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EXPLORATION AND PRODUCTION

CONCESSION CONTRACT



BETWEEN

THE GOVERNMENT

OF THE REPUBLIC OF MOZAMBIQUE

AND

XYZ

AND

ABC



FOR

MOZAMBIQUE BLOCK

REPUBLIC OF MOZAMBIQUE



i



Table of Contents

Article



Subject



Page



Parties



1



Preamble



2



1



EPC Documents



3



2



Definitions



4



3



EPC Rights and their Duration



8



4



Work Commitment during Exploration Period



12



5



Conduct of Petroleum Operations



18



6



Commercial Discovery and Development



20



7



Relinquishment of Areas



22



8



Records and Reports



23



9



Cost Recovery and Production Entitlement



25



10



Valuation of Petroleum



32



11



Fiscal Terms and Other Charges



36



12



Production Bonuses



46



13



Lifting Arrangements



47



14



Conservation of Petroleum and Prevention of Loss



48



15



Decommissioning



49



16



Insurance



52



17



Natural Gas



55



18



Employment and Training



58



19



Indemnification and Liability



60



20



Title



61



ii



Article



Subject



Page



21



Rights of Inspection



62



22



Accounting and Audits



63



23



Confidentiality



64



24



Assignment



66



25



Force Majeure



68



26



Foreign Exchange Control



70



27



Nature and Extent of the Rights of the Concessionaire



73



28



Protection of the Environment



80



29



Surrender and Cancellation



83



30



Consultation, Arbitration and Independent Expert



88



31



Applicable Law



92



32



Language



93



33



Joint Operating Agreement



94



34



Future Agreements



95



35



Notices



96



Annexes

Annex “A”



Description of the EPC Area



Annex “B”



Map of the EPC Area



Annex “C”



Accounting and Financial Procedure



Annex “D”



Form of Bank Guarantee



Annex “E”



Form of Parent Company Guarantee



Annex “F”



Joint Operating Agreement



iii



Parties

This Exploration and Production Concession Contract (“EPC”) is made subject to

applicable law on the --- day of ------------, 2006:

(a)



THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE, hereinafter

referred to as “the Government” and herein represented by the Minister for

Mineral Resources; and



(b)



XYZ , a corporation established under the laws of --------- and duly registered

in Mozambique, hereinafter referred to as “XYZ” and herein represented by

the appointed representative, and



(c)



ABC, a company established in accordance with the laws of the Republic of

Mozambique, herein represented by its Chairman hereinafter referred to as

“ABC”.

XYZ and ABC shall hereinafter be referred to as the “Concessionaire”. The

Concessionaire and the Government shall hereinafter collectively be referred

to as the “Parties”.



1



Preamble

WHEREAS, applicable petroleum law provides that all Petroleum resources in the

soil and the subsoil of the land territory, in the seabed of internal waters and the

territorial sea, in the exclusive economic zone and on the continental shelf, are the

property of the Republic of Mozambique;

WHEREAS, pursuant to applicable petroleum law, the Government has the authority

to ensure the implementation of the policy for Petroleum Operations and has for the

purpose of this EPC appointed the Ministry of Mineral Resources, hereinafter referred

to as “MIREM”, to carry out certain functions for and on behalf of the Government as

hereafter specified;

WHEREAS, the Government of the Republic of Mozambique, desires to award to

XYZ and ABC the right to undertake Petroleum Exploration, Development and

Production in certain areas subject to the jurisdiction of the Republic of Mozambique;

WHEREAS, the Concessionaire is willing, on certain terms and conditions stipulated

to undertake Petroleum Exploration, Development and Production in the EPC Area

and has for such purpose technical competence and adequate financial resources;

WHEREAS, the applicable petroleum law provides that Petroleum Exploration,

Development and Production shall be carried out under a concession;

NOW THEREFORE it has been concluded as follows:



2



Article 1

EPC Documents

The EPC consists of this EPC main document and the following Annexes, which

form an integral part hereof:

Annex “A”



Description of the EPC Area



Annex “B”



Map of the EPC Area



Annex “C”



Accounting and Financial Procedure



Annex “D”



Form of Bank Guarantee



Annex “E”



Form of Parent Company Guarantee



Annex “F”



Joint Operating Agreement



Subject to the conclusion of the EPC, the Concessionaire shall submit a signed joint

operating agreement as stipulated in Annex F, for which Government approval is a

condition under this EPC.

In the event of conflict between the provisions of the EPC main document and its

Annexes, the EPC main document shall prevail.



3



Article 2

Definitions

Definitions stipulated in applicable Mozambican petroleum law apply to this EPC

unless the context otherwise requires. Words and phrases used in this EPC including

its Annexes shall have the following meanings:

“Affiliated Company” means, in relation to any Person constituting the

Concessionaire, any parent company which directly or indirectly controls such Person

or any company which is directly controlled by such Person or any company which is

controlled, directly or indirectly, by any such parent company.

For the purpose of the foregoing definition:

(a)



a company is directly controlled by another company or companies holding

shares or other equity ownership carrying in the aggregate more than fifty

percent (50%) of the voting rights exercisable at general meetings; and



(b)



a particular company is indirectly controlled by a company or companies

(“parent company or companies”) if a series of companies can be specified,

beginning with the parent company or companies and ending with the particular

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.



“Attributable Expenditure” means an expenditure incurred by the Concessionaire on

Exploration Operations but excluding any expenditure incurred by the Concessionaire

in conducting any Appraisal Programme or drilling any Appraisal Well.

“Commercial Assessment Period” applies to a Discovery Area and means the period

commencing at the time when the appraisal report regarding the Appraisal

Programme relating to the Discovery of Non-Associated Natural Gas has been

submitted by the Concessionaire.



4



“Commercial Production” means production of Petroleum and delivery of the same

at the Delivery Point under a programme of production and sale as provided for in a

Development Plan as amended from time to time.

“Cost Petroleum”



means the portion of Petroleum Produced available to the



Concessionaires to cover the costs and expenses incurred in carrying out the

Petroleum Operations as stipulated in the EPC.

“Decommissioning Fund” means the fund established to cover the costs of

decommissioning operations.

“Delivery Point” means in the case of Natural Gas the inlet flange of the transmission

pipeline, and in the case of Crude Oil the inlet flange of the lifting tankship or, in

either case, such other point as may be agreed by MIREM and the Concessionaire.

“Discovery Area” means an area which extends laterally to cover, so far as the

boundaries of the EPC Area permit, any Block which contains the geological feature

(as mapped with the relevant seismic data), or any part thereof, in which the

Discovery is located. In the absence of adequate seismic data, and until such data

becomes available, the Discovery Area shall be construed to mean the Block in which

the Discovery well is located and the Blocks immediately surrounding such Block.

“Effective Date” means the first day of the month following the date on which this

EPC has been signed by the Government and the Concessionaire, the conditions in

Article 3.2 have been met, and the ruling of the Administrative Tribunal has been

obtained.

“Evaluation Period” means the period, following a notice by the Concessionaire that

it has made a Discovery, within which the Concessionaire is required to inform

MIREM whether such Discovery is of potential commercial interest.

“Exclusive Petroleum Operations” means those Petroleum Operations carried out

pursuant to applicable law and this EPC chargeable to the account, benefit and

liability of less than all Persons constituting a Concessionaire under this EPC.

5



“Expatriate Personnel” means any employee of any Person constituting the

Concessionaire, of an Affiliated Company of any such Person or of any

Subcontractor, provided such employee is not a citizen of the Republic of

Mozambique and whose contract of employment provides for the payment or the

reimbursement of the cost of his passage to and from the Republic of Mozambique.

“Exploration Operations” means operations conducted hereunder for or in

connection with Exploration for Petroleum in the EPC Area and includes operations

conducted to carry out an Appraisal Programme or to drill any Appraisal Well.

“Exploration Period” means any relevant period of Exploration set out in this EPC.

“Exploration Well” means any well, the purpose of which at the time of the

commencement of drilling is to explore for an accumulation of Petroleum, which

accumulation was at that time unproven by drilling.

“MIREM” means the Ministry of Mineral Resources or any other person or entity

appointed to administer and regulate Petroleum Operations for and on behalf of the

Government under the EPC whose identity has been notified in writing to the

Concessionaire.

“Participating Interest” means the percentage interest portion, as further described in

Article 3.2, of each party constituting the Concessionaire in the rights, privileges,

duties and obligations derived from this EPC.

“Person” means any natural person or any corporation, association, partnership, joint

venture or entity which is considered a legal entity under the law of Mozambique or

the laws of the country pursuant to which such corporation, association, partnership,

joint venture or entity is governed.

“Petroleum Production Tax” means the Imposto sobre a Produção de Petróleo as

defined by applicable law.



6



“Petroleum Produced ” means Petroleum which has been extracted from a reservoir,

initially separated and processed into Crude Oil, condensate or Natural Gas delivered

to the Delivery Point appropriate for onwards transportation in bulk or through a

pipeline. The same applies to “Crude Oil Produced”, Condensate Produced” and

“Natural Gas Produced” as the case may be.

“Profit Petroleum” means that portion of Disposable Petroleum, in excess of Cost

Petroleum, which is allocated to the Parties under the terms of the EPC.

“Subcontractor” means any Person retained by the Concessionaire to carry out any

part of the Petroleum Operations.

“Wellhead” is the inlet flange of the first valve after the wellhead production

manifold.



7



Article 3

EPC Rights and their Duration

3.1



This EPC :

(a)



is a concession awarded pursuant to Petroleum Law No. 3/2001 of 21

February, which authorises the conduct of certain



Petroleum



Exploration, Development and Production activities in an Area as

defined herein;

(b)



confers on the Concessionaire, subject to applicable law and the terms

and conditions set forth in this EPC, an exclusive right to conduct

Petroleum Operations in order to produce Petroleum from resources

originating from one or more Petroleum Deposit in the subsoil of the

seabed within the limits of the EPC Area;



(c)



save where access to an existing Oil Pipeline or Gas Pipeline System is

available on reasonable commercial terms, confers a non- exclusive

right subject to applicable law to construct and operate an Oil Pipeline

or Gas Pipeline System for the purpose of transporting Petroleum

Produced from Petroleum Deposits under this EPC.



3.2



(a)



Prior to this EPC reaching the Effective Date this EPC has to be

approved by the Council of Ministers, the appurtenant agreements to

this EPC have to be signed by the Concessionaire, and the ruling of

the Administrative Tribunal has to be obtained.



b)



On the Effective Date the respective Participating Interests of XYZ is --------------- percent ( -- %) and of ABC is ---- percent (--- %)

respectively.



3.3



The rights and obligations of the Concessionaire shall commence on the

Effective Date and shall subsist:

(a)



during the Exploration Period; and



8



(b)



subject to terms and conditions as hereinafter provided, during the

Development and Production Period;



provided that obligations of the Concessionaire which have accrued hereunder

before the end of any relevant Exploration Period or an applicable

Development and Production Period shall, notwithstanding that this EPC has

otherwise been cancelled subject to applicable law or the terms and conditions

of this EPC, continue to be binding on the Concessionaire for the period

provided by the applicable law and for the purpose of any claim in respect

thereof, the provisions of Article 30 shall continue to apply.

3.4



The initial Exploration Period shall commence on the Effective Date. Unless

the EPC is terminated earlier in accordance with its terms, it shall continue for

a period of ----------- (---) months.



3.5



Where the Concessionaire desires to extend the Exploration Period the

Concessionaire shall submit a notice to MIREM to that effect. Such notice has

to be submitted not later than thirty (30) days before the expiry of the initial

Exploration Period or any subsequent Exploration Period would otherwise

expire. Provided the Concessionaire has fulfilled, or is deemed to have

fulfilled, its obligations under a prior Exploration Period, the Concessionaire

is entitled:

(a)



at the end of the initial Exploration Period, to a second Exploration

Period of ------- (--) months; and



(b)



at the end of a second Exploration Period, to a third Exploration Period

of ----------- (---) months; and



(c)



to the rights referred to in Article 3.6; and



(d)



to such additional time that may be necessary to give effect to Article

25.4 on force majeure.



9



3.6



(a)



Where pursuant to Article 6 the Concessionaire has notified MIREM

that it has made a Discovery, the Exploration Period shall not, in

respect of the Discovery Area to which that Discovery relates,

terminate before the end of the Evaluation Period.



(b)



Where before the end of the Evaluation Period the Concessionaire has

pursuant to Article 6 notified MIREM that a Discovery is of potential

commercial interest, the Exploration Period shall not in respect of the

Discovery Area to which that Discovery relates terminate before

approval of the Development Plan.



(c)



Where pursuant to Article 17.3 the Commercial Assessment Period has

commenced in respect of a Discovery of Natural Gas, the Exploration

Period shall not, in respect of the Discovery Area to which that

Discovery relates, terminate so long as that Commercial Assessment

Period continues.



3.7



Where the Concessionaire has not within the expiry of the third Exploration

Period given to MIREM a Declaration of Commerciality by notice, the

Concessionaire shall at the end of that Period have no further rights or

obligations in the EPC Area or under this EPC except as specifically provided

herein.



3.8



Where, during a relevant Exploration Period the Concessionaire has given to

MIREM a Declaration of Commerciality by notice, the Concessionaire shall,

in respect of the Development and Production Area to which any such notice

relates, continue at the end of the Exploration Period to have rights and

obligations hereunder for so long as the Development and Production Period

for that Development and Production Area subsists.



3.9



A “Development and Production Period” shall commence with respect to each

Development and Production Area on the date on which the Development

Plan for that Development and Production Area has been approved in

accordance with applicable law, and notice to that effect has been given to the

10



Concessionaire and, unless this EPC is sooner terminated in accordance with

its terms or applicable law, shall, in respect of the Development and

Production Area to which the said notice relates, continue to subsist for an

Development and Production Period of --------------- (--) years and for such

additional periods that may be necessary to give effect to Article 25.4.



11



Article 4

Work Commitment during Exploration Period

4.1



The Concessionaire shall, in the discharge of its obligations to carry out

Exploration Operations, carry out the work stipulated in this EPC unless

otherwise provided or pay to the Government not less than the sums set forth

below in this Article. The Exploration work commitments stipulated in this

Article may not be performed individually or collectively by the

Concessionaire as Exclusive Petroleum Operations.



4.2



During the initial Exploration Period of ------ (---) months, the Concessionaire

shall conduct the following Exploration work commitment:

a) -------------------; and

b) -------------------------------------.

In case of non-performance of any part of the Exploration work commitment

described in this article, save for exemptions listed in this article, the total

amount to be paid by the Concessionaire to Government (hereinafter referred to

as “Minimum Expenditure”) for this period shall be ------------- million US

dollars (US$ --,000,000).



4.3 During a subsequent second Exploration Period of ------ (----) months, the

Concessionaire shall conduct the following exploration work commitment:



a) -----------------------------------;

b)-------------------------------------.



In case of non-performance of any part of the Exploration work commitment

described in this article save for exemptions listed in this article the Minimum

Expenditure for this extension period shall be ------------- million US dollars

(US$ --,000,000).



12



4.4



During a subsequent third Exploration Period of ------------- (---) months, the

Concessionaire shall conduct the following Exploration work commitment:

a) -------------------------------------------.

b)--------------------------------------------.

In case of non-performance of any part of the Exploration work commitment

described in this article, save for exemptions listed in this article, the

Minimum Expenditure for this Exploration Period shall be --------- million US

dollars (US$ --,000,000).



4.5



Should any well forming part of the Exploration work commitment provided

for in Articles 4.3 and 4.4 be abandoned, for any reason other than a reason

specified in Article 4.6 below, before reaching the defined objectives of such

well, the Concessionaire shall drill a substitute well. In this event the relevant

Exploration Period shall be extended by a reasonable period of time as

MIREM may agree to allow the drilling and evaluation of the substitute well.



4.6



Unless otherwise approved by MIREM, any well which forms part of the

Exploration work commitment provided for in Articles 4.3 and 4.4 shall be

drilled to such depth as set forth in those articles, unless before reaching the

required depth:

(a)



further drilling would in the reasonable opinion of the Concessionaire

present an obvious danger, due to such events as, but not limited to, the

presence of abnormal pressure or excessive losses of drilling mud;



(b)



impenetrable formations are encountered;



(c)



Petroleum bearing formations are encountered which require

protecting, thereby preventing planned depths from being reached; or



(e)



MIREM agrees to terminate the drilling operation.



13



4.7



In circumstances that the drilling of any well is drilled for the purpose of

Article 4.6 it may be terminated at a lesser depth and shall be deemed to have

satisfied all the Concessionaire’s obligations in respect of that well.



4.8



During the drilling of Exploration Wells hereunder, the Concessionaire shall,

in accordance with applicable law, keep MIREM informed of the progress of

each well and shall:

(a)



as soon as reasonably possible, consult with MIREM regarding any

proposed well testing programme;



(b)



test potentially commercially viable horizons within the EPC Area

indicated by wireline logging or by other means of formation

evaluation; and



(c)



promptly undertake a technical evaluation of the said test results and of

all other relevant subsurface data and submit the same to MIREM as

soon as it has been completed.



4.9



The Minimum Expenditure obligations set forth in Articles 4.2, 4.3 and 4.4

shall not in respect of any period be satisfied unless the total Attributable

Expenditure for that period equals or exceeds the amount of the Minimum

Expenditure for that period; provided, however, that if, at the end of any

Exploration Period, the work commitment for that period has been completed

to the reasonable satisfaction of MIREM, the expenditure incurred by the

Concessionaire during that period shall be deemed to equal or exceed the

Minimum Expenditure for that period specified in Articles 4.2, 4.3 and 4.4 .



4.10(a) Minimum Expenditure guarantee

Without prejudice to the joint and several liability of the Persons constituting

the Concessionaire, each of the Persons constituting the Concessionaire shall

by no later than thirty (30) days after the Effective Date, and where this

14



EPC has been extended pursuant to Article 3.3, on the first day of each such

extension period, provide, in substantially the form shown in Annex “D” an

unconditional and irrevocable bank guarantee in respect of its share of the

Minimum Expenditure for the initial Exploration Period, or, as the case may

be the Minimum Expenditure obligations for any further Exploration

Periods, as the same may have been reduced by the provisions of Article

4.11. For the purpose of this Article 4.10(a), where a Person constituting the

Concessionaire has undertaken to fund payments in respect of Minimum

Expenditure which would otherwise have been payable by another Person

constituting the Concessionaire, the share of Minimum Expenditure of that

Person constituting the Concessionaire giving that undertaking will be

deemed to include the share of Minimum Expenditure for which such other

Person constituting the Concessionaire would have been liable if no such

undertaking had been given.

4.10(b) Parent Company guarantee

Without prejudice to the joint and several liability of the Persons constituting

the Concessionaire, each of the Persons constituting the Concessionaire shall

by no later than thirty (30) days after the Effective Date provide, in

substantially the form shown in Annex “E” an unconditional and irrevocable

parent company guarantee from an entity acceptable to MIREM in respect of

all its obligations under this EPC beyond the scope of the Minimum

Expenditure guarantee.



4.11



The amount of any bank guarantee given pursuant to applicable law or Article

4.10 shall be reduced at the end of every calendar quarter by an amount equal

to the Attributable Expenditure incurred by the Concessionaire during that

quarter in discharge of its obligations under Articles 4.2, 4.3 and 4.4.



4.12



If, at the end of the initial Exploration Period or at the end of any Exploration

Period, the Attributable Expenditure incurred by the Concessionaire during

that period does not and is not, pursuant to Article 4.9, deemed to equal or

15



exceed the Minimum Expenditure for that period, MIREM shall notify the

Concessionaire and shall, unless the full amount of the shortfall has been met

by the Concessionaire within fourteen (14) days of such notification, have the

right to call on said guarantee for the payment thereunder to MIREM of the

full amount of the shortfall.

4.13



In the event where the number of Exploration Wells drilled by the

Concessionaire during any Exploration Period exceed the number of wells

provided for in the work commitment for that period, as specified in Articles

4.2 and 4.3, the number of additional Exploration Wells drilled by the

Concessionaire during such Exploration Period may be carried forward and

treated as work undertaken in discharge of the Concessionaire’s commitment

to drill Exploration Wells during the succeeding period; provided, however, if

by reason of the provisions of this article the work commitment of the

Concessionaire for any period as specified in Articles 4.2, 4.3 and 4.4 have

been fully discharged by the Concessionaire before that period commences,

the Concessionaire, after consultation with MIREM, shall adopt a work

commitment for the period in question so as to ensure the continuity of

Petroleum Operations in, or in connection with, the EPC Area during that

period.



4.14



Otherwise than as provided in such articles, nothing in Articles 4.12 or

clause 4.13 shall be read or construed as extinguishing, postponing or

modifying any commitment of the Concessionaire to carry out seismic surveys

or to drill Exploration Wells pursuant to this Article.



4.15



Neither the Appraisal Wells nor seismic surveys carried out pursuant to an

Appraisal Programme drawn up pursuant to Article 6.2 nor the expenditure

incurred by the Concessionaire in carrying out such Appraisal Programme

shall be treated as discharging in whole or in part the Minimum Expenditure

obligations set out in Articles 4.2, 4.3 and 4.4.



4.16



Within forty five (45) days of the Effective Date and thereafter, for so long as

an Exploration Period subsists and at least ninety (90) days prior to the end of

16



each calendar year or at such other times as may be approved in advance by

MIREM, the Concessionaire shall prepare in reasonable detail and submit to

MIREM an Exploration work programme and budget for the remaining

portion of the calendar year or, for the subsequent calendar year, and a

proposed structure for the Concessionaire’s organisation for the conduct of

Exploration Operations in the EPC Area.

4.17



The Exploration work programme and budget prepared by the Concessionaire

shall be consistent with obligations under this article and shall set forth the

Exploration Operations which the Concessionaire proposes to carry out during

the remaining portion of the calendar year or, in the case of the programme

and budget for subsequent years, during the following calendar year. The

Concessionaire shall consider any recommendations made by MIREM in

respect thereof and after making such revisions thereto as the Concessionaire

considers appropriate submit the Exploration work programme and budget to

MIREM for information.



4.18



The Concessionaire may at any time amend the Exploration work programme

and budget submitted in accordance with Article 4.16, provided that the

amended Exploration work programme and budget are:

(a)



prepared in reasonable detail and submitted to MIREM, whose

recommendations in respect thereof shall be considered by the

Concessionaire; and



(b)



consistent with the Concessionaire’s obligations under this Article;

and



(c)



submitted to MIREM for information once the Concessionaire has

made such revisions as it deems appropriate after consideration of any

recommendations made by MIREM.



17



Article 5

Conduct of Petroleum Operations

5.1



The Concessionaire shall carry out Petroleum Operations in the EPC Area:

(a)



diligently and with due regard to Good Oil Field Practices;



(b)



subject to all applicable law, specifically the Petroleum Law and the

Regulations for Petroleum Operations;



(c)



in accordance with environmental and safety standards generally

accepted in the international petroleum industry and applicable from

time to time in similar circumstances;



(d)



in respect of any Development and Production Area in compliance

with the Development Plan for that Development and Production Area.



5.2



Where the Concessionaire is more than one Person any obligation of the

Concessionaire hereunder shall be a joint and several obligation of the Persons

who constitute the Concessionaire, save for the following each of which shall

be a several obligation of each of those Persons:



(a)



the obligation to pay Corporate Income Tax or any other tax assessed and

levied on profit or net income;



(b)



the obligation to observe stipulations relating to confidentiality set out in

Article 23 save in respect of their application to anything done or to be done

by the Operator in his capacity as such; and



(c)



the obligation to observe stipulations relating to foreign exchange set out or

referred to in Article 26, save in respect of their application to anything done

or to be done by the Operator in his capacity as such.



18



5.3



------ shall be the Operator. No change of the Operator may take effect unless

it has been approved in writing by MIREM.



5.4



Throughout the period of this EPC the Concessionaire or where more than

one Person constitutes the Concessionaire, the Operator shall ensure that it has

a general manager or another appointed representative who shall reside in the

Republic of Mozambique or such other country as may be mutually agreed by

all Parties. The Concessionaire or, as the case may be, the Operator shall

appoint the general manager or other representative and shall notify MIREM

of the identity of the individual so appointed within one hundred and twenty

(120) days after the Effective Date. If for any reason the individual so

appointed ceases to be general manager, the Concessionaire or, as the case

may be, the Operator shall as soon as practicable appoint a replacement

acceptable to MIREM and shall notify MIREM of the identity of the

replacement.



19



Article 6

Commercial Discovery and Development

6.1



Where, in the course of the Petroleum Operations, a Discovery of Petroleum is

made in the EPC Area, the Concessionaire shall as soon as reasonably possible

by notice inform MIREM whether or not, in its opinion, the said Discovery is

of potential commercial interest.



6.2



For a Discovery of potential commercial interest the Concessionaire shall

promptly prepare an Appraisal Programme and, after consultation with

MIREM, carry out such Appraisal Programme and submit a report of the

appraisal activities to MIREM within three (3) months after the completion of

the Appraisal Programme.



6.3



The Concessionaire shall submit for MIREM’s consideration and approval a

Development Plan for a proposed Development and Production Area for the

Discovery, so as to include such a Development and Production Area in a

single area, so far as the boundaries of the EPC Area permit, the entire area of

the Petroleum Reservoir or Reservoirs in respect of which a Declaration of

Commerciality has been given.



6.4



If Commercial Production of a Discovery has not commenced within a period

of ------ (--) years, or such longer period as may be specified in an approved

Development Plan, from the date on which the Development Plan is approved,

then the rights and obligations of the Concessionaire over the Development

and Production Area to which the Discovery relates shall be extinguished as

though the said area had been surrendered pursuant to Article 29. Such period

may be extended:

(a)



where the Concessionaire commenced promptly to implement the

Development Plan as soon as the Development Plan was approved and

has continued to diligently implement the Development Plan but at the

end of the ----- (----) year period or such longer period as is specified in



20



the approved Development Plan, has not yet commenced Commercial

Production; or

(b)



by the period of time that the commencement of Commercial

Production has been delayed for lack of any approval or permit

required to be obtained from the Government or any agency thereof

after the implementation of the Development Plan has begun and prior

to the commencement of Commercial Production and such delay is not

attributable to actions or omissions which are within the reasonable

control of the Concessionaire; or



(c)



by any period that may be necessary to give effect to Article 25.4.



21



Article 7

Relinquishment of Areas

7.1



Where, pursuant to a request by the Concessionaire under Articles 3.5 (a) and

(b), the Exploration Period is extended at the end of the Initial Exploration

Period or subsequently, the Concessionaire shall relinquish its rights:

(a)



at the commencement of the second Exploration Period of ------- (--)

months in respect of a portion of the EPC Area so that the area

retained, excluding what is already included in a Development and

Production Area or in a Discovery Area, does not exceed --------- per

cent



(b)



(--



%)



of



the



EPC



Area



on



the



Effective



Date;



at the commencement of a third Exploration Period of ------------- (--)

months in respect of a portion of the EPC Area so that the area

retained, excluding what is already included in a Development and

Production Area or in a Discovery Area, does not exceed ---- per cent

(--



(c)



%)



of



the



EPC



Area



on



the



Effective



Date;



at the end of the third Exploration Period in respect of the remainder of

the EPC Area other than any Development and Production Areas or

any area in respect of which the Exploration Period has been further

extended pursuant to Articles 3.5 (c) and (d).



7.2



For the purpose of this Article, a Discovery Area shall not include any area

which relates to a Discovery in respect of which:

(a)



the Concessionaire has notified MIREM that the Discovery is not

considered to be of potential commercial interest, is not commercial or is

no longer considered to be commercial.



(b)



a Development and Production Area has previously been delineated.



22



Article 8

Records and Reports

8.1



The Concessionaire shall prepare and, at all times while this EPC is in force,

maintain accurate and up-to-date records of its operations in the EPC Area.

The Concessionaire shall also furnish MIREM with such available

information, data and reports relating to the Petroleum Operations, as well as

assessments and interpretations relating to the Petroleum Operations all of

which as MIREM may reasonably require.



8.2



Well logs, maps, magnetic tapes, core and cutting samples and other

geological and geophysical information obtained by the Concessionaire in the

course of carrying out the Petroleum Operations shall be submitted to MIREM

and, save as provided in Article 8.3 or authorised pursuant to Article 23, may

not be published, reproduced or otherwise dealt with without the consent of

MIREM.



8.3



The Concessionaire may retain for its own use copies of material constituting

Documentation, with the approval of MIREM, and retain for its own use

original material constituting Documentation; provided that samples

equivalent in size and quality or, where such material is capable of

reproduction, copies have been supplied to MIREM. The Concessionaire may

freely export for processing or laboratory examination or analysis samples or

other original materials constituting Documentation; provided that samples

equivalent in size and quality or, where such material is capable of

reproduction, copies of equivalent quality have first been delivered to

MIREM.



8.4



The Concessionaire shall keep MIREM currently advised of all major

developments taking place during the course of the Petroleum Operations and

without prejudice to the generality of the foregoing the Concessionaire shall:

(a)



within forty five (45) days after the end of each calendar quarter

prepare and deliver a progress report to MIREM which shall contain a

23



narrative report of activities hereunder during such quarter with plans

and maps showing the places where the work described was done; and

(b)



within four (4) months after the end of each calendar year prepare and

deliver to MIREM an annual report which shall consolidate and where

necessary revise and amplify the quarterly progress reports furnished

in respect of that calendar year.



24



Article 9

Cost Recovery and Production Entitlement

9.1



The Concessionaire shall bear and pay all costs incurred in carrying out the

Petroleum Operations in which the Concessionaire participates, and the

Concessionaire shall recover such costs, to the extent permitted by the

provisions of Annex “C” of this EPC, and shall be remunerated exclusively by

means of an entitlement to quantities of Petroleum to which the

Concessionaire is entitled as herein provided.



9.2



The provisions related to cost recovery and profit entitlement set out in this

Article shall apply to Petroleum with effect that the Government and the

Concessionaire shall have title in undivided participating entitlement to the

Petroleum available for sale in any given period. Unless otherwise instructed

by Government the sale of such Petroleum shall take place on a joint dedicated

basis by the Concessionaire and the Concessionaire will hold those

entitlements in undivided proportions equal to the proportions in which during

that period each Party was entitled to Disposable Petroleum. Such instructions

shall not affect volumes of Petroleum subject to contract. Accordingly, the

proceeds from the sale on a joint dedicated basis of Petroleum in any given

period shall be divided between the Government and the Concessionaire in the

proportions in which they had title in undivided entitlements to the Petroleum

sold.



9.3



From the total quantity of Petroleum Produced, the Concessionaire may take a

portion thereof necessary to discharge the Concessionaire’s obligation for the

Petroleum Production Tax. The balance of Petroleum remaining after the

aforesaid portion has been set aside is hereinafter referred to as “Disposable

Petroleum”.



9.4



(a)



For purposes of the R-factor calculation, Disposable Petroleum and



Cost Petroleum shall be calculated in respect of the whole of the EPC Area.



25



(b)



Insofar as permitted by applicable law and this EPC, all costs incurred



by the Concessionaire in relation to Petroleum Operations, shall be recovered

from Disposable Petroleum, as available at the Delivery Point.

(c)



In addition, and in the event the Government and/or the Concessionaire



elect to take Profit Petroleum in kind, the Concessionaire shall, for accounting

and reporting purposes, record Cost Petroleum separately:

(i)



in respect of each Development and Production Area, and



(ii) in the form of liquids and gas, on a pro-rata basis relative to the

volumes of Petroleum Produced.

Condensate shall be taken in liquids or gas on the basis of its character at the

Delivery Point.

9.5



For each calendar year, all Recoverable Costs incurred by the Concessionaire

in relation to Petroleum Operations in the EPC Area shall be limited to --------percent (--- %) of Disposable Petroleum.



9.6



The Cost Petroleum for any quarter calculated in the manner aforesaid shall be

increased by:

(a)



the amount of any contributions made by the Concessionaire into the

Decommissioning Fund during such quarter; and



(b)



the costs incurred by the Concessionaire during such quarter to

implement an approved Decommissioning Plan prepared pursuant to

applicable law and the provisions of Article 15 save to the extent that,

such



costs



have



been



funded



by



withdrawals



from



the



Decommissioning Fund; and

(c)



provided that in no event shall the Cost Petroleum exceed the

Disposable Petroleum.



26



9.7



Costs, to the extent permitted by the provisions of Annex “C” of this EPC,

shall subject to Article 9.8, be recovered from Cost Petroleum:

(a)



in respect of the amount of Development and Production Capital

Expenditures stipulated in Annex “C” of this EPC incurred during each

year, by the recovery of such amount at a maximum yearly rate of

twenty five (25 %) on a linear depreciation basis, beginning in the year

in which such amount is incurred or in the calendar year in which

Commercial Production commences, whichever year is later;



(b)



in respect of costs attributable to Exploration as stipulated in Annex

“C” of this EPC (hereinafter referred to as “Exploration Costs”), by the

recovery of the full amount in the year in which they were incurred or

in the year in which Commercial Production commences, whichever

year is later; and



(c)



in respect of operating costs attributable to Petroleum Operations

stipulated as Operating Costs in Annex “C” to this EPC (hereinafter

referred to as “Operating Costs”) (including any contributions into the

Decommissioning Fund pursuant to applicable law, the provisions of

Article 15 and including any costs incurred by the Concessionaire to

implement an approved Decommissioning Plan prepared pursuant to

the provisions of applicable law save to the extent, in either case, that

such



costs



have



been



funded



by



withdrawals



from



the



Decommissioning Fund), by the recovery of the full amount in the year

in which they were incurred.

9.8



The costs which may be recovered in accordance with Articles 9.3 up to and

including 9.7 above are hereinafter referred to as “Recoverable Costs”.



9.9



To the extent that Recoverable Costs in any year exceed the value of Cost

Petroleum available in that year, the unrecovered excess shall be carried

forward for recovery in succeeding years.



27



9.10



The quantity of Cost Petroleum to which the Concessionaire is entitled in any

year shall be established on the basis of the value of the Petroleum Produced

during such year, determined in accordance with Article 10.



9.11



The balance of Disposable Petroleum available in any year after Recoverable

Costs have been satisfied to the extent and in the manner aforesaid, such

balance being hereinafter referred to as “Profit Petroleum”, shall be shared

between the Government and the Concessionaire according to a scale varying

with the value of the R-Factor, where:

(a)



R-Factor = (Cumulative Cash Inflows) n /

(Cumulative Capital Expenditures) n



(b)



Cumulative Cash Inflows n =

Cumulative Cash Inflows (n-1)

+ Concessionaire portion of Profit Petroleum n

+ Concessionaire’s Cost Petroleum n

- Operating Costs n

- Computed Corporate Income Tax n



(c)



Cumulative Capital Expenditures n =

Cumulative Capital Expenditures (n-1)

+ Exploration Costs n

+ Development and Production Capital Expenditures n



Where:

n is the current year; and (n-1) is the previous year;

Concessionaire’s Cost Petroleum is the amount of Recoverable Costs

actually recovered;

Computed Corporate Income Tax is the Concessionaire’s corporate tax

obligation computed according to applicable tax law and Article 11.



28



For the purpose of calculating the R-Factor, the first year (n=1) shall be the

year during which the Effective Date occurs. Any Capital Expenditures

incurred prior to the Effective Date shall not be deemed for the purpose of the

R-Factor calculation to have been incurred during the year for the Effective

Date.

The R-Factor shall be calculated on the last day of each calendar year and the

applicable ratio shall determine the sharing of Profit Petroleum throughout the

following calendar year.

The scale for Profit Petroleum is as follows:

R-Factor

less than one

equal to or greater than one

and less than --equal to or greater than --and less than --Equal to or grater than --and less than --Equal to or grater than ---9.12 (a)



Government’s

Portion

--- %

--- %



Concessionaire’s

Portion

--- %

--- %



--- %



--- %



--- %



--- %



--- %



--- %



If there is a breach of the warranty set out in Article 11.6 or in the



event that after the Effective Date there is a change in the laws of the Republic

of Mozambique of the kind referred to in Article 11 and as a result the Parties

meet to agree on changes to be made to this EPC, then during the period

starting when the change in the law comes into effect and ending when an

agreement between the Parties is reached pursuant to Article 11, the portion of

Profit Petroleum to which the Concessionaire and the Government would

otherwise be entitled shall be adjusted so that the net revenues to be received by

the Concessionaire from Petroleum Operations are the same as they would have

been if no change in the law had taken place.

(b)



Where the Parties have reached agreement on the changes to be made to

this EPC pursuant to Article 11, this



29



EPC will be deemed to stand



amended to the extent necessary to give effect to that agreement in

accordance with its terms.

9.13



Concessionaire’s Cost Petroleum and Profit Petroleum calculations shall be

done for each calendar year on an accumulative basis. To the extent that actual

quantities and expenses are not known, provisional estimates based on the

approved work programme and operating and capital budgets shall be used.

Until such time as the value of Petroleum attributable to a year is determined,

the calculations will be based on the value of such Petroleum during the

preceding year and in the absence of such value, on the value agreed to

between MIREM and the Concessionaire. Adjustments shall be made during

the succeeding year based on actual Petroleum quantities, prices and expenses

in relation to such year.



9.14



Any person constituting the Concessionaire, excluding ----- or a Permitted

Assignee, shall pay all costs properly incurred under this EPC in relation to the

State Participation Interest (herein referred to as “Carry”) subject to the

following conditions:



a) In the event of a third party acquiring a Participating Interest in the EPC, such

third party shall be obliged to take over a proportionate share of the Carry.

b) The Carry shall be limited to all costs incurred by the Concessionaire in

discharging its obligations under this EPC, up to and including the date upon

which the Development Plan relating to that Carry has been approved.

c) The Carry shall be used exclusively to pay for costs properly incurred under

this EPC in relation to the State Participation Interest . Save for in respect of a

transfer to a Permitted Assignee, ---- may not assign directly or indirectly the

benefits derived under Carry. Any transfer of the Carry requires the prior

written approval of MIREM. The term “Permitted Assignee” means for the

purpose of this Article a Mozambican Person or the Government.



30



d) From the date of commencement of Commercial Production, ----- and any

entity designated by the Government to manage the State Participation Interest

portion shall reimburse in full the Carry in cash or in kind to the Persons

constituting the Concessionaire. Such reimbursement shall be calculated as

and taken from the Cost Petroleum of said Person having benefited from the

Carry. All amounts owed up to approval of the Development Plan resulting

from the Carry shall be subject to payment of interest in United States Dollars

calculated at the LIBOR rate pluss one (1) percentage point, as published by

the Wall Street Journal or, if not published therein, then by the Financial

Times of London. Should a rate not be quoted for a relevant date (such as

weekends or public holidays), then the first subsequent quoted rate shall be

used.



31



Article 10

Valuation of Petroleum

10.1



The value of Petroleum referred to in Articles 9 and 11 shall, to the

extent such Petroleum consists of Crude Oil, be determined at the end

of each calendar month commencing with the calendar month in which

Commercial Production of Crude Oil begins. To the extent such

Petroleum consists of Natural Gas it shall be determined at the end of

each calendar month commencing in which commercial delivery at the

Delivery Point begins.



10.2



A value for each separate export grade of Crude Oil will be:

(a) in the case of sales to non-Affiliated Companies, the weighted

average price per barrel at the Delivery Point of each separate

export grade of Crude Oil being the prices FOB within the meaning

defined in Incoterms 2000, at which such Crude Oil has been sold

by



the



Concessionaire



during



that



calendar



month;



or



(b) If the Concessionaire sells the Crude Oil to a third party on terms

different from FOB (as per Incoterms 2000), then for the purpose

of this EPC, a calculated net-back FOB price shall be applied. The

net-back FOB price shall be established by deducting from the

price agreed the actual and direct costs incurred by the

Concessionaire in fulfilling the obligations under their sales

contract additional to those obligations included under a FOB

contract.

(c) in the case of sales to Affiliated Companies, such price as agreed

between MIREM and the Concessionaire on the basis of adding the

following two factors together:

(i)



the weighted average calendar month FOB price for

Brent rated Crude Oil, or such other appropriate marker

32



Crude Oil for the production in question for the period

in question. The weighted average will be based on the

days in each calendar month when a closing price is

reported in Platts Oilgram price report. Days such as

weekends and holidays with no price reports will be

ignored;

(ii)



a premium or discount to the price of the Brent rated

Crude Oil, or such other appropriate marker Crude Oil

for the production in question to be determined by

reference to the quality of the Crude Oil produced from

the EPC Area and the cost of moving such Crude Oil to

the market.



10.3



In any case in which MIREM and the Concessionaire are unable to agree a

price under Article 10.2 (c), in order to determine the premium or discount

referred to therein the following procedures shall be undertaken:

(a)



MIREM and the Concessionaire shall submit to each other their

assessments of the premium or discount together with an explanation

of the key factors taken into consideration in assessing the premium or

discount;



(b)



if the premium or discount submitted by each of MIREM and the

Concessionaire are within ten United States Cents (10 US ¢) per barrel

of each other the average will be taken for the purposes of setting the

final value of the Crude Oil;



(c)



if the premium or discount submitted by each of MIREM and the

Concessionaire differ by more than ten United States Cents (10 US ¢)

per barrel each will resubmit a revised premium or discount to the

other on the third (3rd) business day after the first exchange of

information;



33



(d)



if the premium or discount submitted by each of MIREM and the

Concessionaire on the second exchange of information are within ten

United States Cents (10 US ¢) per barrel of each other the average will

be taken for the purposes of setting the final value of Crude Oil;



(e)



if the premium or discount submitted on the second exchange of

information differ by more than ten United States Cents (10 US ¢) per

barrel the matter shall, in accordance with Article 30.6, be referred for

determination by a sole expert who shall establish a price based on the

criteria set out in Article 10.2(c) but always within the range

established



10.4



by



the



Parties



under



Article



10.3(d).



The value calculated for Natural Gas Produced from reservoirs within the EPC

Area shall be:

(a)



in the case of sales to non-Affiliated Companies, the weighted average

price per Gigajoule of commercial specification Natural Gas at the

Delivery Point at which such Natural Gas has been delivered by the

Concessionaire during that calendar month, shall be the weighted

average price per Gigajoule of all other commercial specification

Natural Gas delivered during the same calendar month from reservoirs

subject to the jurisdiction of the Republic of Mozambique and the

weighted average of posted or publicly available prices for alternative

fuels to Natural Gas for large scale industrial consumers including

power generators in the market where such has been delivered to

ultimate customers.



(b)



in the case of sales to Affiliated Companies, such price as stipulated in

sub-paragraph a) above for sales to non-Affiliated Companies or such

price agreed between MIREM and the Concessionaire.



10.5.



In the event that the Government enters into a commercial Gas and/or Crude

Oil Sales Agreement with the Concessionaire for the purchase by the

Government of Crude Oil and/or Natural Gas from the Concessionaire, such

34



sales shall be at a price no higher than the price of Crude Oil and/or Natural

Gas sold to Affiliated Companies from the EPC Area as determined in terms

of this Article 10.



35



Article 11

Fiscal Terms and Other Charges

11.1



The Concessionaire and its Subcontractors shall, save to the extent they are

exempt therefrom, be subject to all applicable legislation of the Republic of

Mozambique which impose taxes, duties, levies, charges, fees or

contributions, except to the extent that it is exempt there from.



11.2



During the term of this EPC, the Concessionaire and its Subcontractors are

entitled to the rights of Tax and Customs Incentives in terms of Law No.

3/2001, of 21 February as defined in the Code of Fiscal Benefits (CFB),

approved by Decree No. 16/2002, of 27 June. The Concessionaire and its

Subcontractors shall be exempt from the following taxes, duties, imposts, and

other

(a)



charges:

Customs Duties with regard to the importation of goods destined to be

used in Petroleum Operations, vehicles and other imported supplies,

but excluding light vehicles for transport of passengers in accordance

with



(b)



article



44



paragraph



a)



of



the



CFB;



Payment of duties and other customs and fiscal charges on goods

temporarily imported for use in Petroleum Operations, such as drilling

rigs, machinery, equipment, aircraft and boats in accordance with

article



(c)



44



paragraph



b)



of



the



CFB;



Customs duties on the exportation of the goods referred to in the

preceding paragraph once the goods no longer are needed for the

Petroleum Operations in accordance with article 44 paragraph c) of

the



(d)



CFB;



Customs duties and custom charges with regard to the exportation of

Petroleum Produced in the Republic of Mozambique in accordance

with



article



44



paragraph



36



d)



of



the



CFB;



and



(e)



The imports and exports referred to in the preceding paragraphs shall

also benefit from an exemption from the Value Added Tax (VAT) as

provided in the VAT Code approved by Decree No. 51/98, of 29

September in accordance with article 44 paragraph e) of the CFB.



11.3



The Expatriate Personnel of the Concessionaire and its Subcontractors shall be

exempt under this EPC from:

(a)



Any and all taxes on or related to the income of non resident Expatriate

Personnel of the Concessionaire or its Subcontractors or any other tax

of a similar nature imposed on the work earnings of such Expatriate

Personnel;



(b)



Customs Duties and other levies payable on the importation of

personal and household effects of Expatriate Personnel and their

dependants imported into the Republic of Mozambique on first arrival,

provided that those Customs Duties shall become payable on such

items upon their sale in the Republic of Mozambique to a person who

is not exempt from such duties. The Expatriate Personnel shall have

the right to export from the Republic of Mozambique free of any

Customs Duties and levies the aforesaid personal and household

effects imported by them, within the conditions stipulated in the

Customs Tariff.



11.4



For the purpose of this EPC, the listed imposts (“Listed Imposts”) are:

(a)



The Corporate Income Tax (IRPC) which shall be levied in accordance

with Decree No. 21/2002, of 30 July, as the same may be amended

from time to time but always subject to Articles 11.9 and 9.13, and

shall be payable by the Concessionaire or, where the Concessionaire is

more than one entity, payable by each of the entities constituting the

Concessionaire who shall be separately assessed and charged. The

following provisions shall apply to IRPC levied in respect of income

derived from Petroleum Operations hereunder:

37



(i) In determining the net income of the Concessionaire for the purposes

of calculating IRPC in any year of tax , or if the Concessionaire is

more than one entity, the net income of any entity constituting the

Concessionaire, depreciation shall be applied as follows:

(aa)



Depreciation shall be deducted at the rates indicated below,



beginning in the year in which the expenditure is incurred or

Commercial Production commences, whichever year is the later:

- in respect of expenditure on Exploration Operations,

including the drilling of Exploration and Appraisal Wells,

at one hundred percent (100%);

-



in respect of capital expenditure on Development and

Production Operations at the annual rate of twenty five

percent (25%) of such expenditure on a linear depreciation

basis;



-



in respect of operating expenditure, at one hundred percent

(100%).



(bb)



The Concessionaire, or if the Concessionaire is more than one



entity, any entity constituting the Concessionaire, may in any year elect

to defer depreciation wholly or partly. In exercising the election to

defer, the Concessionaire, or if the Concessionaire is more than one

entity, any entity constituting the Concessionaire, shall notify the

competent entity in the Ministry of Finance not later than end of

February after the end of the year in question, of its intention to defer

depreciation. In such



notice, the Concessionaire, or if the



Concessionaire is more than one entity, any entity constituting the

Concessionaire, shall specify:



38



-



the rate at which it intends to depreciate expenditure on

Exploration Operations or operating expenditures

during the year in question, such rate not being in

excess of one hundred percent (100%); and



-



the rate at which it intends to depreciate capital

expenditure on Development and Production Operations

during the year in question, such rate not being in

excess of twenty five percent (25%).



The rate notified by the Concessionaire or, if the Concessionaire is

more than one entity, any entity constituting the Concessionaire shall

only apply to the year specified in the notice. Depreciation in future

years shall be made at the rate set in Article 11.5(a)(i)(aa) unless a

further written notice under this article is submitted.

(ii)



Deferred depreciation, being the difference between the allowed rate and

the rate notified by the Concessionaire, or if the Concessionaire is more

than one entity, any entity constituting the Concessionaire, as the rate it

intends to use during the year in question, may be taken as a deduction

against net income in any future year. The Concessionaire, or if the

Concessionaire is more than one entity, any entity constituting the

Concessionaire, shall notify the competent entity in the Ministry of

Finance in writing not later than the end of February after the end of the

year in question of its intent to take such deferred depreciation during such

year;



(iii) Expenditure for professional training of Mozambican workers, shall be

deductible from the net income during five (5) years up to five percent

(5%) of taxable income for the purposes of calculating IRPC in accordance

with article 18 paragraph 1 of the CFB.

(iv) The Concessionaire shall be exempt from stamp duties for incorporation

activities and for any alterations to the social capital and the articles of

39



association for a period of five (5) years from start of operations in

accordance with article 20 of the CFB.

(v)



The Concessionaire shall benefit from a reduction of 50% on real property

transfer tax (SISA) on the acquisition of real estate, provided this was

acquired in the first three (3) years from the date of authorisation of the

investment, or start of operations in accordance with article 21 of the CFB.



(vi) For the purpose of calculating liability for IRPC , a loss incurred by the

Concessionaire in any year may be carried forward for up to six (6) years

after the year in which such loss is incurred.

(b)



Customs Duties and other levies and taxes not otherwise exempted under this

Article 11;



(c)



Levies, charges, fees or contributions which are non discriminatory and are

levied in return for the provision of specific identifiable services or goods by

the Republic of Mozambique or use of facilities owned by the Republic of

Mozambique or any state company, such as without limitation, water,

electricity, port usage and similar services or goods;



(d)



Taxes, duties, levies, charges, fees or contributions provided they are imposed

under laws of general application, do not discriminate or have the effect of

discriminating against the Concessionaire and are of a minor nature. For the

purpose of this article a tax, duty, levy, charge, fee or contribution shall not be

treated as being of a minor nature if either alone or in combination with any

other tax duty, levy, charge, fee or contribution not falling under Articles

11.5(a), (b), or(c), it would result in a charge in excess of United States

Dollars two hundred and fifty thousand (US$250,000) in any one (1) year or

United States Dollars five hundred thousand (US$500,000) in any continuous

period of five (5) years;



(e)



Non resident foreign Subcontractors of the Concessionaire conducting

activities in connection with Petroleum Operations pursuant to this EPC shall

40



be subject to a withholding tax at the single flat rate of ten percent (10%) of

the gross amount of the payments of its invoices in respect of the work or

services it performed for the Concessionaire. The Concessionaire responsible

to make payments of such invoices shall calculate the amount of income tax

due as Subcontractor IRPC on this basis, and shall withhold such income tax

from the payments made to the foreign Subcontractor and immediately pay

such withheld income tax to the competent entity of the Ministry responsible

for tax collection in fiscal area of the Concessionaire on behalf of the foreign

Subcontractor in accordance with the periods established by the law;

(f)



No taxes shall be imposed or withheld with respect to payments to any non

resident foreign Subcontractor other than as provided under Article 11.4 e).



11.5



(a)



In accordance with the Petroleum Law and Decree No. 19/04, of 2

June, the Concessionaire shall deliver to the Government in kind as

Petroleum Production Tax:

(i)



in respect of Natural Gas produced from deposits in the EPC

Area onshore, a quantity of five percent (5%) of the Natural

Gas; in respect of Crude Oil produced from deposits in the EPC

Area located onshore, a quantity of eight percent (8%) of the

Crude Oil;



(ii)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth less than one hundred (100) metres, a

quantity of four percent (4%) of the Natural Gas, and in

respect of Crude Oil produced from deposits in the EPC Area

in water depth less than one hudred (100) metres, a quantity of

seven percent (7%) of the Crude Oil ;



(iii)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth equal to or in excess of one hundred (100)

metres and less than five hundred (500) metres, a quantity of

three percent (3%) of the Natural Gas, and in respect of Crude

41



Oil produced from depositis in the EPC Area in water depth

equal to or in excess of one hundred (100) metres and less than

five hundred (500) metres , a quantity of five percent (5%) of

the Crude Oil;

(iv)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth equal to or in excess of five hundred (500)

metres, a quantity of two percent (2%) of the Natural Gas, and

in respect of Crude Oil produced from deposits in the EPC

Area at a water depth equal to or in excess of five hundred

(500) metres , a quantity of three percent (3%) of the Crude

Oil;



provided always that the rate of Petroleum Production Tax for a Petroleum

Deposit shall be a composite rate for Natural Gas and a separate composite

rate for Crude Oil where such Petroleum Deposit in the EPC Area does not lie

entirely within one of the water depth categories established by Articles

11.5(a)(i) to (iv) above, such composite rates being established pro rata with

the amount of Petroleum in place estimated to be in each of the relevant water

depth categories, and being established at the time of the approval of the

appropriate Development Plan and not subject to change thereafter; provided

that if a Development Plan is amended, then this amended Development Plan

may include a revised composite rate for Natural Gas and revised composite

rate for Crude Oil for such Petroleum Deposits in the EPC Area and such

revised composite rates shall apply from the beginning of the year following

the date the amended Development Plan is approved. In the case of a revision

to the composite rates as provided aforesaid, in no circumstances shall any

retroactive adjustments be made to the amount of the Petroleum Production

Tax calculated prior to the time of the approval of the amended Development

Plan.

(b)



The Concessionaire shall, pursuant to Article 13 of the Regulations relating to

Petroleum Production Tax attached to Decree No. 19/04, of



2 June, or



subsequent applicable legislation deliver to the competent entity in the

42



Ministry of Finance and MIREM, not later than the 20th (twentieth) day of

each calendar month and with respect to the previous month, a statement of:

(i)



the quantity of Crude Oil and the quantity of Natural Gas

produced in that calendar month;



(ii)



the quantities of Crude Oil and the quantities of Natural Gas

sold in that calendar month;



(iii)



the quantities of Crude Oil held in storage at the beginning and

the end of the calendar month;



(iv)



the quantity of Crude Oil and the quantity of Natural Gas

inevitably lost;



(v)



the quantity of Crude Oil and the quantity of Natural Gas

flared, escaped, re-injected or used in Petroleum Operations;



(vi)



the quantity of Crude Oil and the quantity of Natural Gas on

which Petroleum Production Tax is due;



(vii)



the quantity of Petroleum Production Tax deliverable for that

calendar month and the particulars of the calculation thereof;

and



(viii)



any other information relevant for the calculation of Petroleum

Production Tax for Crude Oil and for Natural Gas.



(c)



The Government may, in lieu of the Petroleum Production Tax deliverable in

kind referred to in this Article 11.5, by one hundred and eighty (180) days

notice require the Concessionaire to pay to the Government each month fully

or partly in cash the relevant percentage of the value, ascertained in

accordance with the provisions of Article 11, of the Crude Oil and the Natural

Gas which has been produced from the EPC Area in that month.

43



(d)



The Petroleum Production Tax for a given calendar month in respect of Crude

Oil and in respect of Natural Gas and the respective payments in cash are

deliverable or payable before the end of the following calendar month.



(e)



Payment in cash of the percentage specified in the relevant notice given under

Article 11.5(c) shall continue until the Government delivers a further written

notice as provided in Article 11.5(c) providing revised instructions to the

Concessionaire.



11.6



The Government warrants that in respect of Petroleum Operations or income

derived from Petroleum Operations, on the Effective Date there were no taxes,

duties, levies, charges, fees or contributions other than the listed imposts and

the taxes in respect of which the Concessionaire and its Subcontractors are

exempt under Articles 11.2 and 11.3.



11.7



In the exercise of its rights and benefits regarding the exemption from

Customs Duties on import and export stipulated under this Article, the

Concessionaire shall comply with the applicable procedures and formalities

duly imposed by law.



11.8



Nothing in the provisions set out in this Article 11 shall be read or construed

as imposing any limitation or constraint on the scope, or due and proper

enforcement, of Mozambican law of general application which does not

discriminate, or have the effect of discriminating, against the Concessionaire,

and provides in the interest of safety, health, welfare or the protection of the

environment for the regulation of any category of property or activity carried

on in Mozambique; provided, however, that the Government will at all times

during the life of the Petroleum Operations ensure in accordance with Article

28, that measures taken in the interest of safety, health, welfare or the

protection of the environment are in accordance with standards generally

accepted from time to time in the international petroleum industry and are not

unreasonable.



44



11.9



In the event that, after the Effective Date, any other tax is introduced in the

Republic of Mozambique which is not of the type set out in Article 11 and, as

a result, there is an adverse effect of a material nature on the economic value

derived from the Petroleum Operations by the Concessionaire, the Parties will,

as soon as possible thereafter, meet to agree on changes to this EPC which will

ensure that the Concessionaire obtains from the Petroleum Operations,

following such changes, the same economic benefits as it would have obtained

if the change in the law had not been effected.



45



Article 12

Production Bonuses

The Concessionaire shall pay the following production bonuses to the Government,

which shall not be a recoverable cost for the purposes of Annex “C” of this EPC:



Production Bonuses

payable in US Dollars

At the Commencement of Initial Commercial



$ ------.00



Production

When production from the EPC Area first reaches



$ ------.00



25,000 BOE per day average for a month

When production from the EPC Area first reaches



$ ------.00



each further tranche of 25,000 BOE per day

average for a month

For the purpose of this Article:

(i)



“Commencement of Initial Commercial Production” means the date on

which Commercial Production has been sustained for a period of thirty

(30) consecutive days from the EPC Area; and



(ii)



“BOE” means the equivalent number of Barrels of Crude Oil resulting

when Natural Gas is converted to Crude Oil on the basis of one (1)

Barrel of Crude Oil for each six thousand (6,000) standard cubic feet

of Natural Gas.



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Article 13

Lifting Arrangements

13.1



(a)



The Concessionaire shall subject to provisions regulating the

production and sale of Petroleum be entitled to lift and export freely its

entitlement to Petroleum Produced under this EPC.



(b)



Each Party shall take its entitlement to Petroleum consistent with Good

Oilfield Practices at an approximately regular rate throughout each

calendar year.



(c)



Not later than ninety (90) days prior to the date scheduled for the

commencement of Commercial Production, the Parties shall establish

offtake procedures covering the scheduling, storage and lifting of

Petroleum and such other matters as the Parties shall agree. Such

procedures shall be consistent with Good Oil Field Practices.



13.2



Notwithstanding Article 9.2 or instructions given in accordance with Article

9.2, the Government may by six (6) months notice given to the Concessionaire

or Operator require the Concessionaire or Operator to sell on behalf of the

Government during the succeeding calendar year unless otherwise instructed

the whole or any portion of the volume of Petroleum Production Tax taken in

kind and when applicable Profit Petroleum



not previously committed to



which the Government is entitled pursuant to this EPC during said succeeding

year. The quantity of such Profit Petroleum, which the Government desires to

sell shall be specified in said notice. The Concessionaire or Operator shall sell

that quantity of Petroleum on the open market at the best price reasonably

obtainable and remit the proceeds of the sale directly and forthwith to the

Government.



The Concessionaire or Operator shall not charge the



Government any fee for the selling of the Petroleum of the Government.



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Article 14

Conservation of Petroleum and Prevention of Loss

14.1



The Concessionaire shall, before carrying out any drilling, prepare and submit

for review by MIREM a well programme including a contingency plan

designed to achieve rapid and effective emergency response in the event of a

blow-out or fire, escape, waste or loss of Petroleum or damage to Petroleum

bearing strata.



14.2



In the event of a blow-out or fire, escape, waste or loss of Petroleum or

damage to Petroleum bearing strata, the Concessionaire shall notify MIREM

within twenty four (24) hours of becoming aware of such occurrence,

promptly implement the relevant contingency plan and as soon as practicable

thereafter submit a full report thereon to MIREM.



14.3



Without prejudice to the obligations of the Concessionaire under Article 29, in

the case of relinquishment or surrender by the Concessionaire or termination

of the rights of the Concessionaire pursuant to this EPC, the Concessionaire

shall within ninety (90) days from the date of such relinquishment, surrender

or termination, in respect of the whole of the EPC Area or, as the case may be,

any part of the EPC Area which has been relinquished or surrendered:

a)



plug or close off, in a manner consistent with Good Oil Field Practices,

all wells drilled as part of the Petroleum Operations unless otherwise

agreed between MIREM and the Concessionaire.



(b)



take all action necessary, in accordance with Good Oil Field Practices,

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

environment resulting from conditions in the EPC Area or, as the case

may be, any part thereof caused by Petroleum Operations, being

conditions which were or ought with reasonable diligence to have been

evident at the time of relinquishment, surrender or termination.



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Article 15

Decommissioning

15.1



If in the reasonable expectation of the Concessionaire, the Concessionaire will

cease to produce Petroleum under this EPC from the EPC Area, the EPC

expires, is revoked or surrendered the Concessionaire shall submit to MIREM

for approval a Decommissioning Plan. The Decommissioning Plan shall be

prepared in accordance with applicable law and shall include but not be

limited to:

(a)



particulars, separately set out in respect of each Development and

Production Area, of measures to be taken, to effect decommissioning

including but not limited to:

(i)



decommissioning of equipment and installations for each

Development and Production Area;



(ii)



timely removal of equipment and installations not required for

ongoing Petroleum Operations in any other Development and

Production Area; and



(iii)



any other steps that may reasonably be required in order to

prevent hazard to human life, or to the property of others or to

the environment.



(b)



estimates of the time required to complete operations under the plan;



(c)



a budget for operations under the plan, including particulars of the

costs of decommissioning equipment and installations;



(d)



a schedule of breakdowns from the Decommissioning Fund in order to

meet the costs of implementing the plan; and



(e)



such environmental, engineering and feasibility studies as may be

necessary to support the proposed plan.



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15.2



The Decommissioning Plan shall be prepared in compliance with applicable

law and the provisions of Article 28 and shall ensure that decommissioning is

conducted in a manner which will give effect to standards generally

recognised as applicable in the international petroleum industry and the

Concessionaire’s standards for decommissioning.



15.3



In the event that the Concessionaire does not submit a Decommissioning

Plan to MIREM within the time allowed MIREM may serve upon the

Concessionaire a notice requiring the Concessionaire to submit to MIREM,

within a period of ninety (90) days from date on which the notice was

served, a Decommissioning Plan. If within that period no Decommissioning

Plan is submitted, MIREM may commission consultants of international

standing to prepare a Decommissioning Plan.



15.4



A Decommissioning Plan prepared by a consultant in accordance with

applicable law and this article shall be implemented by the Concessionaire in

accordance with its terms as though it were an obligation of the

Concessionaire set forth in Article 28. The cost of commissioning engineering

consultants to prepare a Consultant’s Plan shall be payable by the

Concessionaire and may be recovered as a debt due to the Government.



15.5



In the event that the Concessionaire considers that production from a

Development and Production Area will cease before a Decommissioning Plan

has been prepared, decommissioning measures for that Development and

Production Area will be prepared by the Concessionaire in accordance with

the requirement for decommissioning set out in Articles 15.3 and 15.4, and

where those measures have been approved by MIREM will take effect as an

amendment to the Development Plan for that Development and Production

Area.



15.6



Not later than the date on which a Decommissioning Plan has been approved

by MIREM the Concessionaire shall establish in a bank of its choice an

interest bearing United States dollar account or such other currency account to



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be mutually agreed by the Parties to be denominated as the Decommissioning

Fund into which the Concessionaire shall pay from time to time funds to meet

the estimated costs of implementing an approved Decommissioning Plan.

15.7



The Concessionaire will not withdraw money from the Decommissioning

Fund save for the purpose of meeting the costs of implementing an approved

Decommissioning Plan and all statements relating to the Decommissioning

Fund provided by the bank from time to time shall be copied to MIREM.



15.8



Payments into the Decommissioning Fund shall be cost recoverable in

accordance with provisions applicable to this EPC.



15.9



Costs



incurred



by the



Concessionaire



to implement an approved



Decommissioning Plan shall be cost recoverable in accordance with

provisions in that regard set out in Article 9 and for the purpose of IRPC shall

be treated as an operating expense save where, in either case, such costs have

been funded by withdrawals from the Decommissioning Fund.

15.10 Any funds remaining in the Decommissioning Fund after the approved

Decommissioning Plan has been completed shall be treated as Profit

Petroleum and the remaining balance shall be shared in accordance with the

provision of Article 9.7.

15.11 In the event that at the time of implementing any Decommissioning Plan there

are insufficient funds available in the Decommissioning Fund to fund the

operations of that plan, the shortfall shall be met in full by the Concessionaire.



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Article 16

Insurance

16.1



The Concessionaire shall effect and maintain, in respect of Petroleum Operations,

unless otherwise agreed between the Parties, all insurance required by applicable

laws and regulations of the Republic of Mozambique or any other applicable law

and such other insurance as MIREM and the Concessionaire may agree from time

to time. Such insurance shall at least include insurance against the following

risks:

(a)



loss or damage to all Installations and equipment which are owned or used

by the Concessionaire in the Petroleum Operations;



(b)



pollution caused in the course of the Petroleum Operations by the

Concessionaire for which the Concessionaire may be held responsible;



(c)



property loss or damage or bodily injury suffered by any third party in the

course of the Petroleum Operations by the Concessionaire for which the

Concessionaire may be liable to indemnify the Government;



(d)



the cost of removing wrecks and cleaning up operations following an

accident in the course of the Petroleum Operations by the Concessionaire;

and



(e)



the Concessionaire’s and/or the Operator’s liability for its employees

engaged in the Petroleum Operations.



16.2



In relation to Development and Production Operations, the Concessionaire shall

submit to MIREM a programme for the provision of an “All Risks” insurance

which may, inter alia, cover physical damage to the facilities under construction

and installation as well as legal liabilities arising out of the Development and

Production Operations.



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16.3



Any insurance required to be effected by the Concessionaire pursuant to the

provision of Articles 16.1 and 16.2 may, at the Concessionaire’s discretion and

subject to the approval of MIREM, be provided by one or more of the following

options:

(a)



non-insurance wherein the Concessionaire itself carries the risks and no

premia are charged; provided, however, that in the case of any losses or

damages resulting from a risk where the Concessionaire has elected to noninsure, such losses or damages shall not be recoverable costs for the

purpose of Annex “C”of this EPC;



(b)



insurance through an insurance company wholly owned by the Operator or

the Concessionaire in which case the premia charged shall be at prevailing

international insurance market rates;



(c)



the Concessionaire utilising for the benefit of Petroleum Operations

insurance which is placed as part of a global coverage in which case the

premia charged shall be at the rates obtained for such global coverage; or



(d)



subject to Article 19, insurance through the international insurance markets

at prevailing rates, provided that:

(i)



an insurance company wholly owned by the Operator or a

Concessionaire may participate in any internationally placed

insurance or reinsurance; and



(ii)



the Concessionaire shall have the option to tender and effect all

appropriate reinsurance for any insurance placed through insurance

companies registered in the Republic of Mozambique.



16.4



Unless otherwise approved by MIREM, the Concessionaire shall competitively

tender all renewable insurances placed into the international markets at least once

every three (3) years.



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16.5



The Concessionaire shall require its Subcontractors to carry equivalent insurance

of the type and in such amount as is required by law and is customary in the

international petroleum industry in accordance with Good Oil Field Practices.



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Article 17

Natural Gas

17.1



The Concessionaire shall have the right to use Natural Gas extracted from

reservoirs within the EPC Area for the Petroleum Operations in the EPC Area

including but not limited to power generation, pressure maintenance and recycling

operations.



17.2



The terms and conditions relating to the use and production of Associated Natural

Gas shall be as follows:

(a)



In the event the Concessionaire elects to process and sell Associated

Natural Gas, the Concessionaire shall notify MIREM and, for the purposes

of cost recovery and entitlement of production, such Natural Gas shall be

treated by the Parties in the same way as other Natural Gas.



(b)



In the event the Concessionaire elects not to process and sell Associated

Natural Gas not used for purposes stipulated in Article 17.1 or paragraph

(c) below, the Government may offtake without any payment to the

Concessionaire but at the Government’s sole risk and cost, such Natural

Gas at the gas/oil separator; provided that such offtake does not seriously

disrupt or delay the conduct of the Petroleum Operations.



(c)



The Concessionaire may re-inject any Associated Natural Gas which is not

taken by Government pursuant to paragraph (b) above, used for Petroleum

Operations, processed and sold by the Concessionaire, or taken by

Government in accordance with paragraph (b) above, and the costs of such

disposal shall be recoverable to the extent that such re-injection is included

in the Development Plan.



17.3



The terms and conditions relating to the Appraisal Program and the commercial

assessment of the production and sale of Non-Associated Natural Gas shall be as

follows:



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(a)



On completion of an Appraisal Programme relating to a Discovery of NonAssociated Natural Gas made by the Concessionaire and the submission of

an appraisal report thereon, the “Commercial Assessment Period” shall, if

the Concessionaire so requests, commence and shall continue in respect of

any Discovery Area for a period of ----- (--) years, exercisable at the sole

option of the Concessionaire.



An extension may be granted upon



application by the Concessionaire to the Government, for a second period

of up to ------- (--) years. An appraisal report submitted under this article

shall include the estimated recoverable reserves, projects delivery rate and

pressure, quality specifications and other technical and economic factors

relevant to the determination of a market for available Natural Gas. The

Concessionaire may, at any time during the Commercial Assessment

Period, inform the MIREM by notice that the Petroleum Reservoir located

in any Discovery of Non-Associated Natural Gas made by the

Concessionaire in respect of which an appraisal report has been submitted,

is commercial.

(b)



If the Concessionaire does not request a Commercial Assessment Period

pursuant to paragraph (a) above within ninety (90) days from the date on

which the appraisal report was submitted, the Concessionaire shall inform

the MIREM by notice whether any Discovery of Non-Associated Natural

Gas made by the Concessionaire in respect of which an appraisal report

has been submitted, is commercial.



Where the Concessionaire pursuant to this article gives notice that any Discovery

of Non-Associated Natural Gas made by the Concessionaire is commercial, that

notice shall, for the purpose of this EPC, be a notice of Commercial Discovery.

17.4 The Commercial Assessment Period shall end on the first to occur of:

(a)



the date following that on which Concessionaire gives a Notice of

Commercial Discovery under Article 17.3;



(b)



the date that the Concessionaire voluntarily surrenders the Discovery Area

to which the Commercial Assessment Period relates; or



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(c)

17.5



expiry of the period to which Concessionaire is entitled to under Article

17.3.



The Concessionaire shall be deemed to have relinquished all rights to the

Discovery of Associated Natural Gas if it has not given a notice of Commercial

Discovery under Article 17.3 by the end of the Commercial Assessment Period or

on earlier relinquishment of that portion of the EPC Area.



17.6



The Concessionaire shall be responsible for investigating market opportunities and

seek to develop a market for Non-Associated Natural Gas produced from any

Development and Production Area and shall sell such Non-Associated Natural

Gas on a joint dedicated basis on terms common to all the parties constituting the

Concessionaire. Every contract for the sale of such Non-Associated Natural Gas

made by the Concessionaire under this article shall be subject to approval by the

MIREM. In applying for such approval the Concessionaire shall demonstrate to

the MIREM that the prices and other terms of sale of such Natural Gas represents

the market value obtainable for such Natural Gas, taking into consideration a fair

market cost for transporting the Natural Gas from the Delivery Point to the

purchaser and having regard to the alternative uses and markets that can be

developed for such Natural Gas.



17.7



With its application for approval of any gas sales contract, pursuant to Article

17.6, the Concessionaire may apply in respect of any Development and Production

Area from which Non-Associated Natural Gas will be produced for sale under that

gas sales contract, for an extension of the Development and Production Period and

where such extension is necessary to facilitate the sale of gas under any such

contract the MIREM will grant the same.



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Article 18

Employment and Training

18.1



Subject to the Government’s security review of any individual entering

Mozambique and the procedures and formalities of the law relating to

immigration the Government shall provide the necessary permits or other

approvals required for the employment and admission into the Republic of

Mozambique of Expatriate Personnel employed by the Concessionaire or its

Subcontractors for the purpose of this EPC.



18.2



In the conduct of the Petroleum Operations, the Concessionaire shall endeavour to

utilise citizens of the Republic of Mozambique having appropriate qualifications

to the maximum extent possible at all levels of its organisation, as SubContractors or employed by Sub-Contractors.



In this connection, the



Concessionaire shall, in consultation with MIREM, propose and carry out an

effective training and employment programme for its Mozambican employees in

each phase and level of operations, taking account of the requirements of safety

and the need to maintain reasonable standards of efficiency in the conduct of the

Petroleum Operations.



Such employees may be trained in the Republic of



Mozambique or abroad as required by the training programmes prepared by the

Concessionaire.

18.3



The Concessionaire shall co-operate with MIREM in giving a mutually agreed

number of Government employees the opportunity to participate in training

activities provided by the Concessionaire for its employees, specifically for

Government



18.4



employees



or



any



of



its



Affiliated



Companies.



In order for MIREM to monitor the fulfilment of the employment and training

obligations contained in this article, the Concessionaire shall annually submit its

recruitment and training programmes to MIREM.



18.5



The Concessionaire shall pay ----- millions United States dollars (US$ --,000,000) to the Government . This amount may be used as institutional support

to the entities involved in promotion and Exploration and administration of



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Petroleum Operations. Such payment shall be made within thirty (30) days from

the Effective Date to such entities in accordance with the instruction provided by

the representative of the Government designated in this EPC.

18.6 (a)



During the Exploration Period, the Concessionaire shall pay to the

Government -------------- United States Dollars (US$ -----------) per year,

to be spent on training and institutional support programmes within the

Government. The first payment shall be made on the anniversary of the

Effective Date within the Exploration Period of this EPC and subsequent

payment shall be made on the anniversaries thereof.



b)



During the Development and Production Period the Concessionaire shall

pay to the Government ------- United States Dollars (US$ --------) per year

to be spent on training and institutional support programmes within the

Government. The first payment shall be made within thirty (30) days from

the approval of the first Development Plan and subsequent payments shall

be made on the anniversary thereof.



18.7



The Concessionaire shall include as part of the Development Plan proposals for

the activities required to satisfy the obligations contained in Article 18.3 during

the Development and Production Period.



18.8



The sums expended by the Concessionaire to satisfy the obligations contained in

this article shall be recoverable costs for the purpose of Annex “C”of this EPC.



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Article 19

Indemnification and Liability

19.1



The Concessionaire shall indemnify and hold the Government harmless from and

against any and all claims instituted against the Government by third parties in

respect of injury, loss or damage caused by the Concessionaire in the conduct of

the Petroleum Operations in which the Concessionaire participates.



19.2



The Government shall indemnify and hold the Concessionaire, its Subcontractors

and any of its Affiliated Companies harmless from and against any and all claims

instituted against the Concessionaire, its Subcontractors and any of its Affiliated

Companies by third parties in respect of injury, loss or damage caused by the acts

or omissions of the Government in its commercial capacity.



19.3



No Party hereto shall settle or compromise any claim for which another Party is

responsible hereunder without the prior consent of such other Party, and in the

event that it does so, the indemnity aforesaid shall not have effect in relation to the

claim so settled or compromised.



19.4



Notwithstanding anything to the contrary in this EPC, the Concessionaire, its

Subcontractors and any of its Affiliated Companies carrying out such Petroleum

Operations on behalf of the Concessionaire shall not be liable to the Government

and the Government shall not be liable to the Concessionaire, for consequential

loss or damage including but not limited to inability to produce Petroleum, loss of

production or loss of profit.



19.5



Subject to Article 19.4, in carrying out Petroleum Operations under this EPC the

Concessionaire shall be liable for any injury, loss or damage suffered by the

Government and caused by the Concessionaire or by any Affiliated Company or

Subcontractor carrying out Petroleum Operations on behalf of the Concessionaire

if such injury loss or damage is the result of the Concessionaire’s failure to meet

the standards required by this EPC.



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Article 20

Title

Title to the Concessionaire’s entitlement of Petroleum Produced under this EPC shall

pass to the Concessionaire at the Wellhead.



Thereafter the Government and the



Concessionaire shall own the Petroleum jointly, and in undivided shares, until each takes

individual title to and delivery of its entitlement of Petroleum at the Delivery Point.



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Article 21

Rights of Inspection

MIREM shall have the right at its own cost, save for transport and accommodation to be

provided by the Concessionaire, to post duly appointed representatives on site on a

permanent basis at metering stations, provided that such appointed representatives shall

not interfere with any Petroleum Operations.



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Article 22

Accounting and Audits

22.1



The Concessionaire shall be responsible for maintaining accounting records of all

costs, expenses and credits of the Petroleum Operations in accordance with the

provisions of Annex “C” of this EPC. The said accounting records shall be kept in

the Republic of Mozambique.



22.2



MIREM shall have the right to audit and inspect the Concessionaire’s accounting

records in accordance with the provisions of Annex “C”.



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Article 23

Confidentiality

23.1



This EPC, the Documentation and other records, reports analyses, compilations,

data, studies and other materials



(in whatever form maintained, whether



documentary, computer storage or otherwise) are confidential (hereinafter referred

to as “Confidential Information”) and except as authorised by applicable law or

this article shall not be disclosed to any third party without the prior written

consent of all the Parties hereto, which consent shall not be unreasonably

withheld.

23.2



Nothing in this article shall prevent the disclosure of Documentation, excluding

the Concessionaire’s interpretations and assessments, to a third party by MIREM:

(a)



if it relates to an area which is no longer part of the EPC Area; or



(b)



with the written consent of the Concessionaire, which shall not be

unreasonably withheld if, in the judgment of MIREM, the Documentaion

might have significance for the assessment of prospectivity in an adjoining

area over which MIREM is offering Exploration rights.



23.3



Restrictions on disclosure imposed by this article shall not apply to a disclosure

made reasonably:

(a)



if it is required for the purpose of any arbitration or legal proceedings or

claim relating to this EPC or to the Petroleum Operations;



(b)



to a Subcontractor, or consultant in connection with the conduct of

Petroleum Operations;



(c)



by the Concessionaire or Operator to a third party where such disclosure is

essential to the safe conduct of Petroleum Operations;



(d)



to an Affiliated Company;



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(e)



by the Concessionaire to a third party for the purpose of entering into a

contract for data exchange with another entity operating in Mozambique

where all data exchanged relates to Petroleum Operations within

Mozambique;



(f)



by any Person constituting the Concessionaire to a bona fide intending

assignee of an interest under this



EPC or an interest in any Person



constituting the Concessionaire;

(g)



to a third party in connection with and for the purpose of the sale or

proposed sale of Petroleum from the EPC Area;



(h)



to a third party in connection with the financing or proposed financing of

Petroleum Operations;



(i)



which is required by any applicable law or by the rules or regulations of

any recognised stock exchange on which shares of the disclosing Party or

any of its Affiliated Companies are listed; or



(j)



if, and to the extent that, it is already public knowledge without improper

disclosure hereto.



Any Confidential Information disclosed pursuant to paragraphs (b), (d), (e), (f) or

(h) of this Article 23.3 shall be disclosed on terms that ensure that such

Confidential Information is treated as confidential by the recipient.

23.4



None of the Persons constituting the Concessionaire shall be required to disclose

any of its proprietary technology or that of their Affiliated Companies or

proprietary technology of a third party licensed to the Persons constituting the

Concessionaire or the Operator.



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Article 24

Assignment

24.1



Subject to Article 9.14 and this Article the Concessionaire, and where the

Concessionaire is more than one Person every Person who constitutes the

Concessionaire, may assign to another Person its rights and obligations

hereunder or an undivided proportionate part thereof. The same applies to

other direct and indirect transfers of interest or participation in the EPC,

including, inter alia, assignment of shareholdings or any legal instrument

which provides or may provide decisive control over a Person constituting the

Concessionaire or its Participating Interest in this EPC. Save as provided in

Article 24.2, an assignment shall require the prior written consent of the

Minister.



24.2



No consent shall be required by the Minister in case of an assignor who is not

in material breach of any of the terms and conditions hereof in respect of an

assignment:

(a)



as a result of an Assignment Notice served on a Defaulting Participant

under this EPC; or



(b)



if required to give effect to the default procedures under a joint

operating agreement concluded in relation to the Petroleum

Operations.



24.3



Each assignment made pursuant to this article shall be effected by an

instrument in writing to be executed by the assignee on terms whereby such

assignee accepts and agrees to become a Person constituting the

Concessionaire and to be bound by the terms and conditions of this EPC

including all appurtenant documents required by an administrative decision or

applicable law and free of any transfer charge or fees.



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24.4



No unitisation pursuant to this EPC or applicable law or any adjustment to the

portion of the unitised Discovery allocated to the EPC Area shall be

considered to be an assignment under this article.



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Article 25

Force Majeure

25.1



The non-performance or delay in performance, wholly or in part, by the

Government or the Concessionaire of any obligation under this



EPC



excepting an obligation to make payments hereunder, shall be excused if, and

to the extent that, such non-performance or delay is caused by Force Majeure.

25.2



For the purpose of this EPC, the term Force Majeure means any cause or

event beyond the reasonable control of, and not brought about at the instance

of, the Party claiming to be affected by such event, and which has caused the

non-performance or delay in performance. Without limitation to the generality

of the foregoing, events of Force Majeure shall include natural phenomena or

calamities including but not limited to , epidemics, earthquakes, typhoons,

fires, wars declared or undeclared, transboundary hostilities, blockades, civil

unrest or disturbances, and unlawful acts of government.



25.3



The Party claiming suspension of its obligations under this EPC on account of

Force Majeure shall:

(a)



promptly notify the other Parties of the occurrence thereof;



(b)



take all actions that are reasonable and legal actions to remove the

cause of Force Majeure but



nothing herein shall require the



Concessionaire, subject to applicable law, to resolve any labour dispute

except on terms satisfactory to the Concessionaire; and

(c)



upon removal or termination thereof, promptly notify the other Parties

and take all reasonable action for the resumption of the performance of

its obligations under this EPC as soon as possible after the removal or

termination of Force Majeure.



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25.4



Where under this EPC the Concessionaire is required or has the right to do

any act or to carry out any programme within a specified period or the rights

of the Concessionaire hereunder are to subsist for a specified period the

specified period shall be extended so as to take reasonable account of any

period during which by reason of Force Majeure the Concessionaire has been

unable to carry out the programme necessary to exercise a right, carry out its

obligations or enjoy its rights hereunder.



25.5



Where a Force Majeure situation continues for more than fifteen (15)

consecutive days, the Parties shall meet forthwith in order to review the

situation and to agree on the measures to be taken for the removal of the cause

of Force Majeure and for the resumption in accordance with the provisions of

this EPC of the performance of the obligations hereunder.



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Article 26

Foreign Exchange Control

26.1



The Concessionaire shall at all times comply with the procedures and

formalities relating to dealings in foreign exchange which may be in force in

the Republic of Mozambique from time to time and the Government

undertakes to ensure that those procedures and formalities will not in any way

diminish the rights accorded to the Concessionaire under Articles 26.2 to

26.7.



26.2



The Concessionaire shall have the right but not the obligation:

(a)



to open and keep one or more accounts denominated in Mozambican

currency with any bank in the Republic of Mozambique authorised by

Banco de Moçambique for this purpose and, except as otherwise

provided in Article 26.5, to dispose freely of the sums deposited

therein without restriction.

Such accounts may be credited only with:

(i)



the proceeds of the conversion into Mozambican currency

pursuant to



Article 26.2(c) of United States dollar funds



deposited in the accounts referred to in Article 26.2(b);

(ii)



the unused balance of any sum drawn from such account; and



(iii)



amounts received in Mozambican currency in respect of funds

related to Petroleum Operations including sale of Petroleum or

of any rental, refund or other credit received by the

Concessionaire which apply to any charge made to the accounts

under this EPC.



(b)



to open and keep one or more accounts denominated in United States

dollars, with any bank in the Republic of Mozambique authorised by



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Banco de Moçambique for this purpose, to freely import and deposit

into such account funds required for the conduct of Petroleum

Operations and to freely dispose of the sums deposited therein without

restriction, provided always that such accounts are credited only with

sums deposited in United States dollars;

(c)



to purchase Mozambican currency from banks in the Republic of

Mozambique or elsewhere, authorised by Banco de Moçambique for

this purpose.



26.3



(a)



The Concessionaire and the Operator acting on behalf of the

Concessionaire shall have the right to open and keep one or more

accounts with any bank outside the Republic of Mozambique, in any

foreign currency, and freely dispose of the sums deposited therein

without restriction, with funds from any source, except that such

accounts shall not be credited with the proceeds of the sale of

Mozambican currency without the prior consent of the appropriate

exchange control authority of the Government Funds generated by the

sale within the Republic of Mozambique of Petroleum or of assets held

in respect of Petroleum Operations may be credited to the aforesaid

accounts without the need for prior consent.



(b)



Save in respect of funds needed by the Concessionaire to discharge its

obligations under this EPC to the Government, which payments may

be made out of proceeds deposited in such offshore accounts, the

Concessionaire shall have the right to retain abroad all proceeds and

payments under this EPC received in said bank accounts, and to

dispose freely of the same without any obligation to convert the whole

or any part of such proceeds and payments to Mozambican currency or

to otherwise repatriate the same or any part thereof to the Republic of

Mozambique.



26.4



Any Subcontractor, including Mozambican Subcontractors if duly authorised,

and any of the Expatriate Personnel of the Concessionaire, the Operator or of



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any Subcontractors, shall be entitled to receive in any currency other than

Mozambican currency the whole or any part of his compensation outside the

Republic of Mozambique.

26.5



This foreign exchange regime shall not apply to --------- or its legal successor,

in the event that same is a Mozambican Person, as a Person constituting

Concessionaire under this EPC, which shall be subject to the regime set forth

in applicable law.



26.6



The payment of principal, interest and/or costs due on funds and loans in

foreign currency may not be made out of funds deposited in the accounts

opened and kept under Article 26.2(a).



26.7



The Concessionaire may receive, remit and retain abroad and freely dispose of

all or any part of the proceeds realised from the sale of its share of Petroleum,

including the portion of Crude Oil for the recovery of costs and the Profit

Petroleum to which it is entitled.



26.8



It is understood that the Persons constituting Concessionaire shall without

restriction have the right to declare and pay dividends to their shareholders and

to remit to a place outside Mozambique proceeds earned by the

Concessionaire in respect of Petroleum Operations carried out in

Mozambique.



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Article 27

Nature and Extent of the Rights of the Concessionaire

27.1



Subject to any right that the Government may have under the laws of

Mozambique for imperative reasons in the national interest to acquire Petroleum

to which the Concessionaire holds title, and the right of the Government to collect

Petroleum Production Tax in kind pursuant to Article 11.6 (d) the Concessionaire

may, by export or otherwise, freely sell or otherwise dispose of its entitlement to

Petroleum as provided for in this EPC.



27.2



The rights granted under this EPC to the Concessionaire and its Subcontractors

shall include the right of use and enjoyment of the land and maritime areas

encompassed in the EPC Area, for the purpose of conducting Petroleum

Operations. For that purpose Concessionaire may construct and operate such

works, facilities, platforms, structures and pipelines as may be necessary. Such

rights to be exercised by the Concessionaire provided, however, that the lawful

occupier of any land in the EPC Area shall retain any rights he may have to graze

stock upon or cultivate the surface of the land, except to the extent that such

grazing or cultivation interferes with Petroleum Operations in any such area. The

same applies to the Concessionaire with regard to Petroleum Operations, the

construction and operation of works, facilities, platforms, structures and pipelines

necessary placed in maritime areas or on the sea bed of the EPC. Such rights to be

exercised by the Concessionare, provided, however, that Persons shall retain

rights he may have to fishing or aquaculture, except to the extent such activities

interferes with Petroleum Operations in such area.



27.3



The right of the Concessionaire to use the land, maritime area or sea bed shall

continue to apply to acreage initially included within the EPC Area but

subsequently relinquished in accordance with the terms of this EPC where such

use is reasonably necessary for purposes of conducting Petroleum Operations in

the EPC Area then remaining under this EPC.



27.4



For the purposes of carrying out Petroleum Operations, the Concessionaire and

any Subcontractors shall have at all times access to and from the EPC Area and to



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any other area in the Republic of Mozambique where the Concessionaire has

acquired or constructed facilities, subject to Articles 27.8(g) and (h).

27.5



The rights of the Concessionaire under Articles 27.2, 27.3, 27.4, 27.6, and 27.8

shall be exercised reasonably so as to affect as little as possible the interests of any

lawful occupier of land in the EPC Area.



27.6



Where in the course of conducting Petroleum Operations in the EPC Area the

Concessionaire causes disturbance to the rights of the lawful occupier of any land

or causes damage to his growing crops, trees, buildings, stock or works the

Concessionaire shall pay to the lawful occupier compensation in respect of such

disturbance or damage.



27.7



Where in the course of conducting Petroleum Operations in the EPC Area the

Concessionaire causes disturbance to the rights of a Person having their fishing

fields or grounds occupied, aquaculture activities limited, fishing or aquaculture

equipment moved to less favourable locations from a maritime resource

management or commercial point of view, as well as having their equipment,

catch or harvest polluted or damaged the Concessionaire shall pay to the Person

affected compensation in respect of such disturbance or damage.



27.8



Where the amount of any compensation to be paid pursuant to Articles 27.6 and

27.7 is in dispute, the matter shall be referred for determination to a sole expert

pursuant to Article 30.6 as though it were a matter in dispute between the Parties.



27.9



For the purposes described in this Article the following rights are granted to the

Concessionaire subject to and in accordance with the provisions of the work

programme related thereto and applicable law:

(a)



to drill for water and impound surface waters and to establish systems for

the supply of water for the Petroleum Operations and for consumption by

its employees and its Subcontractors;



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(b)



with the consent of, and subject to such terms and conditions agreed with,

any Person having the right to dispose of such minerals, to carry away and

use for Petroleum Operations in Mozambique, materials such as gravel,

sand, lime, gypsum, stone and clay; provided that if the Person having the

right to dispose of the same is the Government or an agency of

Government;



(c)



to erect, set up, maintain and operate engines, machinery, pipelines,

gathering lines, umbilicals, storage tanks, compressor stations, pumping

stations, houses, buildings and all other constructions, installations, works,

platforms, facilities and other fixtures which are required in furtherance of

its Petroleum Operations;



(d)



to erect, set up, maintain and operate all communication and transportation

systems and facilities but shall not, save for temporary purposes, do so

unless drawings of and locations for their sites have been submitted to and

approved by the Government, under reasonable conditions of installation

and operation of such systems and facilities;



(e)



to erect, maintain and operate harbour and terminal facilities for use

exclusively in Petroleum Operations, together with the necessary means of

communication and transport between such facilities and any part of the

EPC Area; provided that the consent of the Government to the location of

such works shall first be obtained;



(f)



with respect to lands located outside of the EPC Area, to have the right of

way over land not in the beneficial occupation of any Person and in the

case of land in the beneficial occupation of the Government or any State

Company, agency or instrumentality of the Government to have right of

way on such reasonable terms and conditions as the Government and the

Concessionaire may agree; and



(g)



with respect to lands located outside of the EPC Area, to have, otherwise

than aforesaid, the use of land necessarily required for the conduct of



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Petroleum Operations with the agreement of the Person holding a right

affected, including the lawful occupier of land or, in the case of

unoccupied land or land occupied by the Government or any State

Company, agency or instrumentality of the Government on such

reasonable terms and conditions as the Government shall specify, provided

that if the Concessionaire is unable to reach agreement with the Person so

affected



on the terms and conditions for the use of any such right



including land the Concessionaire shall immediately notify the

Government. If the use of the rights by the Concessionaire is to be of a

temporary nature, not exceeding one (1) year, the Government shall

authorise such temporary use upon deposit by the Concessionaire with the

Government of a sum by way of compensation to such Person holding the

right for loss of use and damage to its interest. If the use is to be for a

period longer than one (1) year, the Government shall authorise the use by

the Concessionaire of the right in question upon deposit by the

Concessionaire with the Government of such sum by way of compensation

and shall direct appropriate proceedings to grant the Concessionaire the

right to use and legally utilize the right under the law from time to time in

force as if the Petroleum Operations were in all respects a work of public

utility.

27.10 The Concessionaire shall be subject to the procedures and formalities required by

applicable law for the exercise of the rights set forth in this Article.

27.11 (a)



In the event that the Government exercises any right it may have under the

laws of Mozambique to acquire for imperative reasons in the national

interest Petroleum belonging to the Concessionaire, the Government shall

give not less than forty five (45) days notice of the exercise of such right

and of the volumes it wishes to acquire, and the Concessionaire shall

supply the volumes so notified from the Petroleum to which the

Concessionaire is entitled under this EPC.



(b)



The Government shall pay the Concessionaire the full market value of the

Petroleum so acquired determined in accordance with Article 10.



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Payment for the Petroleum so acquired in any calendar month shall be

made in United States dollars within thirty (30) days after the end of that

calendar month. The Concessionaire may receive, remit and retain abroad

and freely dispose of all or any part of the sums so paid.

(c)



The Government shall not exercise its right to acquire Petroleum

belonging to the Concessionaire:

(i)



in respect of any month unless during that month the Government

is taking Petroleum Production Tax entirely in kind pursuant to

Article 11.5;



(ii)



unless it is also exercising the same right rateably among all

producers of Petroleum within the Republic of Mozambique (to the

extent practicable taking into account the geographical location of

the production in relation to the geographical location of the

requirements).



27.12 The Government undertakes that so long as this EPC subsists:

(a)



The Government, its political subdivisions, agencies and instrumentalities,

to the extent that they have or may acquire the power to do so, will not

expropriate, nationalise or intervene in the assets, rights, interests or any

other property of any kind of the Concessionaire held for the purpose of

Petroleum Operations including the rights held by the Concessionaire

hereunder.

Without prejudice to the rights of the Government acting through MIREM

to regulate Petroleum Operations in the Republic of Mozambique, for the

purpose of this undertaking, the Government shall be deemed to have

intervened in the property or assets of the Concessionaire if (otherwise

than in pursuant of a judgment or in exercise of its rights as a mortgage

creditor, or in accordance with the law of insolvency, liquidation or



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creditor’s rights) it assumes power of management over such property or

assets or exercises effective control of such property or assets.

(b)



In the event of a breach of Article 27.11(a), nothing in the provisions of

Article 19.5 shall be read or construed as preventing consideration of the

projected flow of profits (if any) from Petroleum Operations hereunder for

the purpose of determining the value of property or assets expropriated,

nationalised or made subject to intervention.



(c)



In the event that the Petroleum Law is repealed or amended, the

Government undertakes to ensure that this EPC remains in full force and

effect provided always that nothing in this provision will be construed as

requiring the Government to relieve the Concessionaire from compliance

with the provisions of applicable law relating to Petroleum Operations, not

incompatible herewith, which may be in force from time to time.



27.13 (a)



Where for the purpose of conducting Petroleum Operations hereunder the

Concessionaire, Operator or any Subcontractor requires from MIREM, the

Government or from any agency or instrumentality of the Government or

from a political subdivision thereof any approvals, licences, permits,

authorisations, consents or releases or any assistance, advice or guidance

relating to the above, then subject to the terms and conditions of this EPC,

the same shall be granted or given expeditiously and without undue delay.



(b)



Without prejudice to the generality thereof, the undertaking set out in

Article 27.12(a) shall apply to:





formalities relating to the import and export of goods including the

export of Petroleum Produced hereunder;







formalities relating to the use by the Concessionaire of any form of

transport for the movement of employees, equipment and materials

and to the use of communication and port facilities in the Republic

of Mozambique;



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the grant of permits or other approvals required for the admission

into and employment in the Republic of Mozambique of Expatriate

Personnel;







the grant of land rights or the permits or other approvals necessary

for the use of land in accordance with this Article 27;







the grant of rights to take or use water;







procedures and formalities relating to foreign exchange; and







approval of assignments and, to the extent required, transactions

relating to the shares of any Person constituting the Concessionaire.



The



Government



will



expedite



all



formalities



regarding



the



Concessionaire’s registration to do business in Republic of Mozambique

and the new registration of any leases, contracts or other documents. The

Government will, to the extent that circumstances and resources permit,

ensure that the Concessionaire and its employees and property enjoy

reasonable protection in Republic of Mozambique.



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Article 28

Protection of the Environment

28.1



The Government will at all times during the life of the Petroleum Operations

ensure in accordance with this article, that measures taken in the interest of

safety, health, welfare or the protection of the environment are in accordance

with standards generally accepted from time to time in the international

petroleum industry and are not unreasonable.



28.2



In carrying out Petroleum Operations hereunder the Concessionaire shall:

(a)



in accordance with accepted standards in the international petroleum

industry employ up-to-date techniques, practices and methods of

operation for the prevention of environmental damage, the control of

waste and the avoidance of unnecessary loss of, or damage to, natural

resources;



(b)



observe applicable laws and regulations of general application in force

from time to time in the Republic of Mozambique for the protection of

the environment; and



(c)



comply strictly with the obligations relating to the protection of the

environment it has assumed under any approved Development Plan .



28.3



The Concessionaire undertakes for the purposes of this



EPC to take all



necessary and adequate steps in accordance with Good Oil Field Practices to:

(a)



ensure, if the Concessionaire is otherwise legally responsible, proper

compensation for injury to Persons or damage to property caused by

the Petroleum Operations;



(b)



avoid irremediable environmental damage to the EPC Area and

adjoining or neighbouring lands and marine areas caused by the

Concessionaire’s Petroleum Operations; and



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(c)



rehabilitate at its own cost all areas that suffer environmental damage

as a result of the Petroleum Operations.



28.4



If the Concessionaire fails to comply with the terms of Articles 28.2 or 28.3

or contravenes any law on the prevention of environmental damage and such

failure or contravention results in any environmental damage, the

Concessionaire shall take all necessary and reasonable measures to remedy

such failure or contravention and the effects thereof.



28.5



(a)



If the Government has reasonable grounds to believe that any works or

installations erected by the Concessionaire or any operations carried

out by the Concessionaire in the EPC Area are endangering or may

endanger Persons or any property of any other Person or is causing

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

Government considers unacceptable, the Government shall notify the

Concessionaire of its concerns and the Government and the

Concessionaire shall immediately consult to agree on remedial

measures to be taken by the Concessionaire. Said remedial measures

will be undertaken within a reasonable period of time to repair any

damage and to prevent further damage to the extent reasonably

practicable. If there is a disagreement between the Government and

the Concessionaire regarding the existence of a problem of the type

described in this article or the remedial action to be taken by the

Concessionaire, such matter shall be submitted to a sole expert for

determination pursuant to Article 30.6.



(b)



in the case of any matter referred to a sole expert under Article 28.5(a),

if requested by the Government, the Concessionaire shall undertake

such temporary measures to address the Government’s concerns as

may be reasonably requested by the Government.



28.6



Without limitation to the generality of Articles 28.2, 28.3, 28.4 and 28.5, the

Concessionaire shall cause a consulting firm or individuals, approved by the



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Government on account of their special knowledge of environmental matters,

to carry out an environmental impact study on terms of reference determined

by the Concessionaire and approved by the Government, in order to establish

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

life in the EPC Area in consequence of the Petroleum Operations to be

undertaken under this EPC.

28.7



If the Concessionaire fails to comply with any terms contained in this article

within a reasonable period of time the Government may, after giving the

Concessionaire notice of such failure to comply and a reasonable period of

time necessary to take corrective action, take any action which may be

necessary to cure such failure, and recover, immediately after having taken

such action, all expenditure incurred in connection with such action from the

Concessionaire together with interest at the prevailing LIBOR rate. “LIBOR”

meaning the one (1) month term London inter-bank offered rate for United

States dollar deposits as published by the Wall Street Journal or, if not

published therein, then by the Financial Times of London. Should a rate not be

quoted for a relevant date (such as weekends or public holidays), then the first

subsequent quoted rate shall be used.



28.8



The Concessionaire and MIREM shall notify each other of any

environmentally, archaeologically, historically or similarly protected areas or

features which might be affected by the Petroleum Operations.



28.9



In the event that the Petroleum Operations is intended to be conducted within

the boundaries of any protected area within the EPC Area, the Concessionaire

shall obtain such additional approvals from the Government, as may be

required by applicable law.



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Article 29

Surrender and Cancellation

29.1



The Concessionaire on giving to MIREM not less than thirty (30) days notice

may:

(a)



if its obligations in respect of any Exploration Period have been

fulfilled, at any time thereafter surrender its rights in respect of the

entire EPC Area with the consequence that no new obligations will

thereafter accrue; and



(b)



at any time, surrender its rights in respect of any acreage forming part

of the EPC Area with the consequence that no new obligations will

thereafter accrue in respect of such acreage; provided, however, that:

(i)



no surrender by the Concessionaire of its rights over any part of

the EPC Area shall relieve the Concessionaire of any of its

obligations as set out in Article 4; and



(ii)



any area surrendered shall be continuously delineated by

meridians and parallels of latitude expressed in whole minutes

of a degree.



29.2



Unless otherwise provided in this article, the Government may, by notice to

the Concessionaire, cancel this EPC for the reasons given in the laws or

regulations, including in any of the following events:

(a)



the Concessionaire is in material breach of the terms and conditions of

this EPC;



(b)



the Concessionaire fails to materially comply within a reasonable

period of time with any final decision reached as a result of arbitration

proceedings conducted pursuant to Article 30.2 or fails within a

reasonable period of time to accept as final and binding the decision of



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a sole expert to whom, pursuant to this EPC, any matter has been

referred under Article 30.6;

(c)



where the Concessionaire is one Person, an order is made or a

resolution is passed by a court of competent jurisdiction winding up

the affairs of the Concessionaire unless the winding up is for the

purpose of amalgamation or reorganisation and the Government has

been notified of the amalgamation or reorganisation, or if without the

approval of the Government, the majority of the shares in the

Concessionaire are acquired by third parties other than an Affiliated

Company; or



(d)



the Concessionaire is more than one Person and all Persons who

constitute the Concessionaire are for the purpose of Article 29.3(a)

Defaulting Participants.



29.3



(a)



In the event that more than one Person constitutes the Concessionaire,

and in respect of any such Person (hereinafter in this article referred to

as the “Defaulting Participant”) an event occurs of the kind described

in Article 29.2(c) or any such Person (also hereinafter referred to as

the “Defaulting Participant”) is in material breach of an obligation

under this EPC which as provided in Article 5.2(a) is a several

obligation, the Government will not be entitled to cancel this EPC

pursuant to Article 29.2 or otherwise, unless all the Persons who

constitute the Concessionaire are Defaulting Participants, but may

subject to Article 29.4, serve on the Defaulting Participant a notice

(hereinafter referred to as an “Assignment Notice”).



(b)



Where an Assignment Notice has been served on a Defaulting

Participant, the Defaulting Participant shall forthwith, unconditionally,

without consideration, and free from all encumbrances assign its

undivided participating share in this EPC to the other Persons who

constitute the Concessionaire (the “Non-Defaulting Participants”) in

undivided shares in proportion to the undivided shares in which the



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Non-Defaulting Participants hold their shares in this EPC, and each of

the Non-Defaulting Participants shall be obliged to accept that

assignment. A Non-Defaulting Participant accepting such an

assignment shall not be responsible for any obligations of the assigning

Defaulting Participant to the Government, or any third party which

accrued prior to the assignment.

29.4



The Government may cancel this EPC pursuant to Article 29.2 or serve an

Assignment Notice under Article 29.3 only if:

(a)



the Government gives not less than ninety (90) days notice (the

“Notice”) to the Concessionaire or, as the case may be, the Defaulting

Participant, of an intention to cancel this



EPC or to serve an



Assignment Notice stating in detail in the Notice the alleged material

breach or other grounds for cancellation or service of an Assignment

Notice relied upon by the Government;

(b)



the Concessionaire or the Defaulting Participant is given a period of

thirty (30) days from its receipt of the Notice to provide any

information it wishes the Government to consider;



(c)



the Concessionaire or Defaulting Participant is given a period of sixty

(60) days from its receipt of the Notice:

(i)



to cure or remove such material breach or other grounds

specified in the Notice for cancellation or service of an

Assignment Notice; or



(ii)



if such material breach or other grounds aforesaid cannot be

cured or removed within such sixty (60) day period, to

immediately begin efforts to cure or remove the alleged

material breach or other grounds aforesaid and to diligently

pursue such efforts; or



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(iii)



where it is impossible to cure or remove such material breach

or other grounds aforesaid, to pay reasonable compensation to

the Government , in respect thereof; and



(d)



the Concessionaire or the Defaulting Participant either:

(i)



has failed within the said sixty (60) days to cure or remove such

material breach or other grounds aforesaid pursuant to Article

29.4(c)(i);



(ii)



has failed to diligently pursue efforts to cure or remove such

material breach or other grounds aforesaid pursuant to Article

29.4(c)(ii); or



(iii)



in the event that it is impossible to cure or remove such

material breach or other grounds aforesaid, has failed within the

said sixty (60) days to pay reasonable compensation;



and the Concessionaire or the Defaulting Participant has not

commenced arbitration proceedings pursuant to Article 29.5.

29.5



Any dispute between the Parties as to whether :

(a)



there are grounds under Article 29.2 on which this EPC may be

cancelled;



(b)



there are grounds under Article 29.3 on which an Assignment Notice

may be served on any Person;



(c)



the requirements of Article 29.4(a), (b) and (c) have been satisfied; or



(d)



the Concessionaire or, as the case may be, the Defaulting Participant

has remedied or removed a ground in respect of which this EPC may

be cancelled under Article 29.2 or an Assignment Notice served under



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Article 29.3 or whether full, prompt and effective compensation has

been paid in respect of grounds for cancellation or the service of an

Assignment Notice which are impossible to remedy or remove

shall be referred to arbitration under Article 30.

29.6



(a)



Where notice of a dispute has been given by the Concessionaire in

respect of any of the matters specified in Article 29.5, the Government

may not pursuant to Article 29.2 cancel this EPC until the matter or

matters in dispute have been resolved by an award and in that event

only if cancellation is consistent with the award rendered;



(b)



Where the existence of a material breach of the terms and conditions of

this EPC relates to a matter in dispute between the Government and

the Concessionaire which has been referred for determination by a sole

expert pursuant to Article 30.6, a notice served on the Concessionaire

pursuant to Article 29.4 may not rely upon that matter as a reason for

the intended cancellation of this



EPC until the sole expert has



determined the matter and in that event only if to do so would be

consistent with the way in which the matter has been so determined.



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Article 30

Consultation, Arbitration and Independent Expert

30.1



For the purpose of this Article there are two parties, the Government and the

Concessionaire.



30.2



A dispute shall be resolved, if possible, by negotiation between the Parties. A

notice of the existence of a dispute shall be given by a Party to another in

accordance with the provisions of Article 35. In the event that no agreement is

reached within thirty (30) days after the date one Party notifies the other that a

dispute exists, or such longer period that is specifically provided for elsewhere

in this EPC, either Party shall have the right to have such dispute determined

by arbitration or an expert as provided for in this Article 30. Arbitration and

expert determination as aforesaid shall be the exclusive method of determining

a dispute under this EPC.



30.3



Subject to the provisions of this Article 30, and save for any matter to be

referred to a sole expert as provided in Article 30.6, the Parties shall submit

any dispute arising out of or in connection with this EPC which cannot be

resolved by negotiation as provided in Article 30.2 to arbitration as hereinafter

provided:

(a)



all disputes referred to arbitration shall be finally settled under the

UNCITRAL Arbitration Rules in force at the Effective Date;



(b)



the seat of the arbitration shall be -----------, --------------, the law of the

merits of the arbitration shall be Mozambique law and the law

governing the arbitration agreement shall be Mozambican law. The

arbitration shall be conducted in the English language.

Notwithstanding Article 32, the English version of this EPC signed by

the Parties shall be used as the official translation in arbitral

proceedings;



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(c)



an award by an arbitrator or arbitrators shall be final and binding on all

Parties;



(d)



the arbitral panel shall be composed of three (3) arbitrators to be

appointed in accordance with the UNCITRAL Rules; provided that,

upon mutual agreement of both Parties, the arbitration may be

conducted by a sole arbitrator under the UNCITRAL Rules. Unless

both Parties have agreed that the dispute shall be settled by a sole

arbitrator, the claimant Party shall nominate in the notice of arbitration,

and the respondent Party shall nominate within thirty (30) days of such

notice, one (1) arbitrator pursuant to the UNCITRAL Rules. The

arbitrators so nominated shall agree on a third arbitrator, who shall act

as Chairman of the arbitral tribunal, within a period of not more than

thirty (30) days from the date on which the two arbitrators have been

appointed. If either Party fails to nominate an arbitrator as provided

above, or if the arbitrators nominated by the Parties fail to agree on a

third arbitrator within the period specified above, then the SecretaryGeneral of the Permanent Court of Arbitration of the Hague upon

request of either Party shall make such appointments as necessary in

accordance with the UNCITRAL Rules. If both Parties have agreed

that the dispute shall be settled by a sole arbitrator, the sole arbitrator

shall be nominated by agreement between them; provided that, if the

Parties are unable to agree on a nominee for sole arbitrator within

thirty (30) days from the date when the notice of arbitration was given

to the respondent Party, then the Secretary-General of the Permanent

Court of Arbitration upon request of either Party shall appoint the sole

arbitrator in accordance with the UNCITRAL Rules;



c)



insofar as practicable, the Parties shall continue to implement the terms

of this EPC notwithstanding the initiation of arbitral proceedings and

any pending disputes; and



(f)



the provisions set out in this Article 30.3 shall continue after the

termination of this EPC where notice of the existence of a dispute was

given under Article 30.3 prior to termination.



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30.4



An award or a decision, including an interim award or decision, in arbitral

proceedings pursuant to this Article 30 shall be binding on the Parties and

judgment thereon may be entered in any court having jurisdiction for that

purpose. Each of the Parties hereby irrevocably waives any defences based

upon sovereign immunity and waives any claim to immunity:

(a)



in respect of proceedings to enforce any such award or decision

including, without limitation, immunity from service of process and

from the jurisdiction of any court; and



(b)



in respect of immunity from the execution of any such award or

decision against the property of the Republic of Mozambique held for

a commercial purpose.



Parties in this Article 30.4 shall be understood to include each entity

comprising the Concessionaire.

30.5



Any matter in dispute of a technical nature not involving interpretation of law

or the application of this EPC or which is required to be referred to a sole

expert for determination under the provisions of this EPC (or with respect to

any other matter which the Parties may otherwise agree to so refer) shall be

referred by a Party giving notice to such effect pursuant to Article 35. Such

notice shall contain a statement describing the dispute and all relevant

information associated therewith. A sole expert shall be an independent and

impartial person of international standing with relevant qualifications and

experience appointed pursuant to the mutual agreement of the Parties. Any

sole expert appointed shall act as an expert and not as an arbitrator or mediator

and shall be instructed to resolve the dispute referred to him within thirty (30)

days of his appointment. Upon the selection of the sole expert, the Party

receiving the notice of referral above shall submit its own statement

containing all information it considers relevant with respect to the matter in

dispute. The decision of the sole expert shall be final and binding and not

subject to any appeal, save for fraud, mistake or miscarriage of justice. If the

Parties are unable to agree on the appointment of a sole expert within twenty



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(20) days after a Party has received a notice of referral under this article the

sole expert shall be selected by the President of the Institute of Energy,

London and the person so selected shall be appointed by the Parties.

30.6



The sole expert shall decide the manner in which any determination is made,

including whether the Parties shall make oral or written submissions and

arguments, and the Parties shall co-operate with the sole expert and provide

such documentation and information as the sole expert may request. All

correspondence, documentation and information provided by a Party to the

sole expert shall be copied to the other Party, and any oral submissions to the

sole expert shall be made in the presence of all Parties and each Party shall

have a right of response.



The sole expert may obtain any independent



professional or technical advice as the sole expert considers necessary. The

English version of this EPC signed by the Parties shall be used as the official

translation in any determination by the sole expert. The fees and expenses of a

sole expert appointed under the provisions of Article 30.5 shall be borne

equally by the Parties.

30.7



The Parties hereby agree not to exercise any right to institute proceedings

under any jurisdiction or law to set aside any interim or final arbitral award

made pursuant to this Article 30.



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Article 31

Applicable Law

31.1



This EPC shall be governed by and construed in accordance with the laws of

the Republic of Mozambique.



31.2



(a)



The Government and the Concessionaire agree to cooperate on

preventing corruption. The parties undertake to take administrative

disciplinary actions and rapid legal measures in their respective

responsibilities to stop, investigate and prosecute in accordance with

national law any person suspected of corruption or other intentional

misuse resource.



(b)



No offer, gift, payments or benefit of any kind, which would or could

be construed as an illegal or corrupt practice, shall be accepted, either

directly or indirectly, as an inducement or reward for the execution of

this EPC.



(c)



The above is equally applicable to the Concessionaire, its Affiliated

Companies, agents, representatives, sub-contractors or consultants

when such offer, gift, payments or benefit violate: (i) the applicable

laws of the Republic of Mozambique; (ii) the laws of the country of

formation of the Concessionaire or of its ultimate parent company (or

its principal place of business); or, (iii) the principles described in the

Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions, signed in Paris on December 17,

1997, which entered into force on February 15, 1999, and the

Convention's Commentaries.



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Article 32

Language

This EPC has been drawn up in the Portuguese and English languages and ------- (--)

originals of each text have been prepared for signature by the Government and the

Concessionaire. One (1) signed original of each text will be retained by the Parties.

Both the Portuguese and English text are binding. However, the Portuguese text will

prevail in case of conflict.



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Article 33

Joint Operating Agreement

33.1



A joint operating agreement shall be signed between Persons constituting the

Concessionaire immediately upon execution of this EPC.



33.2



The joint operating agreement is subject to the approval of the Government

and such an approval is a condition for the EPC.



33.3



Every other agreement than the joint operating agreement relating to the

Petroleum Operations made between the Persons who constitute the

Concessionaire shall be consistent with the provisions of this EPC and shall

be submitted to MIREM as soon as the same has been executed.



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Article 34

Future Agreements

It is understood that any written agreement which may at any time be concluded

between the Concessionaire on the one hand and the Government on the other, as may

be required or desired within the context of this EPC shall be deemed to have been

approved to the same extent as if it was originally included in this EPC.



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Article 35

Notices

35.1



All notices, invoices and other communications hereunder shall be deemed to

have been properly given or presented, if delivered in writing in person or by

courier or sent by facsimile confirmed by courier at the addresses indicated in

Article 35.2 with the charges associated with the delivery of the notice,

invoice or other communication being paid by the sender.



35.2



All such notices shall be addressed to the Government or the Concessionaire,

as the case may be, as follows:

(a)



The Government

MINISTÉRIO DOS RECURSOS MINERAIS

Prédio Montepio, Avenida Fernão de Magalhães, 34, 1st floor

Caixa Postal 4724

Maputo, Mozambique



(b)



Attention



:



Chairman of the National Petroleum Institute



Telephone



:



+258 21 320935



Telefax



:



+258 21 430 850



XYZ

----------------------------------------------------------------------Attention



:



General Director



Telephone



:



+ --------------------



Telefax



:



+ --------------------



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(c)



ABC

----------------------------------------------------------------------Maputo, Mozambique



35.3



Attention



:



Chairman



Telephone



:



+258 21 ------------



Telefax



:



+258 21 ------------



Subject to



Article 35.4 each Party hereto may substitute or change the



aforesaid address by giving written notice thereof to the others.

35.4



The Concessionaire shall at all times maintain an address in Maputo for the

purpose of service of notice.



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IN WITNESS WHEREOF, the Government and the Concessionaire have signed this EPC in

------- (--) originals in each of the Portuguese and English languages, as of the date first

herein above stated.



The Government

By:



_________________________________

Esperança Laurinda Francisco Nhiuane Bias

Minister of Mineral Resources



Date: _________________________________



XYZ

By:



_________________________________



Date: _________________________________



ABC

By:



_________________________________



Date: _________________________________



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