternates.





At least fourteen (14) working days prior to each scheduled Management


c)


Committee meeting, the secretary shall provide an agenda of matters, with


briefs, to be considered during such meeting. Any Party desiring to have


other matters placed on the agenda shall give notice to the other Party not


less than seven (7) working days prior to the scheduled meeting. No other


matter may be introduced into the agenda thereafter for deliberation at the


meeting unless mutually agreed by the Parties. No agenda shall be


required in the event of an emergency meeting called pursuant to Clause


7.4(b).


Either Party may change any of Its respective members or alternates as


d)


described in Clause 7.3(b) from time to time by notifying the other Party In


writing not less than ten (10) days In advance of the effective date of such


change.





The CORPORATION shall appoint one of its five (5) members as the


e)


chairman of the Management Committee and the CONTRACTOR shall


appoint the secretary. The secretary shall not be a member of the


Management Committee but shall keep minutes of all meetings and records





22








 of all decisions of the Management Committee. The minutes of each


meeting shall be approved by the Management Committee at the next


meeting and copies thereof shall be supplied to the Parties. In addition, the


secretary shall at each meeting, prepare a written summary of any decision


made by the Management Committee for approval and signature by the


Parties.





7.4 a) Not later than the twenty-eighth (28th) day of February of each Year, the


chairman shall prepare and forward to the Parties, a calendar of meetings


as agreed by the Management Committee for that Year.


b) The Management Committee shall meet at least once every four (4)


calendar months, or at such other intervals or venue as may be agreed by


the Management Committee and, In addition, whenever requested by a


Party by giving at least twenty-one (21) days notice in writing to the other


Parties which notice shall specify the matter or matters to be considered at


the meeting; or, when summoned by the chairman or by the


CONTRACTOR as an emergency meeting for which no specified notice


period shall be required.


c) The quorum for any meeting of the Management Committee shall consist of


a minimum of three (3) representatives of the CORPORATION and three


(3) representatives of the CONTRACTOR. The chairman or his alternate


and the CONTRACTOR'S designated lead representative or his alternate


must be present at every Management Committee meetings for a quorum


to be formed. If no such quorum is present, the chairman shall call another


meeting of the Management Committee giving at least fourteen (14) days


written notice of such meeting.





d) The secretary shall in consultation with the chairman convene all meetings


of the Management Committee other than emergency meetings.


e) Within eight (8) weeks after the submission of a Work Programme and


Budget by the CONTRACTOR, the Management Committee shall meet to





23


 consider and approve such submissions. Should the CORPORATION wish


to propose a revision as to certain specific features of the said Work


Programme and Budget, it shall within eight (8) weeks after receipt of such


Work Programme and Budget so notify the CONTRACTOR in writing


specifying in reasonable detail the changes requested and Its reasons


thereof. The Management Committee shall resolve the request for revisions


proposed by the CORPORATION. If the CORPORATION has not proposed


any revisions in writing within eight (8) weeks, then the said Work


Programme and Budget as submitted shall be approved by resolution of the


Management Committee. Any portion of a Work Programme about which


the CORPORATION has not proposed a revision shall in so far as possible


be carried out as prescribed therein.





7.5 a) Except as may be expressly provided for in this Contract, the Management


Committee shall determine and adopt rules to govern its procedures. All


documents required for such meeting shall be made available to the


members 7 days prior to the meeting.





b) Members attending a meeting of the Management Committee may be


accompanied by advisers and experts to the extent reasonably necessary


to assist with the conduct of such meeting. Such advisers and experts shall


not vote or in any way participate in decisions, but may contribute in a non¬


binding way to discussions or debates of the Management'Committee.





c) Except aS'Otherwise expressly provided in this Contract all decisions of the


Management Committee shall be made by the unanimous vote of the


Parties. If unanimity is not obtained on any matter (including any matter


pertaining to a Work Programme or Budget) proposed to the Management


Committee, then the Management Committee shall meet again to attempt





to resolve such matter not later than fourteen (14) days after the meeting In


S


which the proposed matter failed to be resolved. Any portion of such


proposal that is not rejected shall insofar as possible be carried out. At


least seven (7) days prior to such second meeting, the Party casting the


dissenting vote shall provide to the other Parties in writing in reasonable








24





 detail, the reasons for such dissenting vote, If such reasons are not


provided at least seven (7) days prior to such second meeting, then the


proposal shall be deemed approved. In such second meeting the agenda


shall comprise of such written reasons as provided by the dissenting Party.


If unanimity is not obtained in the second meeting, then the Management


Committee shall meet a third time within fourteen (14) days after the


second meeting. If unanimity is not obtained in the third meeting then the


CORPORATION and the CONTRACTOR may agree to appoint an


independent qualified expert to advise on the matter, which advice shall be


binding on the Parties. In the event of failure of the Parties to agree to the


appointment of the said expert, the provisions of Clause 26 shall apply.


d) The Parties shall be bound and abide by, each decision of the


Management Committee duly made In accordance with the provisions of


this Contract,





7.6 Any matter which is within the powers and duties of the Management


Committee may be determined by the Management Committee without a


Management Committee meeting if such matter Is submitted In writing by


either Party to the other Parties with due notice and with sufficient Information


regarding the matter to be determined so as to enable the Parties to make an


informed decision with respect to such matter. The other Parties to whom the


information is submitted shall agree In writing with the proposed request for


the said decision to be carried out subject further to the provisions herein:


a) Except for urgent matters referred to In Clause 7.6 (b), each Party shall


cast Its vote with respect to such matter within twenty-one (21) days of


receipt of such notice and such manner of determination shall be followed


unless a Party objects, within fourteen (14) days of receipt of such notice,


to having the matter determined in such manner. If any Party fails to vote


by tiie* expiry of the twenty-one (21) day period for voting, it shall be


deemed to have voted in the affirmative. The secretary shall promptly


advise the Parties of the results of such vote and shall draft a resolution to


be signed as soon as possible by the Parties.





25





v4 -


1











b) The decisions made pursuant to this Clause 7.6 shall be recorded in the


minutes of the next scheduled meeting of the Management Committee, and


shall be binding upon the Parties to the same extent as if the matter had


been determined at a meeting of the Management Committee.





c) Each Party shall nominate one of its officers as its representative from


whom the other Party may seek binding decisions on urgent matters,


including, but not limited to ongoing drilling operations, by e-mail, by


telephone, registered or hand delivered letter, facsimile transmission, or in


person. The Parties shall advise each other In writing of the persons so


nominated and any changes thereof.





The Management Committee shall establish exploration and technical


7.7


sub-committees and any other advisory subcommittees, as it considers


necessary from time to time such as finance and budget, and legal


services sub-committees:





Each sub-committee established pursuant to Clause 7.7 shall be given


a)


terms of reference and shall be subject to such direction and procedures as


the Management Committee may give or determine.


The Management Committee shall appoint the members of the sub¬


b)


committee, which shall be comprised of equal representation from the


Parties. The chairman and the secretaries of the sub-committees shall be


appointed by the Management Committee.


The deliberations and recommendations of any subcommittee shall be


o)


advisory only and shall become binding and effective upon acceptance by


the Management Committee.


CLAUSE 8: RIGHTS AND OBLIGATIONS OF THE PARTIES





8.1 In accordance with this Contract, the CONTRACTOR shall:


a) provide personnel and all necessary funds for payment of Operating Costs


Including, but not limited to, funds required to provide all materials,


equipment, supplies, and technical requirements purchased, paid for or


leased in Foreign Currency;


b) provide such other funds for the performance of Work Programmes


including payments to third parties who perform services in accordance


with terms contained therein as sub-contractors;


c) prepare Work Programmes and Budgets and carry out approved Work


Programmes In accordance with internationally acceptable petroleum


industry practices and standards and applicable local laws with the


objective of avoiding waste and obtaining maximum ultimate recovery of


Crude Oil at minimum costs;


d) ensure that all leased equipment paid for In Foreign Currency and brought


into Nigeria for Petroleum Operations are treated in accordance with the


terms of the applicable leases;


e) have the right of ingress to and egress from the Contract Area and to and


from facilities therein located at all times during the term of this Contract;


f) submit to the CORPORATION for permanent custody copies of all


geological, geophysical, drilling, well production, operating and other data


and reports as it may compile during the term hereof and at the end of the


Contract surrender all original data and reports to the CORPORATION;


g) prepare estimated and final PPT returns with respect to the Contract Area


and submit same to the CORPORATION on a timely basis in accordance


 h) have the right to lift in accordance with Annex D and freely export and to


retain abroad the receipts from the sale of Available Crude Oil allocated to


it here under;


I) prepare and carry out plans and programmes for Industry training and





education of Nigerians for all job classifications' with respect to Petroleum


Operations In accordance with the Petroleum Act Cap 350 LFN 1990;





j) employ only such personnel as required to conduct the Petroleum


Operations in a prudent and cost effective manner giving preference to


Nigerian citizens;


k) the CONTRACTOR and Its sub-contractors shall, as the case may be, pay


all customs duties and like charges as are Imposed by law in Nigeria,


subject to the provisions of this Contract, CONTRACTOR and its sub¬


contractors shall not be treated differently from any other companies and


their sub-contractors engaged In similar Petroleum Operations in Nigeria;


l) indemnify and hold the CORPORATION harmless against all losses,


damages, injuries, expenses, actions of whatever kind and nature


including but not limited to legal fees and expenses suffered by any third


party where such loss, damage, Injury is as the result of Gross Negligence


of the CONTRACTOR or its sub-contractors except where such losses are


shown to result from any action or failure to act on the part of the


CORPORATION.


m) indemnify and hold the CORPORATION harmless against all losses,


damages, injuries, expenses, actions of whatever kind and nature suffered


by the CORPORATION where such loss, damage or injury is as the result


of Gross Negligence of the CONTRACTOR or its sub-contractors except


where such losses are shoWh to result from any action or failure to act on


the part of the CORPORATION, provided however, that tor either Gross


Negligence or negligence, the CONTRACTOR shall not be liable to the








28











I


 CORPORATION for any consequential losses or consequential damages,


including but not limited to lost production or lost profits.





n) determine with the CORPORATION the technical and cost aspects of any


field development under this Contract and thereafter agree with the


CORPORATION on the development decision prior to the development of


a field In the Contract Area;


o) not exercise all or any rights or authority over the Contract Area in





derogation of the rights of the CORPORATION;


p) in the event of any emergency requiring immediate operational action, take





all actions it deems proper or advisable to protect the interests of the


Parties and any costs so Incurred shall be included in the Operating Costs.


Prompt notification of any such action taken by the CONTRACTOR and


the estimated cost shall be given to the CORPORATION within forty-eight


(48) hours of the event. The notice shall be given to the CORPORATION


within forty eight (48) hours of when the CONTRACTOR became aware of


the event, if CONTRACTOR can demonstrate to the satisfaction of the


CORPORATION that It was not aware of the event at the time the event


occurred. If the CORPORATION Is not notified within the period of forty


eight (48) hours, then the CONTRACTOR shall be solely responsible for


the costs Incurred for such operational action between the end of the forty


eight (48) hour notice period and the actual time of receipt of the notice by


the CORPORATION; such costs shall not be recoverable as Operating


Costs. If the CORPORATION is not provided with a cost estimate within


seven (7) days from the event or from the date CONTRACTOR became


aware of the event, then the costs of such operational action shall not be


recoverable as Operating Cost;





q) shall within six (6) months commencing from the Effective Date of this


Contract execute the Joint Operating Agreement referred to in Clause


14.3. The Joint Operating Agreement shall be submitted to the


CORPORATION within thirty (30) days of its execution. If CONTRACTOR





29


 executes a heads of agreement prior to executing such Joint Operating


Agreement, a copy of the heads of agreement shall be provided to


CORPORATION within fifteen (15) days of its execution.





r) submit to the CORPORATION technical and economic data, or other


relevant information generated by the CONTRACTOR relating to the


Contract Area, as and when required by the CORPORATION, provided


however, that CONTRACTOR shall not be required to submit its Internal


proprietary or confidential information which are not directly related to this


Contract.


(s) not to commence the execution of any major project until the project


including the local components thereof are properly scoped out and


agreed by the CORPORATION.


(t) take on supervisory responsibilities of the LCV to ensure that the portion of


the Work Programme allocated to the LCV as described in Annex G which


may be changed from time to time Is performed In a diligent, safe and


efficient manner in accordance with petroleum Industry practices.


(u) support the LCV to provide the necessary paraphernalia to perform the


portion of the Work Programme assigned to it locally (and to the largest


extent possible) using locally procured goods and services only.


(v) convene an annual programme meeting to appraise the CORPORATION


and thereafter Department on the progress, competence and development


of the LCV and the relationship between the Operator and the LCV


highlighting transfer of technology so tar achieved, new activities and


performance of the LCV.


* ■


(w) where more than one entity constitute the LCV, ensure that the


representative nominated by LCV to serve on the Management Committee


under this Contract, and the operating committee under the JOA, shall


rotate amongst the entitles that constitute the LCV,


8.2 In accordance with this Contract, the CORPORATION shall:





a) pay to the Government in a timely manner on receipt of the appropriate


Royalties, Concession Rentals and PPT accruing out of Petroleum


Operations and indemnify and hold the CONTRACTOR harmless against


all losses, damages, expenses, actions of whatever kind and nature


including but not limited to legal fees and expenses suffered by the


CONTRACTOR as a result of any failure to so timely pay;





b) with Its professional staff assigned pursuant to Clause 13 jointly work with


the CONTRACTOR’S professional staff In the Exploration, Petroleum


Engineering, Facllltles/Material, Legal, Finance and Environmental and


Safety Departments and other areas In the Petroleum Operations;


i


c) assist and expedite the CONTRACTOR'S execution of Petroleum


Operations and Work Programmes Including, but not limited to, assistance


in supplying or otherwise making available all necessary visas, work


permits, rights of way and easements as may be requested by the


CONTRACTOR (costs of the CORPORATION arising from services


rendered in 8.2(b) and expenses Incurred at the CONTRACTOR’S request


in providing assistance shall be recovered from cost oil and/or reimbursed


to the CORPORATION by the CONTRACTOR in accordance with Clause


11.1 herein). The CONTRACTOR shall include such reimbursements in the


Operating Costs; which reimbursement wilt be made against the


CORPORATION’S invoice and shall be in U.S. Dollars computed at the rate


of exchange published by the Central Bank of Nigeria or the Federal


Ministry of Finance on the date the expense was incurred);


d) have title to all original data resulting from the Petroleum Operations





including but not limited to geological, geophysical,-engineering, well logs,


completion, production, operations, status reports and any other data'as


the CONTRACTOR may compile during the term hereof, provided however,


that the CONTRACTOR shall keep and use such original data during the


 term of this Contract and the CORPORATION shall at all time have access


to such original data during the term of this Contract;








e) not exercise all or any of its rights or authority over the Contract Area in


derogation of the rights of the CONTRACTOR; and





) f) apply for conversion of the OPL to OML upon the request of


i





CONTRACTOR and shall exercise all the rights and comply with all the


obligations of the Licensee or Lessee under the Petroleum Act Cap 350


Laws of the Federation of Nigeria, 1990 as amended.





8.3 In accordance with this Contract the LCV shall:


a) Pay for Work Programme according to its Participating Interest and fulfill all Its





obligations under this Contract.ln the event of any default by the LCV to meet


a cash call obligation under this Contract, the following provisions shall apply:


(i) The Operator shall promptly give written notice of such default to


the defaulting LCV, the CORPORATION and the non-defaulting


Contractor Party.


(II) The CORPORATION shall promptly take all necessary measures to


make the defaulting LCV remedy the default.


(iii) During the continuation of any default, the defaulting LCV shall not


be represented at Management Committee meetings or have


access to any data or Information relating to Petroleum Operations.


(iv) If the defaulting LCV falls to remedy the default, then sixty (60)days


after the date of the default notice, the Operator shall notify the


defaulting LCV, the CORPORATION and the non-defaulting


Contractor Party accordingly, whereupon the CORPORATION shall


pursuant to Clause 20 terminate this Contract against the defaulting


LCV.


(v) CORPORATION shall notify the Department of the default and with


the Department’s approval, reallocate the Participating Interest of


the Defaulting LCV to another LCV that possesses the requisite


financial standing and competence to meet the defaulting LCV's





32


 financial and operational obligations under this Contract, provided


however that such other LCV shall submit a written undertaking to


assume the outstanding obligations of the defaulting LCV under this


Contract and provided further that such other LCV is acceptable to


the other Contractor Party(les). Prior to reallocating the Participating


Interest of the defaulting LCV to a third party, the Contractor Parties


shall have the right to carry out due diligence on such third party. If


such third party Is not acceptable to one or more of the- other


Contractor Parties, they shall have the right upon 30 days written


notice to the CORPORATION to object to the participation of such


third parly. The replacement of such third party rejected by one or


more of the other Contractor Parties shall continue until a third party


acceptable to the Contractor Parties is found.





b) Assign qualified personnel to the Operator to manage and administer specific


parts of the Work Programme as bid and more particularly described In Annex


G. Such work shall be carried out in Nigeria. Operator and LCV shall mutually


agree on the number of LCV's personnel to be assigned to the Operator.


c) Retain the Participating Interest assigned to it under this Contract or transfer to


other Nigerian entities after prior written approval by the Parties, such


approval not to be unreasonably withheld, provided, however that the LCV


shall not transfer any of its Participating Interest to a foreign entity.





8.4 The portion of the Work Programme described in Annex G shall relate to the


Exploration Period only. Upon conversion to OML the portion of the Work


Programme that shall be managed and administered by the LCV and the


training of the LCV’s personnel shall be approved by the CORPORATION


upon the recommendation of the Management Committee




















33





^2^'A-


CLAUSE 9: RECOVERY OF OPERATING COSTS AND CRUDE OIL


ALLOCATION





9.1 The allocation of Available Crude Oil shall be in accordance with the


Accounting Procedure (Annex B), the Allocation Procedure (Annex C) and this


Clause 9 as follows:


a) Royalty Oil shall be allocated to the CORPORATION in such quantum as


will generate an amount of Proceeds equal to the actual Royalty payable on


the Contract Area during each month and the Concession Rental payable


annually;


b) Cost Oil shall subject to Clause 9.1 (c) and (d) herein below be allocated to


the CONTRACTOR in such quantum as will generate an amount of


Proceeds sufficient for recovery of Operating Costs in OPL 905 and any


OML derived therefrom after allocation of Royalty Oil to the


CORPORATION. All costs will be recovered In U.S. Dollars and recovered


through Cost Oil allocation;


c) The Cost OH Ceiling shall be 65% of Available Crude Oil. The mechanism


for recovery shall be In accordance with the PPTA and Annex B Articles II


and IV, 5 (b) (ii) of this Contract.


d) The Realizable Price established in accordance with Clause 10 of this


Contract shall be used in determining the amount of Cost Oil allocated to


the CONTRACTOR in respect of Crude Oil produced and lifted pursuant to


this Contract. The parameters for new Crude Oil streams produced from


the Contract Area shall also be determined in accordance with the


provisions of Clause 10 of this Contract.


e) Tax Oil shall be allocated to the CORPORATION in such quantum as iftitt


generate an amount of Proceeds equal to the PPT liability payable during


each month;


 f) if the quality of the seismic is approved by the Management Committee,


reasonable seismic data acquisition and processing cost confirmed by


Department and committed to or incurred In the relevant OPL prior to the


Effective Date of this Contract shall be recoverable and count towards


satisfying the minimum Work Programme.





g) Profit Oil, being the balance of Available Crude Oil after deducting Royalty


Oil, Cost Oil and Tax Oil shall be allocated to each Party pursuant to


Schedule B-2 Section C of the Accounting Procedure (Annex B) as follows:





R Factor CONTRACTOR Share CORP. Share


R < 1.2 P = 70% 100%-P


1.2 < R < P = 25%+[(2.5-R)/(2.5-1.2)*(70%- 100% - P


2.5 25%)1


R > 2.5 P = 25% 100%-P








Where, for each Contract Area:


Rn=({P01+C0t)*RP1+(P02+C02)*RPa+.. .+(PO"*»+ COn*1)*RPn'1) / (Cumulative


capital + cumulative non-capital costs)


Where





PO=Contractor share of profit oil


CO=Cost oil


RP=RealIzable price


n= The actual accounting period





Cumulative capital + cumulative non-capital costs = All costs allocated to the


Contract Area up to and Including the previous accounting period, as defined


under Article II of Annex B.


In the event of a discovery of a field which cannot be economically developed





under the above .profit splits, or the completion of the development of such


field proves uneconomic, the Parties shall meet to agree the appropriate


terms and conditions and Profit Oil splits which would provide for the











35








\


!


j


 development or completion of development of such field to the economic


benefit of the Parties.





Each Party shall take in kind, lift and dispose of its allocation of Available


Crude Oil In accordance with the Lifting Procedure (Annex D). In the event of


any difference arising from reconciliation, the records of the Department shall


be the official records.


Allocation of Royalty Oil and Tax Oil to the CORPORATION shall be applied


9.3


towards the liabilities of the CONTRACTOR and the CORPORATION for


Royalty, Concession Rentals, and PPT and the Proceeds therefrom shall be


paid to the Government by the CORPORATION on behalf of both Parties.





Either Party may at the request of the other, lift the other Party's Available


9.4


Crude Oil pursuant to Clause 9.2 and the lifting Party within sixty (60) days


shall transfer to the account of the non-lifting Party the Proceeds of the sale to


which the non-lifting Party is entitled. Overdue payments shall bear interest at


the rate of one (1) month LIBOR plus two (2%) percent.


The CONTRACTOR may purchase any portion,of the CORPORATION’S


9.5


allocation of Available Crude Oil from the Contract Area under the


CORPORATION’S terms and conditions including valuation and pricing of the


Crude Oil as applicable to third party buyers of the CORPORATION’S Crude











9.6 The Parties shall meet on a monthly or at least on a quarterly basis to


reconcile all Crude Oil produced, allocated and lifted during the period In


accordance with Article III (7) of Annex D.


CLAUSE 10: VALUATION OF AVAILABLE CRUDE OIL





10.1 Available Crude Oil allocated to each Party shall be valued In accordance with


the following procedures:


a) On the attainment of commercial production, each Party shall engage the


services of an independent laboratory of good repute to determine the


assay of the new Crude Oil.


b) When a new Crude Oil stream is produced, a trial marketing period shall be


designated which shali extend for the first six (6) months period during


which such new stream is lifted or for the period of time required for the first


ten (10) liftings, whichever is longer. During the trial marketing period the


Parties shall:


i, collect samples of the new Crude OH upon which the assays shall be


performed as provided In Clause 10.1 (a) above;


II. determine the approximate quality of the new Crude OH by estimating


the yield values from refinery modelling;


iii. share in the marketing such that each Party markets approximately an


equal amount of the new Crude OH and to the extent that one Party lifts


the other Party's allocation of Available Crude Oil, payments thereof,


shall be made In accordance with Clause 9.4;





iv. provide information to a third party who shall compile the information


and maintain ail Individual Party Information confidential with regard to


the marketing of the new Crude OH including documents which verify


the sales price and terms of each lifting;





v. apply the actual F.O.B. sales price to determine the value for each


lifting which F.O.B. sales pricing for each lifting shall continue after the


trial marketing period until the Parties agree to a valuation of the new


 Crude Oil but in no event longer than ninety (90) days after conclusion


of the trial marketing period.





c) As soon as practicable but in any event not later than sixty (60) days after


the end of the trial marketing period, the Parties shall meet to review the


assay, yield, and actual sales data. Each Party may present a proposal for


the valuation of the new Crude Oil. A valuation formula for the Realizable


Price shall be agreed to by the Parties not later than nine (9) months after


the first lifting. Such valuation formula shall be in accordance with the


Realizable Price provisions established by the Management Committee. It is


the intent of the Parties that such prices shall reflect the true market value


based on arm’s length transactions for the sale of the new Crude Oil. The


valuation formula as determined hereinbefore (including the product yield


values) shall be mutually agreed within thirty (30) days of the aforementioned


meeting failing which, determination of such valuation shall be as provided In


Clause 10.2.


d) Upon the conclusion of the trial marketing period, the Parlies shall be entitled


to lift their allocation of Available Crude Oil pursuant to Clause 9 and the


Lifting Procedure.


e) When a new Crude Oil stream is produced from the Contract Area and is


commingled with an existing Crude Oil produced In Nigeria, which has an


established Realizable Price basis, then such basis shall be applied to the


extent practicable for determining the Realizable Price of the new Crude Oil.


The Parlies shaft meet and mutually agree on any appropriate modifications


to such established valuation basis, which may be required to' reflect any


change In the market value of the Crude Oil as a result of commingling.


10.2 If in the opinion of either Party an agreed price valuation method falls to reflect


the market value of Crude Oil produced in the Contract Ate'a, then such Party


may propose to the other Party modifications to such valuation method once


in every six (6) months but in no event more than twice in any Year. The


Parties shall then meet within thirty (30) days ol such proposal and mutually





38


agree on any modifications to such valuation within thirty (30) days from such


meeting, failing which, determination of such valuation shall be referred to a


mutually agreed independent expert for his opinion.


10.3 Segregation of Crude Oil of different quality and/or grade shall be by


agreement of the Parties taking into consideration, among other things, the


operational practicality of segregation and the cost benefit analysis thereof. If


the Parties agree on such segregation the following provisions shall apply:


a) Any and all provisions of the Contract concerning valuation of Crude OH shall


separately apply to each segregated Crude Oil produced;


b) Each grade or quality of Crude Oil produced and segregated In a given Year


shall contribute its proportionate share to the total quantity designated in


such Year as Royalty Oil, Tax Oil, Cost Oil and Profit Oil.


CLAUSE 11: PAYMENT


11.1 The method of payment of any sum due from the CONTRACTOR to the


CORPORATION and vice versa shall be in accordance with the prevailing


guidelines of the Federal Ministry of Finance and of the Central Bank of Nigeria


and In accordance with the Accounting Procedure, Annex B.


11.2 Unless otherwise provided herein, any payment which the CORPORATION is


required to make to the CONTRACTOR or which the CONTRACTOR Is


required to make to the CORPORATION pursuant to this Contract shall be


made within thirty (30) days following the end of the month in which the


obligation to make such payments occurs. Overdue payments shall bear


interest at the annual rate of one (1) month LIBOR ("London Inter-Bank Offer


Rate") plus two (2%) percent.














39


11.3 Each Party shall have the right of set off against the other Party for sums due


and payable to the other Parly under this Contract provided that no set off shall


be made without 30 days prior notice to the other Party and receipt of a written


consent thereof.


CLAUSE 12: TITLE TO EQUIPMENT/DECOMMISSIONING


12.1 The CONTRACTOR shall finance the cost of purchasing all equipment to be


used in Petroleum Operations in the Contract Area pursuant to the Work


Programme and such equipment shall become the property of the


CORPORATION on arrival in Nigeria. The CONTRACTOR and the


CORPORATION shall have the right to use such equipment exclusively for


Petroleum Operations In the Contract Area during the term of this Contract.


Should the CORPORATION desire to use such equipment outside the Contract


Area, such use shall be subject to terms and conditions agreed by the Parties,


provided that it is understood that Petroleum Operations hereunder shall take


precedence over such use by the CORPORATION. The CONTRACTOR shall


onfy lease equipment with the approval of the CORPORATION, such approval


not to be unreasonably withheld if such lease is In the best interest of the


Petroleum Operations^


12.2 The CONTRACTOR'S right to use such purchased equipment shall cease with


the termination or expiration (whichever is earlier) of this Contract.


12.3 The provisions of Clause 12.1 with respect to the title of property passing to


the CORPORATION shall not apply to leased equipment belonging to local or


foreign third parties, and such equipment may be freely exported from Nigeria


In accordance with the terms of the applicable lease.


12.4 All lands purchased or otherwise acquired by the CONTRACTOR for the


purposes of Petroleum Operations and all movable property utilized in the


Contract Area and incorporated permanently in any premises, location and


structures for the purpose of Petroleum Operations hereunder shall be in the


name of the CONTRACTOR and CORPORATION. Upon cost recovery of the





40


i








costs of such property, the CORPORATION shall take full possession of such


lands and property relating to Petroleum Operations under the Contract on a


“where is as is" basis, CONTRACTOR shall hand over such lands and property


within thirty (30) days.


12.5 Subject to Clause 12.3 hereof, all fixed assets purchased or otherwise





acquired by the CONTRACTOR for the purposes of Petroleum Operations


hereunder shall become the property of the CORPORATION. Upon termination


of this Contract pursuant to Clause 20 the CONTRACTOR shall hand over


possession of such fixed assets to the CORPORATION.





12.6 During the term of this Contract, any sales of equipment, land, fixed assets,


materials and machinery acquired for the purpose of the Petroleum Operations


hereunder shall be with prior approval of the CORPORATION. Such sales shall


be conducted by the CONTRACTOR on the basis of the highest price


obtainable and the proceeds of such sale shall be credited to the


CORPORATION.


12.7 Decommissioning





Decommissioning costs will be estimated on a field basis and on the basis of


technical studies by the CONTRACTOR to be agreed by the Management


Committee. The CONTRACTOR shall either (I) provide security, with prior


approval of the CORPORATION which shall not be unreasonably withheld, in


the form of a standby letter of credit or corporate or.bank guarantee, or (ii) set


aside decommissioning fund In U.S. Dollars to be held in an interest-bearing


escrow account jointly established by the Parties at a first class commercial


bank. The bank so designated shall have a long term rating of not less than


"AA” by Standard and Poor’s Corporation or “Aa2” by Moody's Investor Service


or a comparable rating by another mutually agreed rating service. Preference


shall be given to banks in Nigeria possessing the required rating.














41


The Decommissioning fund shall be set aside commencing at a time and at a


rate to be agreed by the Management Committee.- Such rate shall take Into


account the relationship between the estimated total Decommissioning cost


and the anticipated production revenues, and shall be reviewed on an annual


basis as part of the budgeting process.


The Decommissioning fund including accrued interest shall be used solely for


the purposes of paying for decommissioning and abandonment operations. No


Party shall mortgage, pledge, encumber or otherwise use such


decommissioning fund for any purpose whatsoever except as expressly


provided herein. The Decommissioning fund may be invested only in


investments approved by both Parties.


Any balance remaining in the Decommissioning fund after total


Decommissioning and cost recovery for all fields in the Contract Area shall


revert to the CORPORATION.


CLAUSE 13: EMPLOYMENT AND TRAINING OF PERSONNEL


13.1 Each Calendar Year, the CONTRACTOR shall submit a detailed programme


for recruitment and training for the following Calendar Year in respect of the


Nigerian personnel of CONTRACTOR in accordance with the Petroleum Act


CAP 350 LFN 1990 and a detailed account of the attainment of the percentages


of Nigerian employees specified in Clause 13.3 (b).


13.2 Qualified Nigerians shall be employed in all non-speclallzed positions.





13.3 (a) Qualified Nigerians shall also be employed in specialized positions such as


those in exploration, drilling, engineering, production, environmental, safety,


finance etc. The CONTRACTOR Shall have the fight, subject to applicable


laws, rules and regulations, to emplby non-Nigerians in such specialized


positions where qualified Nigerians are not available provided that the


CONTRACTOR shall recruit and train Nigerians for such specialized


positions, such that the number of non-Nigerian staff shall be kept to a


minimum.


b) The CONTRACTOR shall ensure that:


(i) ten (10) Years from the Effective Date of this Contract the number of


citizens of Nigeria employed by the CONTRACTOR in connection with


the Petroleum Operations in managerial, professional and supervisory


positions shall reach at least seventy five (75%) percent of the total


number of persons employed by CONTRACTOR In those positions. The


CONTRACTOR shall further ensure that at the 15th and 20lh Year after


the Effective Date of this Contract, the minimum level of the total number


of Nigerian citizens engaged in Petroleum Operations in managerial,


supervisory and other professional positions shall reach eighty (80%)


percent and eighty five (85%) percent respectively; and


(ii) all skilled, semi-skilled and unskilled workers employed by the


CONTRACTOR are citizens of Nigeria.


13.4 Pursuant to Clause 8.2(b) competent professionals of the CORPORATION


shall be assigned to work with the CONTRACTOR and such personnel and


the CONTRACTOR'S personnel shall not be treated differently with regard to


salaries and other benefits. CONTRACTOR and CORPORATION shall


mutually agree on the number of CORPORATION'S staff to be assigned to the


Petroleum Operations. The costs and expenses of such CORPORATION


personnel shall be included In Operating Costs.


13.5 The CORPORATION shall agree on the organization chart of the Operator


which shall include Nigerian and non-Nigerian staff in key positions.


13.6 No Nigerian employed under this Contract shall be disengaged without the


prior written approval by the Ministry of Petroleum Resources or other


designated government agency; in accordance with applicable laws and


regulations. Request for such approval shall be made through the


CORPORATION.


13.7 Operator shall supervise the LCV in the selection of LCV’s personnel that


shall perform certain aspects of the Petroleum Operations under this Contract.


13.8 CONTRACTOR shall train on an annual basis, an agreed number of the


CORPORATION'S personnel in all facets of Petroleum Operations.


CLAUSE 14: LOCAL CONTENT POLICY


14.1 The CORPORATION and the CONTRACTOR aspire to maximise local


content In all areas of the Petroleum Operations under this Contract.


14.2 CONTRACTOR shall give preference to such goods, which are available in


Nigeria or services that can be rendered by Nigerian nationals provided they


meet the specifications and the standards of the goods and services.


14.3 A Joint Operating Agreement (JOA) shall be established between Contractor


Parties to govern the funding and conduct of Petroleum Operations under this


Contract.


14.4 The LCV shall be required to fully meet all its financial and operational


obligations under the JOA. In the event of default or failure to meet any of Us


financial and operational obligations, the following provisions shall apply:


(a) The Operator shall promptly give written notice of such default to the


defaulting LCV, the CORPORATION and the non-defaulting Contractor


Party.


(b) The CORPORATION shall promptly take all necessary measures to


make the defaulting LCV remedy the default.


(c) During the continuation of any default, the defaulting LCV shall not be


represented at Management Committee, or to have any access to any


data and Information relating to Petroleum Operations.


(d) In the event that the defaulting LCV fails to remedy the default then


sixty (60) days after the date of the default notice, the Operator shall


notify the defaulting LCV, the CORPORATION and the non-defaulting


Contractor Party accordingly, whereupon the CORPORATION shall


pursuant to Clause 20 terminate this Contract against the defaulting


LCV.


(e) The CORPORATION shall notify Department of the default and with


the Department’s approval re-allocate the Participating Interest of the


defaulting LCV to another LCV that possesses the requisite financial


standing and competence to meet the defaulting LCV's financial and


operational obligations under this Contract, provided however that such


other LCV shall submit a written undertaking to assume the outstanding


obligations of the defaulting LCV under this Contract, and provided further


that such other LCV is acceptable to the other Contractor Parties. Prior to


reallocating the Participating Interest of the defaulting LCV to a third party,


the Contractor Parties shall have the right to carry out due diligence on


such third party. If such third party Is not acceptable to one or more of the


other Contractor Parties, they shall have the right upon 30 days written


notice to the CORPORATION to object to the participation of such third


party. The replacement of such third party rejected by one or more of the


other Contractor Parties shall continue until a third party acceptable to the


Contractor Parties is found.


14.5 Termination of the Contract against the defaulting LCV shall not give rise to


any reimbursement to, or claim or cause of action against the


CORPORATION or the other Contractor Parties by, the defaulting LCVJor


payments made by the defaulting LCV prior to termination.








45 •»


CLAUSE 15: BOOKS. ACCOUNTS AND AUDIT








15.1 Books and Accounts


The CONTRACTOR shall be responsible for keeping complete books of


accounts consistent with modern petroleum industry and accounting practices


and procedures. The statutory books and accounts of this Contract shall be


kept in Naira and U.S. Dollars. All other books of accounts as the


CONTRACTOR may consider necessary shall be kept in columnar form in


both Naira and U.S. Dollars. Officials of the CORPORATION and the


CONTRACTOR shall have access to such books and accounts. The


accountants of CORPORATION assigned pursuant to Clause 13 shall


participate In the preparation of same. Where the accountants of the


CORPORATION are prevented by the CONTRACTOR from participating in


the preparation of such books of accounts, costs presented In such books of


accounts shall not be cost recoverable.


15.2 AFI statutory books of account shall be kept at the registered address of the


Operator in Nigeria.


15.3 Audits


(i) Books of Accounts


The CORPORATION shall have the right to inspect and audit the


accounting records relating to this Contract for any Calendar Year by


giving thirty (30) days written notice to the CONTRACTOR and the


CONTRACTOR shall facilitate the work of such inspection and


auditing; provided however that such inspection and auditing shall be


carried out within two (2) Calendar Years following the end of the


Calendar Year in question, and if not, the books and accounts relating


to such Calendar Year shall be deemed to be accepted by the Parties


as satisfactory. Any exception must be made in writing within ninety


(90) days following the end of such audit and failure to give such


 written notice within such time shall establish the correctness of the


books and accounts.





The CORPORATION may undertake the inspection and audit in


Clause 15.3 (i) above either through its own personnel or through a


qualified firm of chartered accountants registered In Nigeria appointed


for the purpose by the CORPORATION; provided, however, that the


transportation and per diem costs of the CORPORATION'S own


personnel shall be borne by the CONTRACTOR as general


administrative costs and shall be cost recoverable. For the qualified


firm of chartered accountants, the costs shall be borne by the


CORPORATION.





Notwithstanding that the said period of two (2) Calendar Years may


Hi)


have expired, if the CONTRACTOR has been found guilty of Gross


Negligence under this Contract, the CORPORATION shall have the


right to conduct a further audit to the extent required to Investigate such


Gross Negligence in respect of any earlier periods; provided, however,


that the costs of such investigations shall be charged to Operating


Costs.


The CORPORATION shall receive a copy of all audit reports carried


Iv)


out by a Contractor Party on Petroleum Operations or any activities of


the Operator that may affect the conduct of the Work Programme. Such


reports shall be forwarded to the CORPORATION by the Contractor


Party responsible for the audit(s) within three (3) calendar months of


conclusion of the said audlt(s).





Materials


V)





The CONTRACTOR shall maintain physical and accounting controls of


materials in stock fn accordance with general practice in the


international petroleum industry. The CONTRACTOR shall carry out


total audit of such materials in stock at least once in a Calendar Year








47





and shall give the CORPORATION a four (4) week written notice prior


to such inventory. The CORPORATION and or its external auditors


shall be entitled to audit such inventory. The CORPORATION may


however carry out partial or total check of such inventories at its own


expense, whenever It considers necessary, provided such exercise


does not unreasonably disrupt Petroleum Operations.


15.4 Home Office Overhead Charges


The CONTRACTOR shall Include the following percentages on total annual


capital expenditure as overhead charges in calculating total Operating Costs:





- First - $200 million 1% of Capex


- Next - $200 million 0.75% of Capex


- Next - $100 million 0.5% of Capex


- Above- $500 million 0%





15.4.1 The overhead charges realised pursuant to Clause 15.4 hereinabove shall be


recovered through Cost Oil.


CLAUSE 16: ROYALTY AND TAXES


16.1 Royalty


Royalty rates shall be as provided In the Petroleum Act, Cap 350, Laws of the


Federation of Nigeria, 1990, as amended, and the prevailing fiscal laws and


regulations.


For the purpose of this Contract the following Royalty rate shall apply:





- Onshore areas................ 20.00%


- Areas up to 100 metres water depth.....................18.50%


- Areas from 101 to 200 metres water depth............ 16.60 %


• Areas from 201 to 500 metres water depth.......... 12.00%





48





■ Areas from 501 to 800 metres water depth............ 8.00%


- Areas from 801 to 1000 metres water depth.......... 8.00%


■ Areas In water depth higher than 1000 meters....... 8.00%


- Inland Basins................................................ 10.00%


16.2 Petroleum Profits Tax (PPT)


a) The PPT shall be In accordance with the PPT Act Cap 354 LFN 1990.


b) The applicable PPT rate shall be variable according to the following


respective terrain:-








Terrain Tax Rate


Onshore/Shallow offshore First five years (new comers) 65.7%


First five years (existing companies) 85.00%


Subsequent years (all companies) 85.00%


Deep Offshore and Inland basins: Flat rate 50.00%





The PPT rates shall be applied to the chargeable profits for the duration of the


Contract.


16.3 The CORPORATION shall pay to Government all Royalty, Concession


Rentals and PPT on behalf of itself and the CONTRACTOR out of Available


Crude Oil allocated to It under Clause 9.1 of this Contract.


16.4 The Realizable Price established in accordance with Clause 10 of this


Contract shall be used In determining the amount payable on Royalty and


PPT in respect of Crude Oil produced and lifted pursuant to this Contract. The


parameters for new Crude Oil streams produced from the Contract Area shall


also be determined in accordance with the provisions of Clause 10 of this


Contract.





16.5 The CORPORATION shall make available to the CONTRACTOR copies of


receipts issued by the Federal Inland Revenue Service bearing the name of


the Party for the payment made for PPT in accordance with each Party’s Tax


Oil allocation as provided in Annex B Schedule B.1 CORPORATION shall


provide to CONTRACTOR a copy of the payment advice within thirty (30)


days of issuance.


16.6 Investment Tax Allowance (ITA)


a) The ITA shall be in accordance with the PPT Act Cap 354 LFN1990 and


the Deep Offshore and Inland Basin Act 1999


b) The applicable ITA rate shall be variable according to the following


respective terrain:-


Terrain ITA Rate


Land operation 5%


Offshore depth < 100m 10%


Offshore from 100m to 200m 15%


Deep offshore (water depth greater than 200 metres) 50%


Inland Basin 50%


The ITA applicable shall be a flat rate for the duration of the Contract.


CLAUSE 17: INSURANCE


17.1 All property acquired under the provisions of this Contract shall be adequately


Insured with an insurance company of good repute by the CONTRACTOR in


consultation with the CORPORATION, In the names of the Parties. The


premium for such policies shall be Included in Operating Costs. All policies


shall name the CORPORATION as a co-insured with a waiver of subrogation


rights in favour of the CORPORATION.


17.2 In case of loss or damage to property, indemnifications paid by the insurance


companies shall be entirely received by the CONTRACTOR for Petroleum


Operations. The CONTRACTOR shall determine whether the lost or damaged


property should be repaired, replaced or abandoned. If the decision is to repair


or replace, the CONTRACTOR shall Immediately replace or repair such lost or


damaged property. Any excess cost of repair or replacement above the


amount reimbursed by the insurance companies shall be regarded as


Operating Costs. If the decision is to neither repair nor replace then the


proceeds of any coverage shall be credited to CORPORATION. In the event


that the loss or damage is attributable to the CONTRACTOR’S Gross


Negligence the cost of replacement or repair shall not be recoverable as Cost


Oil.


17.3 The CONTRACTOR shall take out and maintain an insurance policy covering


any and all damages caused to third parties as a direct or Indirect result of


Petroleum Operations.


17.4AII insurance policies under this Clause 17 shall be based on good international


petroleum industry practice, and shall be taken out in the Nigerian insurance


market except for those concerning risks for which the CONTRACTOR cannot


obtain coverage In Nigeria which shall be taken out abroad, to the extent


required by law.


17.5 in entering into contracts with any sub-contractor for the performance of


Petroleum Operations, the CONTRACTOR shall require such sub-contractor to


take out adequate Insurance in accordance with Clauses 17.1 and 17.3 above


and to properly indemnify the CORPORATION and the CONTRACTOR for any


damage done and to properly indemnity and hold the CORPORATION and the


CONTRACTOR harmless against claims from third parties.


17.6 The CONTRACTOR shall maintain other insurance policies required under


Nigerian law.


CLAUSE 18: CONFIDENTIALITY AND ANNOUNCEMENTS


18.1 The CONTRACTOR and the CORPORATION shall keep information furnished


to each other in connection with Petroleum Operations and ail plans, maps,


drawings, designs, data, scientific, technical and financial reports and other data


and information of any kind or nature relating to Petroleum Operations Including


any discovery of petroleum as strictly confidential, and shall ensure that their


entire or partial contents shall under no circumstances be disclosed in any


announcement to the public or to any third party without the prior written consent


of the other Party(ies). The provisions of this Clause 18 shall not apply to


disclosure to.


a) Subcontractors, Affiliates, assignees, auditors, financial consultants or legal


advisers, provided that such disclosures are required for the effective


performances of the aforementioned recipients’ duties related to Petroleum


Operations;


b) Comply with statutory obligation or the requirements of any governmental


agency or the rules of a stock exchange on which a Party’s or Affiliate’s


stock is publicly traded In which case the disclosing Party will notify the other


Parties of any Information to be disclosed prior to such disclosure.


c) Financial Institutions Involved in the provision of finance for the Petroleum


Operations hereunder provided, in all such cases, that the recipients of such


data and information agree in writing to keep such data and information


strictly confidential.


d) A third party for the purpose of negotiating an assignment of interest


hereunder provided such third party executes an undertaking to keep the


information disclosed confidential.


18.2 The Parties shall take necessary measures in order to make their employees,


agents, representatives, proxies and sub-contractors comply with the same


obligation of confidentiality provided for In this Clause I8.


18.3 The provisions of this Clause 18 shall terminate five (5) Years after the


expiration of this Contract. * '*


18.4 The Parties shall use best endeavours to ensure that their respective servants,


employees, agents and sub-contractors shall not make any reference in public





52


or publish any notes In newspapers, periodicals or books nor divulge, by any


other means whatsoever, any information on the activities under the Petroleum


Operations, or any reports, data or any facts and documents that may come to


their knowledge by virtue of this Contract, without the prior written consent of


the other Parties.


18.5 The CONTRACTOR shall submit to the CORPORATION all statutory reports


and information for submission to Government and other statutory bodies.


CLAUSE 19: ASSIGNMENT


19.1 A Contractor Party shall not sell, assign, transfer, convey or otherwise dispose


of part of all of its rights and interest under this Contract to other parties,


including Affiliates, without prior written notice to and without prior written


consent of the CORPORATION which consent shall not be unreasonably


withheld.


19.2 If the written consent by the CORPORATION Is given, the Contractor Party


shall be relieved of Its liability to the extent of the assignment of Its rights and


obligations under this Contract.


19.3 Any request for consent to assign or dispose as aforesaid, made by a


Contractor Party to the CORPORATION shall include the proposed deed of


assignment and other relevant information relating to financial and corporate


standing of the assignee, and its capability to contribute to the Petroleum


Operations under this Contract.


CLAUSE 20: TERMINATION


20.1 Termination by the CORPORATION:


^ s


The CORPORATION shall be entitled to terminate this Contract with the


CONTRACTOR or a Contractor Party including the LCV, as applicable, if any of


the following events occur:





53


 a) CONTRACTOR defaults In the performance of any of Its obligations set


forth in Clause 8 herein;


b) CONTRACTOR has failed to fully execute the minimum Work Programme





described in Clause 6.2(a) or Clause 6.2 (b); or fails to pay the bonuses


specified In Clause 2.2.


c) A Contractor Party assigns Its rights and interests under this Contract


without prior written notice to and prior written consent of the


CORPORATION;


d) A Contractor Party Is adjudged Insolvent or bankrupt by a court of


competent Jurisdiction in Nigeria;


e) A Contractor Party liquidates or terminates Its corporate existence; or





f) Warranties made by a Contractor Party under Clause 24 herein are found


to be untrue when made.


g) A Contractor Party fails to pay the bonuses specified In Clause 2.1.





h) LCV fails to meet Its financial and operational obligations pursuant to


Clause 14.4 (d).


20.2 Termination for any of the events specified in Clause 20.1 (c), (d), (e) and (f)


above, shall be with immediate effect and the CORPORATION may by written


notice to the Contractor Party declare the Contract terminated as to the


Contractor Party concerned. Termination as to one Contractor Party shall not


constitute termination as to the other Contractor Party(ies) and the other


Contractor Party(ies) shall after payment of corresponding cost be entitled to


receive, such Contractor Party's Participating Interest proportionate to their


respective Participating Interests, subject to the CORPORATION’S approval


of such assignment, such approval not to be unreasonably withheld.





54


20.3 If the cause for termination is an event specified in Glauses 20.1(a) and (b),


the CORPORATION shall give written notice thereof to CONTRACTOR to


remedy such default within a period not more than ninety (90) days of receipt


of CORPORATION’S notice or such additional days as the CORPORATION


deems appropriate in the circumstances. If upon the expiration of the said


period such default has not been remedied or removed, the CORPORATION


may by written notice to the CONTRACTOR declare the Contract terminated


as to the Contractor Party concerned.


20.4 With the exception of such rights of the CONTRACTOR that may have


accrued prior to the date of termination, CONTRACTOR’S rights shall cease


upon the termination of this Contract. Such termination shall take place


without prejudice to any other rights or remedies, which may be available to


either Party. This Clause 20.4 shall not apply to termination under Clause


14.5


20.5 Without prejudice to all other rights of the CORPORATION herein contained,


CONTRACTOR shall upon the termination of this Contract permit Inspection,


copying and auditing of its accounts and records in respect of the Petroleum


Operations.


20.6 Termination by the CONTRACTOR:


Upon ninety (90) days notice, CONTRACTOR shall have the right, at Its sole


discretion to relinquish its rights and to terminate this Contract without further


obligations or liabilities, provided It has satisfied the minimum Work Programme


provided In Clause 6.2(a) or Clause 6.2(b).


20.7 Termination by Effluxion of Time:


However, this Contract shall terminate if no petroleum is found in the Contract


Area after ten (10) Years from the Effective Date.














55


CLAUSE 21: FORCE MAJEURE





21.1 Any failure or delay on the part of any Party In the performance of its


obligations or duties under this Contract shall be excused to the extent


attributable to force majeure, A force majeure situation Includes delays,


defaults or inability to perform under this Contract due to any event beyond


the reasonable control of any Party. Such event may be, but is not limited to,


any act, happening, or occurrence due to natural causes; and acts or perils of


navigation, fire, hostilities, war (declared or undeclared), blockage, labour


disturbances, strikes, riots, insurrection, civil commotion, quarantine


restrictions, epidemics, storms, floods, earthquakes, accidents, blowouts,


lightning, and, acts of or orders of Government.


21.2 If Petroleum Operation is delayed, curtailed or prevented by force majeure,


then the time for carrying out the obligation and duties thereby affected, and


rights and obligations hereunder, shall be extended for a period equal to the


period of such delay.


21.3 The Party who is unable to perform Its obligations as a result of the force


majeure shall promptly notify the other Parties thereof not later than forty-eight


(48) hours after the establishment of the commencement of the force majeure,


stating the cause, and the Parties shall do all that is reasonably within their


powers to remove such cause.


21.4 An event shall not be consider force majeure if the notice in clause 21.3 is not


given


21.5 The CONTRACTOR’S failure or inability to find Crude Oil in commercial


quantity for reasons other than as specified Ip Clause 21.1 hereof shall not be


deemed force majeure. * '* s














56


 CLAUSE 22: LAWS AND LANGUAGE


22.1 This Contract shall be governed by and construed in accordance with the


Laws of the Federation of Nigeria.


22.2 Policy pronouncements made or Issued by Government relating to local





content shall apply to this Contract.


22.3 All affairs related to this Contract shall be conducted in the English language


In which this Contract was drawn up.


CLAUSE 23: NATURAL GAS





23.1 If the CONTRACTOR discovers sufficient volumes of Natural Gas whether or


not associated with Crude OH that could justify commercial development, the


CONTRACTOR shall report the volume of potentially recoverable Natural Gas to


the CORPORATION and shall upon CORPORATION’S request, investigate and


submit proposals to the CORPORATION for the commercial development of said


Natural Gas taking Into consideration local strategic needs as may be identified


by the CORPORATION. Any cost In respect of such proposals or investigation


after the final investment decision has been achieved presented by the


CONTRACTOR to the CORPORATION shall be included in operating costs for


the commercialisation of the Natural Gas.


23.2 For the commercial development of Natural Gas, the CORPORATION and





CONTRACTOR shall enter into a gas development agreement. Such agreement


shall recognize that the CONTRACTOR has the right to participate in such


development project, with the right to recover the costs and share in the profits.


23.3^ Notwithstanding the provisions of Clause 23 hereof., the CONTRACTOR may





utilize, atVo cost any proportion of the produced Natural Gas required as fuel


for production operations; gas recycling, gas injection, gas lift, or any other


Crude Oil enhancing recovery schemes, stimulation of wells necessary for


maximum Crude Oil recovery In the field discovered and developed by the





57





-vf


CONTRACTOR and such usage shall be with prior written consent of the


CORPORATION, which consent shall not be unreasonably withheld.


23.4 The attainment of recovery of Crude Oil through an efficient, economic and


technically acceptable method shall always be paramount in all decisions


regarding associated Natural Gas. However with -respect to associated gas


that remains unutilised after the attainment of the primary objective of recovery


of crude oil, CONTRACTOR shall submit to the CORPORATION a programme


for the utilization of such associated gas.


23.5 The sequence of establishing discovery of commercially viable quantity of


Natural Gas shall be as follows:


a) CONTRACTOR shall have a period of three (3) months (unless otherwise


mutually agreed by the Parties) commencing from the date of discovery of


Natural Gas to declare whether the discovery could justify commercial


development;


b) CONTRACTOR shall have eighteen (18) months period commencing from


the date of discovery to appraise the discovery; '


c) CONTRACTOR shall within a period of one (1) year from completion of the


appraisal of a discovery declare whether the appraised discovery is


commercial;


d) CONTRACTOR shall within twenty seven (27) months from the date of the


declaration of commerciality submit a Field Development Programme to the


CORPORATION for approval and thereafter diligently commence the


development of the commercial discovery.


Ail Work Programme shall receive the consent of the Department prior Jo


taking effect in line with current petroleum legislations and regulations.








58


CLAUSE 24; REPRESENTATIONS AND WARRANTIES





24.1 In consideration of the CORPORATION entering Into this Contract, each


Contractor Party warrants as follows:


a) The Contractor Party has the power to enter Into and perform this Contract


and has taken all necessary action to execute, deliver and perform the


Contract in accordance with the terms herein 'contained and has been


granted all concessions, licenses, permits and authorization on Petroleum


Operations.


b) The execution and delivery of this Contract by the Contractor Party will not


contravene in any respect, any of the provisions of:


I. any law or regulations or order of any governmental authority, agency or


court applicable to or by which the Contractor Party may be bound;


II. any mortgage, contract or other undertaking or Instrument to which the


Contractor Party Is a party or which is binding upon it or any of Its


respective revenues or assets.


c) Full disclosure has been made to the CORPORATION prior to the Effective


Date of all facts in relation to the Contractor Party and Its financial condition


and affairs as are material and should be made known to the


CORPORATION.


d) That the Contractor Party together with its Affiliates have the funds both In


foreign and local currencies to carry out Petroleum Operations under this


Contract. s'* _





e) The representations and warranties set out above shall remain for the


duration of this Contract.


 CLAUSE 25: CONCILIATION AND ARBITRATION





25.1 Should there be a difference or dispute between the Parties concerning the


Interpretation or performance of this Contract such that this dispute cannot be


resolved by mutual consent, the Parties may refer the matter to an independent


expert. For any decision referred to an independent expert under Clause 10.2 or


Clause 25 of this Contract, the Parties agree that such decision shall be


conducted expeditiously by such expert selected unanimously by the Parties to


the dispute. The expert is not an arbitrator of the dispute and shall not be


deemed to be acting in an arbitral capacity. The Party desiring the expert


determination shall give the other Party(ies) to the dispute written notice of the





request for such determination. If the Parties are unable to agree upon an expert


within ten (10) days then any Party may request that the expert be appointed by


the International Centre for Expertise of the International Chamber of Commerce


(ICC) and shall administer such expert determination through the ICC's Rules for


Expertise. The expert, once appointed, shall have no ex parte communications


with any of the Parties to the dispute. All Parties agree to cooperate fully in the


expeditious conduct of such expert determination and to provide the expert with


access to make a fully informed decision in an expeditious manner. Before


Issuing his final decision, the expert shall Issue a draft report and allow the


Parties to the dispute to comment upon It. The expert shall endeavour to resolve


the dispute within thirty (30) days (but no later than sixty (60) days) after his


appointment taking into account the circumstances requiring an expeditious


resolve of the matter in dispute. The expert’s decision shall be final and binding


on the Parties unless challenged in an arbitration pursuant to this Clause 25


within sixty (60) days of the date the expert's final decision is received by the


Parties to the dispute and until replaced by such subsequent arbitral award. In


such arbitration (i) the expert determination on the specific matter shall be


entitled to a rebuttable presumption of correctness; and (li) the expert shall not


(without the written consent of the Parties to the dispute) be appointed to act as


an arbitrator or as an adviser to the Parties to the dispute.














60





 25.2 Where an independent expert is used, CORPORATION and CONTRACTOR


shall furnish the expert with all written information, which he may reasonably


require for his opinion. The cost of the services of the expert, if appointed, shall


be shared equally between CORPORATION and CONTRACTOR.


25.3 If a difference or dispute arises between the CORPORATION and the





CONTRACTOR, concerning the Interpretation or performance of this Contract,


and if the Parties fail to settle such difference or dispute by amicable agreement,


or through an independent expert or If a Party does not agree to the use of an


independent expert, then either Party may serve on the other a demand for


arbitration.





25.4 Within thirty (30) days of such demand being served, each Party shall appoint


an arbitrator and the two arbitrators thus appointed shall within a further thirty


(30) days appoint a third arbitrator, who shall be of a nationality which is different


from that of Parties Involved in the dispute and of the other arbitrators (the


nationality of a company shall be deemed to be that of the country under the


laws of which it and/or its owners are incorporated). If the arbitrators do not


agree on the appointment of such third arbitrator, or If either Party falls to appoint


the arbitrator to be appointed by it, such arbitrator or third arbitrator shall be


appointed by the President of the Court of Arbitration of the International


Chamber of Commerce (ICC) In Paris on the application of the other Party


(notice of the intention to apply having been duly given in writing by the applicant


Party to the other Party). The third arbitrator when appointed shall convene


meetings of the arbitration panel and act as chairman. If an arbitrator refuses or


neglects to act or is incapable of acting or dies, a new arbitrator shall be


appointed in his place and the above provisions of appointing arbitrators shall


govern the appointment of any such new arbitrator or arbitrators.








25.5 The arbitration award shall be binding upon the Parties. The Nigerian


* '* Arbitration and Conciliation Act Cap 19, LFN, 1990 shall apply to this Contract


and the judgment upon the award rendered by the arbitrators may be entered in





i a court having jurisdiction thereof. Each Party shall pay its own attorney's fees


) and costs


The venue of the arbitration shall be any where in Nigeria as may be agreed by the


Parties.


CLAUSE 26: EFFECTIVE DATE


26.1 This Contract shall come Into force and effect on the Effective Date.


26.2 This Contract shall not be amended or modified in any respect except by


mutual consent, in writing, of the Parties hereto.


26.3 Parties hereby agree that this Contract shall not govern the second OML which


the Department may grant pursuant to the Oil Prospecting Licences (Conversion


to Oil Mining Leases, etc) Regulation 2004.


CLAUSE 27: CHANGES IN LEGISLATION


27.1 The Parties agree that the commercial terms and conditions of this


Contract are based on the existing fiscal terms in accordance with the


provisions of the Deep Offshore and Inland Basin Production Sharing


Contracts Aci, 1999 and the fiscal terms as contained in Clause 16 of this


Contract. If such fiscal terms are changed, the Parties agree, subject to


Clause 27.2, to review the terms and conditions of this Contract affected by


such changes to align such terms and conditions with the fiscal terms.


27.2 If at any time or from time to time there should be a change in legislation or


regulations which materially affects the commercial benefits afforded the


Contractor Parties under this Contract, the Parties will consult each other and


shall agree to such amendments to this Contract as are necessary to restore


as near as practicable such commercial benefits which existed under the


Contract as of the Effective Date.


CLAUSE 28: OPERATOR





28.1 GTPL as the lead Contractor Party is designated the Operator under the


Contract to execute on CORPORATION’S behalf, the Petroleum Operations in


the Contract Area.


28.2 The Operator, on behalf of CORPORATION shall have the exclusive control


and administration of the Petroleum Operations. The Operator, on behalf of the


CORPORATION and within the limits defined by the Management Committee


and this Contract, shall execute contracts, incur expenses, make commitments,


and implement other actions In connection with the Petroleum Operations.


CLAUSE 29: NON-GRATIFICATION


29.1 Each Party represents and warrants that It did not engage any person, firm or


company as a commission agent for purposes of this Contract and that it has


not given or offered to give (directly or Indirectly) to any person any bribe, gift,


gratuity, commission or other thing of significant value, as an Inducement or


reward for doing or forbearing to do any action or take any decision in relation


to the Contract, or for showing or forbearing to show favour or disfavour to


any person in relation thereto.


29.2 Each Party further represents that it shall not either directly or Indirectly give to


any person, director, employee, representative or agent of the other Party or


any government official any commission, fee rebate, gift or any entertainment


of significant cost or value, and shall not procure the services of any


commission agent or other third party to give any such gift, fee, reward,


concession, bribe, entertainment of significant cost or value or anything of a


similar nature, for the purposes of influencing or inducing positively or


<» X.


adversely the. award of the Contract or doing any abfin connection with the


Contract.


CLAUSE 30: NOTICES





30.1 Any notice required to be given by each Party to the other Parties shall be in


writing and shall be deemed to have been duly given and received if sent by


fax, or registered post to, or hand delivered at the following registered offices:


THE CORPORATION:


THE GROUP MANAGING DIRECTOR


NIGERIAN NATIONAL PETROLEUM CORPORATION


NNPC TOWERS


CENTRAL AREA, HERBERT MACAULAY WAY


ABUJA.


Fax: +234-(09)-413-4760.


THE CONTRACTOR:


THE MANAGING DIRECTOR,


GAS TRANSMISSION AND POWER LIMITED


PLOT 515USUMA CLOSE,


MAITAMA,


ABUJA.


Fax: 234


THE MANAGING DIRECTOR,


ENERGY 905 SUNTERA LIMITED


2, SMI SOETAN STREET,


OFF ONiKEPO AKANDE STREET


OFF ADMIRALTY WAY, LEKKI PENINSULA


LAGOS,





Fax:








64


THE MANAGING DIRECTOR


IDEAL OIL AND GAS


17 NEW COURT ROAD,


IBADAN,


OYO STATE


Fax:


Each Party shall notify the other promptly of any change in the above address.


IN WITNESS WHEREOF THE PARTIES herein have caused this Contract to


be executed the day and year first above written.


SIGNED AND DELIVERED for and on behalf of

Nigerian National Petroleum Corporation 
By.....................
Name:..............................
Designation: GROUP MANAGING DIRECTOR





In the presence of:


Name:

Signature:


Designation: 

Address:NNPC Abuja




 SIGNED AND DELIVERED for and on behalf of


GAS TRANSMISSION AND POWER LIMITED


By:





Name: Makoki Aduku




Designation: MANAGING DIRECTOR / CHIEF EXECUTIVE


In the presence of:





Name: 

Signature: ................


Designation: Company Secretary

Address:  

SIGNED AND DELIVERED for and on behalf of

Energy 905 Suntera Limited

By:

Name:  Philip Arundel







Designation: MANAGING DIRECTOR/CHIEF EXECUTIVE


In the presence of:



Name:....


Signature:

Designation: .....


Address:                                           
















66


 SIGNED AND DELIVERED for and on behalf of


IDEAL OIL AND GAS












BY:

Name: Evan Enwerem







Designation: MANAGING DIRECTOR /CHIEF EXECUTIVE





In the presence of:








Name


Signature:

Designation: ......


Address:........











APPROVED BY THE HONOURABLE MINISTER



This 23rd of April 2007



Signature:.......





Name: 


Designation: THE HONOURABLE MINISTER FOR ENERGY




In the presence of:



Name:

Signature: 

Designation:










67


 ANNEX A





TO THE PRODUCTION SHARING CONTRACT BETWEEN CORPORATION and


CONTRACTOR dated this ^dav ..-hstory.VZOV?


PPL 905 COORDINATES





ANAMBRA BASIN





DESCRIPTION


All that parcel of land contained in Anambra/Enugu States of the Federal Republic of


Nigeria, edged red on plan prepared by GEODETIC POSITIONING SERVICE


LIMITED attached to this schedule for OPL 905 and containing an approximate area


of 2603.32 square kilometres, the vertices and boundaries of which are described as


follows:-





VERTICES


Vertex 905-01 (the datum point) is the intersection of Latitude 06° 40* 17" North and


Longitude 07° 02' 17" East and it coincides with vertex 3 of OPL915.


Vertex 905-02 Is the Intersection of Latitude 06° 40‘ 21" North and Longitude 07° 31'


52 " East and It coincides with vertex 6 of OPL 914.


Vertex 905-03 Is the intersection of Latitude 06° 54' 32" North and Longitude 07° 31'


50" East and It coincides with vertex 5 of OPL 914.


Vertex 905-04 is the Intersection of Latitude 06° 08' 18" North and Longitude 06° 42'


05" East and it coincides with vertex 1 OPL 906.


Vertex 905-05 is the intersection of Latitude 06° 27' 23" North and Longitude 07° 45'


59" East and It coincides with vertex 6 of OPL 908.


Vertex 905-06 is the intersection of Latitude 06° 27* 18" North and Longitude 07° 02'


19" East and it coincides with vertex 1 of OPL 907.








BOUNDARY DESCRIPTIONS





Ffom the datum point, 905 whose NTM (Nigeria Transverse Mercator) grid


coordinate are 563448.815 meters East and 3216585.407 meters North, boundaries


run In straight lines, the bearings and distances of which are as follows:











A-1


 FROM BEARING DISTANCES TO


Vertex 905-01 90° 00‘ 54503.90m Vertex 135-02


Vertex 905-02 00° 00' 26130.98n1 Vertex 135-03


Vertex 905-03 90° 00' 15330.29m Vertex 135-04





Vertex 905-04 180° 00' 50000.00m Vertex 135-05





Vertex 905-05 270° 00* 80476.59m Vertex 135-06


Vertex 905-06 00° 00' 23924.34m Vertex 135-01








All the bearing and distances are approximate. Bearings are referred to the NTM


with Central Meridian 9° East and Origin Equator.


Area of the concession Is calculated from the following co-ordinates.











OPL 905


VERTEX


EASTING (m) NORTHING (m)


905- 01 563448.185 321685.407


905- 02 589421.505 321630.087





905- 03 589421.505 271630.087





905-04 508944.915 271630.087


905- 05 508944.915 295554.427


905- 06 563448.815 29555.427
































A-2








 ANNEX B





TO THE PRODUCTION SHARING CONTRACT BETWEEN


CORPORATION and CONTRACTOR dated thls^av^,.^^.!..........2007


ACCOUNTING PROCEDURE





Article I





General Provisions





1 . Definitions


This Accounting Procedure attached to and forming a part of the Contract is to


be followed and observed in the performance of either Party’s obligations


thereunder. The defined terms appearing herein shall have the same meaning


as are ascribed to them in the Contract.


2. Accounts and Statements


CONTRACTOR'S accounting records and books shall be kept as provided


under Clause 15.1 of the Contract In accordance with generally accepted and


recognized accounting standards, consistent with modern petroleum industry


practices and procedures. All original books of accounts together with original


supporting documentation shall be kept and maintained in Nigeria In


compliance with all Nigerian laws and regulations.


3. Others





In the event of a conflict of the terms of this procedure and the Contract the


terms of the Contract shall apply. *














B-l


 Article II





Operating Costs





Operating Costs shall be defined as all costs, expenses paid and obligations


Incurred in carrying out Petroleum Operations and shall consist of (1) Non¬


capital costs, and (2) Capital costs.


Non-capital Costs





Non-capital costs mean those costs incurred that are chargeable to the


current year’s operations. Non-capital costs include, but are not limited to the


following:


General office expenses - office, services and general administration services


(a)


pertaining to Petroleum Operations including but not limited to, services of


legal, financial, purchasing, insurance, accounting, computer, and personnel


department, communications, transportation, rental of specialized equipment,


scholarships, charitable contributions and educational awards.


Labour and related costs - salaries and wages, Including bonuses, of


(b)


employees of the CONTRACTOR who are directly engaged In the conduct of


Petroleum Operations, whether temporarily or permanently assigned,


irrespective of the location of such employee including but not limited to, the


costs of employee benefits, customary allowance and personal expenses


incurred under the CONTRACTOR'S practice and policy, and amounts


imposed by applicable Governmental authorities which are applicable to such


employees.





These co§ts and expenses shall include:


(i) Cost of established plans for employee group life insurance,





hospitalisation, pension, retirement, savings and other benefit


 plan;





(ii) Cost of holidays, vacations, sickness and disability benefits.


(ili) Cost of living, housing and other customary allowances;


(Iv) Reasonable personal expenses that are reimbursable under the


CONTRACTOR’S standard personnel policies;


(v) Obligations imposed by governmental authorities;


(vi) Cost of transportation of employees, other than as provided in


paragraph (c) below, as required in .the conduct of Petroleum


Operations; and


(vii) Charges in respect of employees temporarily engaged In


Petroleum Operations, which shall be calculated to reflect the


actual costs thereto during the period or periods of such


engagement,


(c) Employee relocation costs ■ costs for relocation, transportation and


transfer of employees of CONTRACTOR engaged In Petroleum


Operations including but not limited to the cost of freight and passenger


service of such employees' families and their personal and household


effects together with meals, hotel and other expenditures related to


such transfer incurred with respect to:


(I) employees of the CONTRACTOR within Nigeria Including


expatriate employees, engaged In Petroleum Operations;


(li) transfer to Nigeria for engagement in Petroleum Operations; ~


 (Ill) relocation costs and other expenses incurred in the final


repatriation or transfer of the CONTRACTOR’S expatriate


employees and families in the case of such employees'


retirement, or separation from the CONTRACTOR, or in case of


such employees’ relocation to the CONTRACTOR’S point of


origin. Provided that relocation costs incurred in moving an


expatriate employee and his family beyond point of origin,


established at the time of his transfer to Nigeria, will not be


recoverable as Operating Costs;





(iv) Nigerian employees on training assignments outside the


Contract Area.


(d) Services provided by third parties - cost of professional, technical,





consultation, utilities and other services procured from third party


sources pursuant to any contract or other arrangements between such


third parties and the CONTRACTOR for the purpose of Petroleum


Operations.





(e) Legal expenses - All costs or expenses of handling, investigating,


asserting, defending, and settling litigation or claims arising out of or


relating to Petroleum Operations or necessary to protect or recover


property used in Petroleum Operations including, but not limited to, legal


fees, court costs, arbitration costs, cost of investigation or procuring


evidence and amount paid In settlement or satisfaction of any such


litigation, arbitration or claims In accordance with the provisions of this


Contract.


(f) Services provided by Affiliates of the CONTRACTOR - professional,





administrative, scientific, and technical services for the direct benefit of


Petroleum Operations, including, but not limited to, services provided by the


exploration, production, legal, financial, purchasing, insurance, accounting


and computer services department of such Affiliates. Charges for providing




















i


 these services shall reflect the actual cost only and must be consistent with


international market prices and shall not include any element of profit. Such


charges shall be benchmarked by CORPORATION against the oil industry


average for similar services provided by Affiliates of other operators.


(g) Insurance premiums and settlements - premiums paid for insurance


normally required to be carried for the Petroleum Operations together


with all expenditures incurred and paid In settlement ot any and all


losses, claims, damages, Judgments, and other expenses, including


fees and deductibles relating to the CONTRACTOR'S performance


under the Contract.





(h) Duties and taxes - all duties and taxes, fees and any Government


assessments, including but not limited to, gas flare charges, licence


fees, custom duties, and any other than Royalties, PPT and Concession


Rental.





(I) Intangible drilling costs - expenditure for labour, fuel, repairs,


maintenance, hauling, and supplies and materials (not Including, casing


and other well fixtures) which are for or incidental to drilling, cleaning,


deepening or completion wells or the preparation thereof incurred in


respect of:


(i) determination of well locations, geological, geophysical,





topographical and geographical surveys for site evaluation


preparatory to drilling including the determination of near surface


and near sea bed hazards;





(ii) cleaning, draining and levelling land, road-building and the


laying of foundations; '


(Hi) drilling, shooting, testing and cleaning wells;








B*5


<^7*.a


(iv) erection of rigs and tankage assembly and Installation of


pipelines and other plants and equipment required in the


preparation or drilling of wells producing Crude Oil.


Q) Geological and geophysical surveys - labour, materials and services


used in aerial, geological, topographical, geophysical and seismic


surveys incurred in connection with exploration excluding however the


purchase of data from CORPORATION.


(k) Operating expenses - labour, materials and services used in day to day


oil well operations, oil field production facilities operations, secondary


recovery operations, storage, transportation, delivering and marketing


operations; and other operating activities, including repairs, well


workovers, maintenance and related leasing or rental of all materials,


equipment and supplies.


(l) Exploration, appraisal and development drilling - all expenditures


incurred in connection with exploration drilling, and the drilling of the


first two appraisal wells in a particular field, and drilling of development


wells which are dry, including costs incurred in respect of casing, well


cement and well fixtures.


(m) Decommissioning - a provision for all expenditures incurred in


connection with the plugging of wells, the- removal and disposal of


equipment and facilities including well heads, processing and storage


facilities, platforms, pipelines, transport and export facilities, roads,


buildings, wharves, plants, machinery, fixture, the restoration of sites


and structures Including the payment of damages to property lessors.


(n) Head office overhead charge, parent company guarantee overhead In


the amount specified in Clause 15.4 of the Contract.


2. Capital Costs








Capital Costs means, without limitations, expenditures, which are subject to a


Capital Allowance under the PPT Act, Such expenditures normally have a


useful life beyond the year incurred and Include but not limited to the


following:


(a) Plant expenditures - expenditures in connection with the design,





construction, and installation of plant facilities (Including machinery,


fixtures, and appurtenances) associated with the production, treating,


and processing of Crude Oil (except such costs properly allocable to


intangible drilling costs) including offshore platforms, secondary or


enhanced recovery systems, gas injection, water disposal, expenditures


for equipment, machinery and fixtures purchased to conduct Petroleum


Operations such as office furniture and fixtures, office equipment,


barges, floating crafts, automotive equipment, petroleum operational


aircraft, construction equipment, miscellaneous equipment.


(b) Pipeline and storage expenditure - expenditures In connection with the


design, installation, construction of pipeline, transportation, storage and


terminal facilities associated with Petroleum Operations Including tanks,


metering and export lines.


(c) Building expenditure - expenditures incurred in connection with the





construction of building, structures or works of a permanent nature


Including workshops, warehouses, offices, roads, wharves, furniture and


fixtures related to employee housing and recreational facilities and other


tangible property incidental to construction.


(d) Drilling expenditures - expenditures for tangible goods in connection with





drilling wells such as casing, tubing, surface and sub-surface production


equipment, flowlines, Instruments and costs incurred in connection with


acquisition of rights over the Contract Area pursuant to paragraph 1(d)(i)








B-7


 of the Second Schedule of the PPT Act





(e) Material inventory - cost of materials purchased and maintained as


inventory items solely for Petroleum Operations subject to the following


provisions:


(I) The CONTRACTOR shall supply or purchase any materials


required for the Petroleum Operations, including those required in


the foreseeable future. Inventory stock levels shall take account


of the time necessary to provide the replacement, emergency


needs and similar considerations.


(ii) Materials purchased by the CONTRACTOR for use in the


Petroleum Operations shall be valued so as to include invoice


price (less prepayment discounts, cash discounts, and other


discounts If any) plus freight and forwarding charges between


point of supply and point of destination but not included in the


Invoice price, Inspection costs, Insurance, custom fees and taxes,


on Imported materials required for this Contract.


{Hi) Materials not available In Nigeria supplied by the CONTRACTOR


or from Its Affiliates’ stocks shall be valued at the current


competitive cost in the International market.


(v) The CONTRACTOR shall maintain physical and accounting


controls of materials in stock In accordance with general practice


in the International petroleum industry. The CONTRACTOR


shall make a total Inventory at least once a year to be observed


by the CORPORATION and its external auditors. The


CORPORATION may however carry-* out partial or total


inventories at its own expenses,, whenever it considers


necessary, provided such exercise does not unreasonably


disrupt Petroleum Operations.


 (vi) Parties hereby agree that CONTRACTOR shall under no


circumstance be entitled to recover interest on loan facilities or


commissions on bank overdrafts incurred in the conduct of


Petroleum Operations whether such Interest or commissions


relates to loan facilities or bank overdraft undertaken to finance


capital or non-capital costs.





Article 111





Computation of Royalty. Concession Rentals and PPT


1. The CONTRACTOR shall compute the amount of Royalty and Concession


Rentals payable by the CORPORATION pursuant to Clause 16 of this


Contract. Such amounts shall be computed as provided under the Deep


Offshore and Inland Basin Production Sharing Contracts Act, 1999 as


amended and the provisions of this Contract for purpose of Article IV hereof,


the CONTRACTOR shall compute the Royalty payment for remittance to


Government In a given month based on the prevailing fiscal value of the


Crude Oil produced during the second preceding month. Annual Concession


Rental payments shall be taken into account when such payments are


remitted. The CORPORATION shall remit all required payments of Royalty


and Concession Rentals to the Government. The Royalty rates will be as


provided in the Deep Offshore and Inland Basin Production Sharing Contracts


Act 1999, as amended, and the prevailing fiscal laws and the regulations.


2. (a) The CONTRACTOR shall compute the PPT payable by


CORPORATION pursuant to Clause 8.2(a) of this Contract in


accordance with the provisions of the PPT Act Cap 354 Laws of the


Federation of Nigeria 1990, as amended, as well as any prevailing


Government fiscal Incentives Including, but not limited to, any credit


which offsets PPT liability.


(b) The PPT shall be in accordance with the PPT Act Cap 354 Laws of the


Federation of Nigeria 1990, as amended.


(c) The PPT rate applicable to the Contract Area shall be in accordance


with Clause 16.2 of the Contract.


(d) The CORPORATION shall make all required PPT payments to Federal


Inland Revenue Service. The CONTRACTOR shall prepare all returns


required under the PPT Act and timely submit them to the


CORPORATION for onward filing with the Federal Inland Revenue


Service. The monthly PPT payable shall be determined from such PPT


returns. The U.S. Dollar shall be used as the currency for calculating


cost recovery and taxes.


Article IV





Accounting Analyses


A monthly accounting analysis in the form of Schedule B-1 attached to this


Accounting Procedure shall be prepared by the CONTRACTOR and


furnished to the CORPORATION within sixty (60) days of the end of the


period covered by such analysis, for consideration and approval.


The Realizable Price and the quantities actually lifted by the Parties shall be


used to compute the Proceeds as reflected In Section A of each Schedule B-1


and the allocation of such Proceeds In the categories described under Clause


9.1 of the Contract shall be reflected In Section B thereof.


The allocation of the quantity of Available Crude OH to each Party pursuant to


Clause 9 of the Contract shall be according to and governed by provisions of


the Allocation Procedure.





The priority of allocation of the total Proceeds for each period shall be as


follows:


(a) Royalty Oil,


(b) Cost Oil,


(c) Tax Oil,


(d) Profit Oil.


5. The amount chargeable to and recoverable from Royalty Oil, Tax Oil and


Cost Oil to be entered in Section B of the Schedule B-1 shall be determined


as follows:


(a) Royalty Oil - The sum of royalties payable during such month, and,


where applicable, the annual amount of Concession Rentals as


provided under Article 111.1 for purposes of Royalty OIL


(b) Cost Oil - The Operating Costs applicable to such month for purposes of


Cost Oil as follows:


(I) Non-Capital Costs shall be the amount recorded in the books and


accounts of the CONTRACTOR for such month In accordance


with this Accounting Procedure;


(II) Capital Costs recorded In the books and accounts of the


CONTRACTOR shall be recoverable in full and chargeable in


equal instalments over five (5) year period or the remaining life of


the Contract, whichever Is less. Amortization of such costs shall


be in accordance with the method prescribed under the Schedule


of the PPT Act, or over the remaining life of the Contract,


whichever Is less;


(iii) Qualifying Pre-Production Costs for the Contract Area shall be in -


accordance with the PPT Act as amended.


(c) Tax Oil - The sum of the PPT payable for such month as provided under


 Article 111.2 for the purposes of Tax Oil.





(d) Any carryover from previous months as provided under paragraph 6 of


this Article.


6. Any amounts chargeable and recoverable in excess of the allocation of


Proceeds for the month to Royalty Oil, Tax Oil and Cost Oil shall be carried


forward to subsequent months. Carryovers shall be determined as follows:


(a) A Royalty Oil value carryover results when the Proceeds for such month are


insufficient for recovery of the Royalty Oil due for the month.


(b) A Cost Oil value carryover results when the Proceeds remaining after


allocating a portion of the Proceeds to Royalty Oil Is insufficient for recovery of


Cost Oil due for the month, including the costs described in Clause 8.1(b) of


the Contract.


(c) A Tax Oil value carryover results when the Proceeds remaining after


allocating a portion of the Proceeds to Royalty Oil and Cost Oil are insufficient


for recovery of the Tax Oil due for the month.


7. Profit Oil results where Proceeds remain after allocations to Royalty OilrCostOIT


and Tax Oil pursuant to paragraph 5 of this Article IV. Profit Oil shall be allocated


to the Parties pursuant to Clause 9.1 (g) of this PSC.


in the event of a discovery of a field which cannot be economically developed


under the above referenced profit splits, or the completion of the development


of such field proves uneconomic, the Parties shall meet to agree the


appropriate terms and conditions anil'Profit Oil splits which would provide ior


the development or completion of development of such field to the economic


benefit of the Parties.








B-12


 A computation of Profit Oil shares in the form of Schedule B-2 attached to this


Accounting Procedure shall be submitted monthly in conjunction with


Schedule B-1.


Article V





Other Provisions





1. The CONTRACTOR shall open and keep bank accounts in Nigeria in Naira


and US Dollars where all funds remitted from abroad shall be deposited for


the purpose of meeting local expenditures. For purposes of keeping the


books of accounts, any Foreign Currency remitted by the CONTRACTOR into


Nigeria shall be converted into Naira at the monthly exchange rates advised


by the Central Bank of Nigeria.


2. The CONTRACTOR shall prepare financial accounting and budget statements


in accordance with the CORPORATION'S prescribed reporting format.


3. With respect to any agreed sum arising out of this Contract owing between the


Parties that Is past due, any set-off pursuant to Clause 11.3 of the Contract


shall be exercised by giving the other Party written notice thereof


accompanied by sufficient description of the offsetting sums to allow the


Parties to properly account thereof.


The CONTRACTOR shall report on the cumulative production in the Contract


Area in the Form on Schedule B-3 Attached,


 Schedule B -1





Monthly Accounting Analysis





Month of_._,














Section A - Lifting Summary














Lifting Crude RP US$ Volume Proceeds Proceeds Received By:


Dale Type Bbl Bbl US$ CORPORATION CONTRACTOR














Totals














Section B - Allocation of Proceeds - Expressed in U.S. Dollars






















































































B-M


 Schedule B-2


Profit Oil Shares


Month of_,











Section A - Total Production Section B - Total Profit Oil


for the month for the month





Production        Total Net                                 Category                    U.S. Dollar

Field                  Barrels



                                                                           Proceeds




                                                                           Royalty Oil




                                                                           Cost Oil




                                                                           Tax Oil




                                                                            Profit Oil




Section C - Calculation of Profit Oil Share





RANGE FOR    PROFIT OIL  CUMULATIVE   APPLICABLE    AVAILABLE CORP   CONTR
CUMM. PROD  SHARING     PRODUCTION  PROFIT RATIO PROFIT OIL SHARE SHARE
 IN MMB                                    ACHIEVED                                                        U.S.          U.S  
 FROM        CORP.      CONTR.                   CORP.      CONTR.                       Dollar    Dollar           

CONTRACT


AREA























*. ^


























B-15











 Schedule B - 3


Cumulative Production Analysis








Section A - Monthly Production


Crude Type Planned Planned Actual ■ Actual Cumulative


Production Cumulative Production





for Month For Quarter for Month for Quarter


Bbls Bbls Bbls Bbls








Totals

















Section B - Cumulative Production


Crude Type Cumulative Previous Cumulative


Production for Quarter Production To


Quarter Bbls Cumulative Date Bbls





Production B/F


Bbls '








Totals

















Section C - Cumulative Productlon/Llftings/Storages


Crude Type Cumulative Cumulative In Storage


Production Liftings





Totals -




















B-16


 ANNEX C





To The Production Sharing Contract


Between the CORPORATION and the CONTRACTOR


Dated This £fej..dav of... ...................2007





ALLOCATION PROCEDURE





Article I





Application


1. This Allocation Procedure (Procedure) sets out the methods for the





allocation of Available Crude Oil from the Contract Area and the Parties


shall allocate all lifting of Available Crude Oil in accordance with this


Procedure and the Contract.


2. In the event that the production of Available Crude Oil Is segregated into two


or more types or grades, the provisions of this Procedure shall apply


separately to each such type or grade. To the extent that distribution on


such a basis Is impracticable, a separate method for the allocation of such


Available Crude Oil shall be agreed upon by the Parties.


3. In the event of a conflict between the terms of this Procedure and the


Contract, the terms of the Contract shall prevail.


4. The procedures set forth herein may be amended from time to time by


mutual agreement of the Parties.

















c-i C





 Article II





Definitions





The words and expressions defined in the Contract when used herein, shall


have the meaning ascribed to them In the Contract. In addition, the


following words shall have the meaning set forth below:


(a) "Current Quarter*1 means the calendar quarter within which the


relevant schedules are prepared and submitted;


(b) "Forecast Quarter” means the first calendar quarter succeeding the


Current Quarter;


(c) "Lifting Allocation” means the quantity of Available Crude Oil, which


each Party has the right to take In kind, lift and dispose of In


accordance with Clause 9 of the Contract;


(d) “Primary Nominations" means written statement issued by each


Party to the other at least thirty (30) days prior to the commencement


of each quarter declaring the volume by grade of its estimated Lifting


Allocation which the Party desires to lift during the Forecast Quarter;


(e) “Proceeds" means the amount In U.S. Dollars determined by


multiplying the Realizable Price by the number of barrels of Available


Crude Oil lifted by each Party; and


(e) "Proceeds Imbalance”: means the difference between each Party’s


Proceeds to which it is entitled and the Proceeds which each Party


has received, as reflected in each quarter’s Schedule C-2 of this s ^ h


Procedure.


 Article 111





Lifting Allocation


1. On or before September 30 of every Calendar Year, the Operator shall advise


the Parties of its forecast of the Available Crude Oil to be produced by grades


during each month of the first six (6) months of the next ensuing Calendar


Year.


2. On or before March 31 of every Calendar Year, the CONTRACTOR through


Operator shall advise the Parties of Its forecast of Available Crude Oil to be


produced by grades during each month of the six (6) months commencing


July 1 of the Calendar Year.


3. Thirty-five (35) days before commencement of production from the Contract


Area and thereafter thirty-five (35) days prior to the beginning of the Forecast


Quarter, the CONTRACTOR through Operator shall notify the Parties of the


estimated Lifting Allocation which can be produced and made available for


disposal during the Forecast Quarter. Such estimated Lifting Allocation shall


take Into account any Proceeds Imbalance for the quarter first preceding the


Current Quarter and any estimated Proceeds Imbalance for the Current


Quarter computed in accordance with paragraph 3 of Article IV. Such notice


shall be In the form of schedule C-1 attached hereto Indicating the estimated


quantities of Royalty Oil, Tax OH, Cost Oil and Profit OH, each Party’s


estimated Lifting Allocation and the estimated Realizable Price used to


prepare such estimated Lifting Allocations.


4. Thirty (30) days before the commencement of production from the Contract


Area and thereafter not later than thirty (30>days before the beginning of the


Forecast Quarter, each Party shall notify the Operator and each other of its


Primary Nomination of Available Crude Oil which it intends to lift during the


Forecast Quarter which shall not exceed its estimated Lifting Allocation. Such


notice shall include the Information described In Article V. 1 of Annex D -


Uniform Nomination, Ship Scheduling and Lifting Procedure.


5. The estimated Realizable Price to be used by the CONTRACTOR to prepare


Schedule C-1 (Estimated Quarterly Lifting Allocation) shall be the Realizable


Price of the first month of the Current Quarter.


6. Each Party shall be obliged to lift its own Lifting Allocation in accordance with


Uniform Nomination, Ship Scheduling and Lifting Procedures (Annex D). In


the event that one Party lifts the other Party’s Lifting Allocation, pursuant to


Clause 9.4 of the Contract, the lifting Party shall pay to the non-lifting Party


the applicable Proceeds pursuant to Clause 9.4 of the Contract. In such case,


the non-lifting Party shall be treated for all other purposes under this Contract


as though It had made such lifting Itself.


Article IV


Adjustments of Lifting Allocations


1. On or before thirty-five (35) days prior to the last day of the Current Quarter,


the Lifting Allocation for the first preceding quarter thereto shall be computed


and the Proceeds Imbalance determined and agreed to by all Parties In the


Schedule C-2 attached hereto Indicating liftings made by the Parties and the


Proceeds therefrom. Section A of such Schedule C-2 shall be based on the


actual Section B of such Schedule C-2 that shall be prepared from the


Schedule B-1 (of the Accounting Procedure) for the months in the quarter.


2. On or before thirty-five (35) days prior to the last day of the Current Quarter,


the Proceeds Imbalance for the Current Quarter shall be estimated, taking


Into account the actual Proceeds Imbalance computed for the first preceding


quarter under paragraph 1 of this Article IV.


3. The Proceeds Imbalance for the first precedingi quarter computed under


C-4











paragraph 1 above and the estimated Proceeds Imbalance for the Current


Quarter computed under paragraph 2 above shall be taken into account by


the Parties by debiting or crediting such Proceeds Imbalances to each Party's


share of the estimated Lifting Allocation reflected In Schedule C-1 for the


Forecast Quarter filed by dividing the respective Proceeds Imbalance by the


Realizable Price applicable for the period in question,


Notwithstanding the reports required to be kept by the CONTRACTOR


pursuant to Article IV In Annex D, the CONTRACTOR through Operator shall


keep complete records of all liftings. At the end of each quarter, the Parties


will meet to reconcile the Lifting Allocations and the actual liftings with a view


to making adjustments as appropriate. If any disagreement arises with respect


to such reconciliation, the area of disagreement shall be mutually resolved by


the Parties, in accordance with the official records of the Ministry.


All Lifting Allocations and actual liftings shall be audited at the end of each


Calendar Year by a mutually acceptable independent auditor.


 Schedule C-l


Estimated Quarterly Lifting Allocation





_Quarter (_-_),_








Section A - Estimated Total Proceeds





Crude Type Estimated Estimated RP Estimated


Lifting U.S. Dollar/Bbls Proceeds


Volume Bbls U.S. Dollar














Totals








Section B - Allocation of Estimated Proceeds - Expressed in U.S. Dollars


Category Prior Month Estimated Recoverable Allocation of Estimated


Carry Over Quarter This Quarter Proceeds To:


Charges CORP. CONTR.


Royalty Oil


Cost Oil


Tax Oil


CORPORATION


Profit


Oil


CONTRACTOR


Profit Oil


Totals


Prior Quarter's Proceeds Imbalance


Current Quarters Estimated Proceeds imbalance * (Over)/Under


Estimated Proceeds Allocation For Quarter .





Section C • Estimated Lifting Allocation





Crude CORPORATION CONTRACTOR


Type Allocation Allocation x ^ x ..


Proceeds Bbls Proceeds Bbls























C-6 4.





 Schedule C-2


Actual Quarterly Lifting Allocation





_Quarter (_-_)f*_








Section A - Lifting Summary





Crude Volume Proceeds RP Proceeds Received By


Type Bbls US$ US


$/Bbl CORPORATION CONTRACTOR














Totals








Section B - Allocation of Proceeds - Expressed In U.S. Dollar








CORPORATION CONTRACTOR





Category Sum of Allocation of Lifting Proceeds Allocation of Lifting


Monthly Proceeds Received Proceeds Proceeds


Proceeds Received


Royalty Oil





Cost Oil





Tax Oil


CORPORATION


Profit Oil


CONTRACTOR


Profit Oil


Totals














Proceeds Imbalance Quarter


(Overi/Under


Prior Quarter


(Overl/Under * *


Total (Over)/Under • -


























C-7


 ANNEX D





To The Production Sharing Contract .Ml2007


Between CORPORATION and the CONTRACTOR Dated 23RD APRIL 2007




UNIFORM NOMINATION. SHIP SCHEDULING AND LIFTING


PROCEDURE





Article I








Application


1. This Annex D sets out the procedure for the nomination, ship scheduling and





lifting of Available Crude Oil from the Contract Area.


2. Pursuant to Clause 9.2 of the Contract the CORPORATION and the


CONTRACTOR have the right to nominate, lift and separately dispose of their


agreed allocation of Available Crude Oil produced and saved from the


Contract Area.


3. The procedure set out herein may be amended from time to time by the


mutual agreement of the Parties.


In the event of a* conflict between the terms of this Annex D and the Contract,





the terms of the Contract shall apply.


Article II


Definition and Terminology





1. Words and expressions In this annex shall have the meanings ascribed to


them in the Contract. In addition, the following words shall have the following


meanings:


(a) “Available Production" means the quantity of Crude Oil which can be


efficiently and economically produced and saved from the producing


wells subject to any limitations imposed by any government authority or


(b) other technical limitation resulting from operations.


‘Technical Allowable Production” means the quantity of Crude Oil from


time to time determined by the Ministry as being the quantity that may


be produced from the Contract Area on a well by well basis for a


(o) particular period.


“Commercial Production Quota” means the quantity of Crude Oil from


time to time fixed or advised by the CORPORATION as the permissible


quantity that may be produced from the Contract Area on a crude


(d) stream basis for a particular month/quarter.





“Actual Production1' means the quantity of Crude Oil which Is produced


from the Contract Area on a monthly/quarterly basis.


(e) “Available Monthly Scheduling Quantities11 means each Party's


allocation of the Available Production for the calendar month plus


(f) Opening Stock.


“Combined Lifting Schedule” means the lifting programmes of the


Parties for a given calendar month/quarter as prepared by the


(9) CONTRACTOR and agreed to by the Parties.


“Opening Stock” means the quantity of Crude Oil that each Party may


carry forward to the succeeding month, recognizing the difficulty in


lifting precisely the Available Monthly Scheduling Quantity. This


quantity, which excludes unpumpable dead-stock, should not be such


D-2 as to cause a production shut-in through reaching maximum stock


levels in which event, the provisions of Article V will apply. The quantity











 also Includes credits/debits accruing after reconciliation with Available


Crude Oil.








Article 111





Productlon/Notfce of Availability


1. The CONTRACTOR shall endeavour to produce the aggregate volume of


Crude Oil nominated by the Parties as provided in this Contract.


2. In the event that Available Crude Oil Is segregated Into two or more grades


the provisions of this Annex D shall apply separately to each such grade. To


the extent that distributions on such a basis is impracticable, separate


arrangement for sharing of such Available Crude Oil shall be agreed upon by


the Parties.


3. On or before September 30 of every Calendar Year, the CONTRACTOR shall


advise the CORPORATION of its forecast of the Available Production to be


produced by grades during each month of the first six (6) months of the next


ensuing Calendar Year.


4. On or before March 31 of every Calendar Year, the CONTRACTOR shall


advise the CORPORATION of Its forecast of the Available Production to be


produced by grades during each month of six months commencing July 1 of


the Calendar Year.


5. Where for operational reasons the CONTRACTOR cannot exactly produce at


the anticipated Commercial Production Quota, the CONTRACTOR shall notify


the CORPORATION promptly of any required changes exceeding two (2%)


percent of the quantities, originally notified. In any event, when Actual


Production for the month/quarter Is known each Party's allocation will be re¬


calculated and the differences between Actual Production and Commercial


 Production Quota will be credited/debited to each Party, and shall form the


Party's entitlement for the following month or quarter except in the case of


production shut-ins where the provisions of Article VI will apply.





6. Thirty (30) days before the commencement of production from the Contract


Area and thereafter not later than thirty (30) days before the beginning of each


month, each Party shall notify the other of its primary nomination of Available


Crude Oil which It intends to lift during the ensuing month, which shall not


exceed Its monthly allocation of Commercial Production Quota plus Opening


Stock.


7. At the end of each month or quarter, as may be agreed, the Parties will meet





to reconcile Available Monthly Scheduling Quantities with actual Available


Crude Oil lifted and adjustments made where necessary. All entitlements shall


be audited at the end of each Calendar Year by a mutually acceptable


independent auditor.


8. The CONTRACTOR shall keep complete records of all liftings and provide


same to the CORPORATION In accordance with Articles III & IV of this Annex


D.


Article IV





The CONTRACTOR’S Reports





1. The CONTRACTOR shall, not more than fifteen (15) calendar days after the


end of each calendar month and quarter, prepare and furnish to the


CORPORATION, a written statement showing In respect of the month and


quarter respectively:


^ X. X >.


(a) Production Quota: each Party's allocation of Commercial


Production Quota;








D-4





(b) Lifting against Available Crude Oil;


(c) Each Party's allocation of Available Crude Oil;


(d) Quantity of Crude Oil In stock for each Party at the end of the said


calendar month or quarter;


(e) Any production losses attributable to Crude Oil used In Petroleum


Operations; and;


(f) Cumulative Production.


2. In the event that the CORPORATION disagrees with any of the


CONTRACTOR’S reports, the area of the disagreement shall be mutually


resolved by the CONTRACTOR and the CORPORATION to the satisfaction of


the Ministry. The CONTRACTOR shall thereafter prepare a revised report to


reflect the changes agreed.


3. The CONTRACTOR shall endeavour to send consistent statistical data to the


different reporting bodies and should adhere to agreed formats of reporting.


Article V


Scheduling Details


1. Scheduling Notification - At least thirty (30) days prior to the beginning of a


calendar month, each Party shall notify the Operator of Its proposed tanker


schedule for that calendar month specifying the following:


(a) A loading date range of ten (10) days for each tanker lifting;


 (b) The desired parcel size for each lifting In Barrels, subject always to


change within a range of plus or minus five (5%) percent by the Party


so nominating;





(c) The tanker's name or To Be Named (TBN) for each tanker lifting.


Tanker nomination made as TBN shall be replaced at least seven (7)


working days prior to the accepted date range, unless a shorter time is


acceptable to the Operator; and


(d) Documentation instructions shall be given for each lifting not later than


seven (7) working days prior to the first day of the accepted date range


for the tanker in question.


Tanker Substitution - Either Party may substitute another tanker to lift its





nominated volume of Crude OH, provided such substituted tanker has the


same arrival date range as the originally scheduled tanker and all other


provisions of Annex C and D are complied with, and revised documentation


instruction reflecting the name of the substitute tanker is given to the Operator


no less than three (3) working days prior to arrival, unless otherwise agreed


by the Operator.


Overlapping Date Ranges - In the event the Combined Lifting Schedule


3.


contains overlapping accepted date ranges, the tanker which gives its Notice


of Readiness (NOR) and has provided all documentation and obtained


clearances first within such accepted date ranges shall be loaded first, unless


urgent operational requirements dictate otherwise in which case, demurrage


shall be borne by Petroleum Operations and charged to Operating Costs.


Confirmation of Lifting Schedules - On or before the 10,h of every month, the


4.


Operator shall either confirm the feasibility of the proposed monthly lifting


schedules or, alternatively, advise necessary modifications to such schedules.


Such confirmation which shall be in the form of Combined Lifting Schedule,


should include a loading date range of two (2) days for each lifting, the first


day being the earliest date of arrival and the second day being the latest date


of arrival.


5. Operational Delays - The Parties recognize that occasionally environmental


and technical problems in the Contract Area may cause delays and/or


disruptions in the Combined Lifting Schedule. The affected Party shall


promptly notify the CORPORATION through Operator of such delays and/or


disruptions; and the projected termination of each of such delays and/or


disruptions and advise the CORPORATION through the Operator of the


revised Combined Lifting Schedule. In the event that such notification does


not allow for a revised Combined Lifting Schedule on the part of the


CORPORATION, then any resultant costs will be charged to Operating


Costs.


6. Estimated Delayed Arrival of a Tanker


a. Whenever it becomes apparent that a tanker will not be available as


scheduled or will be delayed, the Party utilizing such tanker shall notify


the Operator of the circumstances and expected duration of the delays.


Upon assessing the impact that the delay will have upon the Combined


Lifting Schedule and Production during the current and/or next month,


the Operator shall make appropriate revislon(s) to the Combined Lifting


Schedule to avoid disruption in production and the Party(ies) affected


by the revision shall be absolved of any liability including but not limited


to the impending demurrage claims resulting from such revision(s) to


the Combined Lifting Schedule.


b. In the event that any Party fails to lift its Nominated Share of Production


In any month/quarter, thatParty shall have the right during the following


month/quarter to lift the unlifted quantities, provided such inability to lift


does not result in tank top situation or curtailment of production. In the


event that production is curtailed as a result of the defaulting party's


inability to lift Its Nominated Share of Production, the defaulting party








D-7


shall be advised in writing of the estimated quantity of curtailed


production and it shall be deducted from the defaulting party’s


entitlement in the following month/quarter.


Tanker Standards - All tankers nominated for lifting by any Party shall conform


to International regulations and standards concerning size, equipment, safety,


maintenance and the like adopted by the Operator for the terminal In question


and by the appropriate government authority. Failure of a tanker to meet such


standards shall not excuse the nominating Party from the applicable


consequences provided in the Contract. The CONTRACTOR shall keep the


CORPORATION advised as to the current regulations and standards in use at


the terminals operated by the CONTRACTOR.


Destination of Crude Oil - The CONTRACTOR shall at all times disclose the


destination of the Crude Oil lifted under this Contract as described In the


documentation instructions.








Article VI








Production Decreases/Increases Subsequent to Nomination


Production decreases occurring after lifting nominations have been scheduled


and not resulting from the fault of any Party shall be shared by the Parties in


proportion to their respective nominations.


Production increases occurring after lifting nominations have been confirmed


by the CONTRACTOR shall be shared by the respective Parties, in proportion


to their respective agreed allocation.


To the extent that field operations permit, a Party shall have the right* to


request the Operator to adjust its nomination during a month following


confirmation of the Combined Lifting Schedule provided that the nominations,


entitlements and lifting of the other Parties are not affected thereby without


their express written consent. Adjusted nominations shall always be within the


limits of the Party's allocated portion of the Commercial Production Quota,


plus Opening Stock.


4. Any production decrease caused by or resulting directly from the actions of


one Party shall not affect the availability or entitlement of the other Parties.


The Operator will, to the greatest extent possible, endeavour not to affect the


lifting of the other Parties.


5. For the avoidance of doubt, each Party’s agreed allocations shall be based on


Actual Production.


Article VII


Delivery Terms and Conditions


1. Tanker Notification: The Parties shall report, or cause the tankers nominated


for lifting pursuant to this Annex D to report, by radio/telex to the


CONTRACTOR, each tanker’s scheduled arrival date and hour as follows:


(a) Seven (7) days before estimated arrival, or upon clearing at last port if


there is less than seven (7) days steaming time before estimated


arrival;


(b) Seventy-Two (72) hours before estimated arrival;


(c) Forty-eight (48) hours before estimated arrival;


(d) Twenty-four (24) hours before estimated arrival; and


(e) At any other tlme(s) between the seventy-two (72) hours notice, forty-


eight (48) hours and twenty-four (24) hours notice when estimated


 arrival is to be revised- by more than twelve (12) hours from that most


recently notified or after that revised by more than one-half hour.





Parties shall also cause such tanker so nominated, or their agent, to report by


radio/telex to the Nigerian Government Port Head Official at the Port at least


seventy-two (72) hours before each tanker's scheduled arrival date giving the


tanker's name, call sign, ETA at the port(s), cargo tonnage to be loaded,


number of crew, health status, whether or not a doctor is on board and


request for “Free Pratique",


2. Notice of Readiness: Upon arrival at the designated safe anchorage at the


port or upon the time of boarding of the mooring master, whichever Is earlier,


the master of the tanker shall give the Operator a Notice of Readiness (NOR)


by radio or by letter, as appropriate, confirming that the tanker Is ready to load


cargo, berth or no berth. Laytime, as herein provided, shall commence upon


the expiration of six (6) running hours after receipt by the loading terminal of


such notice, or upon the tanker’s completion of mooring at the sea loading


terminal, whichever first occurs. However, where delay is caused to the tanker


getting into berth after giving NOR for any reason over which neither the Party


nor the loading terminal has control, such delay shall not count as used


laytime. In addition time used by tanker while proceeding to berth or awaiting


entry and “Free Pratique” by Customs after the expiration of six (6) running


hours free time, shall not count as used laytime.


3. Early Tanker Arrival: Notwithstanding the provisions of Article VI1.2 above, if


the tanker arrives and tenders NOR to load prior to its agreed date range, the


Operator shall endeavour to load the tanker on arrival or as soon thereafter as


possible and laytime shall only commence when loading commences. If,


however, the Operator is unable to accept a tariker for loading prior to the


agreed date range, laytime shall commence at 0600 (jours local time on the


first day of the agreed date range or when the loading commences, whichever


comes first.


4. Late Tanker Arrival: If a tanker arrives and tenders NOR to load after its


accepted date range and other tankers (having arrived during their accepted


date range), are either loading or waiting to load, of the loading tanker shall be


governed by the earliest availability of crude and loading slot, and laytime


shall commence only when loading commences.


5. Lavtlme: The CONTRACTOR shall be allowed laytime In running hours equal





to one-half of the voyage laytime permitted under worldscale, or such other


freight scale that Is Issued in replacement thereof, for loading a full cargo and


pro rata thereof for a part cargo, with minimum of eighteen (18) hours.


Sundays and holidays included, any delay due to the fault of the tanker or Its


facilities to load cargo within the time allowed shall not count as used laytime.


If rules of the owner of the vessel or regulations of Government or appropriate


Government agencies prohibit loading of the cargo at any time, the time so


lost shall not count as used laytime. Time consumed loading or discharging


ballast or discharging slops shall not count as used laytime. Laytime shall


continue until hoses have disconnected.





Laytime allowed for loading a full cargo Is “36 running hours” with a provision


for pro-rating the laytime in the case of vessels loading part cargo. When a


vessel Is loading one parcel only and operations commence ahead of the


acceptance date, there is no demurrage involved unless the vessel completes


cargo after the permissible laytime, commencing 0001 hours of the first day of


the acceptance date range. When more than one parcel and more than one


acceptance date Is awarded, the demurrage will not count unless the total


loading Is completed after the expiry of the permissible laytime for the fast


parcel, counting 0001 hours of the first day on the last acceptance date.








6. Demurrage: If the CONTRACTOR Is unable to load within the time allowed,


the CONTRACTOR shall apply demurrage per running hour (pro rata for a


part thereof) for laytime exceeding the allowed laytime as specified herein.


The rate of demurrage will be calculated by multiplying the time by the





Average Freight Rate Assessment (AFRA) as determined by the London


Tanker Brokers Panel. In the event that such determination is no longer


available, a freight rate-assessment shall be mutually agreed by the Parties,


which rate shall be appropriate in relation to the size of the tanker and In


demurrage rate according to tanker size as specified in the Worldwide Tanker


Normal Freight Scale or such other foreign scale that Is issued in replacement


thereof. If however, demurrage is incurred by reason of fire, storm, explosion,


or by strike, picketing, lockout, stoppage or restraint or labour difficulties, or


disturbances or by breakdown of machinery or equipment in or about the


loading terminal, the rate of demurrage as calculated In accordance with the


above shall be governed by force majeure and shall not attract any


demurrage. Demurrage claims must be notified In writing together with


supporting documents within ninety (90) days from Bill of Lading date.


7, Changes of Berth: The CONTRACTOR shall have the right to shift any vessel


from one berth to another. Charges of running lines on arrival at and leaving


and berth, wharfage and dockage charges at that berth, and any other extra


port charges or port expenses incurred by reason of such shifting at the


CONTRACTOR’S request shall be borne by the CONTRACTOR and shall


count as used laytime. If, however, it is necessary to shift the vessel from the


berth because of the breakdown of machinery or other deficiency of the vessel


or its crew, the resulting expenses shall be borne by the Party whose Crude


Oil is being lifted. The time consumed in such circumstances, shall not count


as used laytime. However, the vessel shall lose Its regular turn in berth. When


the vessel is ready to recommence loading, it shall so advise, the


CONTRACTOR and wait its turn for reberthing and such time after notice is


given shall not count as used laytime.


8. Tanker Departure: The tanker shall vacate the berth as soon as loading is


complete. The Party that scheduled such tanker shall indemnify the Operator


for any direct loss or damage Incurred as a result of the tanker’s failure to


vacate the berth promptly including such loss or damage as may be incurred


due to resulting delay in the docking of the tanker awaiting the next turn to


load at such berth.








D-12


Loading Hoses; Hoses for loading shall be furnished by the CONTRACTOR


and shall be connected and disconnected by the tanker’s crew under the


supervision of a suitable qualified ship’s officer acting on the advice of the


Operator's mooring master.





Partial Cargo: Should the Operator supply less than full cargo, for any reasons


the tanker shall not be required to proceed to sea until all of her tanks are


filled with a combination of cargo and ballast as will place her In a seaworthy


condition.





Article VIII


Crude Oil Quantity And Measurement


Certification: The quantity and origin of each shipment of Crude Oil shaii be


determined by the appropriate Government authority at the loading terminal


and set forth In standard certificates of quantity, quality and origin. Each Party


shall have the right to designate a representative at Its own expense, who


shall have the right to witness the determination of quantity, quality and origin.


All reasonable facilities shall be supplied by the CONTRACTOR, as


necessary, to such Party’s representatives at the port to enable such


representatives to witness the measurements taken at the loading terminal


and the taking of the sample to be used by and supplied to the representative


of the Party.


Acceptance of Certificate: If the Party in question does not appoint a


representative, or If such representative appointed as aforesaid agrees with


the Certificate of Quantity, Quality and Origin of a shipment of Crude 01) (in


which event he shall so indicate by signing the Certificates of Quantity, Quajity


and Origin), such determinations shall be final and binding on the Parties. ^ *


Refusal of Certificate: If the determination of Quantity, Quality and Origin by


the appropriate Government authority has not been approved by such a


representative in accordance with Article VIII.2 above and dispute arises


concerning the Quality, Quantity and Origin of Crude Oil, recourse shall be


made to mutually agreed independent expert to resolve the dispute on the


basis of his expertise, Claims about Quality, Quantity of Crude Oil delivered,


shall be notified in writing with all supporting documents, within forty-five (45)


days from Bill of Lading date, otherwise the claim shall be considered closed.


The expert shall be selected on the basis of his special knowledge of the


subject matter in this regard and shall be appointed by mutual agreement of


the Parties. Such expert shall file his conclusions within thirty (30) days after


his date of appointment. Any conclusions of such expert shall be binding on


the Parties. Pending the determination of the dispute, the tanker may sail,


unless the Parties agree otherwise.


4. Quantity Determination: The quantity of Crude Oil lifted shall be determined at


the time of loading on the basis of gauging the terminal tanks before and after


the lifting of such Crude Oil, or otherwise by meter reading installed on the


loading line from the tanks, as approved by appropriate Government authority.


The quantity in barrels of Crude Oil determined pursuant to the foregoing


procedure should be corrected to a temperature of sixty-degrees Fahrenheit


(60°F) in accordance with the most currently published ASTM-IP Petroleum


Measurement Tables. A copy of the conversion calculation, if any shall be


submitted to the lifting Party through it's representative. In addition, the


bottom, sediment and water ("BS&W”) content, determined in accordance with


Article VI1I.5 hereof, shall be deducted from the quantity loaded, for purposes


of preparing the Bill of Lading for such shipment and for purposes of


substantiating claims about Quantity and Quality. Any substantiated loss of


Crude Oil occurring in transit between the point of such determination and


delivery shall be borne by the lifting Party provided such losses do not result


due to differences In method of determining BS&W between the loading and


discharge terminals. For differences ^occurring where same method of


determination at both points are used, provisions of Article VI11.3 above shall


apply. The retained sample(s) shall be used in determining such loss claims.











D-14


5. Quality Determination; The determination of API Gravity and BS&W content


shall be made of each shipment of Crude OH. BS&W content and API Gravity


shall be determined according to standard international practices acceptable


to the relevant Government authorities.


6. Samples: A sample of each shipment of Crude Oil shall be taken. The sample


shall be sealed and retained by the CONTRACTOR for a minimum of ninety


(90) days. The lifting Party or its representative shall have the right to receive


one (1) gallon sealed sample of the Crude Oil loaded which shall be placed on


board the tanker, if so requested.










































































D-15


 ANNEX E





To The Production Sharing Contract


Between CORPORATION and the CONTRACTOR


Dated.23rd April 2007





PROCUREMENT AND PROJECT IMPLEMENTATION


PROCEDURES








Artloie I





Application





These Procurement and Project Implementation Procedures (“Procedures")


shall be followed and observed In the performance of either Party's obligations


under the Contract. Words and expressions defined under the Contract, when


used herein, shall have the meanings ascribed to them In the Contract. In the


event of a conflict between the terms of these Procedures and the Contract,


the terms of the Contract shall prevail.


These Procedures shall be applicable to all contracts and purchase orders


1.2


whose values exceed the respective limits set forth In Article 1.3 and which,


pursuant thereto, require the prior concurrence of the CORPORATION. These


Procedures may be amended from time to time by the Parties. The Parties


acknowledge that the limits provided in this Annex E are low for deep offshore


operations and that there is a need for an industry-wide review. Therefore,


within nine (9) months of the Effective Date, the Parties shall review and


agree on new limits which will be appropriate for deep offshore operations.





The CONTRACTOR shall have the authority, subject to any limitations or


restrictions established by the Management Committee, to enter Into any


contract or place any purchase order in its own name for the performance of


 services or the procurement of facilities, equipment, materials or supplies,


provided that:





(a) Prior approval of the CORPORATION shall be obtained for all foreign


contracts and foreign purchase orders awarded to third parties where


the cost exceeds two hundred and fifty thousand U.S. Dollars


(b) ($250,000);


Prior approval of the CORPORATION shall be obtained for all local





contracts and purchase orders where the cost exceeds ten million


(o) Naira (N10,000,000);


The amount set forth in Article 1.3(a), (b) and (h) will be reviewed by


the Management Committee whenever it .becomes apparent to either


party that such limits create unreasonable constraints on the Petroleum


Operations. In the event of a significant change in the exchange rate of


(d) Naira to U.S. Dollar compared to that, which existed on the Effective


Date, the Management Committee shall review the limits set forth In


Article 1 .3 (a), (b) and (h);


Such contracts shall be entered into, and such purchase orders shall


be placed with third parties, which In the CONTRACTOR'S opinion are


(o) technically and financially able to properly perform their obligations;


Procedures Customary in the oil industry for securing competitive prices


shall prevail.




companies organized under the laws of Nigeria to the maximum extent


(9) possible provided they meet the required standards. ^ * *


The CONTRACTOR shall give preferences to such goods which are





manufactured or produced In Nigeria or services rendered by Nigerians











z^y^.A -


 provided they meet specifications and standards.





(h) The above limits and these procedures shall not apply to purchase


made for warehouse replenishment stock not exceeding two hundred


and fifty thousand U.S. Dollars ($250,000) or one million Naira


(N 1,000,000) nor shall they apply to the purchase of tubulars of less


than five hundred thousand U.S. Dollars ($500,000) or two million Naira


(N2,000,000) made In furtherance of planned drilling programmes.


Where there are Naira and U.S, Dollar components of such purchases,


the total shall not exceed five hundred thousand U.S. Dollars


($500,000) or two million Naira (N2,000,000).








Article II





Project implementation Procedure





2.1 The CONTRACTOR realizing the need for a project or contract to which these


Procedures apply pursuant to Article 1.3 above, shall Introduce it as part of


the proposed Work Programme and Budgets to be developed and submitted


by the CONTRACTOR to the Management Committee pursuant to Clause 7


of this Contract.


(a) The CONTRACTOR shall provide adequate information with respect to


the project Including, without limitation, the following:





(i) A clear definition of the necessity and objectives of the project;





(ii) Scope of the project; and





()ii) Cost estimate thereof.





(b) The CONTRACTOR shall transmit the project proposal along with all








E-3


 related documentation to the CORPORATIONS for consideration.





(c) The CORPORATION may make recommendations in writing to the


CONTRACTOR regarding the selection, scope and timing of the


project. The Management Committee shall consider the proposal and


the recommendations of the CORPORATION and shall determine the


matter in accordance with Clause 6 of the Contract. Any disputed


issues shall be resolved by the Management Committee pursuant to


Clause 7.4 of the Contract. If the CORPORATION does not submit any


recommendations in writing to the CONTRACTOR within thirty (30)


working days of the submittal of the project, the project as proposed by


the CONTRACTOR shall be so noted in the minutes of the next


meeting.





2.2 The project as approved pursuant to Article 2.1 above shall form part of the


Work Programme and Budget of the Petroleum Qperations. Such approval


shall also constitute authorizations by the Management Committee to the


CONTRACTOR to initiate contracts and purchase orders relevant to the


project proposal, subject to the provisions of Article 1.3.





2.3 The resources for the project design, supervision, and management shall first


be drawn from the CONTRACTOR’S available In-house expertise with the full


participation of the CORPORATION staff who shall be seconded pursuant to


Clause 13.4 of this Contract. If the Management Committee approves, such


may be performed by the CONTRACTOR’S Affiliate under the approved


budget for the project. Competent Nigerian Engineering/Design companies


shall be given priority over others by the Management Committee for such


projects. The CORPORATION staff who shall be seconded pursuant to


Clause 13.4 of this Contract shall be fully involved in the project design,


supervision and management.











i




















i


2,4 After approval of the project/budget, the CONTRACTOR shall prepare and


transmit to the CORPORATION complete details of the project including,


without limitation, the following:


(a) Project definition;


(b) Project Specification;


(c) Flow diagrams;


(d) Projects implementation schedule showing all phases of the project


Including, without limitation, engineering design, material/equipment


procurement, Inspection, transportation, fabrication/construction,


Installation, testing and commissioning;


(e) Major equipment specifications;


(f) Cost estimate of the project;


(g) An activity status report;


(h) Local component of the project that shall be performed incountry


indicating in detail estimated man-hour and cost relating thereto.





2.5 Authorization for Expenditure


CORPORATION shall approve all CONTRACTOR’S Authority For Expenditure


(AFE) in respect of any single item over and above the sum of Two Hundred


and Fifty Thousand (250,000.00) US Dollars.




















E-5


 Article 111





Contract Tender Procedure








3.1 The following tender procedure shall apply to work/services/supply not directly


undertaken by the CONTRACTOR or by the CONTRACTOR’S Affiliates (as


provided in Annex B Article II (1 )(f):








(a) The CONTRACTOR shall maintain a list of approved contractors for the


purpose of contracts for the Petroleum Operations, (the "Approved





Contractors’ list"). The CORPORATION shall have the right to delete or


nominate contractors to be included in the list. CORPORATION and


CONTRACTOR shall be responsible for pre-qualifying any contractor


to be included In the Approved Contractors’ List.





(b) Contractors Included In the Approved Contractors’ List shall be both


local and/or overseas contractors or entities. Where regulations





require, they shall be registered with the Department.





(c) When a contract is to be bid, the CONTRACTOR shall present a list of


proposed bidders to the CORPORATION for-concurrence not less than


fifteen (15) working days before the Issuance of invitations to bid to


prospective contractors. The CORPORATION may propose additional


names to be included in the list of proposed bidders or the deletion of





any one thereof. Contract specifications shall be in English and in a


recognized format used in the international petroleum industry.





(d) If the CORPORATION has not reSponbed within thirty (30) working


days from the date of the official receipt following the-presentation of


the list of proposed bidders as aforesaid, the list shall be deemed to


have been approved.














S?*-.A■


 The CONTRACTOR shall within Its limits In Article 1.3(a), (b) and (h) establish


a Tender Committee who shall be responsible for pre-qualifying bidders,


sending out bid invitations, receiving and evaluating bids and determining


successful bidders to whom contracts shall be awarded. The CORPORATION


reserves the right to nominate Its staff who shall fully participate in


prequalifying such bidders and evaluation of bids received from selected


bidders.


Analysis and recommendations of bids received and opened by, the Tender


3,3


Committee shall be sent by the CONTRACTOR to the CORPORATION for


approval before a contract is signed within thirty (30) working days from the


date of the official receipt. Approval of the CONTRACTOR'S


recommendations shall be deemed to have been given If the CORPORATION


has not responded within the said period.


Prospective vendors/contractors for work estimated In excess of two hundred


3.4


and fifty thousand U.S. Dollars ($250,000) shall submit the commercial


summary of their bids to the CONTRACTOR in two properly sealed


envelopes, one addressed to the CONTRACTOR and one addressed to the


CORPORATION. The CONTRACTOR shall retain one and send one to the


CORPORATION, properly enveloped, sealed and addressed to


CORPORATION.


In all cases in which an offshore contractor or its Nigerian Affiliate is invited to


3.5


bid, the CONTRACTOR shall make full disclosure to the CORPORATION of


its relationship, if any, with such contractors.


These Procedures may be waived in any of the cases listed below in which


3.6


event *-CONTRACTOR may negotiate directly with the contractor and


promptly inform the CORPORATION of the outcome of such negotiations" in


the following cases:


 (a) emergency situations; and


(b) in work requiring specialized skills, or when special circumstances


warrant, upon the approval of the CORPORATION.





Article IV


General Conditions of Contracts





4.1 The payment terms shall provide, without limitation, that:


(a) A minimum of 10% of contract price shall be held as a retention fee


until after the end of a guarantee period agreed with the contractor


which shall vary between six (6) months and twelve months, depending


on the project, with the exception of drilling and seismic data


acquisition, well surveys and other such services provided that, a


contractor may be given the option to provide other guarantee


equivalent to the 10% retention such as letter of credit or performance


bond; and


(b) Provision shall be made for appropriate withholding tax as may be


applicable.


4.2 The language of all contracts shall be English.


4.3 (a) The governing law of all agreements signed with subcontractors shall


be, to the extent feasible, Nigerian law for work to be conducted in


Nigeria, and for work outside Nigeria.


(b) Nigerian law shall apply to contractors performing In Nigeria and, as far


as practicable, they shall use Nigerian resources both human and


material.


4.4 Each contract shall provide for early termination where necessary and the


CONTRACTOR shall use all reasonable endeavours to obtain a termination


provision with minimal penalty.


CONTRACTOR shall provide, in the case of a foreign contractor, that the local


part of the work, in all cases, shall be performed by contractor's local


subsidiary.








Article V








Materials and Equipment Procurement





5.1 The CONTRACTOR may, through own In-house or parent company procure


materials and equipment subject to conditions set forth in this Article 5.


The provisions of this Article 5 shall not apply to lump sum or turnkey


5.2


contracts/projects.


In ordering the equipment/materials, the CONTRACTOR shall obtain from


5.3


vendors/manufactures such rebates/discounts and such


warranties/guarantees that such discounts, guarantees and all other grants


and responsibilities shall be for the benefit of the Petroleum Operations.


Materials obtained from CONTRACTOR or Affiliates of the CONTRACTOR


shall subject to Article 1.3 be at cost and shall have no profit element.


The CONTRACTOR shall:


5.4





(a) By means of established policies and procedure ensure that Its


procurement efforts provide the best total value, ^with " proper


consideration of quality, services, price delivery and Operating Costs to


the benefit of the Petroleum Operations;


(b) Maintain appropriate records, which shall be kept up to date, clearly


documenting procurement activities;


(6) Provide quarterly and annual inventory of materials in stock;


(d) Provide a quarterly listing of excess materials in Its stock list to the


CORPORATION; and


(e) Check the excess materials listings from other companies, to Identify


materials available In the country prior to Initiating any foreign purchase


order.


5.5 The CONTRACTOR shall Initiate and maintain policies and practices, which


provide a competitive environment/climate amongst local and/or overseas


suppliers. Competitive quotation processes shall be employed for all local


procurement where the estimated value exceeds the equivalent of one


hundred thousand (100,000) U.S. Dollars.


(a) Fabrication, wherever practicable shall be done locally. To this effect,


the Petroleum Operations recognize and shall accommodate local


offers at a premium not exceeding ten (10%).


(b) Subject to Article 3.1(a), the CONTRACTOR shall give preference to


Nigerian indigenous contractors In the award of contracts. Contracts


within the agreed financial limit of the CONTRACTOR shall be awarded


to only competent Nigerian indigenous contractors. Where there are no


Nigerian indigenous contractors possessing the required skill/capabllity


for the execution of such contracts, the CONTRACTOR shall notify the


CORPORATION accordingly.


> v.


5.6 Analysis and recommendation of competitive quotations of a value exceeding


the limits established In Article 1.3 shall be transmitted to the CORPORATION


for approval before a contract is executed or a purchase order is issued to the


E-IO





 selected vendor/manufacturer. Approval shall be deemed to have been given


if a response has not been received from the CORPORATION within thirty


(30) working days of receipt by the CORPORATION of the said analysis and


recommendations.


Pre-Inspection of rig, equipment/stock materials of reasonable value shall be


jointly carried out at the factory site and quay before shipment at the request


of either Party.








Article VI





Project Monitoring





6.1 The CONTRACTOR shall provide a project report to the CORPORATION.


6.2 For major projects exceeding two hundred and fifty thousand (250,000) U.S.


Dollars or equivalent, the CONTRACTOR shall provide to the


CORPORATION a detailed quarterly report which shall include:


(a) Approved budget total for each projeot;





(b) Expenditure on each project;


(c) Variance and explanations;





(d) Number and value of construction change orders;


(e) Bar chart of schedule showing work progress and work already


completed and schedule of mile-stones and significant events; and





(f) Summary of progress during the reporting period, summary of existing


problems, if any, and proposed remedial action, anticipated problems,








E-n


 and percentage of completion.





(g) Local components of the project executed incountry and costs relating


thereto





Provided that the CORPORATION shall have the right to send its own


representatives to assess the project based on the report.


6.3 In the case of an Increase in cost in excess of 10% on the project, the


CONTRACTOR shall promptly notify the CORPORATION and obtain


necessary budget approval.


6.4 Not later than six (6) months following the physical completion of any major


project whose cost exceeds two hundred and fifty thousand U.S. Dollars


($250,000) or equivalent, the CONTRACTOR shall prepare and deliver to the


CORPORATION a project completion report, which shall include the following:


(a) Cost performance of the project in accordance with the work breakdown


at the commencement of the project;


(b) Significant variation In any item or sub-item;


(c) Summary of problems and expected events encountered during the


project; and


(d) List of excess materials.


(e) Planned versus actual local content component of the project executed


incountry. In the event that the local component falls below the planned


target, CONTRACTOR shall explain in detail, the reasons responsible


for the short fall.


E-13


 ANNEX F








TO THE PRODUCTION SHARING CONTRACT


BETWEEN CORPORATION and CONTRACTOR


dated 23rd April 2007





PPL 905 SAMPLE PERFORMANCE BOND

















(BANK LETTER HEAD)








The Group Managing Director,


Nigerian National Petroleum Corporation,


NNPC Towers, Central Business District,


Herbert Macaulay Way,


Abuja.








BANKER








Performance Bond n°_for USD_


BY THIS BOND, WE (NAME OF BANK) with a capital of_having Its





registered office at_(hereinafter called "the SURETY") Is held and


firmly bound unto the NIGERIAN NATIONAL PETROLEUM CORPORATION, a


corporation established under the laws of the Federal Republic of Nigeria, having it’s


Head Office at NNPC Towers, Herbert Macaulay Way,-Central Business District,


Abuja, Nigeria (hereinafter called "the CORPORATION”) in the sum of...........USD


($..............Dollars of the United States of America) for payment of which sum the


SURETY binds Itself, its successors and assigns by these presents.


WHEREAS:





(1) The CORPORATION of the one part and................, a company established


under the laws of the Federal Republic of Nigeria with registered office at -----


.......-'5-*----, Nigeria (hereinafter "..............”) and................, a company


established under the laws of the Federal Republic of Nigeria with registered


office at...............(hereinafter11.........") of the other part (............and ---


.......are jointly referred to as "the CONTRACTOR"), executed a Production














F-J








Sharing Contract (PSC) in Abuja, Nigeria on------------ 200- relating to Oil


Prospecting License (OPL) 905 (Offshore) Nigeria;


(2) Under the terms of the PSC, CONTRACTOR must submit a Performance


Bond for XXX USD ($XXX Dollars of the United States of America) to cover


the amount in the Work Programme for up to the fifth year pursuant to clause


6.2(a) of the said PSC;


(3) ----------and---------as CONTRACTOR under the PSC have agreed that the


Operator post a Performance Bond in the sum of XXX USD ($XXX Dollars of


the United States of America) to cover CONTRACTOR'S obligation in


paragraph 2 above and the CORPORATION has agreed to accept such Bond


in satisfaction of the said CONTRACTOR’S obligation.


(4) The terms used in this Performance Bond shall have the same meaning as


those in the PSC.


NOW THE CONDITION of this Bond Is that the SURETY hereby agrees, in the event


of the CONTRACTOR falling to fulfill the minimum Work Programme obligations as


stipulated In clause 6.2(a) of the PSC, to pay the CORPORATION on demand the


sum of XXX USD($XXX Dollars of the United States of America) or such proportion


thereof that is equivalent to the uncompleted portion of the Work Programme


obligations, provided that the CORPORATION'S demand or claim hereunder is


received In writing by recorded mall delivered at the SURETY’S mailing address


specified herein as well as ............ registered office accompanied by the


CORPORATION'S written statement that CONTRACTOR has failed to fulfill certain


specified Work Programme obligations stipulated in clause 6.2(a) of the PSC.


Such claim and statement by the CORPORATION shall be accepted by the


SURETY as conclusive evidence that the amount claimed is due to the


CORPORATION under this Performance Bond. Claims and statements as aforesaid


must be signed by either the Group Managing Director of the CORPORATION or the


Group General Manager, NAPIMS (a Division of the CORPORATION).


The Performance Bond will reduce on a yearly basis upon presentation to


the SURETY of a notice of completion by-----------------Operator countersigned by


either the Group Managing Director of the CORPORATION or the Group General


Manager, NAPIMS which shall be accepted as conclusive evidence that the events


thereon have occurred, and that the amount of this Performance Bond is accordingly


reduced.


This Performance Bond shall expire when reduced to nil In accordance with the


foregoing basis or ninety (90) days after----------------------the expiration of the first


pha^e^of the Exploration Period under the PSC if the minimum Work Programme for


the first phase of the exploration period has not been completed whichever is Jhe


earlier.


The SURETY hereby undertakes that the payment In settlement of claims lodged


with the SURETY In accordance with the terms and conditions of the Performance











F-2





* »


Bond, shall be effected Seven (7) business days after receipt by the SURETY of


such claim, by wire Transfer to the CORPORATION’S account at its designated


Bank,








This Performance Bond shall be governed by and construed In accordance with


Nigerian Law.


in Witness whereof the SURETY has signed and sealed this Bond on this


_day of __ 2007.




















































































































F-3


 ANNEX G


To The Production Sharing Contract between the CORPORATION and


CONTRACTOR dated 23rd day April 2007





OPL 905 WORK PROGRAMME AND BUDGET


























































































































G-l








 ANNEX H


TO THE PRODUCTION SHARING CONTRACT


BETWEEN CORPORATION and CONTRACTOR


dated 23rd Day April 2007


PPL 905 MINIMUM FINANCIAL COMMITMENT


CONTRACTOR shall incur the following Minimum Financial Commitment:


Phase I - fifteen million seven hundred and fifty thousand US Dollars


(USD15,750,000)


Phase II - fifteen million seven hundred and fifty thousand US Dollars


(USD15,750,000)





Financial Commitment assigned to the LCV


Financial Commitment assigned to the LCV - twelve million US Dollars


(USD12,600,000)


 APPENDIX 1





TO THE PRODUCTION SHARING CONTRACT


BETWEEN CORPORATION and CONTRACTOR


dated 23rd Day April 2007.





PPL 905 PARTICIPATING INTEREST





The rights and obligations under this Agreement for each of the Contractor Parties


shall be held In the following respective percentage Participating Interests:





CONTRACTOR Parties %





Gas Transmission and Power Limited 50


Energy 905 Suntera Limited 40


ideal Oil and Gas 10







































































Appendix*]








 APPENDIX 2





TO THE PRODUCTION SHARING CONTRACT


BETWEEN CORPORATION and CONTRACTOR


dated 23rd Day April 2007.





PPL 905 SIGNATURE BONUS














CONTRACTOR shall pay Signature Bonus of five million, five hundred US Dollars


(U.S.$ 5,000,500).




























































































Appeudix-2





\ *


 APPENDIX 3





TO THE PRODUCTION SHARING CONTRACT


BETWEEN CORPORATION and CONTRACTOR


dated 23rd Day April 2007.





PPL 905 PROSPECTIVITY BONUS








CONTRACTOR shall pay a Prospectivity Bonus of---Nil---------US dollars ($0.00) at


OML conversion;










































































y y


 APPENDIX 4


TO THE PRODUCTION SHARING CONTRACT BETWEEN NIGERIAN


NATIONAL PETROLEUM CORPORATION AND CONTRACTOR


Dated 23rd Day April 2007











Parent Company Guarantee


To: Nigerian National Petroleum Corporation


Guarantee from ...........(hereinafter referred to as "the Guarantor”) of the


performance by ..............(hereinafter referred to as “the Obligor”) of the


obligor's obligations following the execution of the Production Sharing Contract


(hereinafter referred to as the “PSC") dated ........2007 and made between


Nigerian National Petroleum Corporation (NNPC) and .............. Obligor as


contractor party under the PSC.


Pursuant to the said PSC and the performance of the obligations therein, the


Guarantor will directly and Indirectly benefit from the said PSC, wherein the


Guarantor hereby agrees and covenants as follows:


1. The Guarantor unconditionally and irrevocably guarantees to NNPC the


performance of all the obligations of............the Obligor, Its Nigerian affiliate,


which is organized under the laws of the Federal Republic of Nigeria and any


and all its successors and assigns under the PSC.


2. Subject to Clause 6.7 of the PSC and the terms of this Guarantee, the


Guarantor shall unconditionally fulfill the obligations of ...........the Obligor


under the PSC forthwith upon receiving written notice from NNPC.


 3. The Guarantor absolutely, irrevocably and unconditionally guarantees to


NNPC the full, due and punctual payment to NNPC by Obligor of all monies


which Obligor is or shall become obliged to pay to NNPC pursuant to the PSC


(the “Obligations”} and, subject to the other provision of this Guarantee,


irrevocably and unconditionally agrees to indemnify and hold harmless NNPC


(but only to the extent of the Guaranteed Amount) in respect of any and all


failure by Obligor to pay such monies PROVIDED always that the maximum


aggregate liability of Guarantor under this Guarantor shall not exceed [ ]


million USD ( ) (the “Guaranteed Amount").


4. This Guarantee shall terminate on the fifth (5th) anniversary of the date on





which the PSC is terminates or otherwise expires (whichever is earlier).


5. No document, proof, or other action other than herein is necessary as a


condition of the Guarantor honoring any and all unfulfilled obligations of the


Obligor pursuant to the provisions of the PSC. The Guarantor therefore


waives any right to require as a condition of its obligations hereunder that


presentment or demand be made upon Obligor.


6. Neither the Guarantor nor NNPC may assign or transfer (whether by way of





security or otherwise) this Guarantee nor any interest or obligation In or under


this Guarantee without the prior written consent of NNPC or the Guarantor


respectively. Any purported assignment or transfer that Is not in accordance


with this Clause 6 shall be void. Subject to the foregoing this Guarantee shall


be binding upon and enure to the benefit of and be enforceable by the


respective successors, assigns and transferees of Guarantor and NNPC.


7. This Guarantee embodies the entire understanding between the





>


Guarantor and NNPC and supersedes all prior arrangements-and


understandings relating to the subject matter hereof.




















• i


8. The obligations of the Guarantor hereunder shall In no way be affected or


impaired by reason, and the Guarantor, waives its right to prior notice, of


the happening from time to time of any of the following:





i. extensions (whether or not material) of the time for


performance of all or any portion of the Obligations;





ii. the modification or amendment In any manner (whether or


not material) of the PSC or the Obligations;


iii. any failure, delay or lack of diligence on the part of NNPC, or





any other person or entity to enforce, assert or exercise any


right, privilege, power or remedy conferred on NNPC or any


other person or entity under the PSC or at law, or any action


on the part of NNPC or such other person or entity granting


indulgence or extension of any kind; and


!v. a change of status, composition, structure or name of





Obligor, including, without limitation, by reason of


bankruptcy, liquidation, insolvency, merger, dissolution,


consolidation or reorganization.








9. With the prior written consent of NNPC, which consent shall not be


unreasonably withheld, this Guarantee may be replaced by a guarantee or


guarantees in substantially similar form made by a guarantor of equal or


better creditworthiness.


10. This Guarantee may be executed in any number of counterparts, each of


which shall be an original but all of which together shall constitute x>ne


document.


11. The Guarantor shall make payment in US Dollars and without deductions to


NNPC immediately by making available all sums due hereunder within ten


(10) business days of written demand for the same by NNPC (which demand


shall set forth the basis and the calculation of the amount for which demand is


made and which shall in the absence of manifest error be conclusive).


12. The Guarantor warrants that this Guarantee is Its legally binding obligation


enforceable in accordance with its terms and further warrants that all


necessary consents and authorizations for the giving and implementation of


this Guarantee have been obtained.


13. If a difference or dispute arises between the Guarantor and NNPC,


concerning the interpretation or performance of this Guarantee, and if the


Parties fail to settle such difference or dispute by amicable agreement, either


Party may serve on the other a demand for arbitration.


13.1 Within thirty (30) days of such demand- being served, each Party to this


Guarantee shall appoint an arbitrator and the two arbitrators thus


appointed shall within a further thirty (30) days appoint a third arbitrator,


who shall be of a nationality which is different from that of Parties involved


in the dispute and of the other arbitrators (the nationality of a company


shall be deemed to be that of the country under the laws of which it and/or


its owners are incorporated). If the arbitrators do not agree on the


appointment of such third arbitrator, or if either Party fails to appoint the


arbitrator to be appointed by it, such arbitrator or third arbitrator shall be


appointed by the President of the Court of Arbitration of the international


Chamber of Commerce (!CC) in Paris on the application of the other


Party (notice of the intention to apply having been duly given in writing


by the applicant Party to the other Party). The third arbitrator when


appointed shall convene meetings of the arbitration panel and act as


chairman. If an arbitrator refuses or neglects to act or is incapable of


acting or dies, a new arbitrator shall be appointed in his place and the


above provisions of appointing arbitrators shall govern the appointment of


any such new arbitrator or arbitrators.


13.2 The arbitration award shall be binding upon the Parties to this Guarantee.


The Nigerian Arbitration and Conciliation Act Cap 19, LFN, 1990 shall


apply to this Guarantee and the judgment upon the award rendered by the


arbitrators may be entered In a court having jurisdiction thereof. Each


Party shall pay its own attorney’s fees and costs.


13.3 This venue of the arbitration shall be any where in Nigeria as may be


agreed by the Parties.


14. All notices required or permitted shall be in writing and shall be deemed given


when delivered in person, or, if sent by facsimile or other means of electronic


transmission on the second business day following transmission, or if mailed


on the second business day after being consigned to Federal Express or


similar courier, at the address for notice provided below:


To the Guarantor:


NNPC:


15. This Guarantee shall in all respects be governed by and construed in


accordance with, the laws of the Federal Republic of Nigeria.


FOR AND ON BEHALF OF:


Name:


Title