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REPUBLIC OF NAMIBIA



PETROLEUM AGREEMENT

BETWEEN

THE GOVERNMENT OF THE REPUBLIC

OF NAMIBIA

AND

(Insert Company name)



0n ……………/………………..20…



2



THIS PETROLEUM AGREEMENT is made and entered between

THE GOVERNMENT OF THE REPUBLIC OF NAMIBIA

MINISTRY OF MINES AND ENERGY

(Herein represent by (Minister’s name) in his capacity as the Minister of the Ministry

of Mines and Energy),

(Hereinafter referred to as the “Government”)

And

ABC COMPANY (PTY) LTD

( Hereinafter represented by ………………, as duly authorized by the Board of

Directors of ………………………….(PTY) LTD in terms of the resolution passed on

this …. day of …………. 20..



PREAMBLE

WHEREAS all rights in relation to the exploration for, the production and disposal of,

and the control over, Petroleum in or upon any Land in Namibia vest in the State;

AND WHEREAS the Petroleum (Exploration and Production) Act, 1991, provides for

the exploration for, and the production and disposal of, Petroleum under a licence

issued in terms of that Act;

AND WHEREAS ABC Company Ltd. has applied for an Exploration Licence and

intends, in the event of a Discovery of Petroleum of a commercial interest made by it,

to apply for a Production Licence and to carry on Production Operations and to sell

or otherwise dispose of Petroleum recovered;

AND WHEREAS the Minister of Mines and Energy is empowered to grant and issue

Exploration Licences and Production Licences, subject to such terms and conditions

as may, in addition to the terms and conditions set out in section 14 of the said Act,

be agreed upon in terms of section 13 thereof;

AND WHEREAS the Minister is prepared to grant such application on certain terms

and conditions;

NOW THEREFORE it is hereby agreed at WINDHOEK on this ....... day of

....................... 20.... between:



THE GOVERNMENT OF NAMIBIA ("Government")



3

(Herein represented by its Minister of Mines and Energy)

-andABC COMPANY ("ABC") LTD

THAT the Minister of Mines and Energy shall cause(a) an Exploration Licence to be issued in accordance with the provisions of section

34 of the said Petroleum (Exploration and Production) Act, 1991, to ABC upon

signature of this Agreement and delivery by the said ABC to the Minister of Mines

and Energy of the Bank guarantee and the performance guarantee referred

to in clauses 4 and 30 of the Agreement; and

(b) in the event that a Discovery of a commercial interest is made in the area in

respect of which such Exploration Licence has been issued and a Petroleum Field is

declared under section 42 of the said Petroleum (Exploration and Production) Act,

1991, pursuant to such Discovery, upon an application made in terms of section 46

of that Act a Production Licence to be issued in accordance with the

provisions of section 47(1)(a) of that Act to the said ABC.

THAT the aforesaid Exploration Licence and, when issued, Production Licence shall,

in addition to the terms and conditions contained in the said Petroleum (Exploration

and Production) Act, 1991, and the Petroleum (Taxation) Act, 1991, be subject to the

terms and conditions set out in the Schedule hereto.



4

SCHEDULE



ARRANGEMENT OF CLAUSES

Clause

1. Definitions

2. Address and other particulars of Company

3. Duration of Exploration Licence

4. Minimum exploration work programme

5. Technical Advisory Committee

6. Work programme and budget

7. Relinquishment

8. Discovery and development of Petroleum

9. Application for Production Licence

10. Sole risk

11. Environmental protection

12. Work practices and carrying out of operations

13. Royalty and annual charges

14. Taxation

14A. Optional Clause on Participation

15. Valuation of Namibian Crude Oil

16. Natural Gas

17. Insurance and assets

18. Measurement of Petroleum

19. Accounts and audits

20. Records, reports and ownership of data

21. Confidentiality of data

22. Employment and training

23. Namibian goods and services

24. Domestic supply obligation

25. Unit development

26. Termination

27. Vis major

28. Assignation

29. Arbitration

30. Performance guarantee

31. Entire agreement and amendments

32. Waiver

33. Applicable law

34. Notices



ANNEXURE 1: Description of Licence Area

ANNEXURE 2: Map of Licence Area

ANNEXURE 3: Bank guarantee

ANNEXURE 4: Accounting procedure



5

ANNEXURE 5: Performance guarantee

ANNEXURE 6: Principles governing the training scheme of the Ministry of Mines and

Energy

ANNEXURE 7: Principles governing the use of funds paid to NAMCOR for

environmental studies.



6

Clause 1

Definitions

1.1



In this Agreement, unless the context indicates otherwise:

(a) "Affiliate", in relation to the Company, means any company holding directly or

indirectly a majority of shares in the Company or any company which is

controlled directly or indirectly by such first-mentioned company;

(b) "Appraisal Well" means any Well drilled after a Discovery of Petroleum has

been made in the Licence Area for purposes of determining the quantity of

Petroleum in the Petroleum Reservoir to which such Discovery relates;

(c) "Associated Natural Gas" means Natural Gas produced from any Well in the

Licence Area from which Crude Oil is predominantly produced and which is

separated from Crude Oil in accordance with Good Oilfield Practices,

including the free gas cap, but shall exclude any liquid hydrocarbons

extracted from such gas;

(d) "Barrel" means 42 United States gallons liquid measure, corrected to a

temperature of 60 degrees Fahrenheit;

(e) "Block" means a Block, as defined in section 1(1) of the Petroleum Act;

(f) "Calendar Month" means any of the 12 months of the Calendar Year;

(g) "Calendar Year" means a period of a year commencing on the first day of

January in every year;

(h) "Commissioner" means the Commissioner defined in section 1(1) of the

Petroleum Act;

(i)



"Company" means the Company which is a Party or, in the case of a joint

venture, the Companies which are parties to this Agreement, and includes

any other company to which the Company has assigned its interest or any

part thereof in relation to its Exploration Licence or in its Production Licence;



(j)



"Companies Act" means the Companies Act, 1971 (Act No. 61 of 1971);



(k) "Crude Oil" means any Petroleum which is in a liquid state at the wellhead or

gas-oil separator or which is extracted from Natural Gas in a plant, including

distillate and condensate, and which has been produced from the Licence

Area; provided however, that in clause 24 and where the context so admits, in

clause 15, a reference to crude oil does not necessarily imply that it has been

produced from the Licence Area;

(l) "Crude Oil Produced and Saved" means Crude Oil produced by the Company

under a Production Licence, but shall not include any such Crude Oil which



7

has been unavoidably lost or lawfully used in connection with operations for

the recovery of Petroleum;

(m) "Crystalline Basement", for purposes of clause 4, means any igneous or

metamorphic rock excluding sills, dykes and similar subsurface intrusions or

any stratum in and below which the geological structure or physical

characteristics of the rock sequence do not have the properties necessary for

the accumulation of Petroleum in commercial quantities and which reflects

the maximum depth at which any such accumulation can be reasonably

expected;

(n) “Decommissioning Plan” means the package of measures proposed by the

Company pursuant to s.46(2)(viA) of the Petroleum Act to be taken after

cessation of production operations to remove or otherwise deal with all

installations, equipment, pipelines and other facilities, whether on shore or off

shore, erected or used for purposes of such operations and to rehabilitate

land disturbed by way of such operations, reviewed pursuant to s.68 A(1) and

either approved or revised by the Minister pursuant to s.68A(2) or 68A(3) of

the Petroleum Act.

(o) "Development Operations" means Development Operations, as defined in

section 1 of the Taxation Act;

(p) "Development Plan" means the proposed programme of production and of

processing of Petroleum submitted in terms of section 46(2) of the Petroleum

Act;

(q) "Discovery" means a Discovery as defined in section 1 of the Petroleum Act;

(r) “Environmental Damage" includes any damage or injury to, or destruction of,

air or soil or water or any plant or animal life, whether in the sea or in any

other water or on, in or under Land;

(s) "Exploration Area" means an Exploration Area as defined in section 1(1) of

the Petroleum Act;

(t) "Exploration Licence" means an Exploration Licence as defined in section

1(1) of the Petroleum Act;

(u) "Exploration Operations" means Exploration Operations as defined in section

1(1) of the Petroleum Act;

(v) "Exploration Period" means the Initial Exploration Period, the First Renewal

Exploration Period or the Second Renewal Exploration Period;

(w) "Exploration Well" means a Well drilled in the course of Exploration

Operations, but shall not include an Appraisal Well;



8

(x) "First Renewal Exploration Period" means the period for which the

Exploration Licence issued to the Company has been renewed for the first

time under section 34 of the Petroleum Act;

(y) "Good Oilfield Practices" has the meaning assigned to it in section 1(i) of the

Petroleum Act;

(z) "Immovable Asset" means property which can be touched but which cannot

be moved, and includes buildings, fixtures or improvements in or over Land

and the right of occupation thereof;

(aa)

"Inflation Factor" means the figure, expressed to the fourth place of

decimals, obtained by dividing the Price Index as reported for the first time in

the monthly publication "International Financial Statistics" of the International

Monetary Fund in the section "Prices, Production, Employment" for the month

in which this Agreement has been signed by the Price Index first so reported

for the month in which the expenditure in question has been so incurred or,

for purposes of clause 22.4, the month for which the annual adjustment is to

be made;

(ab)

"Initial Exploration Period" means the period commencing on the date

of signature of this Agreement and ending on a date not later than four years

as from such first mentioned date or such shorter period as may be

determined in clause 3;

(ac)



"Land" means Land as defined in section 1 (1) of the Petroleum Act;



(ad)

"Licence Area" means a Licence Area as defined in section 1 of the

Taxation Act to which the licence of the Company relates and which is

described in Annexure 1 and shown on the map contained in Annexure 2;

(ae)

"Minister" means the Minister as defined in section 1(1) of the

Petroleum Act;

(af)

"Natural Gas" means Natural Gas, whether Associated or Non

Associated, and all its constituent elements produced from any Well in the

Licence Area and all non hydrocarbon substances therein;

(ag)

"Natural Gas Produced and Saved" means Natural Gas produced by

the Company under a Production Licence, but shall not include any such

Natural Gas which has been unavoidably lost or lawfully used in connection

with operations for the recovery of Petroleum;

(ah)

"Non Associated Natural Gas" means Natural Gas other than

Associated Natural Gas;

(ai)

(aj)



"Party" means the Government or the Company, as the case may be;

"Petroleum" means Petroleum as defined in section 1(1) of the

Petroleum Act;



9



(ak)

"Petroleum Act" means the Petroleum (Exploration and Production)

Act, 1991;

(al)



"Petroleum Data" has the meaning assigned to it clause 20.3 of this

Agreement;



(am)



"Petroleum Field" means a Petroleum Field as defined in section 1(1)

of the Petroleum Act;



(an)



"Petroleum Operations" means Exploration Operations and Production

Operations carried out in or in connection with a Licence Area;



(ao)



"Petroleum Produced and Saved" means Crude Oil and Natural Gas

Produced and Saved.



(ap)



"Petroleum Reservoir" means a Petroleum Reservoir as defined in

section 1(1) of the Petroleum Act;



(aq)



"Price Index" means the value of the United States Industrial Goods

Producer Price Index reported for the first time for the year or, for

purposes of clauses 4.7 and 22.5, the month in question in the monthly

publication of the International Monetary Fund known as the

"International Financial Statistics" in the section titled "Prices,

Production, Employment";



(ar)



"Production Area" means a Production Area as defined in section 1(1)

of the Petroleum Act;



(as)



"Production Licence" means a Production Licence as defined in

section 1(1) of the Petroleum Act;



(at)



"Production Operations" means Production Operations as defined in

section 1(1) of the Petroleum Act;



(au)



"Quarter" means a period of three consecutive Calendar Months

commencing on the first day of January, April, July or October of each

Calendar Year;



(av)



"Second Renewal Exploration Period" means the period for which the

Exploration Licence issued to the Company has been renewed for the

second time under section 34 of the Petroleum Act;



(aw)



"Site Restoration" means all activities required to return a site to its

natural state or to render a site compatible with its intended after use

after cessation of Petroleum Operations in relation thereto, and shall

include removal of equipment, offshore and onshore structures and

debris, establishment of compatible contours and drainage,

replacement of top soil, re-vegetation, slope stabilization or infilling of

excavations;



10



1.2



(ax)



"Taxation Act" means the Petroleum (Taxation) Act, 1991;



(ay)



“Trust Fund” means the trust fund referred to in s.68(B) of the

Petroleum Act.



(az)



"Well" means a Well as defined in section 1(1) of the Petroleum Act.



For the purposes of the definition of "Affiliate"(a) a Company is directly controlled by any other company or companies if

such company or companies hold shares in such first-mentioned

Company carrying in the aggregate the majority of votes exercisable at

the Company's general meetings;

(b) a particular Company is indirectly controlled by a company or companies

(hereinafter referred to as the parent company or companies) if a series of

companies can be specified, beginning with the parent company, so

related that each company of the series, except the parent company or

companies, is directly controlled by one or more of the companies earlier

in the series.



1.3



The headings to the respective clauses of this Agreement are used merely for

convenience and shall not form part of this Agreement.



1.4



Unless the contrary intention appears, words importing the masculine gender

include females and words in the singular number include the plural, and

words in the plural number include the singular.



Clause 2

Address and other particulars of Company

2.1



The Company is duly registered and incorporated as a company in

accordance with the provisions of the Companies Act in respect of which

incorporation a certificate of incorporation No. ............. dated ................... has

been issued.

(In the case of a joint venture, amend clause to include relevant particulars of

each participating company)



2.2



The share capital of the Company is............... .

(In the case of a joint venture, amend clause to include relevant particulars of

each participating company)



11

2.3



The registered address of the Company is ............... .

(In the case of a joint venture, amend clause to include relevant particulars of

each participating company)



2.4



The Company hereby declares that the following persons are the beneficial

owners of more than five per cent of the shares issued by it:Full Names: Percentage held:

1. .................. 1. ...................

2. .................. 2. ...................



(In the case of a joint venture, amend clause to include relevant particulars of

each participating company and add percentage of participating interest of

each company in such joint venture)



Clause 3

Duration of Exploration Licence

3.1



Subject to the provisions of the Petroleum Act, the Exploration Licence

granted to the Company shall be for an initial period of ...................... (period

not exceeding four years to be inserted) commencing from the date of

signature of this Agreement by all the parties thereto.



3.2



Subject to the provisions of the Petroleum Act, the Exploration Licence

referred to in clause 3.1 may be renewed for such further period, not

exceeding two years, as may be determined by the Minister at the time of the

renewal of such licence as from the date on which such licence would have

expired if an application for its renewal had not been made or on the date on

which the application for such renewal is granted, whichever date is the later

date: Provided that such licence shall not be renewed on more than two

occasions.



Clause 4

Minimum exploration work programme

4.1 Subject to clause 4.6, the Company shall, during each of the periods referred to

in paragraphs (a), (b) and (c) below into which its exploration work programme is

divided for purposes of this Agreement, carry out the work specified in such

paragraphs, and shall spend not less than the amounts so specified in relation to

such work.

(a) Initial Exploration Period



12



(i) Minimum exploration work

(To be specified in detail)

(ii) Minimum exploration expenditure

The amount to be specified here should:

(a) reflect the minimum amount to be spent in completing the minimum

exploration work in (i) above but excluding the cost of residential

and office accommodation, annual charges payable under clause

13.1(b) and the annual sum to be spent pursuant to clause 22.3;

(b) be an amount expressed in constant price terms at price levels

pertaining on the date of signature.



(b) First Renewal Exploration Period

(i) Minimum exploration work

(To be specified in detail)

(ii) Minimum exploration expenditure

(To be specified as in (a)(ii) above)

(c) Second Renewal Exploration Period

(i) Minimum exploration work

(To be specified in detail)

(ii) Minimum exploration expenditure

(To be specified as in (a)(ii) above)

4.2



The minimum exploration expenditure referred to in clause 4.1 for each

Exploration Period shall not have been satisfied unless the total actual

expenditure attributable to the work specified in clause 4.1 for the relevant

period equals or exceeds the sums mentioned in the said clause 4.1, provided

that for this purpose all such actual attributable expenditures shall be adjusted

for inflation, commencing from the Calendar Month in which this Agreement is

signed by multiplying each such expenditures by the Inflation Factor.



4.3



If the Price Index ceases to be published, the Price Index contemplated in

clause 4.2 shall for the purposes of this Agreement be such price index as

may be determined by mutual agreement between the Parties to this

Agreement.



4.4



Any expenditure incurred by the Company in respect of an appraisal

programme referred to in clause 8 of this Agreement shall not be regarded to

be expenditure incurred for purposes of clause 4.1.



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4.5



If the Company has during any period referred to in clause spent more than

the amount specified therein in respect of the period in question, the amount

so overspent may, subject to adjustment in terms of clause 4.2, be carried

over and credited against the minimum amount so specified in respect of the

next ensuing period: Provided that this sub clause shall not be construed as

detracting or modifying any obligation of the Company to drill Exploration

Wells or to conduct seismic surveys in terms of this clause.



4.6



No Exploration Well drilled by the Company shall be regarded as discharging

the Company from its obligation to drill such Well, unless

(a) such Well has been drilled to a depth or stratigraphic level specified

in clause 4.1; or

(b) such Well has been drilled to such depth as may be necessary for

evaluation of the geological formation established by the available

geophysical data as the deepest objective in the feature chosen for

drilling; or

(c) before reaching the depth referred to in subparagraphs (a) and (b),

the Crystalline Basement is encountered; or



(d) before reaching such Crystalline Basement, insurmountable

technical problems are encountered which will make further drilling

impractical, provided that if the said Well is abandoned owing to the

said problems before reaching the said Basement, the Company

shall drill a substitute Exploration Well in the Licence Area to the

depth aforesaid.

4.7



The Company shall on the date on which this Agreement is signed and on the

first day on which the First Renewal Exploration Period and the Second

Renewal Exploration Period commence provide, in a form substantially similar

to the form set out in Annexure 3, a bank guarantee in respect of the minimum

expenditure referred to in clause 4.1 in respect of the Exploration Period in

question.



(a) The amount of any such bank guarantee shall be reduced at the end of

every Quarter by an amount equal to the actual expenditure incurred by

the Company during such Quarter in discharge of its obligations under

clause 4.1.

(b) If at the end of the Initial Exploration Period, the First Renewal Exploration

Period or Second Renewal Exploration Period, as the case may be, the

expenditure incurred by the Company during any such period, as adjusted

in accordance with clause 4.2, and with due regard to any amount carried

over in terms of clause 4.5 does not equal or exceed the minimum

expenditure referred to in clause 4.1 for such period, the said bank



14

guarantee shall be invoked for purposes of payment to the Minister of the

full amount of the shortfall, as adjusted by multiplying such shortfall by a

figure, expressed to the fourth place of decimals, obtained by dividing the

Price Index, as reported for the first time in the monthly publication

"International Financial Statistics" of the International Monetary Fund in the

section "Prices, Production, Employment", for the Calendar Month

immediately preceding the day of receipt of written demand for payment of

such shortfall, by such Price Index as so reported for the Calendar Month

in which this Agreement has been signed.



4.8



The Company shall submit to the Commissioner annually a work programme

and a budget reviewed in accordance with the terms of clause 5.4 setting forth

the work to be carried out and showing an estimate of the amounts to be

spent thereon.



Clause 5

Technical Advisory Committee

5.1



The Minister and the Company shall as soon as possible after the date on

which this Agreement is signed establish a committee to be known as the

Technical Advisory Committee which shall consist of(a) a chairman and three other persons appointed by the Minister; and

(b) four other persons appointed by the Company.



5.2



The Minister and the Company may, with due regard to the terms of clause

5.1, appoint by notice in writing, whether by telex, telefax or otherwise, any

person to act in the place of any member of the Technical Advisory

Committee during his absence or incapacity to act as a member of the

Committee.



5.3



When an alternate member acts in the place of any member he/she shall

have the powers and perform the duties of such member.



5.4



Without prejudice to the rights and obligations of the Company in relation to

the management of its operations the functions of the Technical Advisory

Committee shall be(a) to oversee and monitor all Petroleum Operations carried out by the

Company;

(b) to review any proposed exploration work programme and budgets to be

submitted by the Company to the Commissioner in terms of clauses 4.8

and 6 and to monitor the implementation of any appraisal programmes

submitted by the Company to the Minister in terms of clause 8;



15



(c) to review and recommend to the Commissioner for approval, at any date

after the date on which application is made by the Company for a

Production Licence in respect of any part of the Licence Area and for as

long as Petroleum is produced in such area, any proposed exploration

work programme and budgets and any proposed amendment to be

submitted to the Commissioner in terms of clauses 4.8 and 6;

(d) to review any appraisal programmes submitted by the Company to the

Minister in terms of clause 8 and any Development Plan which the

Company proposes to submit in connection with an application for a

Production Licence in terms of clause 9;

(e) to ensure that the accounting of expenditure and the maintenance of

operating records and reports kept in connection with the Petroleum

Operations are made in accordance with this Agreement and the

accounting principles and procedures generally accepted in the

international petroleum industry.



5.5



All meetings of the Technical Advisory Committee shall be held at such

places, whether within or, with the prior approval in writing of the Minister,

outside Namibia, and at such times, but not less than one meeting during

each half of the Calendar Year during the term of the Exploration Licence and

thereafter not less than one meeting during each Quarter, as may be

determined unanimously by its members.



5.6



Five members of the Technical Advisory Committee shall form a quorum for a

meeting of the Committee.



5.7



The Minister or the Company shall have the right to call any expert to any

meeting of the Technical Advisory Committee to advise the Committee on any

matter of a technical nature requiring expert advice.



5.8



A unanimous vote of all the members of the Technical Advisory Committee

present at a meeting thereof on any matter requiring a decision of the

Committee as set out in clause 5.4 shall be a decision of the Committee and

shall be binding upon the Parties to this Agreement. The committee shall not

make any decision which shall unreasonably or negatively impede the

Company’s ability to fulfill its obligations under this Agreement.



5.9



If a decision cannot be taken as contemplated in clause 5.8

(a) in the case of a proposal of the Company in relation to a matter referred to

in paragraph (a), (b) or (d) of clause 5.4, the proposal of the Company

shall prevail, provided (i) that such proposal is not inconsistent with any

term of this Agreement; and (ii) that, in the case of the review of a



16

Development Plan, such proposal contains the particulars contemplated in

section 46(2)(e) to (k) of the Petroleum Act;

(b) in the case of any dispute in respect of a matter contemplated in

paragraph

(c) of clause 5.4, such dispute between the Minister and the Company shall

be referred, within 90 days as from the date of the meeting on which no

decision could have so been taken, to a sole expert appointed in

accordance with the terms of clause 29.6.



Clause 6

Work programme and budget

6.1



During the currency of an Exploration Licence the Company shall prepare and

submit in each Calendar Year, not less than three months prior to the last day

of each Calendar Year to the Commissioner a work programme and budget

referred to in paragraph (b) or (c) of clause 5.4 for review or for review and

recommendation by the Technical Advisory Committee in accordance with the

terms of those paragraphs, setting forth the Exploration Operations which the

Company proposes to carry out during the period of 12 months immediately

following such last day and the estimated cost thereof.



6.2



Any work programme and budget submitted in terms of sub clause 6.1 for

review or review and recommendation by the Technical Advisory Committee

to the Commissioner and any revision or amendment thereof shall be

consistent with the requirements set out in clause 4 relating to the minimum

exploration work and minimum exploration expenditure for any of the periods

so set out within which the work programme and budget will fall.



6.3



The Company may by notice in writing to the Minister amend any work

programme or budget submitted to the Technical Advisory Committee,

provided that the work programme or budget is not required to be submitted to

that Committee for review and recommendation to the Commissioner under

the terms of paragraph (c) of clause 5.4 and such amendment is consistent

with the Company's obligations under clause 4.



6.4



A notice referred to in clause 6.3 shall state the reasons for which the

amendment is necessary or desirable.



17

Clause 7



Relinquishment

7.1



Subject to the provisions of the Petroleum Act, the Company shall by notice in

writing addressed and delivered to the Commissioner relinquish(a) not later than 30 days before the end of the fourth year of the currency of

the Exploration Licence, at least 50 per cent of the Exploration Area as

described in Annexure 1 to which such licence relates and identified in

such notice;

(b) not later than 30 days before the end of the sixth year of such currency, at

least a further 25 per cent of such Exploration Area as described in

Annexure 1 and so identified,



Whereupon any part of the Exploration Area so identified shall cease to be part of

such Exploration Area as from a date 90 days after the date of such notice: Provided

that-



7.2



(i)



if such licence is cancelled in terms of section 19(3) of the Petroleum

Act in relation to any area of Land in any Calendar Year of the currency

of such licence, such area of Land shall be deemed to have been

relinquished for the purposes of the determination of the relinquishment

next required to be made by the Company under paragraph (a) or (b);



(ii)



any area of Land relinquished under clause 7.2, shall be deemed to

have been relinquished for the purposes of the determination of the

relinquishment next required to be made by the Company under

paragraph (a) or (b);



(iii)



the Company shall relinquish such Land in such a manner so as to

ensure that the Exploration Area is, after such relinquishment, a single

area consisting, in so far as it is possible, of rectangular blocks

bounded by lines running either due North and South or due East and

West and having sides, each of at least 30 seconds of longitude or

latitude, as the case may be;



(iv)



the Company shall not be required to relinquish any Land in the

Exploration Area which is subject to an application for a Production

Licence or situated within a Petroleum Field or subject to an application

for the declaration of a Petroleum Field.



The Company may, subject to the terms of sub-paragraph (iii) of the proviso

to clause 7.1, by notice in writing addressed and delivered to the

Commissioner relinquish any area of Land to which its Exploration Licence



18

relates from a date not less than six months from the date on which such

notice was delivered to the Commissioner.

7.3



Any relinquishment in terms of clause 7.2 shall be without prejudice to any

obligation incurred by the Company in respect of the area relinquished prior to

the date of relinquishment and such relinquishment shall not affect the

obligations of the Company under clause 4.



Clause 8



Discovery and development of Petroleum

8.1



8.2



When a Discovery is made in an Exploration Area, the Company shall

(a)



forthwith inform the Commissioner by notice in writing of the

fact that such Discovery has been made;



(b)



forthwith cause tests to be made in connection with such

Discovery in order to determine the commercial interest of such

Discovery;



(c)



within a period of 60 days after such notice, furnish the

Commissioner in writing with particulars of the steps which it

proposes to take to satisfy the requirements of paragraph (e) of

this clause;



(d)



within a period of 60 days after such notice, furnish the

Commissioner in writing with particulars relating to the Block or

Blocks where such Discovery has been made, the nature of

such Discovery and such other particulars as the Commissioner

may require;



(e)



within a period of 60 days after having completed such tests,

furnish the Commissioner with a report containing an evaluated

result of such tests and an evaluation of the potential

commercial interest of such Discovery.



If the report referred to in paragraph (e) of clause 8.1 indicates that in the

Company's judgment, utilizing Good Oilfield Practices, a Discovery may be of

commercial interest, the Company

(a)



shall within 90 days of the delivery of such report address and

deliver to the Commissioner an appraisal programme which is

commensurate with the size and nature of the Discovery for the

Commissioner's approval which shall include particulars relating

to the drilling of Appraisal Wells;



19

(b)



shall upon approval forthwith take all such steps as may be

reasonable in the circumstances in order to appraise the

Discovery and determine the quantity of Petroleum to which the

Discovery relates in so far as it occurs within the Exploration

Area;



(c)



may apply, pursuant to section 42 of the Petroleum Act, for the

declaration of a Petroleum Field over the relevant area;



8.3



The Commissioner shall by notice in writing addressed and delivered to the

Company within 30 days of delivery of the appraisal programme indicate

whether or not he approves thereof.



8.4



Where the appraisal programme is not approved by the Commissioner, the

Technical Advisory Committee shall, within a period of 30 days from the date

on which the notice referred to in clause 8.3 was delivered to the Company,

meet to discuss and agree on revisions to the appraisal programme.



8.5



If the members of the Technical Advisory Committee are unable to agree on

revisions to the appraisal programme, the provisions of clause 5.9 shall apply

mutatis mutandis, enabling the Company to proceed with the implementation

of its appraisal programme, with such revisions, if any, as it deems fit. The

Company's appraisal programme shall be deemed to have been approved by

the Commissioner on the date on which the Commissioner receives

notification from the Technical Advisory Committee on the outcome of its

deliberations.



8.6



The Company shall, within two years from the date on which the

Commissioner approved of the appraisal programme or such longer period as

the Commissioner on good cause shown may allow, address and deliver to

the Commissioner(a)



(b)



a full report containing particulars of the results of the appraisal

programme, including particulars relating to

(i)



the location and depth of Petroleum or hydrocarbon bearing

structures;



(ii)



the composition of Petroleum or hydrocarbons;



(iii)



the estimated

hydrocarbons;



(iv)



the estimated daily production potential of Petroleum or

hydrocarbons;



recoverable



reserves



of



Petroleum



or



a preliminary estimate of the cost of Development Operations and

Production Operations relating to the Discovery, including the cost of

transportation of Petroleum or hydrocarbons, based upon an outline

design for the development of the Discovery.



20



8.7



The Company shall, in so far as it is able to do so from results obtained from

an appraisal programme, within 13 months after the date on which the

Commissioner approved of such programme, issue an interim report

containing the particulars and preliminary estimates contemplated in clause

8.6.



8.8



The Commissioner may, at any time after delivery of the report and estimates

referred to in clause 8.6, request the Company to supply such further

particulars relating to such report as he deems necessary and the Company

shall comply in writing with such request within 30 days from the date of

delivery of such request.



8.9



The Commissioner and the Company shall, within three months of the

delivery of the report and estimates referred to in clause 8.6 or such longer

period as the Commissioner on good cause shown may allow, discuss the

report and estimates to determine whether the Discovery is of commercial

interest.



8.10



If the Company decides that the Discovery is not of present commercial

interest and the Commissioner does not agree with such determination, the

Commissioner may cause an independent evaluation of the Discovery to be

carried out. If the independent evaluation establishes that the Discovery is of

commercial interest, the provisions of clause 8.11 shall apply.



8.11



If the conclusion of the evaluation referred to in clause 8.10 is that the

Discovery is of commercial interest the Minister may, subject to the terms of

clause 8.12, by notice in writing addressed and delivered to the Company,

direct that with effect from a date specified in such notice the Licence in

question shall cease to be of any force and effect in relation to the Discovery

Block in question and any adjoining Land required for purposes of obtaining

access to that Block.



8.12



The Minister shall not exercise his powers under clause 8.11, unless he(a)



has submitted the evaluation referred to in clause 8.10 to the Company

for consideration and afforded the Company a period of three months

from the date of delivery of the said evaluation to review its position

regarding the commercial interest of the Discovery and to notify the

Minister in writing of its intention to develop the Discovery and the

Company has failed or refused to so notify the Minister or has notified

the Minister that

it does not intend to develop the Discovery;



(b)



has by notice in writing addressed and delivered to the Company

informed the Company of his intention to exercise such powers;



(c)



has requested the Company to make representations to the Minister in

relation to the matter on or before a date specified in such notice;



21

(d)



is, having regard to information available to him and after having

considered any representations made to him by virtue of the notice

referred to in paragraph (a), satisfied that the Discovery is of

commercial interest.



8.13



In the event of the Company notifying the Minister of its intention to develop

the Discovery as contemplated in paragraph (a) of clause 8.12, the Company

shall reimburse the Government the cost of the independent evaluation

referred to in clause 8.10.



8.14



If the Minister has given a direction to the Company that the Company's

Exploration Licence shall cease to be of any force and effect in relation to the

Discovery Block in question and any adjoining Land required for purposes of

obtaining access to that Block in terms of clause 8.11, the Company may

apply to the Minister to reinstate the rights it previously had in respect of the

relevant area: Provided that-



8.15



(a)



the rights so reinstated shall not subsist beyond the date on which they

would have expired, if the Minister had not made the direction under

the said clause 8.11;



(b)



no such rights shall be exercised by the Company if the Minister has,

subsequent to the said direction, granted any rights to any other person

in relation to the area in question which are inconsistent with the rights

so

reinstated by the Minister;



(c)



the Company pays to the Government an amount equal to(i)



the cost of the independent evaluation referred to in clause 8.10,

if any;

(ii)

any expenditure incurred by the Government in relation

to Exploration Operations, appraisal operations and any

other work done in or connected with such area after

the date on which the said direction of the Minister

under clause 8.11 was delivered to the Company; and



(iii)



500 per cent of all such expenditure referred to in

subparagraphs (i) and(ii), which amount shall not be allowable

as a deduction under the Taxation Act.



Notwithstanding the other provisions of this clause 8, if after having carried

out an appraisal programme pursuant to section 39 (2) of the Petroleum Act,

that a Discovery of Crude Oil is not of present commercial interest but may

become of commercial interest then, if the Commissioner agrees with such

determination, the Minister hereby agrees to allow the Company to retain the

Discovery Block for the duration of the Company's Exploration Licence and

any renewal thereof, provided that:



22

(a)



The determination of potential commerciality shall be based on relevant

economic criteria, including but not limited to, potential Crude Oil

production rates, Crude Oil prices, development costs, operating costs

as well as any other relevant criteria;



(b)



The Company shall reassess the commerciality of the Discovery twelve

months after the Discovery has been notified to the Commissioner and

thereafter every two years, based on the same economic criteria as set

forth in (a) above;



(c)



The Company shall within 30 days after the completion of each

reassessment inform the Minister whether it determines the Discovery

still to be of potential commercial interest. A copy of any reassessment

study shall be given to the Commissioner;



(d)



If as a result of the Company's reassessment under clause 8.15(b) the

Company determines that the Discovery has become of commercial

interest the provisions of clause 8.2 to 8.14 shall apply;



(e)



If as a result of the Company's reassessment under clause 18.5(b) the

Company determines that the Discovery remains only of potential

commercial interest, but the Commissioner considers that it is of

present commercial interest, the provisions of clause 8.10 shall apply;

and

If as a result of the Company's reassessment under clause 8.15(b),

the Company determines that the Discovery is no longer of potential

commercial interest, the Minister may require the Company to

relinquish

the Discovery Block.



(f)



Clause 9

Application for Production Licence

9.1



If the Company intends to apply for a Production Licence in respect of the

Discovery Block in question as contemplated in section 43(1) of the Petroleum

Act, the Company shall arrange a meeting with the Commissioner to identify,

after having had due regard to all the relevant particulars, the Discovery Block

or Blocks to which such licence should relate.



9.2



Where a part of a Petroleum Reservoir in respect of which the Company

intends to make an application for a Production Licence is contained in a

Block or Blocks outside the Licence Area, such Block or Blocks may be

included at the Minister's discretion in the area in relation to which application

for a Production Licence is made, provided that such Block or Blocks are not

subject to an Exploration or Production Licence granted to any other person.



23

9.3



The Company shall, in making an application for a Production Licence as

contemplated in section 43(1) of the Petroleum Act, comply with the

provisions of section 46(2) of the Petroleum Act and any other provisions

relating to such

applications.



9.4



The proposed programme of Production Operations and processing of

Petroleum referred to in section 46(2)(i) of the Petroleum Act shall(a)



relate exclusively to the Block or Blocks within the area to which the

Licence relates and which, on a reasonable interpretation of the

available particulars, contain a Petroleum Reservoir or part thereof;



(b)



be designed to ensure the most efficient, beneficial and timely use of

the Petroleum resources in the area to which the Production Licence

relates; and

be compiled in accordance with sound engineering, economic, safety

and environmental principles recognized in the international petroleum

industry.



(c)



9.5



The Minister shall, subject to the provisions of section 47 of the Petroleum Act

and after approval of the Development Plan, within six months after delivery of

the application for a Production Licence referred to in clause 9.3, grant such

application and issue such licence for a period of ........................ (insert

period of not more than 25 years).



9.6



If, within a period of 60 days after submission of the Development Plan, the

Minister has failed or refused to approve such Development Plan, the Minister

shall arrange a meeting with the Company to be held within a period of 14

days after the expiry of the aforesaid period.



9.7



If the Minister and the Company are unable to agree at the meeting referred

to in clause 9.6 on whether such Development Plan meets the requirements

set forth in clause 9.4, the Minister or the Company may request the

appointment of the expert contemplated in clause 29.6, if necessary, and

submit the dispute for determination.



9.8



In the event of the expert referred to in clause 9.7 determining that such

Development Plan does not meet the requirements of clause 9.4, the said

expert shall determine which modifications to such Development Plan are

necessary to comply with the requirements of clause 9.4 and the Company

shall modify such Development Plan accordingly.



9.9



The decision of the expert referred to in clause 9.8 shall be final and binding

on the Minister and the Company, provided that in the event of the Company

being dissatisfied with the decision of the said expert, it may, within 60 days

after the

date on which the decision was conveyed to it, notify the Minister that it

withdraws the application for a Production Licence referred to in clause 9.3, in



24

which event such notice shall be deemed to be a report by the Company

contemplated in section 39(1) of the Petroleum Act.



Clause 10

Sole risk

10.1



Subject to the terms of clause 10.5, the Minister may during any Exploration

Period require the Company by notice in writing(a)

(b)

(c)



to test any additional horizons within the agreed Well depth; or

to penetrate and test any horizons deeper than such depth; or

to continue drilling and test any such additional horizons.



10.2



A notice referred to in clause 10.1 shall be given as early as possible prior to

or during the drilling of the Well, but in any case not after the Company has

notified the Minister of the detailed completion or abandonment plan for the

Well. Upon

receipt of such notice the Company shall, subject to the terms of clause 10.5,

cause such tests, penetration and drilling to be carried out at the sole cost and

risk of the Government. At any time before such tests, penetration or drilling is

carried out the Company may elect to include such tests, penetration or

drilling in its Exploration Operations.



10.3



Subject to the terms of clause 10.5, the Minister may-



10.4



(a)



during any Exploration Period recommend that the Company include

certain Exploration Wells in its exploration work programme;



(b)



if any dispute arises in relation to any recommendation made in terms

of paragraph (a), require by at least six months notice in writing to the

Company, which notice shall contain the proposed location of the Well,

the geological objective and other details of the Well to be drilled and

the schedule of financing, the Company to drill within the Exploration

Area and at the sole cost and risk of the Government, a maximum of

two such Exploration Wells per Calendar Year, provided that suitable

rigs are available for use in the Exploration Area, and such operations

will not unreasonably interfere with Petroleum Operations required to

be carried out under this agreement. The Company may, at any time

before such Exploration Wells are drilled, elect to include such

Exploration Wells in its Exploration Operations.



If a Discovery is made in consequence of any activities carried out in terms of

clauses 10.1 and 10.3 the Minister may cause at the sole cost, risk and

benefit of the Government the Discovery to be appraised and any Petroleum

discovered to be developed and produced. The Company may before such

appraisal, development or production, as the case may be, inform the Minister



25

by notice in writing that it wishes to take over such appraisal or development

under the terms of its Licence. In such event the Company shall pay to the

Government



10.5



(a)



within 30 days from the date of dispatch of its notice to the Minister, an

amount equivalent to the expenditures incurred by the Minister in

connection with such appraisal, development or production; and



(b)



if the Company so informs the Minister before such appraisal

commences, an additional amount equal to 200 per cent of the

expenditure referred to in paragraph (a) or, if the Company so informs

the Minister after such appraisal has commenced, but before such

development commences, an additional amount equal to 600 per cent

of the expenditure referred to in paragraph (a), which expenditure and

additional amount shall not be allowable as a deduction under the

Taxation Act.



The Company shall by virtue of a notice given in terms of clauses 10.1, 10.3

and 10.4 not be required(a)



to test any additional horizons or to penetrate and test any deeper

horizons or to drill any additional Exploration Wells if, employing Good

Oilfield Practices, such operations are not technically feasible and

cannot be conducted in a safe and prudent manner or such operations

will have a detrimental effect on the proper performance of the

Company's work programme;



(b)



to penetrate and test horizons deeper than the agreed Well depth, if

the Well in question has encountered productive horizons;

to drill Exploration Wells in a Petroleum Field or a Production Area or a

Discovery Block retained pursuant to clause 16.12;



(c)



(d)



10.6



to carry out any operations referred to in such notice during any

Calendar Month, unless the Government advances, subject to such

conditions of accounting as the Minister may determine, before the

commencement of such Calendar Month, to the Company an amount

to finance the expenditure to be incurred in connection therewith.



The Minister shall not engage any third party to carry out any activities

contemplated in clause 10.4, unless he has first offered by notice in writing

the Company the right to carry out such activities on the Government's behalf,

on the same terms agreed to by such third party and the Company has

refused the offer or has failed to accept such offer within a period of 60 days

as from the date on which the offer was made and unless such activities will

not interfere with Petroleum Operations to be carried out pursuant to this

Agreement.



26

Clause 11

Environmental protection

11.1



The Minister and the Company concede that Petroleum Operations will cause

some impact on the environment in the Licence Area.



11.2



The Company shall(a)



conduct its Petroleum Operations in a manner likely to conserve the

natural resources of Namibia and protect the environment;



(b)



employ the best available techniques in accordance with Good Oilfield

Practices for the prevention of Environmental Damage to which its

Petroleum Operations might contribute and for the minimization of the

effect of such operations on adjoining or neighboring Lands; and



(c)



implement the proposals contained in its Development Plan regarding

the prevention of pollution, the treatment of wastes, the safeguarding of

natural resources and the progressive reclamation and rehabilitation of

Lands disturbed by Petroleum Operations.



11.3



The Company undertakes for purposes of this Agreement to take all

reasonable, necessary and adequate steps in accordance with Good Oilfield

Practices to minimize Environmental Damage to the Licence Area and

adjoining or neighboring Lands.



11.4



If the Company fails to comply with the terms of clause 11.3 or contravenes

any law on the prevention of Environmental Damage and such failure or

contravention results in any Environmental Damage, the Company shall take

all necessary and reasonable measures to remedy such failure or

contravention and the effects thereof.



11.5



If the Minister has reason to believe that any works or installations erected by

the Company or any operations carried out by the Company are endangering

or may endanger persons or any property of any other person or is causing

pollution or is harming wildlife or the environment to a degree which the

Minister deems unacceptable, the Minister may require the Company to take

reasonable remedial measures within such reasonable period as may be

determined by the Minister and to take reasonable and appropriate steps to

repair any damage to the environment. If the Minister deems it necessary, he

may require the Company to discontinue Petroleum Operations in whole or in

part until the Company has taken such remedial measures or has repaired

any damage.



11.6



The measures and methods to be used by the Company for purposes of

complying with the terms of clause 11.3 shall be determined in timely

consultation with the Minister upon the commencement of Petroleum

Operations or whenever there is a significant change in the scope or method

of carrying out Petroleum Operations, and the Company shall take into



27

account the international standards applicable in similar circumstances and

the relevant environmental impact assessment studies carried out in

accordance with clause

11.7. The Company shall notify the Minister in writing of the nature of the measures

and methods finally determined by the Company and shall cause such

measures and methods to be reviewed from time to time in view of prevailing

circumstances.

11.7



The Company shall cause a person or persons, approved by the Minister on

account of their special knowledge of environmental matters, to carry out two

environmental impact assessment studies, in order

(a)



to determine the prevailing situation relating to the environment, human

beings, wildlife or marine life in the Licence Area and in the adjoining or

neighboring areas at the time of the studies; and (b) to establish what

the effect will be on the environment, human beings, wildlife or marine

life in the Licence Area in consequence of the Petroleum Operations to

be made under this Agreement, and to submit for consideration by the

Parties measures and methods contemplated in clause



11.6



for minimizing Environmental Damage and carrying out Site

Restoration in the Licence Area.



11.8



The first of the two studies referred to in clause 11.7 shall be carried out in

two parts. The first part of the first study shall be a baseline study of existing

information on the environment, human beings, wildlife or marine life in the

Licence Area. The company shall conclude such baseline study prior to

undertaking any fieldwork for a seismographic survey. The second part of the

first study shall be an environmental impact assessment study of the effects of

drilling on the environment. This environmental impact assessment study is to

be concluded sufficiently in advance of the commencement of drilling to

enable the results of this environmental impact assessment study to be taken

into account in preparing all relevant drilling management, waste

management and contingency plans relating to the exploration drilling stage.

A minimum of 12 copies of the reports on the baseline and environmental

impact assessment studies shall be submitted to the Government.



11.9



The second of the two studies referred to in clause 11.7 shall be an

environmental impact assessment study of the effects of production on the

environment and shall be concluded sufficiently in advance of the

commencement of Production Operations to enable the results of this

environmental impact assessment study to be taken into account in preparing

all relevant production management, waste management and contingency

plans relating to Production Operations and shall be submitted by the

Company as part of its Development Plan. A minimum of 12 copies of the

report on the environmental impact assessment study shall be submitted to

the Government.



28

11.10 The studies mentioned in clause 11.7 shall contain proposed environmental

guidelines to be followed in order to minimize Environmental Damage and

shall include, but not be limited to(a) access cutting;

(b) clearing and timber salvage;

(c) wildlife and habitat protection;

(d) marine resource protection;

(e) fuel storage and handling;

(f) use of explosives;

(g) camps and staging areas;

(h) liquid and solid waste disposal;

(i) cultural and archaeological sites;

(j) selection of drilling sites;

(k) terrain stabilization;

(l) protection of freshwater horizons;

(m) blowout prevention plan;

(n) combating oil spills;

(o) flaring during completion and testing of gas and oil wells;

(p) Well abandonment;

(q) rig dismantling and site completion;

(r) reclamation for abandonment; and

(s) noise control.

11.11 The Company shall ensure(a)



that Petroleum Operations are carried out in an environmentally

acceptable and safe manner consistent with Good Oilfield Practices

and that such operations are properly monitored;



(b)



that the pertinent completed environmental impact assessment studies

are made available to its employees and to its contractors to develop

adequate and proper awareness of the measures and methods of



29



(c)



environmental protection to be used in carrying out its Petroleum

Operations; and

that any agreement entered into between the Company and its

contractors relating to its Petroleum Operations shall include the terms

set out in this Agreement and any established measures and methods

for the implementation of the Company's obligations in relation to the

environment under this Agreement.



11.12 The Company shall, before carrying out any drilling, prepare and submit for

review by the Minister an oil spill and fire contingency plan designed to

achieve rapid and effective emergency response in the event of an oil spill or

fire.

11.13 In the event of(a)



an emergency or accident arising from Petroleum Operations affecting

the environment, the Company shall forthwith notify the Minister

accordingly;



(b)



any fire or oil spill, the Company shall promptly implement the relevant

contingency plan;



(c)



any other emergency or accident arising from the Petroleum

Operations affecting the environment, the Company shall take such

action as may be prudent and necessary in accordance with Good

Oilfield Practices in such circumstances.



11.14 If the Company fails to comply with any terms contained in clause 11 within a

period determined by the Minister under any such term, the Minister may,

after giving the Company reasonable notice, take any action which may be

necessary to ensure compliance with such term, and recover, immediately

after having taken such action, all expenditure incurred in connection with

such action from the Company together with such interest as may be

determined in accordance with paragraph 6.2 of Annexure 4 to this

Agreement.

11.15 If the Company or the operator for the Company has already completed and

submitted to the Government reports on the studies referred to in clause 11.8

for a previous Exploration Licence held in Namibia in the 5-year period

preceding the application for this Exploration Licence and those studies either

(a)



are sufficiently broad ranging to encompass clearly the present Licence

Area, or



(b)



do not encompass the present Licence Area but a baseline study and

environmental impact assessment study have been submitted by the

holder of an Exploration Licence covering an area near the present

Licence Area the Company may in a case falling within (a) above,

submit the reports on the studies for such previous Licence in

fulfillment of the requirements of clauses 11.7 and 11.8 relating to



30

exploration drilling and, in a case falling within (b) above submit such

environmental impact assessment submitted by the said holder of an

Exploration Licence, with any modifications which the Company wishes

to make; provided that:

(i)



(ii)



(iii)



(iv)



In response to a written request from the Company, the Minister

approves in writing the course of action selected from (a) or (b)

above;

In response to a written request from the Company directed

through the Ministry of Mines and Energy, The Ministry of

Fisheries and Marine Resources, the Ministry of Environment

and Tourism, the Ministry of Works, Transport and

Communication and the Ministry of Health and Social Services

also approve in writing the course of action selected from (a) or

(b) above;

The company that carried out the baseline study and

environmental impact assessment study which are to be

submitted in terms of (b) above agrees to this course of action;

The baseline study and the environmental impact assessment

study submitted in terms of (b) above encompass the present

Licence Area;



(v)



Fluids, muds and chemicals to be used during drilling are the

same as those used in the Exploration Licence covered by the

environmental impact assessment study submitted;



(vi)



Oil spill drift simulation studies and any other special studies

relevant to an environmental impact assessment of the effect of

drilling on the environment in the present Licence Area as may

be required by the Minister are carried out and the results

thereof together with plans for mitigating actions be submitted in

the form of reports to the Government. A minimum of 12 copies

of these reports are to be submitted;



(vii)



The results of the resubmitted environmental impact

assessment study as well as the studies conducted under (v)

above are taken into account in preparing all relevant drilling

management, waste management and contingency plans

relating to the exploration drilling stage;



(viii)



An amount equal to half the average cost of the three most

recent baseline and environmental impact assessment studies

complying with the requirements of the first of the studies in

clause 11.7 for offshore oil exploration in Namibia or such other

amount as may be agreed between the Parties is paid to the

National Petroleum Corporation of Namibia (NAMCOR). This

money shall be used by NAMCOR in accordance with the

principles laid out in Annexure 7 in order to collect offshore

environmental data relevant to oil exploration and production in

Namibia. Projects to be undertaken by NAMCOR in this



31

connection shall be decided upon in consultation with the oil

exploration companies operating in Namibia and with the

Ministries of Fisheries and Marine Resources and the

Environment and Tourism.

11.16 The Company shall on the expiration or termination of this Agreement or on

relinquishment of part of the Licence Area(a)



subject to clause 17, remove or otherwise deal with, as directed by the

Minister in consultation with the Minister or Ministers responsible for

environment, fisheries and finance, all equipment and installations from

such Licence Area or relinquished area to the extent and in the manner

agreed with the Minister in terms of the Decommissioning Plan

approved by the Minister pursuant to s.68A(2) of the Petroleum Act;



(b)



subject to clause 17, remove, or otherwise deal with, as directed by the

Minister in consultation with the Minister or Ministers responsible for

environment, fisheries and finance, all installations, equipment,

pipelines and other facilities erected or used outside the Licence Area

for the petroleum operations; and



(c)



perform all necessary Site Restoration activities in accordance with

Good Oilfield Practices and shall take all other action necessary to

prevent hazards to human life or to the property of others or the

environment.



11.17 The Company shall on the date referred to in s.68B(1) of the Petroleum Act

establish a Trust Fund in accordance with the provisions of s.68(B) of the said

Act for the purpose of decommissioning facilities on cessation of production

operations.



Clause 12



Work practices and carrying out of operations

12.1



The Company shall conduct Petroleum Operations in the Licence Area

(a)



subject to the provisions of the Petroleum Act;



(b)



in accordance with Good Oilfield Practices;



(c)



diligently, expeditiously, efficiently and in a proper, safe and

workmanlike manner;



(d)



in accordance with work programmes reviewed or approved in terms of

the Petroleum Act and this Agreement.



32



12.2



The Company shall ensure that all equipment, materials, supplies, plant and

installations used by the Company, its contractors and subcontractors comply

with generally accepted standards in the international petroleum industry and

are of proper construction and kept in good working order.



12.3



The Company shall, within 90 days after the date on which this Agreement

was signed, appoint



12.4



12.5



12.6



(a)



a General Manager to manage the Petroleum Operations in the

Licence Area and who shall be authorised to take such steps as may

be necessary in accordance with the provisions of the Act and the

terms and conditions of this Agreement to carry out the Petroleum

Operations on behalf of the Company; and



(b)



a Deputy General Manager to manage such operations in the absence

of the General Manager, who shall be resident in Namibia, and shall be

technically competent and sufficiently experienced to manage such

operations.



The Company shall, within 30 days after the appointment of the General

Manager or Deputy General Manager referred to in clause 12.3, notify the

Commissioner in writing of their identity and respective addresses.

Where the Company consists of more than one Company(a)



all the terms and obligations of this Agreement shall apply to each one

of such companies jointly and severally;



(b)



(insert the name of one of the companies) shall be deemed to be the

operator and Company who shall carry on the Petroleum Operations of

the Company under this Agreement, unless the Commissioner

pursuant to an application in writing addressed and delivered to him

approves a change of operator, in which event the other operator so

approved of shall be deemed to be the operator from the date of such

approval;



(c)



any operating or other agreement relating to the Petroleum Operations

entered into by or between such companies shall be consistent with the

provisions of this Agreement and shall be in writing and a copy of each

such agreement shall be submitted to the Commissioner not later than

ten days after the date of signature thereof.



All individual services to be performed or materials and equipment to be

purchased for or in connection with the Petroleum Operations which cost in

excess of US $250,000 (or the equivalent thereof as expressed in Namibian

Dollars) shall be contracted for by the Company only after competitive

quotations have been called for and on the basis thereof.



33

12.7



The Company shall ensure adequate compensation for injury to persons or

damage to property caused by its Petroleum Operations under this

Agreement.



Clause 13



Royalty and annual charges

13.1



Subject to the provisions of the Petroleum Act, the Company shall pay



(a)



(b)



Quarterly on or before the last day of each Calendar Month following

each Quarter, for the benefit of the State Revenue Fund, a royalty of 5

per cent on the market value of Petroleum Produced and Saved in the

Production Area during each Quarter, determined(i)



in the case of Crude Oil, in accordance with the terms of clause

15; and



(ii)



in the case of Natural Gas, in accordance with the terms of

clause 16.7;



on the date of the issue of the Exploration Licence or Production

Licence, and thereafter annually on or before the last day of the

Calendar Month during which every period of 12 months of the

currency of such Licence expires, for the benefit of the State Revenue

Fund, an annual charge, equal to the figure expressed in Namibian

Dollars, calculated by multiplying the number of square kilometers

included in the Block or Blocks to which the Licence relates

(i)



in the case of an Exploration Licence

(a)



by 60 during the period of the licence determined or

extended in terms of paragraph (a) of subsection (1) or

paragraph (a) of subsection (2A) of section 30 of the

Petroleum Act;



(b)



by 90 during the period of the licence determined or

extended in terms of paragraph (b) of subsection (1) or

paragraph (b) of subsection (2A) of section 30 of the Act

in respect of the first renewal of the licence;



(c)



by 120 during the period or periods of the licence

determined or extended in terms of paragraph (b) of

subsection (1) or paragraph (b) of subsection (2A) of



34

section 30 of the Act in respect of the second renewal of

the licence;

(d)



(ii)

13.2



by 150 during the subsequent period or periods of the

licence determined or extended in terms of paragraph (b)

of subsection (1), read with paragraph (b) of subsection

(2) or paragraph (b) or subsection (2A) of section 30 of

the Act in respect of the third renewal of the licence.



in the case of a Production Licence, by 1500.



The Company shall, no later than one Calendar Month after the end of each

Quarter, submit to the Minister and to the Permanent Secretary: Finance in

such form as may be specified by the Minister, a statement containing

particulars of(a)



the quantity of Crude Oil and Natural Gas Produced and Saved from

each Production Area during such Quarter;



(b)



the market value F.O.B. Namibia of the Crude Oil and the market value

of the Natural Gas on which royalty is payable;



(c)



the amount of royalty payable for that Quarter;



(d)



the calculation of such amount; and



(e)



any other matters which the Minister or the Permanent Secretary:

Finance may from time to time require.

Clause 14



Taxation

14.1



The Company shall pay annually, for the benefit of the State Revenue Fund, a

petroleum income tax referred to in section 5 of the Taxation Act and an

additional profits tax referred to in section 19 of that Act to be determined in

accordance with the provisions of that Act and the terms of clause 14.2 and

clause 14.3 of this Agreement.



14.2



The rate at which additional profits tax shall be levied on the Company under

section 21(b)(ii) of the Taxation Act in relation to the second accumulated net

cash position shall be (insert a percentage rate) per cent.



14.3



The rate at which additional profits tax shall be levied on the Company under

section 21 (c)(ii) of the Taxation Act in relation to the third accumulated net

cash position shall be (insert a percentage rate) per cent.



35

14.4



Subject to the terms of clauses 13 and 14.1, the provisions of the Taxation Act

and the provisions of sections 11 and 15 of the Petroleum Act, no other tax,

duty, fee or levy shall be imposed on the Company or its Affiliates in respect

of income derived from Petroleum Operations in terms of this Agreement or in

respect of any property held, money received, or thing done for any purpose

authorized or contemplated in terms of this Agreement other than

(a)



customs duties prescribed from time to time in or under the Customs

and Excise Act, 1988 (Act 91 of 1988) to the extent applicable;



(b)



general sales tax prescribed from time to time in or under the Value

Added Tax Act, 2000 (Act 10 of 2000) to the extent applicable;



(c)



taxes, duties, fees or levies for specific services rendered on request

or to the public or commercial enterprises generally;



(d)



rates, taxes or levies, not in excess of those generally applicable in

Namibia, payable to any municipality or other local government in

terms of or under the relevant legislation; and



(d) stamp duties, transfer fees and licence fees, not in excess of those

generally applicable in Namibia, payable to the Government or any body

established by or under any law.



Clause 14A

Optional Clause on Participation

In the event that the parties agree on participation by NAMCOR in the petroleum

operations, the terms of such participation shall be set out here



Clause 15

Valuation of Namibian Crude Oil

15.1



The Parties hereby agree that Namibian Crude Oil Produced and Saved from

the Licence Area shall be sold or otherwise disposed of at competitive

international market prices.



15.2



The market value of Namibian Crude Oil sold or otherwise disposed of in any

Quarter shall, for the purposes of this Agreement and section 7(5) of the

Taxation Act, be determined as follows:(a)



No later than 15 days after the end of each Quarter in which Crude Oil

has been Produced and Saved from any Production Area, an average

price (expressed in United States Dollars per Barrel, adjusted to the

Company's actual loading points for export from Namibia) for each

separate volume of Crude Oil of the same gravity, sulphur and metal



36

content, pour point, product yield and other relevant characteristics

("quality") shall be determined in respect of production during that

Quarter. It is understood that production from different Production

Areas may be of differing quality and that separate average prices may

accordingly be appropriate for any Quarter in respect of production

from each Production Area, in which event the overall price applicable

to production from the Licence Area shall be determined by taking the

arithmetic weighted average (weighted by volume) of all such prices

separately determined.

(b)



The prices aforesaid shall be determined on the basis of international

fair market value as follows(i)



In the event of 50 per cent or more of the total volume of sales

made by the Company during the Quarter of Namibian Crude Oil

of a given quality Produced and Saved being by third party arms

length sales transacted in foreign exchange (hereinafter referred

to as third party sales), the fair market valuation for all Crude Oil

of that quality will be taken to be the simple arithmetic average

price, calculated by dividing the total receipts from all such third

party sales by the total number of Barrels of Crude Oil sold in

such sales, actually realised in such third party sales.



(ii)



Subject to paragraph (c) of this clause, in the event of less than

50 per cent of the total volume of sales made by the Company

during the Quarter of Namibian Crude Oil of a given quality

Produced and Saved being by third party sales, the fair market

valuation for all Crude Oil of that quality will be determined by

the arithmetic weighted average of-



(a)



the simple arithmetic average price actually realised in

such third party sales during the Quarter of such Crude

Oil Produced and Saved, if any, calculated by dividing the

total receipts from all such sales by the total number of

Barrels of Crude Oil in such sales; and



(b)



the simple arithmetic average price, adjusted for

differences in quality, quantity, transportation costs,

delivery time, payment and other contract terms, at which

a selection, determined in accordance with the terms of

clause 15.3 by mutual agreement between the Parties, of

major competitive crude oils of generally similar quality to

that of Namibian Crude Oil Produced and Saved were

sold in international markets during the same period.



The arithmetic weighted average aforesaid will be determined by the

percentage volume of sales of Namibian Crude Oil by the Company referred

to in subparagraph (a) which are third party sales during the Quarter in



37

question and such sales referred to in subparagraph (b) which are not third

party sales during the Quarter in question.



(iii)



All prices aforesaid shall be adjusted to the Company's actual loading point for

export from Namibia.



(iv)



For purposes of this clause 15 third party sales of Namibian Crude Oil made

by the Company shall exclude



(c)



15.4



(a)



sales, whether direct or indirect through brokers or

otherwise, of any seller to any Affiliate of such seller;



(b)



crude oil exchanges, barter deals or restricted or distress transactions

and generally any crude oil transaction which is motivated in whole or

in part by considerations other than the usual economic incentives for

commercial arms length crude oil sales; and



(c)



government to government sales.



In the event of(i)



less than 50 per cent of the total volume of sales by the Company

during the Quarter of Namibian Crude Oil of a given quality Produced

and Saved being third party sales, the Minister may elect to accept

determination of the fair market valuation of all Crude Oil of that quality

based on third party arms length sales during that Quarter calculated in

accordance with the terms of paragraph (b)(i) of clause 15.2;



(ii)



the percentage volume of sales being less than 50 per cent as

aforesaid, the Company shall promptly notify the Minister and, provided

the Minister does not notify the Company of his election within seven

days of receipt of notification from the Company, the fair market

valuation of the aforesaid Crude Oil shall be determined in terms of

paragraph (b)(ii) of clause 15.2. 15.3 The selection of crude oils

referred to in paragraph (b)(ii)(b) of clause 15.2 will be determined by

mutual agreement between the Company and the Minister in advance

for each Calendar Year and, in making the selection, preference will be

given to those crude oils of similar quality to Namibian Crude Oil which

are produced in Africa, South America or the Middle East and are

regularly sold in the same markets as Namibian Crude Oil is normally

sold.



The Company shall(a)



be responsible for establishing the relevant average prices for

Namibian Crude Oil in accordance with this clause 15 and such prices



38

shall be subject to agreement by the Minister before they shall be

deemed to have been finally determined;

(b)



provide the Minister with all relevant information in order that he can

satisfy himself that the average price determined by the Company is

fair. If the Parties fail to agree on the average price for any Quarter

within 30 days following the end of such Quarter the calculation of the

relevant average price shall be referred to a sole expert appointed in

terms of clause 29.6 for determination in accordance with this clause

15 whose determination shall be final and binding, and until such

determination the last applied price shall be used.



15.5



During the first Calendar Year in which Crude Oil or Crude Oil as well as

Natural Gas are Produced and Saved from the Licence Area and delivered

under a Development Plan, the Parties shall meet in order to establish a

provisional selection of the major competitive crude oils and an appropriate

mechanism for the purposes of giving effect to paragraph (b)(ii) of clause

15.2. The selection of crude oils will be reviewed annually and modified if

necessary.



15.6



In the event of any dispute between the Company and the Minister concerning

the selection of the crude oils or generally about the manner in which the

prices are determined according to the terms of this clause 15 any matter in

dispute shall finally be resolved by a sole expert appointed in terms of clause

29.6.



Clause 16

Natural gas

16.1



Notwithstanding the provisions of clause 8 of this Agreement, the following

provisions shall apply to any Discovery of Natural Gas within the Licence

Area.



16.2 (a)



(b)



If in the course of its Exploration Operations the Company

makes a Discovery of Non-Associated Natural Gas, it shall

promptly inform the Minister by notice in writing of the Discovery.

The Minister and the Company shall meet as soon as possible

thereafter to discuss the commercial potential of such Discovery,

including but not limited to, the terms and conditions on which

such Gas might be developed, produced, processed and sold.

If as a result of the discussions and evaluation of test results the

Company determines that the Discovery is of potential

commercial interest, then the Company shall promptly undertake

a market feasibility study, which shall be based on relevant



39

economic criteria, including but not limited to, potential gas

markets, gas prices, long-term gas contracts, capital costs,

operating costs as well as any other relevant criteria. In

connection with such study the Company shall use its best

efforts to locate all potential commercial markets for such Gas.

Upon completion of the study the Company shall inform the

Commissioner of the results thereof and furnish him with a copy

of the study within 30 days of the said completion.

(c)



Subject to the other provisions of this clause 16, the Minister

hereby agrees to allow the Company to retain a Discovery Block

of potential commercial interest for the duration of the

Exploration Licence and any renewals thereof.



(d)



At any time after completion of the market feasibility study the

Company may determine that an appraisal programme for the

Discovery is warranted. In such case the Company shall

propose for approval an appraisal programme to the

Commissioner within a reasonable period of time thereafter,

which shall not exceed three months, unless the Commissioner

on good cause shown by the Company, allows a further period.

If the Company and the Commissioner cannot agree on the

appraisal programme, clause 5.9 shall apply mutatis mutandis.

Within three months of receiving approval from the

Commissioner the Company shall proceed to carry out such

appraisal programme in accordance with Good Oilfield

Practices.



(e)



If based on the market feasibility study the Company

determines that an appraisal programme is not warranted the

Company shall promptly inform the Commissioner of such

determination. Such notice to the Commissioner shall be

regarded as an application to the Minister, pursuant to section

39(3) of the Petroleum Act, for an exemption from the provisions

of section 39(2) of the Act. If the Commissioner disagrees with

such determination the Commissioner may cause an

independent evaluation to be carried out. Such evaluation shall

determine whether an appraisal programme is warranted. If the

evaluation determines that appraisal of the Discovery is

warranted then the Commissioner shall promptly notify the

Company of such determination. Such notification shall be

regarded as a decision by the Minister not to grant the Company

exemption under section 39(3) of the Petroleum Act. The

Company shall have 90 days from the date of receipt of such

notification to decide whether to proceed with an appraisal

programme in accordance with the provisions of clause 16.2(d).

If the Company decides not to proceed with such appraisal

programme the provisions of clause 8.11 shall apply mutatis

mutandis. If the Commissioner does not decide within 90 days of

the notification by the Company to cause an independent



40

evaluation to be carried out, the Minister hereby agrees

pursuant to section 39(3) of the Petroleum Act to grant the

Company an exemption, subject to the terms of clause 16.3,

from the provisions of section 39(2) of the said Act.

16.3



The Company shall reassess the commerciality of the Discovery twelve

months after the Discovery and thereafter every two years, based on the

same economic criteria as set forth in clause 16.2(b). The Company shall

within 30 days after the completion of each re-assessment inform the Minister

whether it determines the Discovery still to be of potential commercial interest.

A copy of any reassessment study shall be given to the Commissioner. If as a

result of the Company's reassessment under clause 16.3 the Company

determines that an appraisal programme for the Discovery is warranted the

Company shall propose an appraisal programme in accordance with the

provisions of clause 16.2(d).



16.4



If as a result of any reassessment in accordance with clause 16.3, the

Company determines that an appraisal programme is not warranted the

Company shall promptly inform the Commissioner of such determination. If

the Commissioner does not agree with such determination, the Commissioner

may cause an independent evaluation to be carried out. The provisions of

clause 16.2(e) regarding such evaluation and appraisal shall apply mutatis

mutandis.



16.5



If as a result of the Company's market feasibility study under clause 16.2(b),

reassessment under clause 16.3 or appraisal programme conducted pursuant

to clause 16.2(d), the Company determines that the Discovery is not of

potential commercial interest the provisions of clause 8.11 shall apply mutatis

mutandis.



16.6



If having carried out an appraisal programme pursuant to clause 16.2(d), the

Company determines that the Discovery is not of present commercial interest

but may become of commercial interest then, if the Commissioner agrees with

such determination, the Minister hereby agrees to allow the Company to

retain the Discovery Block for the duration of the Company's Exploration

Licence and any renewal thereof. If the Commissioner does not agree with

such determination, the Commissioner may cause an independent evaluation

to be carried out. Such evaluation shall determine whether the Discovery is of

commercial interest. If the evaluation determines that the Discovery is of

commercial interest then the provisions of clause 8.11 shall apply mutatis

mutandis.



16.7



For purposes of clause 16.2(a) the Company and the Minister shall undertake

to negotiate in good faith in order to reach an agreement on a method of

valuing such gas for purposes of royalty payable in terms of section 62 of the

Petroleum Act and of tax payable in terms of the Taxation Act.



16.8



The Company shall have the right to use Natural Gas for Petroleum

Operations, including, but not limited to, pressure maintenance in the oilfields

in the Licence Area.



41



16.9



Subject to the terms of clauses 16.8, 16.10 and 16.11, the Minister shall be

entitled to take at the downstream flange of the separator on the production

platform or, if no such separator exists, at a point of delivery mutually agreed

upon at the collecting and inlet system, and utilise without any payment to the

Company any Associated Natural Gas which is in excess of the quantity of

Natural Gas required for Petroleum Operations. The cost of taking and

utilizing such Associated Natural Gas by the Minister shall be borne solely by

the Government.



16.10 Subject to clause 16.11, and to the Company's requirements regarding such

short term flaring as may be necessary for testing or other operational

reasons, Associated Natural Gas produced from the Licence Area shall be reinjected in accordance with Good Oilfield Practices. Such Associated Natural

Gas which cannot for technical reasons be re-injected may be flared only with

approval in writing of the Minister previously obtained in every particular case,

which approval shall not be unreasonably withheld.

16.11 If there are reasonable grounds for believing that Natural Gas associated with

Crude Oil is in such quantities as to enable its commercial exploitation without

detriment to the efficient and effective recovery of Crude Oil from the

Petroleum Reservoir, the Company shall promptly inform the Minister by

written notice of the existence of such grounds and shall undertake a market

feasibility study to determine the commercial viability of such exploitation. If

such study reveals that exploitation may be commercially viable the Minister

and the Company shall meet as soon as possible after completion of such

study to decide whether in view of the available data the development,

production, processing and sale of such Gas by the Company is possible and,

if so, on what terms and conditions such Gas may be processed and sold. For

such purposes the provisions of clause 16.7 shall apply mutatis mutandis.

16.12 For the avoidance of doubt, notwithstanding the provisions of clause 7.1, the

Company shall not be obliged to relinquish the Discovery Block retained by

the Company pursuant to the provisions of this clause 16 for so long as it

holds an Exploration Licence hereunder.



Clause 17



Insurance and assets

17.1



Except to the extent insurance covering the same risk is provided by its

contractors or subcontractors, the Company shall effect and, at all times

during the term of this Agreement, obtain and maintain for and in relation to

Petroleum Operations insurance covering the following –

(a)



loss or damage to any or all of its assets being used in connection with

Petroleum Operations;



42



(b)



loss or damage for which the Company may be liable caused by

pollution in the course of or as a result of Petroleum Operations;



(c)



loss of property or damage suffered or bodily injury suffered by any

third party in the course of or as a result of Petroleum Operations for

which the Company may be liable;



(d)



any claim for which the Government may be liable relating to the loss

of property or damage suffered or bodily injury suffered by any third

party in the course of or as a result of Petroleum Operations in so far

as the Company is liable to indemnify the Government;



(e)



the cost of removing wrecks and cleaning up operations pursuant to

an accident in the course of or as a result of Petroleum Operations;



(f)



the Company's liability to its employees engaged in its Petroleum

Operations;



(f) any other risk of whatever nature as is customary to insure against in the

international petroleum industry in accordance with Good Oilfield

Practices.

17.2



The Company shall require its contractors to obtain and maintain insurance

against the risks referred to in paragraphs (a) to (g) of clause 17.1 relating

mutatis mutandis to such contractors.



17.3



The amount insured against, the type of insurance referred to in clause 17.1

and clause 17.2 and the terms of such insurance shall be determined in

accordance with Good Oilfield Practices.



17.4



The Company shall not within two years before the end of the term of this

Agreement remove from the Licence Area or sell any Immovable Assets

without the approval in writing of the Minister previously obtained in every

particular case.



17.5



Subject to any right the Company may have to occupy any Land in terms of

any other petroleum agreement and the terms of this clause, the Company

shall at the end of the term of this Agreement or on the date of any earlier

termination thereof or the earlier relinquishment or surrender of the Licence

Area or any part thereof, if by notice in writing requested to do so by the

Minister, deliver to the Government any plant, pipelines, pumps, machinery of

an immovable nature and any other Immovable Assets owned and used by

the Company in or in connection with the Licence Area.



17.6



The Company shall, if so requested by the Minister by notice in writing, sell to

the Minister at a price determined by mutual agreement, any moveable assets

of the Company used in or in connection with the Licence Area. In

determining the aforesaid price due regard shall be had to



43

(a)



the condition of the asset concerned;



(b)



the deductions already allowed under the Taxation Act to the Company

at the time of such determination.



17.7



The terms of clause 17.6 shall not apply to any assets which are required by

the Company for use by the Company in respect of Petroleum Operations in

terms of any other Exploration or Production Licence.



17.8



If the Minister decides to make the request referred to in clause 17.5 or 17.6,

he shall give notice referred to in clauses 17.5 and 17.6 to the Company

(a)

(b)



in the event of this Agreement being terminated by an effluxion of time,

not less than 180 days before such termination; or

in the event of this Agreement being terminated before such effluxion

or any earlier relinquishment or surrender of the Licence Area or any

part thereof, not later than 90 days from the date of such termination,

relinquishment or surrender, as the case may be.



Clause 18

Measurement of petroleum

18.1



The Company shall measure or weigh all Petroleum Produced and Saved

from each Licence Area by a method or methods customarily used in Good

Oilfield Practices and from time to time approved by the Minister.



18.2



The Company shall not make any alteration in the method or methods of

measurement or weighing used by it or any appliances used for that purpose

without the consent in writing of the Minister, and the Minister may in any case

require that no alteration shall be made save in the presence of a person

authorized by the Minister.



18.3



The Minister may from time to time direct that any weighing or measuring

appliance be tested or examined in such manner on such occasions or at

such intervals and by such means as may be specified in such direction.



Clause 19

Accounts and audits

19.1



The Company shall be responsible for maintaining at an address within

Namibia accounting records of all expenditure and receipts of its Petroleum



44

Operations under the Agreement in accordance with the accounting

procedure set out in Annexure 4 to this Agreement.

19.2



The Minister shall have the right to appoint from time to time an auditor who

shall have the right to audit for purposes of the application of the Taxation Act

or any other law and this Agreement the books and accounts of the Company

in respect of any year (not being a year, except in exceptional circumstances,

which ended more than two years before the year in which the audit is to be

carried out).



19.3



An auditor referred to in clause 19.2 shall have the right to audit the

Company's records in accordance with the terms of the said Annexure 4.



19.4



For purposes of any audit referred to in the said clause 19.2, the Company

shall make available to the auditor all such books, records, accounts and

other documents and information as may be reasonably required from the

Company by him.



19.5



Nothing in this clause contained shall be construed as prohibiting or limiting

the Minister or any officer in the public service to audit or cause to be audited

the books of the Company by virtue of any power conferred upon the Minister

or such officer by or under any law.



Clause 20



Records and reports and ownership of data

20.1



The Company shall in accordance with the provisions of the Petroleum Act at

all times while this Agreement is in force, maintain accurate and current

records of its Petroleum Operations in its Licence Area.



20.2



The Company shall save and keep for the duration of its Petroleum

Operations in Namibia a representative portion of each sample of cores and

cuttings taken from drilling Wells to be disposed of or forwarded to the

Minister in a manner directed by the Minister. All samples acquired by the

Company for its own purpose shall be considered available for inspection at

any reasonable time by the Minister. Any such samples which the Company

has kept for a period of 12 months, without receipt of instruction to forward

such samples to the Minister, may be disposed of by the Company at its

discretion, after not less than 30 days notice to the Minister.



20.3



Well logs, maps, magnetic tapes, cuts of core and cutting samples and all

other geological and geophysical information obtained by the Company in the

course of carrying out Petroleum Operations (hereinafter referred to as

Petroleum Data) are the property of the Government, and shall be submitted

to the Minister as soon as they are acquired or prepared and, except as



45

provided in clause 20.4, may not be published, reproduced or otherwise dealt

with without the consent of the Minister.

20.4



The Company may(a)



retain for use in Petroleum Operations copies of material constituting

Petroleum Data;



(b)



with the approval of the Minister, retain for use in Petroleum Operations

original material constituting Petroleum Data, provided that where such

material is capable of reproduction, copies have been supplied to the

Minister;



(c)



subject to the right conferred upon the Minister or any other person in

the Petroleum Act to inspect any samples or other original materials

constituting Petroleum Data, export such Petroleum Data for

processing or laboratory examination or analysis, provided that

representative samples equivalent in quality or, where such material is

capable of reproduction, copies of equivalent quality have first been

delivered to the Minister.



20.5



The Company shall keep the Minister currently advised of all major

developments taking place during the course of Petroleum Operations and

shall furnish the Minister with Petroleum Data and other available information,

reports, assessments, assessment studies and interpretations relating to the

Petroleum Operations as the Minister may require.



20.6



The Minister shall through his duly appointed representatives be entitled to

observe the Petroleum Operations carried out by the Company and at all

times to inspect all assets, records and data kept by the Company relating to

such operations.



20.7



Nothing in this clause contained shall be construed as requiring the Company

to disclose any of its proprietary technology or that of its Affiliates.



Clause 21



Confidentiality of data

21.1



All Petroleum Data, information and reports obtained or prepared by the

Company in terms of this Agreement shall, subject to clause 21.2 and so long

as they relate to any part of the Licence Area, be treated as confidential and

each of the Parties undertakes not to disclose such Data, information and



46

reports or the contents thereof to any other person without the consent in

writing of the other Party, provided that this clause shall not(a)



prevent disclosure by the Company for the purpose of its Petroleum

Operations to:(i)



an Affiliate;



(ii)



any bona fide intending assignee;



(iii)



any professional adviser who needs to have access to such

Petroleum Data, information and reports for the effective

performance of his obligations under his contract with the

Company;



(iv)



any bank or financial institution from which the Company is

seeking or obtaining finance or which is advising the Company

in connection with any issue of securities or the admission of

any securities to listing on any stock exchange;



(v)



a contractor of the Company;



(vi)



any stock exchange in order to comply with any securities law of

any country;



(vii)



any court of competent jurisdiction to comply with any order or

decree of such court.



(b)



prevent disclosure by the Company for the purpose of trading data with

third parties in accordance with normal petroleum industry practice

provided the Minister's consent (which shall not be unreasonably

withheld) has been previously applied for and obtained.



(c)



prevent the disclosure by the Minister or any officer in his Ministry to

the National Petroleum Corporation of Namibia (Proprietary) Ltd. in

terms of section 8 of the Petroleum Act; and to Professional advisers of

the Ministry or the National Petroleum Corporation of Namibia

(Proprietary) Ltd.; or



(d)



be construed as imposing on any Party any obligation in relation to

any Petroleum Data, information or reports which are, without

disclosure by such Party, generally known to the public.



21.2



Any Petroleum Data, information or reports disclosed by the Company to any

other person in terms of clause 21.1 shall be disclosed on terms which will

ensure that such Petroleum Data, information or reports are treated as

confidential by the recipient.



21.3



Any Petroleum Data, information and reports relating to the Licence Area

which, in the opinion of the Minister, might have significance in connection



47

with an exploration programme to be conducted by a third party in another

area may be disclosed by the Minister to such third party provided the

Minister has previously obtained approval to do so from the Company. Such

disclosure shall be subject to conditions agreed upon between the Minister

and the Company.

21.4



Any Petroleum Data, information and reports, including interpretations and

assessments, assessment studies, relating to any area which ceases to be

part of the Licence Area, whether as a result of relinquishment, surrender or

termination of a licence shall be treated as confidential by the Company,

provided however that this clause shall not:

(a)



21.5



Prevent disclosure by the Company for purpose of its Petroleum

Operations to:

(i)



an Affiliate;



(ii)



any bona fide intending assignee;



(iii)



any professional adviser who needs to have access to such

Petroleum Data, information and reports for the effective

performance of his obligations under his contract with the

Company;



(iv)



any bank or financial institution from which the Company is

seeking or obtaining finance or which is advising the Company

in connection with any issue of securities or the admission of

any securities to listing on any stock exchange;



(v)



a contractor of the Company;



(vi)



any stock exchange in order to comply with any securities law of

any country;



(vii)



any court of competent jurisdiction to comply with any order or

decree of such court.



(b)



prevent disclosure by the Company for the purpose of trading data with

third parties in accordance with normal petroleum industry practice

provided the Minister's consent (which shall not be unreasonably

withheld) has been previously applied for and obtained.



(c)



be construed as imposing on any party any obligation in relation to any

Petroleum Data, information or reports which are, without disclosure by

such party, generally known to the public.



Any Petroleum Data, information and reports, including all interpretations and

assessments, assessment studies based on such Petroleum Data,

information and reports relating to any area which ceases to be part of the

Licence Area whether as a result of relinquishment, surrender or termination



48

of a licence shall cease to be treated by the Minister as confidential from the

date on which such area ceases to be part of the Licence Area.

21.6



Notwithstanding the fact that Petroleum Data, information and reports relate to

an area held by the Company under Licence the Minister may, using

Petroleum Data,

information and reports supplied by the Company:

(a)



publish, on completion of any Well by the Company in the Licence

Area, the following summary information:

- location of the Well (co-ordinates of the Well, Block number and the

name of the sedimentary basin);

- total depth of the Well in metres;

- stratigraphic total depth of the Well identified by the Epoch (Jurassic,

Cretaceous etc.);

- Discovery of hydrocarbons, oil and/or gas or not (in case of Discovery

neither the depth nor the stratigraphy of the producing formation

will be given);

- number of tests performed including type of tests;

- maximum flow rate during testing, including size of choke;

- hydrocarbon types tested including gas oil ratio;

- water depth;

- general comments on further exploration in the basin etc.



(b)



21.7



five years after the completion of any survey or any Well in the Licence

Area by the Company, release to any person or persons any survey

data and all Well logs and all operational, technical and geological

reports relating to such survey or Well provided, however, that no

information of an interpretive nature shall be released.



Subject to the other provisions of this clause 21, the Minister may, during the

currency of an Exploration or Production Licence held by the Company,

request the consent of the Company to the disclosure to a third party of

Petroleum Data, information and reports other than those referred to in clause

21.6 for a purpose determined by the Minister and communicated to the

Company and such consent shall not be unreasonably withheld.



49

Clause 22



Employment and training

22.1



In carrying out Petroleum Operations the Company shall, to the maximum

extent possible, employ Namibian citizens having appropriate qualifications.



22.2



The Company may employ a person who is not a Namibian citizen in a post

only if the skills required in such post are not obtainable by recruitment of a

Namibian citizen and the Company may at any time be called upon by the

Minister to give satisfactory reasons for the continued employment of a noncitizen in any post.



22.3



(a) During each year of the Exploration Licence or any renewal thereof, the

Company shall spend a sum which is not less than a sum equal to .................

United States Dollars for the purpose of the training and education of

Namibians.

(b)



Of the said sum, 70 per cent shall be paid on the date of signature and

thereafter on each anniversary of such date into the Petroleum Training

and Education Fund. The principles governing the operation of the

training fund shall be as set out in Annexure 6.



(c)



Of the said sum, 30 per cent shall be expended by the Company on

attachments and in-house training of Namibian citizens in the field of

natural science, engineering, technology, accounting, economics and

law as related to oil and gas exploration and production to expose them

to petroleum industry practice and operations. The said 30 per cent

shall be expended in accordance with the principles set out in

Annexure 6.



22.4



The sum referred to in clause 22.3 shall be adjusted annually by dividing such

sum by the Inflation Factor.



22.5



If the Price Index ceases to be published the Price Index contemplated in

clause



22.4



shall for the purposes of this Agreement be such price index as may be

determined by mutual agreement between the parties to this Agreement.



22.6



Not later than six months after the grant of a Production Licence, the

Company shall, after consultation with the Minister or his duly authorized

representative, prepare and implement a programme for training and

employment of Namibian citizens in each phase and level of Petroleum

Operations and for the transfer of management and technical skills for the

safe and efficient conduct of Petroleum Operations.



50

Clause 23



Namibian goods and services

23.1



23.2



The Company shall(a)



use and purchase goods supplied, produced and manufactured in

Namibia whenever such goods can be obtained at prices in Namibia

which are competitive in international terms and are, in all substantive

respects, of a quality comparable with the quality of goods from outside

Namibia. The Company shall give preference to such supplier,

producer or manufacturer, unless it is able to show good cause to the

satisfaction of the Minister why such preference should not be given;



(b)



make maximum use of contractors in Namibia where services of

comparable standards with those obtained elsewhere are available

from such contractors at competitive prices and on competitive terms;



(c)



when it is necessary to import vehicles, machinery, plant or equipment

and any such vehicles, machinery, plant or equipment are not

purchased directly from a manufacturer, effect the purchase of the

items through traders operating in Namibia at competitive prices;



(d)



co-operate with companies in Namibia to enable them to develop skills

and technology to service the petroleum industry.



The Company shall ensure that a term similar to this clause is contained in its

contracts with contractors.



Clause 24



Domestic supply obligation

24.1



The Company may, at the Minister's choice, be required to sell Crude Oil in

Namibia in order to satisfy Namibia's domestic market requirements on a pro

rata basis with other producers in Namibia according to the quantity of Crude

Oil produced by each producer. The Minister shall give the Company at least

six months notice in advance of the said requirement, and the terms of the

supply in consequence of such requirement shall be on an annual basis.



24.2



The price for Crude Oil sold in terms of clause 24.1 shall be the price for that

oil determined in accordance with clause 15.



51

Clause 25

Unit development

25.1



If a Petroleum Reservoir is partly situated in the Production Area of the

Company and partly in the Production Area of any other holder of a

Production Licence, the Minister may, for purposes of securing the more

effective recovery of Petroleum from such Petroleum Reservoir, by notice in

writing addressed and delivered to the Company, direct the Company to enter

into an agreement in writing with such holder within such period as may be

specified in such notice in relation to the joint development and operation of

such Petroleum Reservoir and to submit

(a)



such agreement forthwith to the Minister for approval; and



(b)



if it is approved, a plan for the joint development and operation of the

Petroleum Reservoir in question.



25.2



If no plan is submitted within the period specified in the notice or within such

further period as the Minister may allow or, if such plan submitted is not

acceptable to the Minister, the Minister may cause to be prepared in

accordance with generally accepted practices in the international petroleum

industry and at the expense of the Company and the other holder concerned

a plan for such joint development and operation. In the preparation of such

plan the Minister shall take into consideration any presentations made by the

Company and such other holder.



25.3



If the Company does not agree with the proposed plan then either the

Company or the Minister may refer the matter for expert determination to an

expert appointed in terms of clause 29.6 which determination shall be final

except that the Company may within 60 days of such determination notify the

Minister that it elects to surrender its rights in the Discovery in lieu of

participation in the joint development.



Clause 26



Termination

26.1



This Agreement shall continue to be of full force and effect for such period as

the Company continues to hold an Exploration Licence or a Production

Licence to which this Agreement relates and shall, subject to the terms of

clause 8.14, be deemed to have been terminated, if for any reason the

Company ceases to hold such Exploration Licence or such Production

Licence.



52

26.2



26.3



The Minister may by notice in writing addressed and delivered to the

Company terminate this Agreement if

(a)



the Company or the company which has given a performance

guarantee in a form corresponding with the form contained in Annexure

5 is liquidated by an order of a competent court;



(b)



a resolution is passed by the Company to apply to a competent court

for the liquidation of the Company;



(c)



a resolution is passed by the company which has given the said

performance guarantee to apply to a competent court for the liquidation

of that Company;



(d)



the Company fails to comply with any final award made pursuant to

arbitration proceedings conducted in terms of clause 29, unless such

liquidation is ordered or such resolution is passed for the purpose of

amalgamation or reconstruction and the Company has, by notice in

writing addressed and delivered to the Minister, given the Minister at

least 90 days notice of such intended amalgamation and reconstruction

and the Minister has by notice in writing addressed and delivered to the

Company approved of such amalgamation or reconstruction.



Notwithstanding the termination of this Agreement any rights and obligations

of the parties respectively expressed to arise under this Agreement on the

termination thereof or any liability of any Party arising out of an earlier failure

to comply with any obligation in terms of this Agreement which must be

complied with by such Party shall be enforceable.



Clause 27



Vis major

27.1



Any failure by the Company to comply with any terms and conditions of this

Agreement shall not be regarded as a breach of this Agreement in so far as

the failure arises from vis major and if, as a result of vis major, the compliance

by the Company with any of the terms and conditions of this Agreement is

delayed beyond the period fixed or allowed for its compliance the period of the

delay shall be added to the period so fixed or allowed.



27.2



When the Company wishes to invoke the terms of clause 27.1 it shall

promptly notify the Minister in writing of the occurrence of conditions of vis

major and shall take all reasonable steps to remove the cause thereof and to

mitigate the consequences. The Company shall promptly notify the Minister

as soon as conditions of vis major no longer prevent the Company from

carrying out its obligations and following such notice shall resume Petroleum

Operations as soon as reasonably practicable.



53



27.3



In this clause the expression "vis major" means any hostility, insurrections,

riots, civil commotions, strikes, lockouts, labour disturbances, acts of God,

unavoidable accidents, war and acts of war declared or undeclared beyond

the control of the Company.



Clause 28

Assignation

28.1



The Company may not assign to any person, firm, company or corporation

which is not a party to this Agreement any of its rights, privileges, duties or

obligations under this Agreement without the approval of the Minister

previously obtained in every particular case.



28.2



The Company shall not be debarred from assigning in writing its rights,

privileges, duties or obligations under this Agreement to an Affiliate, provided

that no such assignation shall in any way relieve the Company of any of its

obligations under this Agreement.



Clause 29



Arbitration

29.1



Any dispute arising between the parties relating to the construction, meaning

or effect of this Agreement or the rights or liabilities of the parties in terms of

this Agreement shall be resolved amicably by negotiations.



29.2



If the Minister and the Company fail to resolve by way of negotiation a dispute

referred to in clause 29.1, the Minister and the Company hereby agree to

submit such dispute to arbitration for final settlement in accordance with the

terms of clause 29.3.



29.3



Any unresolved dispute referred to in clause 29.2 shall be finally settled by

arbitration in accordance with the Arbitration Rules of the United Nations

Commission on International Trade Law in force on the date on which this

Agreement is signed. Such arbitration, unless the parties otherwise agree,

shall take place in London, England. As far as practicable the Minister and the

Company shall continue to implement this Agreement during the period while

the arbitration is pending and during the arbitration.



29.4



An arbitration referred to in clause 29.3 shall be undertaken by three

arbitrators of whom-



54



(a)



one each shall be appointed by the Minister and the Company; and



(b)



one shall be appointed by the two arbitrators appointed under

paragraph (a).



If the Minister and the Company fail to appoint an arbitrator within 30 days

after receipt of a written request to do so, such arbitrators shall at the request

of the other Party, if the Parties do not otherwise agree, be appointed in

accordance with the aforesaid Arbitration Rules. If the first two arbitrators,

appointed as aforesaid, fail to agree on a third arbitrator within 30 days

following the appointment of the second arbitrator, the third arbitrator shall, if

the Parties do not otherwise agree, be appointed at the request of either Party

in accordance with the aforesaid Arbitration Rules. If an arbitrator fails or is

unable to act, his successor will be appointed in the same manner as the

arbitrator whom he succeeds.

29.5



A decision of a majority of the arbitrators shall be final and binding upon the

Parties and the award rendered shall be final and conclusive. The arbitrators

shall state in writing the reasons on which their decision was based.

Judgment on the award rendered may be entered in any court having

jurisdiction or application may be made in such court for a judicial acceptance

of the award and for enforcement, as the case may be.



29.6



Any matter in dispute between the parties under clauses 5.9, 9.7, 15.6, 16

and



25.3



shall be referred for determination by a sole expert to be appointed by

agreement between the parties hereto and failing such agreement by the

President of the British Institute of Petroleum.



Clause 30



Performance guarantee

30.1



The Company shall secure from its holding company or any Affiliate which the

Minister has by notice in writing accepted an unconditional guarantee in terms

whereof that company guarantees, in a form corresponding with the form

contained in Annexure 5, the due performance by the Company of all its

obligations under the Petroleum Act and the Taxation Act and in terms of this

Agreement and the licenses to which it relates.



30.2



The guarantee referred to in clause 30.1 shall be executed before the

signature of this Agreement and shall be delivered to the Minister on such

signature.



55

Clause 31



Entire agreement and amendments

31.1



This Agreement embodies the entire agreement and understanding between

the Company and the Minister relative to the subject matter hereof, and

supersedes and replaces any provisions on the same subject in any other

agreement between the parties, whether written or oral, prior to the date of

this Agreement.



31.2



This Agreement may not be amended, modified, varied or supplemented,

except by an instrument in writing signed by the Company and the Minister.



Clause 32

Waiver

32.1



The performance of any condition or obligation to be performed under this

Agreement shall not be deemed to have been waived or postponed, except by

an instrument in writing signed by the Party which is claimed to have granted

such waiver or postponement.



32.2



No waiver by any Party of any one or more obligations or defaults by any

other party in the performance of this Agreement shall operate or be

construed as a waiver of any other obligations or defaults whether of a like or

a different character.



Clause 33

Applicable law

This Agreement, the interpretation thereof and any dispute arising thereunder

or associated therewith shall be governed by and determined in accordance

with the laws of the Republic of Namibia.



Clause 34

Notices



56

34.1



Any document, notice or other communication required to be given or

delivered to the Company by the Minister or any officer authorized thereto

shall be deemed to have been so given or delivered(a)



if delivered to the General Manager or Deputy General Manager

referred to in clause 12.4 or to the public officer of the Company or

operator referred to in paragraph (b) of clause 12.5; or



(b)



if left with some adult person apparently residing at or occupying or

employed at the registered address of the Company or such operator;

or



(c)



if dispatched by registered post addressed to(i) the Company or operator at the following address:



--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(insert postal address of the Company or operator); or

(ii)



the General Manager or Deputy General Manager referred to in clause

12.4 to the address referred to in clause 12.4; or



(iii)



the public officer at its or his last known address; or



(d)



if transmitted by means of a facsimile transmission to the person

concerned at the registered office of the Company.



34.2



Any document, notice or other communication referred to in clause 34.1 which

has been given or delivered in the manner contemplated in paragraph (c) of

that clause shall, unless the contrary is proved, be deemed to have been

received by the person to whom it was addressed at the time when it would, in

the ordinary course of post have arrived at the place to which it was

addressed.



34.3



Any document, notice or other communication required to be given or

delivered to

(a)



(b)



the Minister by the Company shall be deemed to have been so given

or delivered if despatched by registered post addressed to the Minister

at the following address:

Ministry of Mines and Energy

Private Bag 13297

Windhoek, Namibia

the authorized officer by the Company shall be deemed to have been

so given or delivered if despatched by registered post addressed to the

officer at the following address:



57



Ministry of Mines and Energy

Private Bag 13297

Windhoek, Namibia



(c)



the Minister of Finance by the Company shall be deemed to have been

so given or delivered if despatched by registered post addressed to the

Minister of Finance at the following address:

Ministry of Finance

Private Bag 13295

Windhoek, Namibia

*******************



Clause 35

Customs Exemptions

35.1



Imports by Company. Company and its subcontractors shall be permitted to

import all items required by Company in respect of Petroleum Operations, and

all of such items and Company and its subcontractors shall be exempt from

customs duties prescribed from time to time in or under the Customs and

Excise Act, 1998 (Act 20 of 1998) in respect of such importation. Without

limiting the foregoing, it is agreed and understood that such exemption applies

to all materials, equipment, supplies, and other items including machinery,

vehicles, spare parts, tires, aircraft, boats, chemicals, foodstuffs and other

movable and/or consumable items for Petroleum Operations.



35.2



Imports by Employees. Each expatriate employee of Company and its

subcontractors shall be permitted to import and shall be exempt from all

customs duties with respect to the importation of household goods and other

personal items, including one automobile every three (3) years; provided,

however, that such items are imported for the sole use of the employee and

the employee’s family; and provided, further, that no such item imported by

the employee shall be resold by such employee in a member country of the

Southern Africa Customs Union except in accordance with any applicable

laws.



35.3



Disposal of Imported Items.

Any item imported by Company or its

subcontractors may be sold in Namibia upon payment of applicable customs

duties, if any, on the price of the item at the time of such sale, or may be

exported pursuant to clause 35.4. Items imported by Company or its

subcontractors, which are sold or saleable only for scrap value may be sold

as such, or otherwise be properly disposed of, with payment of customs

duties. In the event of a sale by Company or its subcontractors under this

clause 35.4, Company or its subcontractor shall be entitled to retain and



58

repatriate in a convertible currency the proceeds therefrom as provided in this

Agreement.

35.4



Exports.

(a)



Any of the items imported into Namibia by Company, its subcontractors

or their employees, which has not become the property of the

Government pursuant to the provisions hereof may be exported by the

importing party at any time without payment of any customs duties or

other charges.



(b)



Company shall be free to export any and all Petroleum to which it is

entitled pursuant to this Agreement and all Petroleum exported by

Company shall be exempt from all charges in respect of exports of

Petroleum.



Clause 36

Exchange Rights

36.1



Registration. Funds transferred into Namibia for local expenditures, funds

utilized abroad to purchase goods and services for Petroleum Operations,

charges for services performed by Company or its subcontractors outside

Namibia as part of Petroleum Operations and all other expenditures and

investments made pursuant to this Agreement shall be filed by Company’s

Namibian bankers with the Bank of Namibia which shall issue appropriate

written confirmation to Company.



36.2



Funds for Local Expenditures. Funds required by Company and foreign

subcontractors to meet local expenditures shall be imported into Namibia in

freely convertible currencies, transferred to local banks and converted to

Namibia currency. If it or they so desire, Company and/or its foreign

subcontractors may borrow Namibia currency from local banks in order to

meet local expenditures.



36.3



Foreign Exchange. Purchase or sale of foreign exchange shall be affected at

the exchange rate most favorable to Company, as quoted by the Bank of

Namibia.



36.4



Foreign Bank Accounts. Company is hereby authorized to open, maintain,

control and operate accounts in any currency in foreign banks outside

Namibia, to have full and complete control of such accounts, and to retain

abroad and freely dispose of any funds in such accounts. Among other

reasons, withdrawals may be made for payments for goods and services

acquired abroad, for payments to subcontractors engaged in Petroleum

Operations, and for transferring funds to local banks in Namibia to meet local

expenditures, all in connection with Company’s activities under this

Agreement.



59

36.5



36.6



Exchange Rights. Company is hereby granted the following exchange rights:

(a)



To provide in freely convertible foreign currencies all funds needed to

conduct Petroleum Operations;



(b)



To hold such funds abroad with no obligation to transfer funds or

assets to Namibia except such funds as are necessary to meet

Company’s need for Namibia currency, in the case that Company does

not borrow such funds from local banks;



(c)



To freely dispose of any funds held outside Namibia;



(d)



To export any and all Petroleum to which it is entitled pursuant to this

Agreement;



(e)



To retain abroad and freely dispose of all proceeds received outside

from the export, sale or exchange of Petroleum with no obligation to

remit such export proceeds except as may be needed to meet

Company’s expenses in Namibia, in the case that Company does not

borrow funds from local banks for that purpose;



(f)



To remit and/or repatriate abroad and freely dispose of all (i) proceeds

received within Namibia from the sale or exchange of Petroleum within

Namibia, (ii) proceeds received from other operations and activities

within Namibia, and (iii) any other funds accruing to Company within

Namibia, including, without limiting the generality of the foregoing, all

profits and or dividends; such remittance and/or repatriation to be

accomplished in accordance with procedures of any exchange control

Laws which may be in force, but which shall in no event prevent or

delay such remittance and/or repatriation;



(g)



To pay its subcontractors and employees in foreign currencies, either

inside or outside of Namibia. Expatriate employees shall be required to

bring into Namibia through local banks and convert into Namibia

currency only such foreign exchange as is required to meet their

personal living expenses. Such employees shall be authorized to remit

and/or repatriate any personal funds or proceeds received in Namibia

from the sale of personal belongings; and



(h)



To maintain a special account or accounts for non-Namibian funds in a

local bank or banks chosen by Company from which funds can be

disbursed for the purpose of making any payments required in

conducting Petroleum Operations, or making payments to, or for the

benefit of, Company’s employees, whether local or expatriate.



Payments under this Agreement. Any payments made by any Party to

another Party shall be made in U.S. Dollars unless the Parties mutually agree

upon another currency.



60

36.7



Subcontractors. Company’s subcontractors and their employees shall have

the same rights as Company and its employees under this clause 36.



36.8



Implementation. The Company acknowledges that the provisions of this

clause 36 are granted in accordance with and subject to the Exchange

Control Laws applicable in Namibia, and shall only be implemented by

the parties in accordance with such laws. The Company shall comply with the

prescribed formalities and procedures and engage the services of an

authorized dealer in foreign exchange to assist it in facilitating and

implementing the provisions of this clause 36.



61

IN WITNESS whereof this Agreement has been duly signed at WINDHOEK on this

…….day of …………. 20…, by and between the GOVERNMENT OF THE

REPUBLIC OF NAMIBIA, as represented by the …………………………, the

Minister of Mines and Energy, and ABC Company (Pty) Ltd as represented

by……………., duly authorized by the board of directors of the ABC Company (Pty)

Ltd in terms of a resolution passed on the ………. day of ……………….20..



----------------------------------------------For the Government of the Republic of Namibia

MINISTER OF MINES AND ENERGY

Witnesses:



1. -------------------------



2. -------------------------



----------------------------------------------For ABC Company (PTY) LTD

Representative



Witnesses:



1. ------------------------



2. ------------------------



62

ANNEXURE 1



DESCRIPTION OF LICENCE AREA

(Insert description of Licence Area)

**************************



63

ANNEXURE 2

MAP OF LICENCE AREA

(Annex map of Licence Area)

************************



64

ANNEXURE 3



BANK GUARANTEE

in respect of

INITIAL EXPLORATION PERIOD

(Clause 4.7)

WHEREAS the Company is, under the Petroleum Agreement dated the ........ day

of ...................... 20.... (hereinafter referred to as "the Agreement") entered into by

and between the Government of Namibia (hereinafter referred to as "the

Government") and the ABC Company Ltd. (hereinafter referred to as "the

Company") requiredI.



to perform before the expiration of the Initial Exploration Period defined in

clause 1 of the Agreement certain minimum exploration work obligations

(hereinafter referred to as "the minimum initial exploration work obligation");



II.



to incur in the performance of the minimum initial exploration work

obligation, minimum exploration expenditure in an amount of .................. in

constant 199........ price terms (Insert amount which corresponds with the

amount of the minimum exploration expenditure specified in paragraph

4.1.(a)(ii) of the Agreement) (hereinafter referred to as "minimum initial

exploration expenditure");



NOW, THEREFORE we, ......................... (insert name of Bank) of .............. (insert

principal place of business of Bank), hereby guarantee, subject to the provisos set

out below, that on the first business day following the thirtieth day after receipt from

the

Government of a written demand signed by the Minister of Mines and Energy made

in accordance with the terms hereof and stating that the Company hasA.

failed to incur the minimum initial exploration expenditure in respect of the

initial exploration work obligation;

B.



actually incurred expenditure on the initial exploration work obligation which

amounts to an amount (to be specified in constant 199....... price terms in

constant 199....... price terms in such written demand) which is less than the

minimum initial exploration expenditure;



C.



consequently, become liable to pay a shortfall of expenditure expressed in

constant 199......... price terms equal to the difference between the amount

referred to in paragraph A above and the amount specified in paragraph B

above; and



D.



failed to pay the Minister of Mines and Energy an amount equal to the

shortfall referred to in paragraph C above, as adjusted by multiplying such

amount by a figure obtained by dividing the Price Index, as reported for the

first time in the monthly publication "International Financial Statistics" of the



65

International Monetary Fund in the section "Prices, Production,

Employment", for the Calendar Month immediately preceding the day of

receipt of the aforesaid written demand, by such Price Index as so reported

for the Calendar Month in which the Agreement has been signed,

we shall pay to the Minister of Mines and Energy the amount referred to in

paragraph D above.

PROVIDED THAT1.



our liability hereunder shall be limited to paying an amount not exceeding

............................. United States Dollars (insert an amount numerically

greater than the minimum initial exploration expenditure, based on an

estimated inflation element for the Initial Exploration Period) in respect of the

initial exploration work obligation;



2.



our liability referred to in paragraph 1 shall be reduced at the end of every

Quarter by the amount of the actual expenditure incurred by the Company

and stated in a certificate signed by the Company and the Minister of Mines

and Energy, which reduction shall take effect as from the date of receipt of

such certificate by us;



3.



this guarantee shall come into effect as from the date of our receipt of a

certificate signed by the Company and the Minister of Mines and Energy

stating that the Agreement has been signed by all the parties thereto;



4.



this guarantee may not be ceded, assigned or transferred to any other

person;



5.



this guarantee shall expire on the date of(1)



the payment by us of all the amounts guaranteed hereunder;

or



(2)



the receipt by us of a certificate in accordance with paragraph

2 above, whereby expenditure actually incurred in

performance of the initial exploration work obligation when

added to the aggregate amount of expenditure actually

incurred in performance of the initial exploration work

obligation, all such expenditures being adjusted to constant

199..... price terms, and stated in such certificate previously

received by us shall equal or exceed the minimum initial

exploration expenditure;



(3)



the one hundred and twentieth day after the end of the Initial

Exploration Period as defined in clause 1 of the Agreement,

whichever is the earliest date, whereafter we shall be under no

liability whatsoever under this guarantee;



66

6.



any certificate required to be provided by the Company pursuant to

paragraphs 2 and 3 above must be signed by a duly authorised

representative of the Company;



7.



any demand, certificate and notification must be sent to us at the above

address.



SIGNED at ......................... on this .......................... day of ..................... 20..

--------------------------XYZ BANK



ooOoo



67

BANK GUARANTEE

in respect of

FIRST RENEWAL EXPLORATION PERIOD

(Clause 4.7)



WHEREAS the Company is, under the Petroleum Agreement dated the ........ day

of ...................... 20... (hereinafter referred to as "the Agreement") entered into by

and between the Government of Namibia (hereinafter referred to as "the

Government") and the ABC Company Ltd. (hereinafter referred to as "the

Company") requiredI.



to perform before the expiration of the First Renewal Exploration Period

defined in clause 1 of the Agreement certain minimum exploration work

obligations (hereinafter referred to as "the minimum first renewal exploration

work obligation");



II.



to incur in the performance of the minimum first renewal exploration work

obligation, minimum exploration expenditure in an amount of ................... in

constant 199....... price terms (Insert amount which corresponds with the

amount of the minimum exploration expenditure specified in paragraph

4.1.(b)(ii) of the Agreement) (hereinafter referred to as "minimum first

renewal exploration expenditure");



NOW, THEREFORE we, ......................... (insert name of Bank) of .............. (insert

principal place of business of Bank), hereby guarantee, subject to the provisos set

out below, that on the first business day following the thirtieth day after receipt from

the Government of a written demand signed by the Minister of Mines and Energy

made in accordance with the terms hereof and stating that the Company hasA.



failed to incur the minimum first renewal exploration expenditure in respect

of the first renewal exploration work obligation;



B.



actually incurred expenditure on the first renewal exploration work obligation

which amounts to an amount (to be specified in constant 199........ price

terms in such written demand) which is less than the minimum first renewal

exploration expenditure;



C.



consequently, become liable to pay a shortfall of expenditure expressed in

constant 199......... price terms equal to the difference between the amount

referred to in paragraph A above and the amount specified in paragraph B

above; and



D.



failed to pay the Minister of Mines and Energy an amount equal to the

shortfall referred to in paragraph C above, as adjusted by multiplying such

amount by a figure obtained by dividing the Price Index, as reported for the

first time in the monthly publication "International Financial Statistics" of the

International Monetary Fund in the section "Prices, Production,

Employment", for the Calendar Month immediately preceding the day of

receipt of the aforesaid written demand, by such Price Index as so reported

for the Calendar Month in which the Agreement has been signed, we shall



68

pay to the Minister of Mines and Energy the amount referred to in paragraph

D above.

PROVIDED THAT –

1.



our liability hereunder shall be limited to paying an amount not exceeding

............................. United States Dollars (insert an amount numerically

greater than the minimum first renewal exploration expenditure, based on

inflation during the Initial Exploration Period and an estimated inflation

element for the First Renewal Exploration Period) in respect of the first

renewal exploration work obligation;



2.



our liability referred to in paragraph 1 shall be reduced at the end of every

Quarter by the amount of the actual expenditure incurred by the Company

and stated in a certificate signed by the Company and the Minister of Mines

and Energy, which reduction shall take effect as from the date of receipt of

such certificate by us;



3.



this guarantee shall come into effect as from the date of our receipt of a

certificate signed by the Company and the Minister of Mines and Energy

stating that the Minister has granted the Company's application for the first

renewal of the licence issued under the Agreement;



4.



this guarantee may not be ceded, assigned or transferred to any other

person;



5.



this guarantee shall expire on the date of(1)



the payment by us of all the amounts guaranteed hereunder; or



(2)



the receipt by us of a certificate in accordance with paragraph 2

above, whereby the expenditure actually incurred in performance of

the first renewal exploration work obligation and stated therein, when

added to the aggregate of –



(3)



(a)



the sum by which expenditure actually incurred in performance

of the initial exploration work obligation, which exceeded the

minimum initial exploration expenditure and which was carried

over to the First Renewal Period as contemplated in clause 4.5

of the Agreement and stated as such in a certificate signed by

the Company and the Minister of Mines and Energy; and



(b)



the expenditure actually incurred in performance of the first

renewal exploration work obligation and stated in such

certificate previously received by us, all such expenditures

being adjusted to constant 199....... price terms, shall equal or

exceed the minimum first renewal exploration expenditure;



the one hundred and twentieth day after the end of the First Renewal

Exploration Period as defined in clause 1 of the Agreement,



69

whichever is the earliest date, whereafter we shall be under no

liability whatsoever under this guarantee;

6.



any certificate required to be provided by the Company pursuant to

paragraphs 2, 3 and 5(2)(a) above must be signed by a duly authorised

representative of the Company;



7.



any demand, certificate and notification must be sent to us at the above

address.



SIGNED at ..............on this........day of ............. 20..

-----------------XYZ BANK

OoOoo



70

BANK GUARANTEE

in respect of

SECOND RENEWAL EXPLORATION PERIOD

(Clause 4.7)



WHEREAS the Company is, under the Petroleum Agreement dated the ........ day

of ...................... 20... (hereinafter referred to as "the Agreement") entered into by

and between the Government of Namibia (hereinafter referred to as "the

Government") and the ABC Company Ltd. (hereinafter referred to as "the

Company") requiredI.



to perform before the expiration of the First Renewal Exploration Period

defined in clause 1 of the Agreement certain minimum exploration work

obligations (hereinafter referred to as "the minimum first renewal exploration

work obligation");



II.



to incur in the performance of the minimum first renewal exploration work

obligation, minimum exploration expenditure in an amount of ................... in

constant 199....... price terms (Insert amount which corresponds with the

amount of the minimum exploration expenditure specified in paragraph

4.1.(b)(ii) of the Agreement) (hereinafter referred to as "minimum first

renewal exploration expenditure");



NOW, THEREFORE we, ......................... (insert name of Bank) of .............. (insert

principal place of business of Bank), hereby guarantee, subject to the provisos set

out below, that on the first business day following the thirtieth day after receipt from

the Government of a written demand signed by the Minister of Mines and Energy

made in accordance with the terms hereof and stating that the Company hasA.



failed to incur the minimum first renewal exploration expenditure in respect

of the first renewal exploration work obligation;



B.



actually incurred expenditure on the first renewal exploration work obligation

which amounts to an amount (to be specified in constant 199........ price

terms in such written demand) which is less than the minimum first renewal

exploration expenditure;

consequently, become liable to pay a shortfall of expenditure expressed in

constant 199......... price terms equal to the difference between the amount

referred to in paragraph A above and the amount specified in paragraph B

above; and



C.



D.



failed to pay the Minister of Mines and Energy an amount equal to the

shortfall referred to in paragraph C above, as adjusted by multiplying such

amount by a figure obtained by dividing the Price Index, as reported for the

first time in the monthly publication "International Financial Statistics" of the

International Monetary Fund in the section "Prices, Production,

Employment", for the Calendar Month immediately preceding the day of

receipt of the aforesaid written demand, by such Price Index as so reported

for the Calendar Month in which the Agreement has been signed, we shall



71

pay to the Minister of Mines and Energy the amount referred to in paragraph

D above.

PROVIDED THAT –

1.



our liability hereunder shall be limited to paying an amount not exceeding

............................. United States Dollars (insert an amount numerically

greater than the minimum first renewal exploration expenditure, based on

inflation during the Initial Exploration Period and an estimated inflation

element for the First Renewal Exploration Period) in respect of the first

renewal exploration work obligation;



2.



our liability referred to in paragraph 1 shall be reduced at the end of every

Quarter by the amount of the actual expenditure incurred by the Company

and stated in a certificate signed by the Company and the Minister of Mines

and Energy, which reduction shall take effect as from the date of receipt of

such certificate by us;



3.



this guarantee shall come into effect as from the date of our receipt of a

certificate signed by the Company and the Minister of Mines and Energy

stating that the Minister has granted the Company's application for the first

renewal of the licence issued under the Agreement;



4.



this guarantee may not be ceded, assigned or transferred to any other

person;



5.



this guarantee shall expire on the date of(1)



the payment by us of all the amounts guaranteed hereunder; or



(2)



the receipt by us of a certificate in accordance with paragraph 2

above, whereby the expenditure actually incurred in performance of

the first renewal exploration work obligation and stated therein, when

added to the aggregate of –



(3)



(a)



the sum by which expenditure actually incurred in performance

of the initial exploration work obligation, which exceeded the

minimum initial exploration expenditure and which was carried

over to the First Renewal Period as contemplated in clause 4.5

of the Agreement and stated as such in a certificate signed by

the Company and the Minister of Mines and Energy; and



(b)



the expenditure actually incurred in performance of the first

renewal exploration work obligation and stated in such

certificate previously received by us, all such expenditures

being adjusted to constant 199....... price terms, shall equal or

exceed the minimum first renewal exploration expenditure;



the one hundred and twentieth day after the end of the First Renewal

Exploration Period as defined in clause 1 of the Agreement,



72

whichever is the earliest date, whereafter we shall be under no

liability whatsoever under this guarantee;

6.



any certificate required to be provided by the Company pursuant to

paragraphs 2, 3 and 5(2)(a) above must be signed by a duly authorised

representative of the Company;



7.



any demand, certificate and notification must be sent to us at the above

address.



SIGNED at ..............on this........day of ............. 20.. .

-----------------XYZ BANK



73

ANNEXURE 4



ACCOUNTING PROCEDURE

(Clause 19)

1. Definitions

In this Annexure, unless the context indicates otherwise any word or

expression to which a meaning has been assigned in the Petroleum

Agreement dated the ...... day of ...................... 20.. (hereinafter referred to

as "the Agreement") entered into between the Government of Namibia

(hereinafter referred to as "the Government") and the ABC Company Ltd.

(hereinafter referred to as "the Company") and in the Taxation Act shall

have that meaning.

2. Purpose of accounting procedure

The purpose of the Accounting Procedure contained in this Annexure is to

establish principles and procedures of accounting which will enable the

Minister of Finance to monitor the Company's expenditures, production and

receipts so that the Government's entitlement to petroleum income tax and

additional profits tax under the Taxation Act and to royalty under section 62,

or annual charges under section 67, of the Petroleum Act can be accurately

determined.

3. Responsibility for maintaining accounts

3.1



3.2



Each of the entities constituting the Company shall be responsible for

maintaining their own accounting records in order to comply fully with

all legal requirements and to support all fiscal returns or any other

accounting reports required by any governmental authority in relation

to the Petroleum Operations.



The operator for and on behalf of all entities constituting the Company shall

maintain the accounts of the Petroleum Operations under the Agreement in

such a manner so as to permit each such entity to fulfill the obligations

under this Agreement.



4. Documentation required to be submitted by the Company

4.1



Within 90 days of the date on which the Agreement has been signed

the Minister shall submit, to discuss and agree with the Company, a

proposed outline of charts of accounts, operating records and reports,

which outline shall reflect each of the categories and sub-categories

of expenditures specified in paragraph 8 and shall be in accordance

with generally accepted and recognised accounting systems and

consistent with normal practice for joint venture operations of the

international petroleum industry.



74

4.2



Within 180 days after the date on which the Agreement has been

signed the Company shall provide the Minister with a detailed

description of the accounting systems and procedures which it will

develop and maintain for use under the Agreement. The Company

shall inform the Minister subsequently of any significant changes it

makes to such systems and procedures.



4.3



Notwithstanding the generality of the foregoing, the Company shall

submit the following statements to the Minister (a)



a production statement referred to in paragraph 11 of this

Annexure;



(b)



a value of production and pricing statement referred to in

paragraph 12 of this Annexure.



(c)



a statement of expenditure and receipts referred to in

paragraph 13 of this Annexure;



(d)



an additional profits tax statement referred to in paragraph 14

of this Annexure;



(e)



an end-of-year statement referred to in paragraph 15 of this

Annexure;



(f)



a budget statement referred to in paragraph 16 of this

Annexure;

a local procurement statement referred to in paragraph 17 of

this Annexure.



(g)



(h)



4.4



a decommissioning statement referred to in paragraph 18 of

this Annexure



All reports and statements shall be prepared in accordance with the

Agreement, the laws of Namibia and, where there are no relevant provisions

in either of these, in accordance with normal practice of the international

petroleum industry.



5. Units, of account language and exchange rates

5.1



Accounts shall be maintained in Namibian Dollars. Metric units and Barrels

shall be employed for measurements required under the Agreement and this

Annexure. The language employed shall be English. When necessary for

clarification the Company shall also maintain accounts and records in other

languages, units of measurement and currencies.



5.2



It is the intention of the parties that neither the Government nor the

Company should experience an exchange gain or loss at the expense of or

to the benefit of the other. However, should there be any gain or loss from

exchange of currency, it will be credited or charged to the accounts.



75

5.3



Amounts received and expenditures made in Namibian Dollars or in United

States Dollars shall be converted from Namibian Dollars into United States

Dollars or from United States Dollars into Namibian Dollars on the basis of

the monthly average of the mean of the daily official buying and selling

exchange rates between the currencies in question as published by the

Bank of Namibia for the Calendar Month in which the relevant transaction

occurred.



5.4



Amounts received and expenditures made in currencies other than United

States Dollars and Namibian Dollars shall be converted into United States

Dollars or Namibian Dollars on the basis of the monthly average of the mean

of the daily

buying and selling exchange rates between the currencies in question as

published by the Bank of Namibia or, failing such publication, as published

in the Financial Times (London edition) for the Calendar Month in which the

relevant transaction occurred.



5.5



The average monthly exchange rates used in accordance with paragraphs

5.3 and



5.4



shall be identified in the relevant statements required under paragraph 4.3.



6. Payments

6.1



Unless otherwise specified all sums due under the Agreement shall be paid

within 30 days following the end of the month in which the obligation to

make such payment occurs and shall be paid through a bank designated by

each Party.



6.2



All sums due by one Party to the other under the Agreement during any

Quarter shall for each day during which such sums are overdue during such

Quarter, bear interest compounded daily at an annual rate equal to 15%.



7. Audit and inspection rights of Government

7.1



The Government shall have the right

(a)



to carry out an audit in accordance with clause 19.2 of the

Agreement;



(b)



to appoint an auditor to undertake or assist with the audit.



The expenditure incurred in respect of such audit shall be borne by the

Company as a general and administrative expenditure. Notice of any

exception to the Company's accounts for any Calendar Year shall be

submitted to the Company within six months of the receipt by the Minister of

the report of its auditors. The Minister shall ensure that such report is

submitted to it within a reasonable time after completion of the audit field

work. For purposes of auditing, the Minister may examine and verify at

reasonable times all charges and credits relating to the Company's activities



76

under the Agreement and all books of account, accounting entries, material

records and inventories, vouchers, payrolls, invoices and any other

documents, correspondence and records considered by the Minister to be

necessary to audit and verify the charges and credits. Furthermore, the

auditors shall have the right in connection with such audit to visit and inspect

at reasonable times all sites, plants, facilities, warehouses and offices of the

Company directly or indirectly serving its activities under the Agreement and

to visit personnel associated with those activities.

7.2



The Company shall answer any notice of exception under paragraph 7.1

within six months of the receipt of such notice. Where the Company has

after the said six month period failed to answer a notice of exception made

by the Minister, the Minister's exception shall prevail, until such time as the

Minister's exception is resolved.



7.3



Without prejudice to the finality of matters as described in Clause 19 and

this paragraph all documents referred to in paragraph 7.1 shall be

maintained and made available for inspection by the Minister for seven

years following their date

of issue.



8. Classification and allocation of expenditure

8.1



All expenditures relating to Petroleum Operations and qualifying in terms of

the Taxation Act, Petroleum Act and paragraph 9 to be taken into account in

the calculation of petroleum income tax and additional profits tax payable

under the Taxation Act shall be classified, defined and allocated, as follows(1)



exploration expenditure, being expenditure actually incurred, whether

directly or indirectly, in or in connection with the carrying out of

Exploration Operations in or in connection with such Licence Area,

including expenditure actually incurred in respect of(a)



(b)



the acquisition of machinery, implements, utensils and other

articles employed for purposes of such operations, including

pipes, well-head equipment, subsurface equipment and

onshore and offshore drilling;

labour, fuel, haulage, supplies, materials and repairs in

connection with a survey or study, excluding drilling for

appraisal purposes, referred to in paragraphs (a) and (b) of the

definition of "Exploration Operations" in section 1 of the

Petroleum Act;



(c)



contributions to a fund or scheme, approved by the Permanent

Secretary: Finance, in respect of any person employed in or in

connection with Exploration Operations;



(d)



the advancement of training and education of Namibian

citizens at institutions approved by the Permanent Secretary:

Finance and the provision of educational and scientific



77

materials and equipment by virtue of any term and condition of

an Exploration Licence issued in respect of such Licence Area;



(2)



(e)



charges, fees or rent for, or in respect, of Land or buildings

occupied for purposes of carrying out Exploration Operations;



(f)



subject to the provisions of section 14(2) of the Taxation Act,

the general administration and management directly

connected with Exploration Operations;



(g)



the restoration of such Licence Area, or any part thereof, after

cessation of Exploration Operations in such area to the extent

to which such expenditure has been incurred by virtue of any

term and condition of an Exploration Licence issued in respect

of such Licence Area relating to safety or the prevention of

pollution;



(h)



customs duty in respect of the importation for use in or in

connection with Exploration Operations in such Licence Area

of plant, machinery, equipment, spare parts, materials,

supplies or consumable items used in or in connection with

such Exploration Operations;



development expenditure, being expenditure actually incurred, whether

directly or indirectly, in or in connection with the carrying out of Development

Operations in or in connection with a Licence Area, including expenditure

actually incurred in respect of

(a)



the acquisition of(i)



(ii)



machinery, implements, utensils and other articles used for

purposes of such operations, including pipes, units for

purposes of production, treatment and processing, wellhead

equipment, subsurface equipment, enhanced recovery

systems, onshore and offshore drilling and production

platforms and petroleum storage facilities;

furniture, tools and equipment used in offices and

accommodation referred to in paragraph (e)(ii) of the definition

of "Development Operations" in section 1 of the Taxation Act

and in warehouses, export terminals, harbours, piers, marine

vessels, vehicles, motorised rolling equipment, aircraft, fire and

security stations, water and sewage plants and power plants;



(b)



labour, fuel, haulage, supplies, materials and repairs in connection

with the drilling, laying, installation and construction referred to in

paragraphs (a), (b), (c), (d) and (e)(i) of the definition of "Development

Operations" in section 1 of the Taxation Act;



(c)



contributions to a fund or scheme, approved by the Permanent

Secretary: Finance, in respect of any person employed in or in

connection with Development Operations;



78



(d)



the advancement of training and education of Namibian citizens at

institutions approved by the Permanent Secretary: Finance and the

provision of educational and scientific materials and equipment by

virtue of any term and condition of a licence issued in respect of such

Licence Area;



(e)



charges, fees or rent for, or in respect of, Land or buildings occupied

for purposes of carrying out Development Operations;



(f)



subject to the provisions of section 14(2) of the Taxation Act, the

general administration and management directly connected with

Development Operations; (g) the restoration of such Licence Area, or

any part thereof, after cessation of Development Operations in such

Licence Area to the extent to which such expenditure has been

incurred by virtue of any term and condition of the licence issued in

respect of such Licence Area relating to safety or the prevention of

pollution;



(h)



customs duty in respect of the importation for use in or in connection

with Development Operations in such Licence Area of plant,

machinery, equipment, spare parts, materials, supplies or

consumable items used in or in connection with such Development

Operations;



(3)



production expenditure, being expenditure of an operational nature incurred

in Production Operations and which, subject to section 13 of the Taxation

Act and paragraph 9 of this Annexure, is allowed as a general deduction in

the determination of taxable income in terms of section 8 of the Taxation

Act;



(4)



general and administrative expenditure which(a)



being the expenditure incurred on general administration and

management primarily and principally related to Petroleum

Operations in or in connection with the Licence Area, comprises and

is limited to –

(i)



office, field office and general administrative expenditure in

Namibia, including supervisory, accounting and employee

relations services (excluding commissions paid to

intermediaries by the Company);



(ii)



an annual overhead charge for services rendered outside

Namibia and not otherwise charged under this accounting

procedure, for managing Petroleum Operations and for staff

advice and assistance including financial, legal, accounting

and employee relations services, provided that –



(a)



for the period from the date on which the



79

Agreement was signed until the date on which the first

Production Licence under the Agreement is granted by

the Minister, this annual charge shall be the Company's

verifiable expenditure, but shall in no event be greater

than one per cent of the total expenditure incurred

during the Calendar Year in or in connection with the

Licence Area and qualifying for deduction in the

computation of petroleum income tax under the

Taxation Act;

(b)



for the period from the date on which the

Production Licence has been granted, the charge shall

be at an amount or rate to be agreed on between the

parties and stated in the Development Plan approved

with the grant of the Production Licence;



(c)



such annual overhead charge shall be separately

shown in all relevant reports to the Minister;



(b)



shall be allocated to and form part of exploration expenditure, development

expenditure and production expenditure and shall be separately shown

under each of these expenditure categories in all relevant reports and

statements to the Minister;



(c)



shall be allocated to exploration expenditure, development

expenditure and production expenditure incurred in each year in proportion

to the amount of exploration expenditure, development expenditure and

production expenditure incurred in such year, or in such other equitable and

consistent manner otherwise agreed upon between the Company and the

Minister.



9. Expenditures, miscellaneous income and credits of the Company

9.1



Expenditure deductible without further approval of the Government Subject

to the terms of the Agreement, the Company shall bear and pay the

following expenditure in respect of its Petroleum Operations. These

expenditures shall be classified under the headings referred to in paragraph

8. It is hereby agreed that, subject to the provisions of sections 8, 9 and 10

of the Taxation Act and paragraph 8, such expenditures are to be allowable

deductions under the Taxation Act.

(1)



Surface rights

This covers all direct expenditure attributable to the acquisition,

renewal or relinquishment of surface rights acquired and maintained

in force for the Licence Area.



(2)



Labour and related expenditure



80



(3)



(a)



Gross salaries and wages, including bonuses, of the

Company's employees directly and necessarily engaged in the

Petroleum Operations, irrespective of the location of such

employees, it being understood that in the case of those

employees, only a portion of whose time is wholly dedicated to

Petroleum Operations, only that pro rata portion of applicable

salaries and wages will be charged.



(b)



Cost to the Company of established plans for employees'

group life insurance, hospitalization, company pension,

retirement and other benefits of a like nature customarily

granted to the Company's employees and the Company's

expenditure regarding holiday, vacation, sickness and

disability payments applicable to the salaries and wages

chargeable under subparagraph (a) above shall be allowed at

actual cost, provided however that such total expenditure shall

not exceed thirty-five per cent of the Company's total labour

expenditure under subparagraph (a) above.



(c)



Expenditure or contributions made pursuant to assessments or

obligations imposed under the laws of Namibia which are

applicable to the Company's expenditure on salaries and

wages chargeable under subparagraph (a) above.



(d)



Reasonable travel and personal expenditure of employees of

the Company, including those made for travel and relocation of

the expatriate employees assigned to Namibia all of which

shall be in accordance with the Company's normal practice.



Transportation

The expenditure incurred in respect of transportation of employees,

equipment, materials and supplies necessary for the conduct of Petroleum

Operations.



(4) Charges for services

(a)



Third party contracts

The actual expenditure incurred under contracts for technical and

other services entered into by the Company for its Petroleum

Operations, made with third parties other than Affiliated companies of

the Company, are deductible, provided that the prices paid by the

Company are no higher than those generally charged by other

international or domestic suppliers for comparable work and services.



(b)



Affiliates of the Company In the case of services rendered to the

Petroleum Operations by an Affiliate of the Company the charges

shall be based on actual expenditure without profits and shall be

competitive. The charges shall be no higher than the most favourable

prices charged by the Affiliate to third parties for comparable services

under similar terms and conditions elsewhere. The Company shall, if



81

requested by the Minister, specify the amount of the charges which

constitutes an allocated proportion of the expenditure in respect of

general management and technical services and the amount which is

the direct cost incurred in respect of providing specific services. If

necessary, certified evidence regarding the basis of prices charged

may be obtained from the auditors of the Affiliate.

(c)



In the event that the prices and charges referred to in subparagraph



(4)



(a) and (b) above are shown to be uncompetitive then the

Permanent Secretary: Finance shall have the right to disallow as a

deduction under the Taxation Act such portion as he deems fit.



(5)



Exclusively owned property For services rendered to the Petroleum

Operations through the use of property exclusively owned by the Company,

the accounts shall be

charged at rates not exceeding those prevailing in the region which reflect

the cost of ownership and operation of such property or at rates to be

agreed.



(6)



Material and equipment

(a)



General

So far as is practicable and consistent with efficient and economical

operation, only such material shall be purchased or furnished by the

Company for use in the Petroleum Operations as may be required for

use in the reasonably foreseeable future and the accumulation of

surplus stocks shall be avoided. Material and equipment held in

inventory shall only be charged to the accounts when such material is

removed from inventory and used in Petroleum Operations.



(b)



Warranty of material The Company does not warrant material beyond

the supplier's or manufacturer's guarantee and, in the case of

defective material or

equipment, any adjustment received by the Company from the

suppliers or manufacturers or their agents will be credited to the

accounts under the Agreement.



(c)



Value of material charged to the accounts under the Agreement

(i)



Except as otherwise provided in subparagraph (ii) below,

material purchased by the Company for use in the Petroleum

Operations shall be valued to include invoice price less trade

and cash discounts, if any, purchase and procurement fees

plus freight and forwarding charges between point of supply

and point of shipment, freight to port of destination, insurance,

taxes, custom duties, consular fees, other items chargeable

against imported material and, where applicable, handling and

transportation costs from point of importation to warehouse or

operating site, and its costs shall not exceed those currently

prevailing in normal arms length transactions on the open

market.



82



(ii)



Material purchased from or sold to Affiliated companies of the

Company or transferred to or from activities of the Company other

than Petroleum Operations under the Agreement(a)



in the case of new material (hereinafter referred to as condition

A), shall be valued at the current

international price which shall not exceed the price prevailing

in normal arms length transactions on the open market;



(b)



in the case of used material which is in sound and serviceable

condition and is suitable for re-use without reconditioning

(hereinafter referred to as condition B), shall be priced at not

more than

seventy-five per cent of the current price of the

abovementioned new materials;



(c)



in the case of used material which cannot be

classified as condition B, but which, after

reconditioning, will be further serviceable for

original function as good second hand condition B material or

is serviceable for original function, but substantially not

suitable for reconditioning

(hereinafter referred to as condition C) , shall be

priced at not more than fifty per cent of the current price of the

new material referred to above as condition A.



The cost of reconditioning shall be charged to the reconditioned material,

provided that the condition C material value plus the cost of reconditioning

does not exceed the value of condition B material. Material which cannot be

classified as condition B or condition C shall be priced at a value

commensurate with its use.

Material involving erection expenditure shall be charged at the applicable

condition percentage of the current knocked down price of new material

referred to above as condition A.

When the use of material is temporary and its service to the Petroleum

Operations does not justify the reduction in price in relation to materials

referred to above as conditions B and C, such material shall be priced on a

basis that will result in a net charge to the accounts under the Agreement

consistent with the value of the service rendered.

(7)



Insurance and losses

Insurance premiums and expenditure incurred for insurance pursuant to

clause 17 of the Agreement are deductible, provided that if such insurance

is wholly or partly placed with an Affiliated company of the Company such

premiums and expenditure shall be deductible only to the extent generally

charged by competitive insurance companies other than an Affiliated



83

company of the Company. Expenditure and losses incurred as a

consequence of events which are, and in so far as, not made good by

insurance are deductible, unless such expenditure has resulted solely from

an act of willful misconduct or negligence of the Company.



(8)



Training expenditure

All expenditure incurred by the Company in training of its Namibian

employees engaged in the Petroleum Operations and such other training as

is required under clause 22 of the Agreement is deductible.



(9)



General and administrative expenditure

The expenditure described in paragraph 8.1(4) is deductible.



9.2



Expenditure not deductible under the Agreement

The following expenditure shall not be deductible in the computation of

petroleum income tax and additional profits tax:(a)



All expenditure incurred before the date on which the Agreement was

signed.



(b)



Interest and any other finance charges or fees incurred on loans

raised by the Company, except as is provided under section 8(a)(iv)

of the Taxation Act.



(c)



Petroleum marketing or transportation expenditure of Petroleum

beyond the actual loading point of the Company for export from

Namibia in the case of Crude Oil and in the case of Natural Gas the

geographical point of sale.



(d)



The cost of obtaining and maintaining the bank guarantee and the

performance guarantee required under the Agreement (and any other

amounts spent on indemnities with regard to non-fulfilment of

contractual obligations).



(e)



Donations and charitable contributions.



(f)



Expenditure incurred in relation to arbitration and the sole expert in

respect of any dispute under the Agreement.



(g)



Fines and penalties imposed by courts of law in Namibia.



(h)



The premium of 500 per cent and the additional amounts of 200 per

cent and 600 per cent payable to the Government under clauses

8.14(c) and 10.4 of the Agreement.



84



9.3



(i)



The interest payable to the Government in terms of clause 11.14 of

the Agreement.



(j)



Expenditure incurred as a result of willful misconduct or negligence of

the Company.



(k)



Any expenditure which by reference to general oil industry practices

can be shown to be excessive.



Other expenditure

Other expenditure not covered or dealt with in the provisions of this

paragraph 9 and which is incurred by the Company for the necessary and

proper conduct of the Petroleum Operations is only deductible with the prior

approval in writing of the Permanent Secretary: Finance.



9.4



Miscellaneous income and credits under the Agreement

The proceeds received from or in connection with Petroleum Operations

shall be credited to the accounts under the Agreement and shall be treated

as miscellaneous gross income chargeable to both petroleum income tax

and additional profits tax pursuant to the Taxation Act. Such proceeds

include but are not limited to the following:(a)



The net proceeds of any insurance or claim in connection with the

Petroleum Operations or any assets charged to the accounts under

the Agreement when such operations or assets were insured and the

premiums charged to the accounts under the Agreement.



(b)



Revenue received from third parties or Affiliated companies for the

use of property or assets charged to the accounts under the

Agreement.



(c)



Any adjustment received by the Company from the suppliers or

manufacturers or their agents in connection with defective material

the expenditure of which was previously charged by the Company to

the

accounts under the Agreement.



(d)



Rentals, refunds or other credits received by the Company which

apply to any charge which has been made to the accounts under the

Agreement, but excluding any award granted to the Company under

arbitration or sole expert proceedings referred to in paragraph 9.2(f)

above.

The prices originally charged to the accounts under the Agreement

for materials subsequently exported from Namibia without being used

in the Petroleum Operations.



(e)



(f)



The proceeds from the sale or exchange by the Company of plant or

facilities from the Licence Area or plant or facilities the acquisition

expenditure of which have been charged to the accounts under the

Agreement.



85



9.5



(g)



The proceeds from the sale or exchange by the Company of any

Petroleum rights being an interest in its Licence Area.



(h)



The proceeds from the sale of any Petroleum information which

relates to the Licence Area provided that the expenditure incurred in

respect of the acquisition of such information has been charged to the

accounts under the Agreement.



(i)



The proceeds derived from the sale or licence of any intellectual

property the development costs of which were incurred under the

Agreement.



Duplication of charges and credits

Notwithstanding any term to the contrary in this Annexure, it is agreed that

there shall be no duplication of charges or credits to the accounts under the

Agreement.



10. Records and valuation of assets

10.1



The Company shall keep and maintain detailed records of assets in use for

or in connection with Petroleum Operations in accordance with normal

accounting practices in exploration and production activities of the

international petroleum industry.



10.2



The Company shall furnish particulars to the Minister by notice in writing

addressed and delivered to the Minister at six monthly intervals of all assets

acquired by the Company to be used for or in connection with Petroleum

Operations during the period immediately preceding the delivery of such

notice.



10.3



The Company shall(a)



not less than once every twelve months with respect to movable

assets; and



(b)



not less than once every four years with respect to Immovable

Assets, take an inventory of the assets used for or in connection with

Petroleum Operations in terms of the Agreement and address and

deliver such inventory to the Minister together with a written

statement of the principles upon which valuation of the assets

mentioned in such inventory has been based.



10.4



The Company shall give the Minister at least 30 days notice in writing

addressed and delivered to the Minister of its intention to take the inventory

referred to in paragraph 10.3 and the Minister shall have the right to be

represented when such inventory is taken.



10.5



When an assignation of rights under the Agreement takes place a special

inventory shall be taken by the Company at the request of the assignee



86

provided that the cost of such inventory is borne by the assignee and paid to

the Company.

10.6



In order to give effect to clauses 17.5 and 17.6 of the Agreement the

Company shall provide the Government with a comprehensive list of all

relevant assets when requested by the Minister to do so.



11. Production statement

11.1



The Company shall, not later than seven days after the end of the first

Calendar Month during which Petroleum is produced from the Licence Area,

and thereafter not later than seven days after the end of every succeeding

Calendar Month, prepare and submit to the Minister a production statement

containing the following particulars in each respect of each Production Area

in the Licence Area and for the Licence Area:



(a)



The quantity, grades and gravity of Crude Oil Produced and Saved;



(b)



the quantity and composition of Natural Gas Produced and Saved;



(c)



the quantities of Crude Oil and Natural Gas used for purposes of

carrying on drilling and Production Operations and pumping to field

storage, as well as quantities injected into the formations, each such

use to be separately identified;



(d)



the quantity of Petroleum unavoidably lost;



(e)



the quantity of Natural Gas flared;



(f)



the size of Petroleum stocks held at the beginning of the Calendar

Month in question;



(g)



the size of Petroleum stocks held at the end of the Calendar Month in

question;



(h)



the number of days in the Calendar Month during which Petroleum

was produced from each Production Area in the Licence Area.



11.2



The Minister may by notice in writing addressed and delivered to the

Company direct that any other particulars relating to Petroleum Operations

be included in the production statement referred to in paragraph 11.1 and

the Company shall comply promptly with such request.



11.3



The Company shall, not later than seven days after the end of each Quarter

address and deliver to the Commissioner aggregated statements

containing the

particulars referred to in items (a) to (h) of paragraph

11.1 in respect of the three months comprising that Quarter.



12. Value of production and pricing statement



87



12.1



The Company shall, for purposes of clause 15 of the Agreement, prepare a

statement providing calculations of the value of each quality of Namibian

Crude Oil Produced and Saved from the Licence Area during each Quarter

which shall contain the following information:

(a)



The quantities of Namibian Crude Oil sold at arms length during the

Quarter in question by the Company, the prices realized and receipts

obtained for such sales;



(b)



the quantities of Namibian Crude Oil sold other than to third parties

during the Quarter in question by the Company, the prices realised

and receipts obtained for such sales;



(c)



the quantities of Crude Oil appropriated by the Company to refining or

other processing without being otherwise disposed of in the form of

Crude Oil;



(d)



the quantity and value of stocks of Crude Oil held at the beginning of

the Quarter in question;



(e)



the quantity and value of stocks of Crude Oil held at the end of the

Quarter in question;



(f)



the percentage volume of total sales of Namibian Crude Oil made by

the Company during the Quarter that are arms length sales to third

parties other than sales made pursuant to clause 24 of the

Agreement;



(g)



the percentage volume of total sales of Namibian Crude Oil made by

the Company during the Quarter that are arms length sales to third

parties pursuant to clause 24 of the Agreement;



(h)



the Company's estimate, pursuant to clause 15 of the Agreement,

of the market price of Namibian Crude Oil Produced and Saved for

the Quarter;



(i)



all other information available to the Company, if relevant for the

purposes of clause 15 of the Agreement, concerning the prices of the

selection of major competitive crude oils, including contract prices,

discounts and premiums, and prices obtained on the spot markets.



12.2



At the time of the development of the first Discovery of Natural Gas, the

Minister and the Company shall agree on an appropriate format for reporting

the value of Natural Gas sold or disposed of.



12.3



The value of production and pricing statement for each Quarter shall be

submitted to the Commissioner not later than 15 days after the end of the

Quarter to which such value of production and pricing statement relate.



88

13. Expenditure and receipts statement

13.1



The Company shall prepare in respect of each Calendar Month a statement

of expenditure and receipts under the Agreement. The statement will

distinguish between exploration expenditure, development expenditure and

production expenditure and shall separately identify major items of

expenditure within those categories. The statement of receipts shall

distinguish between income from the sale of Petroleum and miscellaneous

income of the sort itemised in paragraph 9.4 of this Annexure. If the Minister

is not satisfied with the degree of disaggregation within the said categories,

he may request a more detailed disaggregation and the Company shall

comply promptly with such request. The statement will show the following:(a)



Actual expenditure and receipts for the Calendar Month in question.



(b)



Cumulative expenditure and receipts for the budget year in question.



(c)



Latest forecast of cumulative expenditure and receipts at the

Calendar Year end.



(d)



Variations between budget forecast and latest forecast, with

explanations thereof.



13.2



At the end of each Quarter aggregated statements in respect of the three

months comprising that Quarter shall be submitted for each of the items (a)

to (d) in paragraph 13.1 above.



13.3



The statement of expenditure and receipts for each Calendar Month or

Quarter shall be submitted to the Minister no later than 15 days after the end

of such Calendar Month or Quarter.



14. Additional profits tax statement

14.1



The Company shall prepare with respect to each Calendar Year an

additional profits tax statement containing the following information:

(a)



The value of net cash receipts for the Calendar Year, identifying

separately each of the categories of gross income and allowable

deductions provided in the Taxation Act.



(b)



The appropriate value of the Price Index for the Calendar Year.



(c)



The value of the first accumulated net cash position, second

accumulated net cash position and the third accumulated net cash

position for the tax year.



89

(d)



The value of the first accumulated net cash position, the second

accumulated net cash position and the third accumulated net cash

position at the end of the preceding tax year.



(e)



The amount of additional profits tax payable with respect to the first

accumulated net cash position, the second accumulated net cash

position and the third accumulated net cash position for the tax year.



(f)



The total amount of additional profits tax payable for the tax year.



14.2



The information required in terms of paragraph 14.1 shall be presented in

sufficient detail so as to enable the Minister to verify the timing and amount

of additional profits tax payments.



14.3



The Government reserves the right to call for additional profits tax

statements more frequently than annually in order to satisfy the objective set

out in paragraph 14.2 above.

The additional profits tax statement for each tax year shall be submitted to

the Minister no later than 60 days after the end of such Calendar Year.



14.4



15. End-of-year statement

15.1



The Company shall prepare a definitive end-of-year statement. The

statement shall contain aggregated information for the Calendar Year in the

same format as required in the production statement, the value of production

and pricing statement, and the expenditure and receipts statement, but will

be based on actual quantities of Petroleum produced, income received and

expenditure incurred.



15.2



The end-of-year statement for each Calendar Year shall, except in the case

of the production statement, be submitted to the Minister within 60 days of

the end of such Calendar Year. The end-of-year production statement shall

be submitted within 14 days of the end of each Year.



16. Budget statement

16.1



The Company shall prepare an annual budget statement. This statement

shall distinguish between exploration expenditure, development expenditure,

and production expenditure and shall show the following:

(a)



Forecast expenditure and receipts for the Calendar Year under the

Agreement.



(b)



Cumulative expenditure and receipts to the end of the said Calendar

Year.



(c)



A schedule showing the most important and individual items of

expenditure for the said Calendar Year.



90



(d)



16.2



A schedule indicating the planned expenditure on the purchase of

Namibian goods and services pursuant to clause 23 of the

Agreement.



The budget statement shall be submitted to the Minister with respect to

each budget year no less than 90 days before the start of the Calendar Year

except in the case of the Calendar Year in which the date on which the

Agreement has been signed falls, when the budget statement shall be

submitted within 30 days of the date on which the Agreement has been

signed.



17. Local procurement statement

17.1



17.2



In furtherance of the obligation in clause 23 of the Agreement for the

Company to purchase Namibian goods and services the Company shall

prepare in respect of each Calendar Year a local procurement statement,

containing the following information:

(a)



The amount of expenditure incurred by the Company directly, or

indirectly through its sub-contractors, on goods supplied, produced or

manufactured in Namibia;



(b)



the amount of expenditure incurred by the Company directly, or

indirectly through its sub-contractors, on services provided by

Namibian entities;



(c)



the respective percentages that the expenditures recorded under

items (a) and (b) above represent of the Company's total

expenditures;



(d)



a detailed description of the procedures adopted during the Year to

identify and purchase goods and services from Namibian suppliers;

and



(e)



a detailed exposition of how the local purchases for the Year as

recorded under items (a) and (b) above compared with the projected

purchases included in the budget statement for that Year (pursuant to

item (d) of subparagraph 16.1 of this Annexure), with explanations for

any significant variations;



The local procurement statement shall be submitted to the Minister within 60

days after the end of each Calendar Year.



18. Decommissioning statement



91

18.1



In furtherance of its obligation to decommission facilities used in Petroleum

Operations in accordance with the Decommissioning Plan, the Company

shall prepare in respect of each Calendar Year after the grant of a

Production Licence a decommissioning statement, containing the following

information valid as at the end of the Year:

(a)



where applicable, total cumulative production of Petroleum from the

Production Area;



(b)



estimated total recoverable reserves of Petroleum from the

Production Area;



(c)



the estimated date by which 50% of the estimated total recoverable

reserves of Petroleum from the Production Area will have been

produced;



(d)



the estimated future total cost of decommissioning the facilities in the

Production Area, and of any facilities outside the Production Area;



(e)



where applicable, the amount to be deposited by the Company into

any relevant Trust Fund in respect of the Year, setting out how the

amount has been calculated;



(f)



where applicable, the amount actually paid into the Trust Fund by the

Company in respect of the Year;



(g)



where applicable, the amount of expenditure incurred by the

Company on actually decommissioning the facilities in the Year; and



(h)



where applicable, the amount of any money received by the

Company in the Year from the Trust Fund.



18.2



The decommissioning statement for each relevant Calendar Year

shall be submitted by the Company to the Commissioner not later

than 30 days after the end of the Year.



19. Revision of accounting procedure



The terms of this Annexure may be amended by agreement between the

Company and the Government. The amendments shall be made in writing

and shall state

the date upon which the amendments shall become effective.



92

20. Conflict with Agreement

In the event of any conflict between the terms of the Taxation Act, this

Annexure and the Agreement the terms of the Agreement and the Taxation

Act shall prevail.



93

ANNEXURE 5



PERFORMANCE GUARANTEE

(Clause 30)



WHEREAS the DEF Company, a Company duly incorporated and registered in

.............. having its registered office at ................, (hereinafter referred to as "the

Guarantor") is the owner of 100% of the share capital of the ABC Company Ltd.

(hereinafter referred to as "the Company") and its parent company; and

WHEREAS the Company is a Party to the Petroleum Agreement dated the ...... day

of ...................... 20.., (hereinafter referred to as "the Agreement") entered into with

the Government of Namibia (hereinafter referred to as "the Government"); and

WHEREAS the DEF Company wishes to guarantee the performance of the

Company or its Affiliated assignee under the Agreement;



NOW, THEREFORE the Guarantor hereby(a)



unconditionally and irrevocably guarantees to the Government that it

will make available or cause to be made available to the Company or

any other directly or indirectly owned subsidiary or Affiliate of the

Guarantor to which any part or all of the Company's rights or interest

under the Agreement may subsequently be assigned ("Affiliated

assignee"), resources required to ensure that the Company or an

Affiliated assignee can carry out its obligations as set forth in the

Agreement;



(b)



unconditionally and irrevocably guarantees to the Government the

due and punctual compliance by the Company (or Affiliated assignee)

with any obligations of the Company (or Affiliated assignee) under the

Agreement;



(c)



undertakes to the Government that if the Company (or any Affiliated

assignee) defaults on any of its obligations under the Agreement,

then the Guarantor will fulfill or cause to be fulfilled the said

obligations in place of the Company (or any Affiliated assignee);



(d)



declares that this guarantee shall expire on termination of the

Agreement and any claims arising out of events during the period of

validity of this guarantee must be submitted to the undersigned not

later than 30 months subsequent to the date the claim arose.



SIGNED at .......... on this ........ day of .............20..



94



……………………………………………………..

DEF Company Ltd.



95

ANNEXURE 6



PRINCIPLES GOVERNING THE TRAINING SCHEME

OF THE MINISTRY OF MINES AND ENERGY ("MME")



1.



The total amount of training support offered by the applicant in terms of the

requirements of section 14(b) of the Petroleum (Exploration and Production)

Act, 1991, as amended by the Petroleum (Exploration and Production)

Amendment Act, 1993, will be subdivided into two parts, to be allocated to:



1.1



Attachments and in-house training - 30 per cent,



1.2



Institution building, scholarships, and science, engineering and

technology promotion - 70 per cent.

The allocations for 1.2 (70 per cent of the gross sum) shall be made

payable to the Trust Fund known as the Petroleum Education and

Training Fund (PETROFUND). The allocation of these funds to

beneficiaries shall be decided upon by the Board of Trustees of

PETROFUND. The Board of Trustees of PETROFUND shall consist

of five representatives from MME and NAMCOR, one from the

Ministry of Education and three from the operating oil companies. The

allocation for 1.1 (30 per cent of the gross sum) shall be expended

directly by each individual Company in accordance with the following

principles.



2. ATTACHMENTS AND IN-HOUSE TRAINING

Objectives:



To train Namibian citizens in the field of natural science,

engineering and technology as related to oil and gas

exploration and production, by exposing them to company

practice and operation.



2.1



Recommended Fields of attachments and in-house training

Geology and geophysics related to oil exploration and production

Construction and reservoir engineering Drilling practice and technology Oil

production practice and technology Economics of oil exploration and

production



2.2



Recruitment of candidates

It will be the responsibility of the licensee to recruit suitable candidates

through the local public media or through direct nominations by MME and to

appoint such candidates in consultation with the MME.



2.3



Reporting on training activities

The licensee shall report to the MME on an annual basis the details of the

number, kind and cost of attachments or training positions created, filled and



96

maintained through the immediate past year and the performance of the

incumbents. If the total expenditure on these activities comes to less than 30

percent of the gross sum voted for training in terms of section 14(b) of the

Petroleum Act, the outstanding amount shall be paid into the Training Fund.



3. INSTITUTION BUILDING

Objective:



3.1



To strengthen Namibian research, education and training institutions

by providing infrastructure to enhance the quality of such research

education and

training.



Nomination of institutions

The MME shall nominate institutions where support is needed, and give

details of the kind of support and cost involved. It is envisaged that the

typical beneficiaries will be tertiary institutions at which science, engineering

and technology are being taught and research institutions

where advanced research in oil and gas-related disciplines are being done.

Such support may be applied to equipment, the temporary provision of

teaching staff, and in cases of severe need only, to the erection of buildings.



3.2



Allocation of funds

The Board of Trustees of PETROFUND shall select from the nominated

institutions the projects that show the most merit in terms of the general

development in Namibia of natural science engineering and technology, on

the one hand, and the oil and gas exploration and production industry, on

the other hand. In the allocation of funds, the Board of Trustees of

PETROFUND shall also keep in mind the longer term needs of the country

beyond the sphere of petroleum, non-petroleum minerals and mining.



3.3



Reporting by beneficiaries

It will be expected from the beneficiaries to report in detail how the financial

support was expended and how the new facility was integrated in the

activities of the relevant institutions.



4. SCHOLARSHIPS

Objective:



To enhance education and training in natural science, mathematics,

engineering, and technology in Namibia by improvement of the

quality and quantity of teaching staff in these subjects in secondary

schools as well as in post-school institutions. To strengthen the core

of Namibians engaged in the professions of natural science,

engineering and technology outside teaching.



97

4.1



Recruitment

The candidates for graduate and post-graduate studies and research at

tertiary institutions both within and outside Namibia shall be recruited

through the local public media by the Board of Trustees of PETROFUND.



4.2



The Board of Trustees of PETROFUND shall select the candidates on merit

with due regard to the medium- and short-term requirements of the country

so as to create a balanced supply of natural scientists, engineers and

technologists to the industry and natural science, mathematics, engineering

and technical teachers to the teaching institutions.



5. NATURAL SCIENCE, ENGINEERING AND TECHNOLOGY

PROMOTION

Objective:



5.1



To foster awareness of and promote knowledge of natural science,

mathematics, engineering and technology over a broad spectrum of

the population by exposing them to selected promotional activities in

the relevant fields.



The Board of Trustees of PETROFUND shall be responsible for an ongoing

programme of promotion of natural science, engineering and technology

through the organization of

lectures, conferences, workshops, short

courses, Olympiads, competitions etc. The target group of the population

should range from primary schools right through to qualified professionals.



6. EMPHASIS FOR THE MEDIUM TERM



The emphasis in this document is strongly biased to natural science,

engineering and technology because these are the fields in which Namibia

seems to lack adequate manpower. Should, however, the future needs

change, the aims and objectives as well as target groups of the population

as proposed here shall be reviewed by the Board of Trustees of

PETROFUND to suit the circumstances.



98

ANNEXURE 7



PRINCIPLES GOVERNING THE USE OF FUNDS PAID TO NAMCOR FOR

ENVIRONMENTAL STUDIES



1.



The amounts paid under clause 11.15 of this agreement to NAMCOR will be

fully accounted for by NAMCOR and will be fully audited by NAMCOR's

auditors. The allocation and utilisation of these funds will be decided upon

by NAMCOR in consultation with all oil exploration/production licensees and

representatives from the Ministry of Fisheries and Marine Resources and

the Ministry of the Environment and Tourism. Funds will be used, amongst

other purposes, for:



(a)



collecting weather and drifter buoy data needed for reliable oil spill

drift modelling and for effective oil spill contingency planning;



(b)



long-term collecting of wave and current data;



(c)



long-term collecting of marine and weather data that will be needed

for design of offshore installations;



(d)



periodic monitoring of levels of pollution during production drilling and

production using internationally accepted methods of monitoring;



(e)



any other environment-related studies that the government ministries

or the licensees feel are needed and relevant.