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Petroleum Agreement


Patos-Marinza Field








dated 19/06/, 2004











- between. -











Albpetrol $h.A.








- and -








Saxon International Energy Ltd.


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appHcable jurisdiction. This waiver includes immunity from (i) any expert determination,


mediation, or arbitration proceeding commenced pursuant to this Agreement; (ii) any judicial,


administrative or other proceedings to aid the expert determination, mediation, or arbitration


commenced pursuant So this Agreement; and (iii) any effort to confirm, enforce, or execute


any decision, settlement, award, judgment, service of process, execution order or attachment


(including pre-judgment attachment) that results from an expert determination, mediation,


arbitration or any judicial or administrative proceedings commenced pursuant to this


Agreement. Each Party acknowledges that its rights and obligations hereunder are of a


commercial and not a governmental nature.


26.12 Authority


Each entity which is a signatory to this Agreement warrants to the other that it has full power





and authority to enter this Agreement and that this Agreement constitutes a legal, valid and


binding obligation on it.


IN WITNESS HEREOF, the Parties have entered into this Agreement on the date first above


written






Albpetrol Sh.A
By:
Title:

Saxon International Energy Ltd. 
By:
Title:



















































































33 WM i-;


 TABLE OF CONTENTS





Page








PREAMBLE .....................................................................................................................I


ARTICLE 1 DEFINITIONS............................................................................................2


ARTICLE 2 SCOPE OF AGREEMENT, ANNEXES TO THE AGREEMENT...........7


ARTICLE 3 TERM.......................................................................................................10


ARTICLE 4 RELINQUISHMENTS.............................................................................13


ARTICLE 5 CONDUCT OF OPERATIONS...............................................................13


ARTICLE 6 EVALUATION.........................................................................................15


ARTICLE 7 DEVELOPMENT AND PRODUCTION................................................15


ARTICLE S ANNUAL PROGRAMS AND BUDGETS..............................................17


ARTICLE 9 ALB PETROL SHARE AND COST RECOVERY..................................18


ARTICLE 10 EMPLOYMENT.......................................................................................19


ARTICLE 11 TITLE TO ASSETS..................................................................................19


ARTICLE 12 RIGHTS AND OBLIGATIONS OF THE PARTIES..............................21


ARTICLE 13 TAXATION..............................................................................................23


ARTICLE 14 IMPORTS AND EXPORTS.....................................................................23


ARTICLE 15 BOOKS OF ACCOUNT, CURRENCY, EXCHANGE CONTROL


AND PAYMENTS...................................................................................24


ARTICLE 16 ASSIGNMENT.........................................................................................25


ARTICLE ] 7 FORCE MAJEURE..................................................................................26


ARTICLE 18 GOVERNING LAW.................................................................................27


ARTICLE 19 ARBITRATION.......................................................................................27


ARTICLE 20 ENVIRONMENTAL AND SAFETY MEASURES,


PREVENTION OF LOSS........................................................................28


ARTICLE 21 GOODS AND SERVICES.......................................................................29


ARTICLE 22 ABANDONMENT...................................................................................30


ARTICLE 23 CONFIDENTIALITY...............................................................................30


ARTICLE 24 TERMINATION.......................................................................................31


ARTICLE 25 AUDITS....................................................................................................32


ARTICLE 26 GENERAL PROVISIONS.......................................................................32








ANNEXES:


Annex A - Map and Geodetic Description of Contract Area


Annex B - Accounting Procedure


Annex C - Parent Company Guarantee


Annex D - Evaluation Program


Annex E- Instrument of Transfer


Annex F - Wei! Takeover Procedure





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 This Petroleum Agreement is entered into and delivered at Tirana, Republic of Albania, this


_______day of____,2004.





BETWEEN





Aibpetrol Sh.A.. a slate company organised and existing under


the laws of the Republic of Albania (hereinafter referred to as


"Albpetrot")





ON THE ONE PART





- and -


Saxon International Energy Ltd., a company organised and


existing under the laws of the Cayman Islands, and having a


branch registered in the Republic of Albania (hereinafter


referred to as "Contractor")





ON THE OTHER PART





PREAMBLE


WHEREAS, petroleum operations in the Republic of Albania are governed by Petroleum


Law No.7746 dated 28.7.1993 as amended by Law' No.7853 dated 29.7.1994 and by Law No.


8297 dated 04.03.1998 jointly cited as the Petroleum (Exploration and Production) Law'


1993, by Decree No. 782 dated 22.2.1994 on the Fiscal System in the Petroleum Sector


(Exploration-Production) as amended by' Law No.7811 dated 12.4.1994 on the Approval of


Decree No.782 on the Fiscal System in the Hydrocarbons Sector (Exploration-Production) as


well as by Decision No.445 dated 3,9.1993 on Setting Up the National Petroleum Agency


(the aforementioned legal documents are collectively referred to as "Petroleum Law'"); and


WHEREAS, in the Republic of Albania the state is the only owner of all natural resources


within its territory and offshore areas and has the right to explore, develop, extract, exploit


and utilise natural resources; and


WHEREAS, the National Petroleum Agency (hereinafter referred to as "NPA") on behalf of


the Ministry of Industry and Energy has the exclusive right to enter into a Incense Agreement


with Aibpetrol to perform all the Petroleum Operations described in this Agreement; and


WHEREAS, Aibpetrol is a party' to the Licence Agreement dated June 7,2004; and


WHEREAS, Contractor, Aibpetrol and the NPA have executed the instrument of Transfer,


conditional upon this Agreement becoming effective; and


WHEREAS, the Parties make this agreement to record the terms upon which Contractor will


join Aibpetrol in the conduct of the Petroleum Operations and become a party" to the above


mentioned Licence Agreement, and for related purposes; and


WHEREAS, Contractor has the adequate capital, technical and commercial capacity,


personnel and organizational capacity' required to successfully complete the operations


specified below; and


V


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WHEREAS, Contractor agrees to undertake its obligations stipulated hereinafter as a


contractor with respect to Petroleum Operations as defined in this Agreement; and


WHEREAS* the Parties each have the right, power and authority to enter into this


Agreement; and


WHEREAS, Contractor and Albpetrol intend this Agreement to record the terms upon which


Contractor will join Albpetrol in the conduct of Petroleum Operations and become a party to


the Licence Agreement, and for related purposes,


NOW, THEREFORE, the Parties hereto agree as follows:





Article 1


Definitions


In tliis Agreement, words in the singular include the plural and vice versa* and except where


the context otherwise requires the following terms shall have the meaning set out as follows:


1.1 "Abandonment" means the final abandonment through decommissioning, removal,


and/or disposal of wells and facilities used for Petroleum Operations and the rehabilitation of


the land in the immediate vicinity of an abandoned well lo a condition not worse than its


condition as of the time immediately before commencement of Petroleum Operations in


respect of such well or facilities, and the term “to Abandon” shall have the corresponding


meaning.


1.2 "Abandonment Costs" means costs and expenditures (whether of a capital or


operational nature) incurred or to be incurred in connection with the Abandonment of


facilities or equipment.


1.3 "Abandonment Plan" means a plan prepared by Contractor or anyone designated by


and on behalf of Contractor for the Abandonment of the wells, facilities and equipment used


for the Petroleum Operations.


1.4 "Accounting Procedure" means the procedures and reporting requirements set forth in


Annex B to this Agreement which forms and integrated and indivisible part hereof.


L5 "Affiliate" means a subsidiary company, a parent company or a sister company to a


Party' or an entity comprising a Party'. For The purposes of the foregoing definitions:


(a) a subsidiary company is a company controlled by a Party7 or an entity'





comprising a Party;


(b) a parent company is a company that controls a Party or an entity' comprising a


Party7;





(c) a sister company is a company that is controlled by the same Person as a Party


or an entity comprising a Party'.





"Contra?' means that a Person owns share capital, either directly or through other


Persons, which confers upon it a majority' of the votes at the stockholders’ meetings of the


company, which is controlled, ~


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1.6 "Agreement" means this Petroleum Agreement together with Annexes as may be


amended from time to time by mutual agreement of the Parties and approval of the Council of


Ministers, for the evaluation, development and production of Petroleum in the Contract Area.


i .7 "Albpetwl Operations Zone" means that portion of the Contract Area which is outside


of the Project Area.


1.8 Albpetwl Share" has the meaning given in Article 9.2.


1.9 "Annual Program" means an itemized statement of the Petroleum Operations to be


carried out within or with respect to the Project Area and the time schedule thereof.


1.10 "Associated Gas11 means Natural Gas found in association with Crude Oil if such


Crude Oil can by itself be commercially produced.


1.11 "Available Petroleum* means the amount of Petroleum (less any amount used in


Petroleum Operations, Dared or injected, and less any Deemed Production to which Albpetrol


is entitled under this Agreement) produced, saved and metered from the Project Area at the


Measurement Point.


1.12 "Barrel" means a quantity of Crude Oil equal to 158.987 litres at standard


atmospheric pressure of 1,01325 bar and temperature of sixty degrees Fahrenheit (60°F).


1.13 "Baseline Study" has the meaning given in Article 20.4.


1.14 "Budget" means an estimate of revenues and expenditures in respect of an Evaluation


Program or an Annual Program.


1.15 "Calendar Quarter" means a period of three (3) consecutive Months beginning


January 1, April 1, July I or October 1 and ending March 31, June 30, September 30 or


December 31, respectively.


1.16 "Condensate" means blends mainly consisting of pentanes and heavier hydrocarbons,


directly recovered from the hydrocarbon reservoirs or obtained from gas conditioning, which


are liquid under ambient conditions of temperature and atmospheric pressure.


1.17 "Contractor" means Contractor and its respective successors or permitted assignees


according to Article 16.


1.18 “Contractor’s Revenues" means the cash proceeds received by Contractor as a result


of the sale of Cost Recovery Petroleum and Profit Petroleum, as more fully described in die


Accounting Procedure.


1.19 "Contract Area" means the geographical area in Albania, which is more specifically


(horizontally and vertically) identified in Annex A.


1.20 "Contract Year" means a period of one year commencing with the Effective Date or


any anniversary of the Effective Date.














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1.21 "Cost Account** means the set of accounts maintained by Contractor in accordance


with the provisions of the Accounting Procedure, showing the charges, credits and other


transactions accruing in respect of the Petroleum Operations.


1.22 "Cost Recovery Petroleum" has the meaning given in Article 9.2.


1.23 ”Cost Recovery11 has the meaning given in Article 9.3.





1.24 "Crude OiD has the same meaning ascribed to this term in the Petroleum Law,


1.25 "Deemed Production" has the meaning given in Article 3.5.1.


1.26 "Delivery Point" means the following points agreed to by the Parties and approved by


the NPA, or any other points which are agreed by the Parties and approved by NPA:


1.26.1 as to Crude Oil taken by Contractor for export sale, FOB the relevant Albanian


port,


1.26.2 as to Crude Oil taken by Contractor for sale to ARMO or otherwise (but not


for export sale), at the point of delivery under that crude oil sales contract, and


1.26.3 as to Crude Oil delivered to Albpetrol pursuant to Article 3.5 or Article 9, at


Pad D.


1.27 "Development and Production Area" means the area as defined in the Development


Plan in accordance with Article 7.2.1 or a revised Development Plan. Once designated, the


Development and Production Area shall extend to all depths within its lateral boundaries.


1.28 "Development and Production PeriotF* means, in relation to the Development and


Production Area, the period specified in Article 3.


1.29 "Development Plan9 means a plan, including the works, relevant activities, and the


budgets therefore setting forth the overall strategy for the development and production of


Petroleum from the Project Area prepared by Contractor and approved in accordance with


Article 7, including any amendments thereto.


1.30 "Effective Date" means the date on which the Council of Ministers in accordance with


the Petroleum Law issues a decision approving this Agreement.


1.31 11Environment” means the components of the earth and includes:


1.31.1 air, land and water;





1.31.2 all layers of the atmosphere;


1.31.3 all organic and inorganic matter and living organisms; and


1.31.4 the interacting natural systems that include components referred to in sections


1.31.1 to 1.31.3.





1.32 "Environmental Damages" means any and all loss, injury, death, damage or other


event of any kind whatsoever, and howsoever or whenever occurring, to or in relation to the


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Environmcnt (including but not limited to any loss or damage to real or personal property') in


respect of which any liability or obligation has accrued or may in the future accrue to


Contractor, its Affiliates, any predecessor to Contractor or its Affiliates or Subsidiaries, or


any of them, to incur any remediation, reclamation, clean-up or other expenses, or to


compensate any person or the estate of any individual, whether by reason of any equitable,


common law, statutory or civil liability or obligation or Temedy available, whether applicable


by reason of the ownership of Contract Area or responsibility for any operations conducted


on or in respect thereof at any time in the past, present or future, and whether or not resulting


from negligence, nuisance or otherwise, which loss, injury or damages shall include but not


be limited to all damages, awards, expenses and costs (including legal costs on a solicitor and


its own client basis) incurred in any way relating to such matters,


1.33 "Evaluation Area" means the square area 142,25 m North, East, South and West


centered on each Evaluation Well,


1.34 "Evaluation Period" means the period during which Contractor will conduct the


Evaluation Program, which period is described in Article 3.2,


1.35 "Evaluation Program" means a program of work to be performed by Contractor as


specified in Annex D.


1.36 "Evaluation Wei!" means any well in respect of which activity will be occurring


during the Evaluation Program.


1.37 "Existing Baseline Study" means (i) the Full Environmental Benchmark Survey for the


Rehabilitation of the Patos-Marinza Oilfield, Albania by Oakwood Environmental Limited


1997, (ii) D’APPOLONIA 1998 Environmental Baseline Survey of Wellsites and Groups,


and (iii) RBA Baseline Survey Feb 2004.


1.38 "Expert" means an individual or an entity who is not a resident or citizen of Albania


nor has been employed by Contractor, Albpetrol or NPA and who by training and extensive


experience, has highly developed knowledge in the technical area wherein lies the dispute or


disagreement which he or she is to resolve and who is appointed pursuant to the provision of


Article 19.10.


1.39 "Fiscal Year" means the period of twelve (12) consecutive months according to the


Gregorian calendar starting January 1 st and ending December 31st, both dates inclusive.


1.40 "lOR/EOR Methods" means Petroleum Operations which aim at reaching the


Maximum Efficient Recovery from a Reservoir through improving its natural energy system


and its hydrocarbon drainage by applying, without being limited to, recompletion, reworking,


cold heavy oil production methods, steam-assisted gravity drainage methods, water injection,


repressuring, thermal heating, vertical and horizontal drilling and other enhanced production


methods.


\ .41 "Licence Agreement" means the Licence Agreement dated June 7, 2004 granted by the


Ministry and the NPA to Albpetrol governing Petroleum Operations in the Contract Area, and


to which Contractor will become a party7 upon execution and registration of the Instrument of


Transfer attached as Annex E.


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1.42 "Losses and Liabilities" means, in relation to a party, all losses, costs, damages and


expenses which that party sutlers, sustains or incurs, including but not limited to legal fees


and disbursements on a solicitor and its own client basis.


1.43 "Measurement Point" means means the point mutually determined by NPA and the


Parties, where appropriate equipment and facilities will be located for the purpose of


performing all volumetric measurements and other determinations, temperature and other


adjustments, determination of water and sediment content and other appropriate


measurements, to establish, for the various purposes of the License Agreement and this


Agreement, the volumes of Petroleum. The Measurement Point may or may not be the same


as the Delivery Point.


1.44 nMinistry" means the ministry in charge of petroleum activity in the Republic of


Albania.





1.45 "Natural Gas" means any hydrocarbons or mixture of hydrocarbons consisting


essentially of methane in a gaseous state under normal conditions of pressure and


temperature, extracted from the subsoil separately or together with liquid hydrocarbons.


1 ,46 "New Evaluation Area" has the meaning set forth in Article 3.4.6.





1.47 "New Evaluation ProgramH has the meaning set forth in Article 3.4.6.


1.48 "NPA" means the agency established by the Government of Albania responsible for


implementation of the Hydrocarbon Law, as defined in Decision No 445 dated 03 09 1993 by


the Council of Ministers.


1.49 "Operator" means Contractor or, if Contractor comprises more than one person, such


Person duly appointed by the Parties for executing and implementing the Petroleum


Operations in the name of, for the account of, and under the responsibility of Contractor.


1.50 "Part}'" or "Parties" means Albpetrol or Contractor or both of them.





1.51 "Person" means any individual, corporation, partnership, joint venture, association,


joint stock company, trust, unincorporated organization, Albanian governmental authority, or


other form of entity.


1.52 MPetroleum” means Crude Oil, Condensate or Natural Gas,


1.53 "Petroleum Operations" all or any of the operations including the Abandonment


aimed or authorized by the License Agreement and operated by the Parties on of after the


Effective Date, including without limitation the testing, development, extraction, production,


treatment, transportation and storage of Petroleum of or from the Contract Area pursuant to


this License Agreement.


1.54 "Petroleum Costs" means all of the costs and expenditures borne and incurred by


Contractor in or in connection with the conduct of Petroleum Operations pursuant to this


Agreement, determined and accounted for in accordance with the Accounting Procedure, but


does not include Taxes,





1,55 "Project Area" means;


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1.55.1 during the Evaluation Period, that portion of the Contract Area which is


designated from time to time as the Evaluation Area;


1.55.2 during the Development and Production Period* that portion the Contract Area


which is designated from time to time as Development and Production Area; and


1.55.3 if Contractor undertakes a New Evaluation Program, that portion of the


Contract Area which is designated from time to time as the New Evaluation Area.


1.56 "Profii Petroleum" has the meaning given in Article 9.4.


1.57 "Taxes and Duties" means all taxes, duties, tariffs, fees and other payments of





whatever nature payable to the Albanian Government (or to any of its agencies) or to any of


its political or administrative sub-divisions (or agencies).


1.58 "US S' or "US Dollars" means United States Dollars, being the legal currency of the


United States of America.





Article 2


Scope of Agreement, Annexes to the Agreement





2.1 This Agreement is an evaluation, development and production operations arrangement


and it shall cover Petroleum Operations in the Contract Area. The rights and obligations of


the Parties under this Agreement shall take effect from the Effective Date. Albpelrol shall


notify Contractor of the date of the approval of the Council of Ministers within five (5)


working days of its occurrence.


2.2 Subject to the terms and conditions of this Agreement and Article 2.3 and 2,4,


Albpelrol hereby irrevocably appoints and constitutes Contractor solely and exclusively to


conduct Petroleum Operations in the Project Area during the period specified herein, and to


expand the Project Area in accordance with this Agreement to include any lands within the


Contract Area.


2.3 In accordance with the Section 3.2 of the Licence Agreement, the Parties have the


exclusive right:


(a) to conduct Petroleum Operations in. the Contract Area;


(b) to treat, store and transport the Petroleum extracted from the Contract Area;


(c) to construct and install all facilities and equipment (including storage,


treatment, pipelines and other means of transportation) required for the


Petroleum Operations: and


(d) to use for its own account, sell, exchange, export, realize or possess the


Petroleum extracted from the Contract Area, and take Profit front and title to


such extracted Petroleum,


In accordance with the Section 3.2 of the Licence Agreement, and notwithstanding Article


2.3(a), (b). (c), and (d), any other contractor may conduct petroleum operations for


development and production of Petroleum outside of the Contract Area in accordance with


any agreement reached between a contractor and NPA, The Ministry, AlbpetroL NPA and the


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conlractor shall ensure that those petroleum operations will not interfere and unreasonably


prevent the normal development of Petroleum Operations of the Contractor in the Contract


Area, nor shall Contractor unreasonably prevent, or interfere with the petroleum operations of


such other contractor,


2.4 Albpeirol has the right to conduct petroleum operations for its own account on any


portion of the Contract Area which has not been designated as the Project Area until such


time as Contractor requires Albpetrol to cease such operations. Any part of the Contract Area


may be selected by Contractor to become the Evaluation Area, a New Evaluation Area or the


Development and Production Area in accordance with this Agreement, regardless of whether


Albpetrol is conducting petroleum operations in that area.


2.5 Contractor shall be responsible for the execution of Petroleum Operations only in the


Project. Area in accordance with the provisions of this Agreement, separately from Petroleum


Operations conducted by Albpetrol alone in Albpetrol Operations Zone, if any. Accordingly,


the rights, interests, obligations, liabilities and indemnities of the Parties in the Contract Area


shall be allocated as follows:





Party Interest in Project Area Interest in Albpetrol


Operations Zone


Albpetrol 0% 100%


| Contractor 100% 0%





Without prejudice to Contractor's position as a contractor hereunder, the extent and character


of such work to be done by Contractor shall be subject to the review and approval of


Albpetrol to the extent provided for in this Agreement. Notwithstanding anything to the


contrary in the License Agreement or this Agreement;


2.5.1 each of the Parties is responsible severally and not jointly for the rights,





interests, obligations, liabilities and indemnities of LICENSEE as set forth in


this Agreement; and





2.5.2 Contractor shall be solely responsible under the License Agreement and this


Agreement for Petroleum Operations conducted in the Project Area and not


elsewhere, and Albpetrol shall be solely responsible under the License


Agreement and this Agreement for Petroleum Operations conducted in the


Albpetrol Operations Zone and not elsewhere, including without limitation;





2.5.2.1 obligations pertaining to Abandonment;


2.5.2.2 paying costs and expenses of Petroleum Operations;





2.5.23 indemnities;


2.5.2.4 the preparation of the Development Plan and Annual Programs and


Budgets;





2.5.2.5 the calculation and payment of Petroleum Profit Tax;


2.5.2.6 compliance with operational and environmental standards;





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2.5.2.7 the preparation of baseline studies;


2.5.2.S the preparation of books, records and accounts of Petroleum Costs,


Cost Recovery Petroleum and revenues;


2.5.2.9 force majeure and termination for force majeure; and


2.5.2.10 breach and termination provisions.


Contractor will indemnify Albpetrol, its Affiliates, directors, officers,


employees and agents from and against any Losses and Liabilities arising


from any breach by Contractor of this Article 2.5.2, and Alhpetro! will


indemnify Contractor, its Affiliates, directors, officers, employees and agents


from and against any Losses and Liabilities arising from any breach by


Albpetrol of this Article 2.5.2.


2.5.3 The Parties agree that:


2.5.3.1 any encumbrances granted by a Party may apply only in respect of its


interest in the Contract Area; and


2.5.3.2 the rights to free use of Petroleum produced from the Contract Area for


Petroleum Operations applies only to the Petroleum produced from and


Petroleum Operations conducted in respect of the Parties' respective


interests in the Contract Area.


2.6 In performing the Petroleum Operations, Contractor shall provide all technical and


financial requirements and employ the methods, procedures, technologies and equipment


generally accepted in the international petroleum industry,


2.7 Contractor shall carry out Petroleum Operations hereunder at its sole risk and cost,


unless this Agreement expressly provides otherwise.


2.8 Unless otherwise stated herein or otherwise agreed in writing, Contractor shall receive


no compensation for its services nor any reimbursement of expenditures under this


Agreement, except for the share of Petroleum from the Project Area to which it may become


entitled under Article 9.


2.9 During the term of this Agreement, all Petroleum production from the Evaluation


Area and any Development and Production Area shall be divided between Albpetrol and


Contractor iri accordance with the provisions hereof.


2.10 This Agreement does not award Contractor ownership rights over Petroleum hi situ in


the Project Area. However, Contractor shall have the right to receive in kind, dispose of and


export' freely its share of Petroleum from the Project Area in accordance with the provisions


of this Agreement, Contractor shall become a party to the Licence Agreement by the


execution of the Instrument of Transfer, which has been executed by Albpetrol and


Contractor simultaneously with execution of this Agreement.


2.13 The Annexes A, B, C D, E and F to this Agreement are hereby made a part of this


Agreement and they shall be considered as having equal force and effect with the provisions


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of this Agreement. However, in the event of any conflict between the Annexes and the body


of this Agreement, the body of this Agreement shall prevail.





Article 3


Term


3.1 Unless sooner terminated in accordance with the terms hereof, this Agreement shall


remain in effect during the Evaluation Period and any Development and Production Period.


3.2 The Evaluation Period commences on the Effective Date and continues until the last





day of the month which is eighteen months following the Effective Date. Contractor shall


conduct the Evaluation Program during the Evaluation Period. If Contractor and Albpetrol


are of the opinion that a longer period is required to complete the Evaluation Program or


evaluate results of the activities and IOR/EOR Methods conducted in the Evaluation


Program, then upon written request and approval of NPA, the Evaluation Period snail be


extended for a further period of up to six months, which written request must be delivered at


least forty five (45) days prior to the expiration of the Evaluation Period.


3.3 Contractor may elect to terminate this Agreement upon completion of the Evaluation


Period, by written notice to Albpetrol, with a copy to NPA. If Contractor so terminates this


Agreement, all wells, operations and assets (moveable and immoveable) will be returned to


NPA or its nominee and Contractor shall be released from all liabilities associated with this


Agreement.


3.4 Development Plan.





3.4.1 At any time before the end of the Evaluation Period, Contractor may propose a


Development and Production Area for (i) the Evaluation Area, and (ii) such


other portion of the Contract Area which, based on the experience with the


Evaluation Program, Contractor believes may be capable of economic


Petroleum Operations. Contractor shall submit, a Development Plan for the


Development and Production Area. The Development Plan shall be prepared


on the basis of sound engineering and economic principles in accordance with


generally accepted international petroleum industry practice.


3.4.2 The Development Plan shall be submitted to the NPA for approval. The NPA


may request changes to the Development Plan, and Contractor may amend the


Development Plan in response to such requests with the approval of the


Parties.


3.4.3 If the NPA does not approve the Development Plan notwithstanding that it





reflects sound engineering and economic principles in accordance with


generally accepted international petroleum industry practice, either of the


Parties may submit the dispute for expert determination in accordance with the


provisions of the License Agreement.


3.4.4 During the period in which the Development Plan is waiting approval by the





NPA or being revised by Contractor in response to requests of the NPA.


Contractor may continue operations in the Evaluation Area and the proposed


Development and Production Area similar to those being conducted during the


Evaluation Program, provided that Contractor is not required to make any








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capital expenditures in excess of its Two Million Dollar ($2,000,000) capital


expenditure commitment under the Evaluation Program.


3.4.5 At any time during the implementation of the Development Plan, Contractor


may propose a revision to the Development Plan. Such revisions may include


an expansion of the Development and Production Area to include areas


contiguous to any part of the existing Development and Production Area to be


evaluated from time to time through IOR/EOR Methods which Contractor


proposes to undertake under the proposed revision to the Development Plan,


subject to the limitation that the Development and Production Area may not be


further expanded after the fifth anniversary of (he initial approval of the


Development Plan without the consent of Albpetrol and NPA, Each revision


to the Development Plan shall be prepared on the basis of sound engineering


and economic principles in accordance with generally accepted international


petroleum industry practice, and shall follow an approval process similar to


those for the original Development Plan.


3.4.6 During the implementation of the Development Plan, Contractor may propose


and design for approval by the Advisory Committee new evaluation areas


within the Contract Area but outside of any existing Development and


Production Area for a new Evaluation Period, subject to the limitation that the


Project Area may not be further expanded after the fifth anniversary of the


ini tial approval of the Development Plan without the consent of Albpetrol and


NPA, Upon NPA approval, which approval will not be unreasonably withheld,


such new Evaluation Period will have an initial term of twelve (12) months


from commencement, and shall involve a relevant evaluation program (the


"New Evaluation Program") involving a minimum work program and capital


expenditure commitments and an evaluation area (the "New Evaluation Area")


at Contractor's assessment. The New7 Evaluation Program shall be appended to


Annex D. The New7 Evaluation Area may include the lands within the


Contract Area where the new evaluation and subsequent development and


production activities may occur. After completion of each new-- Evaluation


Period, an addendum of the Development Plan must be submitted or the New


Evaluation Area relinquished.


3.4.7 During the new' Evaluation Period the Contractor shall carry' out the minimum


work program and capital expenditure commitments as described and detailed


in the New Evaluation Program and appended to Annex D. providing however


that if, at the expiration of the New Evaluation Period, or any extension


thereof, or upon termination of this License Agreement, whichever first


occurs. Contractor has failed to carry out in accordance with this Agreement,


in whole or in part, the minimum work program and capita! expenditure


commitments as appended to Annex D> then Contractor shall pay to NPA and


amount equal to the non fulfilled part of the minimum capital expenditure


commitment as appended to Annex D.


3.5 In conducting the Evaluation Program, the Development Plan and any New


Evaluation Program. Contractor shall be entitled to take over any existing wells, assets and


leases in the Project Area, without compensation where Albpetrol is entitled to such wells,


assets and leases, except as provided in this clause.


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3.5.1 Any Albpetrol wells in the Contract Area may be taken over by Contractor in


accordance with the takeover procedure described in Annex F. Where


Contractor takes over any Albpetrol wells, Contractor shall deliver in kind to


Albpetrol at Pad D the Deemed Production of such wells in the months


subsequent to the takeover. The "Deemed Production" shall be calculated as


follows:


3.5.1.1 For Pad D and Pad H wells, tire Deemed Production shall be zero.


3.5.1.2 For the pre-existing wells 989, 1317, 2250, 2471, AAP-1, 976, 3013,


876 and disposal well 1842, the Deemed Production shall be 32.78


tonnes per month as at the Effective Date, and declined each month


after the Effective Date on the basis of an exponential 10% production


decline per year. Contractor shall take over these wells on the


Effective Date.


3.5.1.3 For any other wells taken over by Contractor, the Deemed Production


shall be 70% of the average net Crude Oil production of the well in the


six Calendar Months preceding the month in which takeover occurs,


and declined each month after takeover on the basis of an exponential


15% production decline per year.


3.5.2 If Contractor takes over any Albpetrol wells as contemplated in Article 3.5.1,


then Contractor may elect to direct Albpetrol to shut in any other wells in the


vicinity of the wells taken over by Contractor. Contractor shall deliver in kind


to Albpetrol at Pad D the Deemed Production of any wells which Contractor


directs be shut in, calculated in the same manner as in Article 3.5.1.


3.5.3 Where Contractor takes over any existing wells, assets and leases and


Albpetrol is not entitled to same. Contractor shall be responsible for


compensation to third parties to obtain such rights.


3.6 Without limiting the rights of Parties under Article 12, in the event that Contractor is


prevented or impeded from carrying on Petroleum Operations or from gaining access to the


Contract Area for reasons relating to the protection of personnel, subcontractors, or property,


or for problems of importing equipment and not within Contractor’s control, Contractor's


obligations hereunder shall be suspended from the time of the commencement of such


impairment until the impairment has been alleviated. As soon as practicable thereafter, the


Parties shall meet and agree upon a period of time which shall be added to the Evaluation


Period and any Development and Production Period, which period of time shall be equivalent


to the period of time necessary to restore Petroleum Operations to the status which they


occupied at the time of the impairment.


3.7 Contractor may elect to terminate this Agreement at any time during the Development


and Production Period, by written notice to NPA, Termination shall take effect ninety' days


after delivery of the nonce. If Contractor so terminates this Agreement, all wells, operations


and assets (moveable and immoveable) will be returned to NPA and Contractor shall be


released from all liabilities associated with this Agreement other than obligations under this


Agreement which have arisen prior to termination, including without limitation any


environmental and abandonment obligations under this Agreement and the License


Agreement. If Contractor cancels and surrenders the Petroleum Agreement during a Fit


 - 13 -





Year of the Development and Production Period to which an approved Annual Program and


Budget applies, Contractor shall pay to NPA the amount of any unexpended capital


expenditures contemplated under the Annual Program and Budget for that Fiscal Year.


3.8 Upon the expiration of the Development and Production Period, the Parties have the


right in accordance with the License Agreement to request from NPA an extension of the


Development and Production Period for successive periods of five (5) years on the same


conditions as provided for herein.





Article 4


Relinquishments


4.1 Contractor may at any time relinquish voluntarily its rights hereunder to conduct


Petroleum Operations in all or any part of the Contract Area. No relinquishment shall relieve


Contractor from its unfulfilled minimum commitments for an Evaluation Program and any


Annual Program and Budget under Article 3.7 and Article 6.1.


4.2 At least thirty (30) days in advance of the date of a relinquishment under Article 4.1,


the Parties shall notify NPA of the portions of the Contract Area to be relinquished.


4.3 Upon the date on which any relinquishment is to take effect upon NPA’s approval or


the termination of this Agreement, Contractor shall have no further rights or obligations in


regard to the relinquished area.


4.4 It is acknowledged that, as a result of relinquishments pursuant to this Article 4, the


Development and Production Area may consist of more than one non-contiguous area.


Article 5


Conduct of Operations





5 ■ 1 Advisory1 Committee


5.1.1 For the puipose of the proper implementation of this Agreement, the Parties


shall establish an advisory' committee ("Advisory Committee”) within forty-


five (45) days from the Effective Date. The Advisory Committee shall have


the tasks as set out in Article 5.1.5.


5.3.2 Albpetroi and Contractor shall each appoint three (3) representatives and


alternate representatives to form the Advisory' Committee, and each Party shall


designate one of its representatives as a chief representative. All the aforesaid


representatives shall have the right to present their views on the proposals at


meetings held by the Advisory Committee and cast their votes when a decision


is to be made. The chairman of the Advisory Committee shall he the chief


representative designated by' Contractor and the vice-chairman shall be the


chief representative of Albpetroi. The chairman of the Advisory Committee


shall preside over meetings of the Advisory Committee. Each representative


shall have one vote at all meetings of the Advisory Committee. The Parties


may, according to need, designate a reasonable number of additional attendees


who may attend but shall not be entitled to vote at the Advisory Committee


meetings. Each Party shall advise the other of the names of its representatives


within thirty (30) days of the Effective Date and shall give written notice of


 - 14 -





replacement of any such representatives. Alternate representatives will


deputise for their principal representatives in the absence of the latter ones.


5.1.3 In order to be valid, any decisions required to be taken by the Advisory


Committee must have the affirmative vote of at least four (4) representatives


present at the meeting either in person or by conference telephone, it being


understood that no such decisions shall be valid unless at least three (3)


representatives of both Albpetrol and Contractor are present at the meeting,


either in person or by conference telephone. Decisions taken by the Advisory


Committee shall be recorded and signed on behalf of both Albpetrol and


Contractor at the end of any such meeting of the Advisory Committee.


Contractor shall prepare minutes of the meeting within thirty (30) days


thereof and dispatch it for approval to the Parties. Failure by a Party to


respond within twenty-one (21) days after receipt shall be deemed to be an


approval by such Party.


5.1.4 The Advisory Committee shall meet at least twice each Fiscal Year and


whenever required by Albpetrol or by Contractor, subject to a 15 (lays' prior


notice to its members, which notice shall include the agenda for the meeting.


Decisions may be made by the Advisory' Committee by way of written


resolution signed by all six representatives or their respective alternates.


5.1.5 The Advisoiy Committee shall have the following functions and


responsibilities under this Agreement.


5.1 5 1 to provide the opportunity for and to encourage the exchange of


information, views, ideas and suggestions regarding plans,


performance and results obtained under the Agreement;


5.1.5.2 to review principles established by Contractor from time to time


governing various aspects or activities of the Petroleum Operations and


to propose, for this purpose, procedures and guidelines as it may deem


necessary;


5.1-5.3 to review and approve Annual Programs and Budgets proposed by


Contractor for the Development and Production Period, and propose


revisions in accordance with Article 83;


5.1.5.4 to review' Annual Programs and Budgets proposed by Contractor for


the Evaluation Period and any New Evaluation Period;


5.1.5.5 to review and approve Development and Production Areas and the


Development Plan that Contractor, on behalf of the Parties, plans to


propose to NPA for its approval;


5.1.5.6 to cooperate towards implementation of the Annual Programs and


Budgets and Development Plan; and


5.1.5.7 such other functions as entrusted to it by the Parties.


 - 15-





5.1.6 However, it is hereby agreed among the Parties that the following decisions


are reserved and made solely by Contractor:


5.1.6.1 the location, drilling, testing, completion, take-oveT of wells for re-


completion of any well either for the production of Petroleum or for


other Petroleum Operations, including without limitation the programs,


methodology' and technology to be utilised in carrying out the above


activities;


5.1.6.2 Annual Programs and Budgets during the Evaluation Period; and


5.1.6.3 the areas for relinquishment under the Agreement.





5,2 Operator


5.2.1 If Contractor comprises more than one Company, Contractor shall select one


Company to act as Operator which shall conduct Petroleum Operations in the


Project Area in accordance with good international oilfield practice. Where


the Contractor is comprised of a single entity , that entity is the Operator.


5.2.2 The nomination of a successor Operator shall be subject to the prior approval


of Albpetrol which shall not be unreasonably withheld, provided that no such


approval is required and only written notification has to be given if the


successor Operator is a Company or is an Affiliate of a Company at such time.


Article 6


Evaluation


6.1 Contractor shall carry' out the Evaluation Program. If, at the expiration of eighteen





months following the Effective Date, Contractor has failed to expend US$2,000,000 in


conducting the activities comprising the Evaluation Program, then Contractor shall pay to


NPA an amount equal to the non-fulfilled part of the minimum financial commitment of the


Evaluation Program, as specified in Annex D.


In the event of delay in the payment of the indemnity to be paid to NPA in application of this


Article 6,1, the amount owing in this respect will bear interest calculated from the final date


on which the indemnities should have been paid, and up to the time on which the payment is


done by Contractor, at the annual discount rate of the London Inter Bank Offered Rate


(LIBOR) plus one percent.


6.2 If Albpetrol agrees that Contractor may undertake work in respect of the Contract


Area prior to the Effective Date and with the approval of NPA. such past costs so incurred


shall be treated as Petroleum Costs and the work shall be in (partial) fulfilment of


Contractor's obligations under Article 6.1.


6.3 Contractor has the right to spend more than US$2,000,000 and expand the Evaluation


Program to include additional activities and work over additional wells within the Project


Area if it elects to do so durum the Evaluation Period.


 -16-








Artide 7


Development and Production


7.1 The Development Plan shall be prepared on the basis of sound engineering,


environmental and economic principles in accordance with generally accepted international


petroleum industry practice.


7.2 The Development Plan shall contain but not limited to:


7.2.1 details and the area extent of the proposed Development and Production Area:


7.2.2 proposals relating to the spacing, drilling and completion of wells, the


production and storage installations, and transportation and delivery facilities


requited for the production, storage and transportation of Petroleum;


7.2.3 proposals relating to necessary infrastructure investments;


7.2.4 a production forecast and an estimate of the investment and expenses


involved;


7.2.5 an estimate of the time required to complete each phase of the Development


Plan;


7.2.6 the proposed Delivery Point and Measurement Point.


Albpetrol may require Contractor to provide such further information as is readily


available and as NPA may reasonably need to evaluate the Development Plan for any


Development and Production Area. Such request for information has to be made


within twenty (20) days after receipt of the Development Plan and Contractor shall


use reasonable efforts to respond within twenty (20) days.


7.3 If NPA does not request in writing any changes to the Development Plan within forty-


five (45) days after submission of the Development Plan ot revised Development Plan as


approved by the Parties, the Plan or amended Plan shall be deemed approved by NPA.


7.4 If NPA requests any changes to the Development Plan, then the Parties and NPA shall


meet within fifteen (15) days of receipt by Contractor of NPA's written notification as to


these requested changes to try in good faith to reach an agreement on the Development Plan.


Revision to the Development Plan, if agreed within a further period of thirty (30) days,


should be incorporated in the Development Plan which shall then be deemed approved by


NPA.


If no agreement is reached, either Party may submit the dispute for expert determination in


accordance with the License Agreement.


If Contractor desires to materially amend the Development Plan as approved by NPA, it will


provide NPA with the proposed amendments pursuant to the procedures set forth in this


Article 7.4,


7.5 After the Development Plan has been approved. Contractor shall submit to Advisory


Committee at least ninety (90) days before the end of each Fiscal Year a detailed statement of


the Annual Program and Budget for the subsequent Fiscal Year in relation to the


 - 17-








Development and Production Area. For the First full Fiscal Year and the portion of the Fiscal


Year preceding the first full Fiscal Year, a detailed statement of the Annual Program and


Budget therefor shall be submitted to NPA within sixty (60) days after the date of approval of


the Development Plan under Articles 7.3 or 7.4, Each such annual detailed statement of the


Annual Program and Budget therefor shall be consistent with the Development Plan approved


under Article 7,3 or as revised pursuant to Articles 7.4 and 7.6.


7.6 The Parties may at any time submit to NPA for approval revisions to any


Development Plan or Annual Program and Budget. These revisions shall be consistent with


the provisions of Article 7,1 and shall in the case of revisions to the Development Plan be


subject to the approval procedure set forth in Articles 7.3 and 7.43 and in the case of the


Annual Program and Budget to the review set forth in Article 5.1.5.3.


7.7 Where Albpetrol and Contractor agree that a mutual economic benefit can be


achieved by constructing and operating common facilities (including, but not limited to,


roads, pipelines and other transportation, communication and storage facilities), Albpetrol


and Contractor shall use reasonable efforts to reach agreement with each other and if


necessary with other producers on the construction and operation of such common facilities,


investment recovery and charges to be paid.


Article 8


Annual Programs and Budgets


8.1 Unless otherwise provided herein, Contractor shall commence the conduct of


Petroleum Operations for the wells described in Annex D clause 1 (iv) not later that five (5)


days after Albpetrol advises Contractor that the Petroleum Agreement has been approved by


the Council of Ministers. The procedure for transfer of assets, operations and responsibilities


associated with such wells and related facilities shall be as described in Annex F.


8.2 Within sixty (60) days after the Effective Date the Parties shall submit to NPA an


Annual Program and Budget setting forth the Petroleum Operations which Contractor


proposes to conduct (or has already commenced conducting) during the Evaluation Period.


Subject to Article 6.3, such Annual Program and Budget shall be consistent with the


Evaluation Program, but at Contractor's option, it may include a greater amount of activities


and capital budget than the Evaluation Program. The approval of neither Albpetrol nor the


Advisory' Committee is required for any Annual Program and Budget during the Evaluation


Period. Contractor may require the amendment of the Annual Program and Budget during


the Evaluation Period so long as such revised Annual Program and Budget includes at least


the activities and capital budget of the Evaluation Program. A copy of each revised Annual


Program and Budget shall be given by Contractor to Albpetrol and NPA.


8.3 At least ninety (90) days before the end of the first Fiscal Year after the approval of


the Development Plan and every' Fiscal Year thereafter, or such other times as agreed by the


Parties, Contractor shall prepare and submit to the Advisory Committee for approval a


proposed Annual Program and Budget for the next succeeding Fiscal Year. Each Annual


Program and Budget shall be consistent with the Development Plan. Should the


representatives of Albpetrol in the Advisory* Committee wish to propose a revision as to


certain specific features of the said Annual Program and Budget, it shall within twenty-one


(21) days after receipt by the Advisory Committee thereof so notify Contractor, specifying in


reasonable details its reasons therefor. Promptly thereafter, the Parries will meet and


endeavour to agree on the revision proposed by representatives of Albpetrol. Contractor shall











»S0>’- i‘>:G6'rJSS6Mr/


 - 18-








give due regard to the proposals of the representatives of Albpetrol. provided that Albpetrol


shall be required to approve any Annual Program and Budget that is consistent with the


Development Plan, and any revisions proposed to a Annua) Program and Budget that are


inconsistent with the Development Plan need not be accepted by Contractor. In the event of a


dispute arising in respect of the approval of a Annual Program and Budget, the matter will be


referred for Expert determination in accordance with Article 19.10. Prior to the resolution of


any such dispute. Contractor's proposed Annual Program and Budget shall be deemed


approved for the purposes of interim operations pending resolution.


8.4 The Parties agree to direct the Advisory Committee to approve the Annual Program


and Budget in a timely fashion, so as to allow the delivery of the proposed Annual Program


and Budget to the NPA within the time period estabished in the license Agreement.


8.5 It is recognised by the Parties that the details of a Annual Program may require


changes in the light of existing circumstances and as such Contractor may make such changes


provided they do not change the general objective of the Annual Program. Any revision to


the Annual Program that involves an acceleration of the activities contemplated by the


Development Plan, or that expand the activities contemplated by the Development Plan, shall


be approved by the Advisory Committee. A copy of such revised Annual Program shall be


provided to NPA for approval in accordance with the License Agreement.


8.6 It is recognised by the Parties that the expenditures in the Budget may require changes


in light of existing circumstances and as such Contractor may make such changes provided


that the general objective of the Annual Program has not changed. Any revision to the


Budget that involves an acceleration of the activities contemplated by the Annual Program or


Development Plan, or that expand the activities contemplated by the Animal Program or


Development Plan, shall not require the approval of the Advisory Committee-


8.7 It is further recognised tliat in the event of emergency requiring immediate action.


Contractor may take all actions it deems appropriate to protect its interests and those of its


employees and any costs so incurred shall be included in the Petroleum Costs. An emergency


condition will exist when life, health, or property are endangered by existing conditions or


potential conditions such as blowouts, fires, explosions, collisions, severe weather conditions,


acts of war, vandalism or sabotage.





Article 9


Albpetrol Share and Cost Recovery


9.1 Contractor shall provide all funds required to conduct Petroleum Operations under





this Agreement Contractor shall have the right to use free of charge Petroleum produced


from the Project Area to the extent it considers necessary for Petroleum Operations under this


Agreement.


9.2 Available Petroleum shall be measured at the Measurement Point and allocated as set


forth in this Agreement Available Petroleum shall be allocated between Albpetrol (the


"Albpetrol Share”) and Contractor ("Cost Recovery Petroleum") based on the R Factor as


defined below, as set forth in the following table:





R Factor Albpetrol Share Cost Recovery Petroleum


0.0

1.0000

 19





1.5000

2.0000 £ R j 5% 1 95%





The Albpetrol Share shall be lifted in oil and delivered in kind to Albpetrol in the Contract


Area at Pad D.


The R Factor is calculated as follows:














where:


Rn means the R Factor for Calendar Quarter N.





Ak. means the sum of Contractor's Revenues minus profit petroleum tax accrued in


Calendar Quarter N and all preceding Calendar Quarters following the Effective Date.


Bk means the sum of Petroleum Costs in Calendar Quarter N and all preceding Calendar


Quarters following the Effective Date.


Any re-adjustment in entitlement for the current Calendar Quarter will he spread over the





remainder of the current Fiscal Year in a way that the Party which is entitled to additional


Available Petroleum for the current Calendar Quarter will lift the readjustment quantity in


equal monthly proportions in addition to its regular entitlements. If the production in any


month is insufficient to supply the re-adjustment quantity, then the unsuppiied entitlement


shall be carried forward and spread equally over the remaining months of the current


Calendar Quarter.


The determination of the R Factor shall first be done for the first Calendar Quarter following


the Effective Date.


9.3 Contractor shall be entitled to the Cost Recovery Petroleum to recover all Petroleum


Costs borne by it inside or related to the Project Area ("Cost Recovery"). Petroleum Costs


shall be as described in Annex B.


9.4 After Contractor has recovered all of its Petroleum Costs from the Cost Recovery


Petroleum, the remaining Cost Recovery Petroleum shall be "Profit Petroleum". As its


reward for the risk of conducting the Petroleum Operations under the Petroleum Agreement,


Contractor shall be entitled to 100% of the Profit Petroleum.


Article 10


Employment


10.1 Contractor will select its management and employees according to its discretion, and


shall determine the conditions of employment and the number of employees to be used for


Petroleum Operations. However Contractor and its sub-contractors will, to the extent


available, employ qualified Albanians io carry out the Petroleum Operations, giving priority1


to Albpetrol personnel, if their professional skills, knowledge and expertise fit with


operational requirements. Otherwise, Contractor shall be Free to employ such expatriate


professionals as it deems necessary'.








JSOSZ i 92toV >'/


 -20-





Article 11


Title to Assets





11.1 Tangible Property


11.1.1 Title to assets in possession of Contractor in connection with the Petroleum


Operations shall by virtue of the License Agreement* be transferred to NPA at


the time the costs of such fixed and movable assets have been fully recovered


as Petroleum Costs, or at the time of termination or relinquishment of


Petroleum Operations, whichever first occurs, all such assets being in good


working order, normal wear and tear excepted. In any event, Contractor retains


the right to full and free use of the aforementioned assets during the term of


this Agreement, including those installed before the Effective Date.


Any movable asset may be sold to a third party with the prior approval of


NPA, which approval shall not be unreasonably withheld. The proceeds from


the sale of any asset shall be used by Contractor as a recovery of Petroleum


Costs.


13.1.2 Notwithstanding Article 1I.1T above, it is expressly agreed that any assets


belonging to a third party or to Affiliates and rented by Contractor for the


purpose of Petroleum Operations, and any assets owned by Contractor's


subcontractors or their Affiliates, will not become the property of NPA.


11.1.3 Income resulting from the use by third parties of items which become the


properly of NPA pursuant to Article 11.1.1 shall be credited to the Cost


Account during the term of this Agreement.


11.2 Intangible Property


13.2.1 Oi'iginal Data





Upon the termination of the License Agreement, Contractor will hand over to NPA all


original data, All such original data (including but not limited to seismic, geophysics,


geologic, gravimetric, magneiometric, logging, drilling, production, construction,


design, etc.) will be the property of the Albanian Government,


Contractor shall supply Albpetrol this data on a current basis.


All Intangible Property in the possession of Albpetrol or NPA shall be provided to


Contractor free of charge.


However, Contractor, or its assignees as defined by Article 1.17 and Article 16, will


be entitled to retain and freely use copies of such data, and consequently will be


granted a perpetual, non-exclusive and royalty-free licence to use and sub-licence the


use of said data.


11.2.2 Interpreted Data





Interpreted Data based on Original Data referred to in section 11.2.1 above, whether


created by Contractor, by its Affiliates or by third parties upon remuneration by








ISOJMSTOfa J‘U69(.v!


 - 21 -








Contractor, shall remain the sole properly of Contractor and shall be considered, as


confidential information as per Article 23 of the Agreement.


However Albpelrol is entitled to receive copy of all the final reports concerning the


above data and to use it solely for its own needs.


Article 12


Rights and Obligations of the Parties


12.1 As of the Effective Date, Contractor will be entitled to use:


(a) exclusively, free of charge, all the existing facilities and equipment in the


Contract Area for the performance of the Petroleum Operations for:


(i) the implementation of the Evaluation Operations and the Development


and Production Operations;


(ii) application of IOE/EGK Methods in the whole Contract Area and in


accordance with the conditions and terms of this Agreement; and


(iii) Production of Petroleum in the Project Area,


but without materially adversely affecting the operations of Albpetrol outside


of the Project Area;


(b) free of charge and for the performance of the Petroleum Operations, all other


assets, equipment, means and infrastructure (including roads, electricity power


lines and water, oil and gas pipelines) existing in the Contract Area or located


at Lagjjia Kastriot, Rruga Vasil Peruke, Fier on the Effective Date of this


Agreement, but (unless otherwise agreed with the supplier) subject to


payment, on a non-discriminatory basis, at reasonable cost for electricity,


water, oil and gas used:


(c) under commercially reasonable terms and conditions, the pipelines that


iranspon the Petroleum produced in the Contract Area to the ports and


refineries in Albania; and


(d) all technical data available to NPA pertaining to the Contract Area provided


that Contractor shall reimburse NPA for all reasonable cost incurred for the


preparation of such data transfer and the cost of copying such data.


12.2 Contractor shall have the right during the term hereof to freely lift, process, transport,


dispose of and export its share of Petroleum and retain abroad the proceeds obtained


therefrom.


12.3 Contractor shall provide all necessary funds and shall hear all costs and expenses


required in carrying out Petroleum Operations under this Agreement except to the extent as is


otherwise provided in this Agreement,


12.4 Contractor shall endeavour to achieve the efficient use and safe development for and


production of Petroleum and optimise the ultimate economic recovery' of Petroleum from the


Project Area.


 -22-








12.5 Contractor shall ensure that ail materials, equipment and facilities used in Petroleum


Operations comply with generally accepted engineering norms, are of proper construction


and are kept in optimal working order.


12.6 Contractor shall purchase or lease all equipment, materials, services and supplies


required to be purchased or leased pursuant to the Annual Programs.


12.7 Contractor shall keep Albpetrol informed in the course of all activities to be


performed under this Agreement and provide Albpetrol:


(a) with weekly reports of estimated Petroleum production;


(b) monthly reports on the Petroleum production and Petroleum Operations; and


(c) quarterly reports on Petroleum Costs.


12.8 Contractor shall permit representatives of Albpetrol to inspect at all reasonable times


(but upon reasonable notice) the Petroleum Operations under this Agreement, provided such


inspection does not unreasonably hinder the Petroleum Operations.


12.9 Contractor shall maintain full original records of all technical Petroleum Operations


under this Agreement for a period not less than twenty-four months. Costs so incurred are


fully chargeable as Petroleum Costs.


12.10 Albpetrol and NPA shall ensure that Contractor has use of the railways, roads,


highways, water, land surface, timber, electricity, sanitary structures and other infrastructures


in Albania, at commercially reasonable rates and on a non-discriminatory basis, in conformity


with Albanian legislation, so as to be able:


(a) to perform the Petroleum Operations in compliance with this Agreement; and


(b) to produce, transport, export and sell Petroleum in or from Albania as


provided in this Agreement and the Petroleum Law.


12.11 Albpetrol and NPA shall ensure that Contractor is granted, in accordance with


Articles 7 and 10 of the Petroleum Law, all the rights, permits, licenses, approvals and other


authorizations that it may reasonably require in order to perform the Petroleum Operations in


conformity with this Agreement, and that any compensation which Contractor may be


required to pay, pursuant to Article 10(2) of the Petroleum Law, shall be reasonable and non-


discriminatory.


12.12 Albpetrol and NPA shall make available to Contractor all technical data available to


Albpetrol or NPA pertaining to the Contract Area provided that Contractor shall reimburse


Albpetrol or NPA for all reasonable cost incurred for the preparation of such data transfer and


the cost of copying such data.


12.13 Contractor will reserve and retain every sample and sludge obtained from the drilling


of a well in the manner, place and time determined by NPA with special regulations. All


samples obtained by Contractor for its own purposes will be considered subject to inspection


by NPA at any time that NPA requests, within the official working time. Subject to the


foregoing, Contractor shall be free to export cores and cuttings for analyses abroad. Unless


 -23-





otherwise agreed with Albpetrol, Contractor shall keep samples of such cores and cuttings


equivalent in size and quality in Albania.


12.14 Contractor shall be free to export originals of technical data records abroad, subject to


NPA approval, and provided a monitor or a comparable record is maintained by Contractor or


Albpetrol in Albania.


12.15 Any Associated Gas produced in association with Crude Oil from the Project Area


shall be available to Contractor for use in Petroleum Operations, free of charge. Any such


quantities not taken by Contractor may be flared.


12.16 Any Associated Gas produced from the Project Area, to the extent not used m


Petroleum Operations hereunder, may be flared if the processing or utilization thereof is not


economical and is not technically and commercially viable to re-inject Associated Gas. Such


flaring shall be permitted to the extent that gas is not required to effect the economic recovery


of Crude Oil by secondary recovery’ operations, including re-pressuring and recycling.


12.17 The parties acknowledge that the nature of their respective rights and obligations


under this Agreement with respect to the Contract Area is such that unitization of areas that


are entirely within the Contract Area is not required to protect the respective rights of the


Parties or to preserve or optimize the recovery of Hydrocarbons from the Contract Area.


Article 13


Taxation


13.1 Contractor shall be liable to tax on Profit in conformity with Law' No.7811, date


12.04,1994 “On approval of decree No.782, date 22.2.1994 “On the* fiscal system in the


hydrocarbons sector (Exploration-Production)”, and amended by Law No.S297, date


04.03.1998, and in conformity with the License Agreement.


13.2 Other than those Taxes and Duties set forth in Article 13.1 and Article 14.1,


Contractor and its respective Affiliates, subcontractors and expatriate personnel shall be


exempted from Albanian Taxes and Duties, with respect to all activities relating to the


Petroleum Operations to the extent so provided in Albanian Law. This exemption does not


include normal port, warehouse and postal charges and other similar customary charges of


general application for actual services rendered.


13.3 Contractor’s foreign subcontractors will not be responsible for Taxes and Duties to the


extent that they apply, directly or indirectly, to the Petroleum Operations, Contractor's


Albanian sub-contractors will not he discriminated against with regard to Taxes and Duties to


the extent that they apply, directly or indirectly, to the Petroleum Operations.


13.4 Expatriate employees of Contractor and its sub-contractors will not be subject to


Taxes and Duties on any income or profit realized by them, directly or indirectly, from their


work, in the Petroleum Operations, nor on the import or re-export of their personal or


household belongings, which items may be freely imported and subsequently exported.


 -24-





Article 14


Imports and Exports


14.1 Contractor and its subcontractors engaged in carrying out Petroleum Operations under





this Agreement shall be permitted to import, and shall be exempt (with the exception of


normal port and warehouse charges of general application in Albania for actual services


rendered to LICENSEE) from Custom Duties as for the equipments, machineries, materials,


etc, to be used in carrying out Petroleum Operations under this License Agreement.


14.2 The same exemption is valid even for the articles of persona! use of the foreign





employees of the contractor and its subcontractors, having relations with the Petroleum


Operations.





14.3 Nevertheless Contractor and its sub-contractors shall give priority to the goods and


materials produced in Albania if these goods and materials are being offered under equally


favorable conditions regarding the quality, price and availability, and in the quantities


required.





Article 15


Books of Account, Currency, Exchange Control and Payments


15.1 Contractor shall maintain at its office in Albania books of account in accordance with


the Accounting Procedure and with accounting practices generally used in the international


petroleum industry and in conformity with Albanian Law, and such other books and records


as may be necessary to show' the work performed under this Agreement, including the


amount of all Available Petroleum,


15.2 Contractor shall keep its books of account and accounting records including the Cost


Account in US Dollars.


15.3 Contractor shall maintain a US $ bank account and a bank account in Albanian Leke.


All payments from the US $ account made in Currencies other than the US $ shall be


recorded in the books in US S at the exchange rate in effect at the time of transaction.


Valuation made in currencies other than the US S shall be recorded in the books in US $ at


the exchange rates in effect at the time the valuation was made. The rate of exchange for


such valuations shall be established by using the average of the buying and selling rates of the


currency for the day on which the transaction occurred as quoted in the Financial Times


(London Edition) or such other quoted rates as may be mutually agreed. For transactions


occurring on dates when there is no exchange rate published, the exchange rate shall be


established by reference to the rate published on the immediately preceding publishing date.


All Albanian Leke payments shall be translated to US $ at the average official buying rate as


issued by the Central Bank of Albania for the month in which the expenses/credits are


recorded in the books.


Neither Albpetrol nor Contractor shall experience an exchange gain or loss at the expense of,


or to the benefit of the other Party, Any currency exchange losses or gains resulting from the


differences between exchange rates for accounting purposes as mentioned above and the


actual exchange rates when buying the corresponding non- US S currency for the purpose of


payment shall be continuously charged or credited to the Cost Account.


 - 25 -





15.4 Any payments which Albpetrol is required to make to Contractor or which Contractor


is required to make to Albpetrol shall be paid in US $, not later than thirty (30) days


following the end of the month in which the obligation to make such payment occurs.


15.5 For the purposes of this Agreement Contractor shall have complete freedom to:


15.5.1 0]>en, operate and maintain bank accounts both inside and outside Albania;


15.5.2 receive and retain outside Albania and freely dispose of foreign currency


received by it outside Albania, including the proceeds of sales of Petroleum


hereunder, and Contractor shall not be obligated to remit such proceeds to


Albania with the exception of those proceeds as may be needed, in


Contractors judgement, to meet its expenses in Albania;


15.5.3 pay directly outside of Albania for purchase of goods and services necessary


to carry' out Petroleum Operations hereunder;


15.5.4 pay its expatriate Employees working in Albania in foreign currencies outside


of Albania, such expatriate employees shall only be required to bring into


Albania such foreign currency as may be required to meet their personal living


expenses;


15.5.5 fully repatriate abroad all Contractor's proceeds from the Petroleum


Operations in Albania, including but not limited to the proceeds from the sale


of Petroleum;


15.5.6 freely import and export foreign exchange and maintain inside Albania foreign


currency accounts.


15.6 In the event a Party fails to make payment hereunder on the due date, interest shall be


charged on. any amounts in default. The applicable interest rate shall be the 3 months LIBOR


for US Dollar deposits taken on the first day of default plus 2.5 percentage points, as


published by the National Westminster Bank Limited, London, at 11 a.m.


Article 16


Assignment


16.1 Contractor will not transfer to any Person, fully or partly, any of its rights, privileges,


duties and obligations under this Agreement without the prior written approval by Albpetrol,


which approval shall not be unreasonably withheld or delayed. Any Person to whom such


rights, privileges, duties and obligations are transferred shall be competent technically and


financially, and such transfer shall otherwise comply with the requirements of Article 16.3.


16.2 Notwithstanding Article 16.1, but subject to the requirements of Article 163,


Contractor will be free to transfer its rights, privileges, duties and obligations under this


Agreement to an Affiliate following the expiration of sixty (60) days’ prior written


notification to Albpetrol of such transfer, provided that Contractor provides a written


guarantee of the full performance by such Affiliate of all duties and obligations under this


Agreement which an? to be transferred. At any time subsequent to such transfer, the former


Contractor which has made the transfer may request that Albpetrol no longer require the


foregoing guarantee, and such request shall not be unreasonably refused or delayed by


 -26-





Albpetrol upon a showing that the Affiliate to which the transfer has been made


independently possesses the technical and financial competence to fully perform the duties


and obligations which have been transferred to it. Any transfer by Contractor to an Affiliate


without the foregoing written guarantee from Contractor shall be subject to the requirements


of Article 16.1.


16.3 With respect to the transfer of LICENSEE'S rights, privileges, duties and obligations


under this License Agreement, the following conditions shall be met:


(a) Contractor's duties and obligations shall be properly fulfilled until the date


when the request for approval is made, or Contractor shall guarantee, jointly or


independently,, the accomplishment of any obligation of which has not been


fulfilled as of such date;


(b) the Person to whom the transfer is to be made shall provide to Albpetrol


reasonable evidence of its financial and/or technical competence; and


(c) the instrument of transfer should include provisions which clearly state that


the Contractor is held responsible for all the commitments contained in this


Agreement and every written modification or amendment that may be effected


until the date of transfer, and should further declare that Contractor does not


have any claims for change of the terms of this Agreement as a condition for


the transfer. The instrument of transfer shall be subject to review and approval


by Albpetrol, and Albpetrol shall not unreasonably withhold or delay such


approval.


16.4 Contractor may encumber its rights under this Agreement for the purpose of


increasing of the financing of the Petroleum Operations, with the prior written consent by


Albpetrol ( which consent shall not be unreasonably withheld or delayed).





16.5 Upon transfer of all of its rights, privileges, duties and obligations to another Person


in accordance with this Article 16, Contractor making the transfer shall cease to have any


rights under or interest in this Agreement as Contractor.


Article 17


Force Majeure


17.1 The failure of any Party to perform any obligation under this Agreement, if


occasioned by act of God or the public enemy, fire, explosion, perils of the sea, flood,


drought, war, riot, hostilities not amounting to war, sabotage, accident, embargo, government


priority, requisition or allocation, or other action of any government authority, or by


interruption of or delay in transportation, shortage or failure of supply of materials or


equipment from normal sources, labor strikes, or by compliance with any order or request of


any governmental authority or any officer, department, agency, or committee thereof, or any


other circumstance of like character beyond the reasonable control of a Party (herein, “Force


Majeure'’), shall not subject such Party1 to any liability to the other Party. In such event, the


Party subject to the event of Force Majeure shall use its reasonable efforts to minimize the


effects of such event and to overcome such event as soon as practicable.


17.2 Except as otherwise provided herein, in the event that by Force Majeure a Party is





rendered unable to carry out its obligations under this Agreement, the Party' shall give notice











Jf.OJM V?OW^**eQ v<


 -27 -





and all particulars of such event of Force Majeure in writing to the other Patty within ten (10)


days after the occurrence of the cause relied upon, and the obligations of each Party, so far as


the same are affected by such Force Majeure, shall be suspended during the continuance of


such event of Force Majeure,


17.3 In the event that, for an uninterrupted period of two (2) years following, and as a


result of, an event of Force Majeure, any Party is unable to perform its obligations under this


Agreement, as a result of such event of Force Majeure and not of a breach of its obligations


hereunder that is unaffected by such event of Force Majeure, this Agreement may be


terminated on the second anniversary of such event of Force Majeure by either Party.


Article 18


Governing Law


15.1 (a) Subject to Article 18.1(b), the activities of Contractor in performing the


Petroleum Operations shall be governed by and conducted in accordance with


the requirements of the Albanian Law.


(b) All questions with respect to the interpretation or enforcement of, or the rights


and obligations of the Parties under, this Agreement and which are the subject


of arbitration in accordance with Article 19 shall be governed by the laws of


England-


18.2 Albpetrol acknowledges that Contractor has entered in this Agreement in reliance on


the laws, rules and regulations of Albania as they exist on the Effective Date of this


Agreement, and Albpetrol hereby confirms that all rights granted to Contractor hereunder are


in conformity with such laws, rules and regulations.


18.3 If, as a result of any change in the law's, rules and regulations of Albania, any right or


benefit granted (or which is intended to be granted) to Contractor under this Agreement or


the License Agreement is infringed in some way, a greater obligation or responsibility shall


be imposed onto Contractor or, in whatever other way the economic benefits accruing to


Contractor from this Agreement or the License Agreement are negatively influenced by any


change in the laws, rules and regulations of Albania, and such an event is not provided for


herein, the Parties will immediately amend this Agreement and License Agreement, and


Albpetrol, NPA and the Ministry will immediately undertake other necessary actions to


eliminate the negative economic effect on the Contractor.


Article 19


Arbitration


19.1 Any dispute, controversy, claim or difference of opinion including any purported


termination under Article 22, arising out of or relating to this Agreement or the breach,


termination or validity thereof, or to the Petroleum Operations carried out hereunder, shall be


finally and conclusively settled by arbitration in accordance with the UNCITRAL Arbitration


Rules (’'Rules").


19.2 With respect to the foregoing, the appointing authority under the Rules shall be the


President of the Court of International Arbitration of the International Chamber of Commerce


in Paris. France.











JS03 2 ■. 1S20WJ9MV ft vl


 -28




19.3 The number of arbitrators shall be three. The Party instituting the arbitration shall


appoint one arbitrator and the Party, responding shall appoint another arbitrator, and upon


failure of such responding Party to so appoint an arbitrator within thirty (30) days the Party


instituting the arbitration may request the appointing authority to appoint such second


arbitrator in accordance with the Rules. The two (2) arbitrators thus appointed shall choose


the third arbitrator who will act as the presiding arbitrator of the tribunal.


19.4 If, within thirty (30) days of appointment of the second arbitrator to be appointed, the


two (2) appointed arbitrators cannot, agree upon the third arbitrator, either Party may request


the appointing authority’ to appoint the third arbitrator.


19.5 The arbitration shall take place m Zurich, Switzerland. The language to be used in the


arbitration proceedings shall be English. The Parties expressly waive any right to appeal an


arbitral award to any court whatsoever, and the arbitral award shall be final and binding upon


the Parties.


19.6 The arbitral award shall contain the reasons upon which the award is based and an


award of costs.


19.7 The right to arbitrate under this Article 19 shall survive the termination of this


Agreement.


19.8 Albpetrol expressly waives any right to claim sovereign immunity in connection will


any proceeding instituted pursuant to this Article 19, any proceeding to compel enforcement


of this Article 19, or any proceeding to enforce any award made by arbitration under this


Article 19,


19.9 Judgement on the award rendered may be entered in any Court having jurisdiction or


application may be made to such Court for a judicial acceptance of the award and an order of


enforcement, as the case may be.


19.10 Any matter in dispute between Albpetrol and Contractor which in terms of this


Agreement is to be referred to an Expert, or for any dispute relating to a failure of the


Advisory Committee to approve a request or proposal of Contractor, shall be referred for


determination by a sole expert. The Expert shall be given terms of reference which shall be


mutually agreed between the Parties. The Expert shall be appointed by agreement between


Albpetrol and Contractor. If Albpetrol and Contractor fail to appoint the expert within thirty


(30) days after agreement on the terms of reference has been reached, either Party may apply


to the International Chamber of Commerce Centre for Technical Expertise, Paris, France, for


appointment of an expert in accordance with its Rules. The Expert shall make his


determination in accordance with the provisions contained herein based on the best evidence


available to him. Representatives of Albpetrol and Contractor shall have the right to consult


with the Expert and furnish him with data and information, provided the Expert may impose


reasonable limitations on this right. Any such data and information has to be submitted to the


other Party to the dispute at the same time. The Expert shall be free to evaluate the extent to


which any data, information or other evidence is substantiated or pertinent. The Expert's fees


and expenses, and the costs associated with an appointment, if any, made by the International


Chamber of Commerce Centre for Technical Expertise, shall be borne equally by Albpetrol


and Contractor. The Expert’s determination shall be final and binding upon the Parties,


subject to any manifest error in his determination.











J.S05:',W2U6¥VJi»MCI.W


 -29-





Article 20


Environ mental and Safety Measures, Prevention of Loss


20.1 Contractor shall conduct Petroleum Operations in a safe and proper manner in


accordance with generally accepted international petroleum industry practice and shall cause


as little damage as reasonably practicable to the general environment, including, inter alia,


the surface, air, lakes, rivers, sea, animal life, plant life, crops, other natural resources and


property.


20.2 In the event of a blow-out, accident or other emergency, Contractor shall take all


immediate steps to bring the emergency situation under control and protect against loss of life


and loss of or damage to property and prevent barm to natural resources and the general


environment,


20.3 In the event Albpetrol reasonably determines that any work or installations erected by


Contractor (but not those works or installations which were in place prior to the Effective


Date or are transferred to Contractor after the Effective Date) endanger or may endanger


persons or third party property or cause pollution or harm the environment to an unacceptable


degree, Albpetrol may require Contractor to take remedial measures within a reasonable


period and to repair any damage to the environment


In the event that Contractor fails to take the remedial measures required by Albpetrol within


the time period established therefor, Albpetrol may carry out such remedial measures for


Contractor's account


Any remedial measures required to be undertaken by environmental authorities of the


Government of Albania in respect of those works or installations in the Contract Area which


were in place prior to the Effective Date or were transferred to Contractor after the Effective


Date shall be for Albpetrol's account.


20.4 The parties acknowledge that the Existing Baseline Study identifies the status of the


environmental condition of portions of the Contract Area during periods prior to and as at the


Effective Date. Contractor shall as soon as reasonably possible afteT the Effective Date


submit for the approval front the relevant environmental authority a report (the "Baseline


Study") on the environmental baseline status of the Project Area as at the Effective Date.


With each expansion of the Project Area or take over of a new well, as the case may be,


Contractor shall submit for the approval from the Environmental Authority a Baseline Study


on the environmental baseline status of the expanded portion of the Project Area or newly


taken over well, as the case may be, as at the relevant date.


20.5 Contractor shall not be liable for any Environmental Damages incurred prior to the


date of approval of the Baseline Study, as established by the Existing Baseline Study and


each subsequent Baseline Study. Albpetrol shall indemnify and hold harmless Contractor


from and against any and all Losses and Liabilities suffered or incurred by Contractor and


pertaining to Environmental Damages applicable to the Contract Area, except to the extent


that it can be demonstrated that the Petroleum Operations conducted by Contractor in the


Project Area after the Effective Date were the sole cause of tire Environmental Damages.


20.6 Contractor shall take all reasonable measures within its control according to generally


accepted standards in the international petroleum industry’ to prevent the loss or waste of


Petroleum above or under the ground during the performance of Petroleum Operations.








350l2-\9yOMM»6*B.»l


 -30-








Article 21


Goods and Services


21.1 Contractor, its contractors and subcontractors shall give priority to goods and


materials produced in Albania if these goods and materials are being offered under equally


favorable conditions regarding the quality, price and availability, and in the quantities


required, Contractor shall give priority to services performed by Albanian sub-contractors if


such services are offered under equally favorable conditions regarding the quality, price and


availability they may be offered by foreign sub-contractors


For the above purposes, prices for locally manufactured materials, equipment, machinery and


consumables and for services of local contractors shall be compared with the prices of goods


and services in the international market after transportation and insurance costs have been


added.


21.2 Contractor shall solicit competitive bids for any services performed pursuant to items


included in a Annual Program and Budget, if such services is expected to exceed two million


US Dollars (US$ 2,000,000-00). Albpetrol may attend the opening of bids for all such


tenders,





Article 22


Abandonment


22.1 All equipment and facilities (including wells) used exclusively in the Petroleum


Operations will be Abandoned, upon NPA approval, in conformity with the generally


accepted practices of the international petroleum industry'. However, nothing contained in this


Agreement will oblige Contractor to Abandon the unused equipment or facilities in the


Petroleum Operations, and Albpetrol, NPA and the Ministry will protect, indemnify and hold


Contractor harmless against costs and claims based on such obligations.


22.2 The Abandonment Costs will be included in the Petroleum Costs, In order to enable


the Contractor to recover the Abandonment Costs, and in accordance with the License


Agreement, five years prior to the date set by the Contractor to Abandon all the Petroleum


Operations in the Project Area (or at such earlier times as may be reasonable to obtain such a


recovery), the Abandonment Costs estimated by the Contractor and the time of their recovery


in compliance with the following paragraph of this Article 22.2 shall be included in an


Abandonment Plan and shall be submitted to NPA for approval. NPA will immediately


consider the estimation of the LICENSEE and will not unreasonably delay or withhold its


approval. If, after ninety (90) days of receipt of the LICENSEE'S estimate, NPA has failed to


forward comments to the LICENSEE in writing, the estimated Abandonment Costs proposed


by the LICENSEE wall be deemed to have been approved by NPA.





22.3 Upon approval of the estimate by NPA, the estimated Abandonment Costs will be


included in Petroleum Costs and recovered in accordance with this Agreement and at the time


provided in the estimate. However, amounts equal to the estimated Abandonment Costs will


be deposited in an interest bearing escrow account in a mutually accepted international


financial institution in London. England, or in such other location as NPA and Contractor


may agree. Once the Abandonment Costs are covered, Contractor will withdraw its


Abandonment Costs from the escrow account. Upon the termination of the Abandonment,


any surplus funds in the escrow account after payment of the Abandonment Costs shall be


released to Contractor.


 -31 -





Article 23


Confidentiality


23.1 Except as otherwise specified under this Agreement, ail information acquired or


received under this Agreement shall be maintained by the Parties as strictly confidential and


shall not be divulged without the prior written consent of the other Party while this


Agreement remains in force, except to the extent required to comply with laws, rules or


regulations of any stock exchange to which Contractor may be subject unless such


information becomes part of the public domain through sources other than Contractor.


Furthermore, Contractor shall be bound by these obligations of confidentiality for a period of


five (5) years following termination of this Agreement.


23.2 Albpetrol and Contractor may disclose any such information to its employees,


Affiliates, consultants or subcontractors to the extent required for the efficient conduct of


Petroleum Operations provided that in the case of disclosure to employees and Affiliates it


ensures adequately the protection of the confidential nature of the information concerned, and


in the case of disclosure to consultants or subcontractors provided that the intended recipients


have first entered into a confidentiality undertaking.


23.3 For purposes of obtaining new offers on relinquished portions of the Contract Area or


on areas adjacent to the Contract Area. Albpetrol may show any other entity data on such


relinquished portions in uninterpreled and basic form during the term of this Agreement


23.4 Subject to obtaining confidentiality undertakings as provided in Article 23.2 above,


either Party may disclose such information obtained pursuant to this Agreement as required


by financing institutions from which the disclosing Party is seeking finance for the purposes


of carrying out its obligations hereunder.


23.5 Subject to obtaining a confidentiality agreement. Contractor may show any such


information to bona fide potential assignees who have an interest in the petroleum rights


granted to Contractor under this Agreement.


Article 24


Termination


24.1 This Agreement may be terminated by Contractor by giving not less than ninety (90)


days written notice to Albpetrol, provided that such termination shall not relieve Contractor


from any unfulfilled commitment or other obligation under this Agreement accrued prior to


such termination.


24.2 This Agreement may be terminated by Albpetrol by giving not less than one hundred


and twenty (120) days written notice to Contractor in the following events:


24.2.1 if Contractor has repeatedly committed a material breach of its fundamental


duties and obligations under this Agreement and has been advised by


Albpetrol of Albpeorol's intention to terminate this Agreement. Such notice of


termination by Albpetrol shall only be given if Contractor upon receiving


notice from Albpetrol that it is in material breach and docs not rectify or has


not commenced to substantially rectify' such breach within six (6) months; or


 -32-





24.2.2 if Contractor does not substantially comply with any final decision resulting


from an arbitration procedure pursuant to Article 19 hereof; or


24.2.3 if Contractor is adjudged bankrupt by a competent court or, if there is more





than one entity' constituting Contractor, any of them has been declared


bankrupt without the other entities or emit)' taking appropriate action to


remedy the situation with regard to this Agreement


Termination by Albpetroi pursuant to this Article 24.2 shall not relieve Contractor from any





unfulfilled commitment or other obligation under this Agreement accrued prior to such


termination, including without limitation payment of monetary' obligations for unfulfilled


work commitments, surface restoration, environmental remediation and abandonment





24.3 Subject to earlier termination pursuant to Articles 24.1 or 24.2, this Agreement shall


automatically terminate in its entirety if all of the Contract Area has been relinquished or the


Development and Production Period or any subsequent extension has lapsed pursuant to


Articles 3.4 and 3.7.





Article 25


Audits


Albpetroi shall have a period of twelve (12) months from receipt of each Cost Account


statement pursuant to the Accounting Procedure in which to audit and raise objections as to


any such Cost Account statement, provided that Albpetroi shall not be entitled to conduct


more than two audits of Contractor's books, records and accounts in any Fiscal Year.


Albpetroi and Contractor shall agree on any required adjustments. Supporting documents


and accounts will be available to Albpetroi during said twelve (12) month period. If within


the time limit of the three (3) months period following the lapse of the above twelve (12)


month period Albpetroi has not advised Contractor of its exception to such statement, such


statement shall be considered as approved.


Article 26


General Provisions





26.1 Notices


(a) Notices and other communications required or permitted to be given under this


Agreement shall be deemed given when delivered and received in writing,


either by hand or through the mall or by fax transmission, appropriately


addressed as follows:


to Albpetroi:


Albpetroi SH. A.


Lagja "29 Marsi"


Patos, Albania


Attention: Executive Director


Facsimile: +355 381 3662 or +355 34 220 52





to Contractor:








35032.3 iv


 33-





Saxon International Energy Ltd.


1 st floor, Cayman Corporate Outre


49 Hospital Road, PO Box 1793 GT


George Town* Grand Cayman BWI


Attention: Vice President Exploration





Facsimile: +





copy to





Saxon International Energy Ltd.


Lagjjia Kastriot


Rruga Vasil Pe9uke


Fier, Albania


Attention: Resident Manager


Facsimile: +355 381 2342





Albpetrol and Contractor may change their address or addresses by


giving notice of the change to each other.


(b) Notices to be given by Albpetrol to Contractor shall be deemed given if given





to Contractor's office in Tirana.


26.2 Inability


26.2.1 Contractor shall not be liable to Albpetrol except where Contractors senior


supervisory personnel is grossly negligent in performing the Petroleum


Operations.


26.2.2 Under no circumstances shall Contractor be liable for consequential or indirect





damages such as loss of profit or loss of production.


26,23 In case of any damage for which Contractor is held liable pursuant to Article


26.2.1, Contractor shall endeavour to promptly and diligently take the


necessary measures in accordance with international industry practices, to


mitigate the damage and to restore normal operations- Contractor shall pay


the appropriate compensatory damages for which it is finally declared liable.


26.2.4 Contractor shall indemnify the Albanian Government, Albpetrol and their





employees, officials, directors and respective agents for all claims by third


parties for personal damage or property damage resulting from the


performance of Petroleum Operations conducted by or on behalf of


Contractor, including without limitation, reasonable solicitor's fees and costs


of defence, provided Contractor shall not be held responsible under this


Article 26.2.4 for any loss, claims, damage or injured caused by or resulting


from any negligent action of the Albanian Government, Albpetrol and their


employees, officials, directors and respective agents.

















JWW.19206W«rtMlvJ


 - 34 -








26.3 Insurance


Contractor shall, as part of Petroleum Operations, maintain insurance which a reasonable and


prudent operator in the Petroleum industry would maintain in connection with its operations.


26.4 Language of Text


This Agreement is made and entered into in both the English language and the Albanian


language. In the event of a conflict between the English language version and the Albanian


language version, the English version will prevail.


26.5 Effectiveness


This Agreement is legally binding on and from the Effective Date.


26.6 Entire Agreement


This Agreement (together with any documents referred to in it) constitutes the whole


agreement between the Parties and supersedes any previous agreements, understandings,


arrangements, representation, undertakings and warranties between the Parties relating to the


subject matter of this Agreement, including without limitation the terms of the bid for the


Contract Area submitted to NPA.


26.7 Parent Company Guarantee


Contractor undertakes to cause its parent company to execute a guarantee for the Evaluation


Program in the form as set out in Annex C. Contractor and Albpetrol agree that the parent


company guarantee must have been received by Albpetrol after execution of this Agreement


by the Parties hereto but prior to submission of this Agreement by Albpetrol to the Council of


Ministers for its approval,


26.8 Annexes


Annexes A, B, C, D, E and F are made hereby' an integral part of this Agreement and shall be


considered as having equal force and effect with the provisions of the main body of this


Agreement. However, in the event of a conflict between the main body and any of the


Annexes, the provisions of the main body shall prevail.


26.9 Variation


Mo variations to this Agreement shall be effective unless made in writing and signed by the


Parties.


26.10 Waivers


The failure of any Party' to exercise or enforce any right concerned by this Agreement shall


not be or be deemed to be a waiver of any such right


26.11 Sovereign Immunity


Any Part}' that now or hereafter has a right to claim sovereign immunity for itself or any of its


assets hereby waives any such immunity to the fullest extent permitted by the laws of any


 ANNEXA


CONTRACT AREA


Map and Geodetic Coordinates of Contract Area





The Gorani, Driza, Mannza zones and underlying limestone in the area marked below:




































































































































































I 92069 vi


 ANNEX B





ACCOUNTING PROCEDURE


Article 1


General Provisions


This Accounting Procedure applies lo and shall be observed in the establishment, keeping and


control of all accounts, books and records of accounts under the Agreement.


The Agreement and this Accounting Procedure are intended to be correlative and mutually


explanatory. Should, however, any discrepancy arises, then the provisions of the Agreement


shall prevail.


1.1 Definitions


1.1.1 The terms used in this Accounting Procedure have the same meanings as set


out for the same terms in the Agreement.


1.1.2 "Controllable Material" means Material which Contractor subjects to record


control and inventory’ in accordance with good international petroleum


industry practice.


1.1.3 "Material'1 means any equipment, machinery’, materials, articles, supplies and


consumables either purchased, or leased, or Tented, or transferred by


Contractor and used in the Petroleum Operations.


1.2 Books and records


Books and records of accounts, including tax returns, will be kept in accordance with


generally accepted and recognised international accounting principles consistent with


Albanian law, and consistent with modem petroleum industry practices and procedures to the


extent that such practices and procedures do not conflict with Albanian law. Books and


records of account shall be in the English language and US Dollars.


1.3 Revision of Accounting Procedure


By mutual agreement between Albpetrol and Contractor, this Accounting Procedure may be


revised from time to time in the light of future arrangements.


Article 2


Petroleum Costs





2.1 Petroleum Costs


Contractor shall maintain a Cost Account in which there shall be reflected all Petroleum


Costs.


Such Petroleum Costs shall be used in the calculation of the Albpetrol Share in Article 9.


Without limiting the generality of the foregoing, the costs and expenditures considered in


Annex B Articles 2.2 to 2.23 hereafter are included in Petroleum Costs. Petroleum Costs


including all those accumulated prior to the approval of the first Development Plan shall be


 -2-





fiilly included without amortisation commencing in the Calendar Quarter in which such costs


arc incurred. It is understood that neither the Albpetrol Share nor the Deemed Production


shah be treated as Petroleum Costs, but the costs of Contractor in producing and delivering to


Albpetrol the Albpetroi Share and the Deemed Production are Petroleum Costs.


2.2 Labour and related costs


2.2.1 The actual costs of all Contractor's employees and the costs of personnel


assigned or temporarily assigned or loaned to Contractor. Such costs shall


include but not be limited to:


(a) gross salaries and premiums or wages;


(b) cost of overtime, holiday, vacation, sickness, disability benefits and other


customary allowances applicable to the salaries and wages chargeable under


(a) hereof;


(c) expenses, taxes and other charges, if any, made pursuant to assessments or


obligations imposed by ministerial authority which are applicable to the cost


of salaries and wages chargeable under (a) hereof;


(d) cost of established plans for employees' life insurance, hospitalisation,


pensions, saving and other benefit plans of like nature applicable to the


salaries and wages chargeable under (a) hereof;


(e) transportation and relocation costs and costs of transportation of the employee


and such employee's family (limited to spouse and dependent children) and


household as statutory or customary for Contractor;


(f) all travel and relocation costs of employees and their families to and from the


employee’s country or point of origin during the time of employment;


(g) accommodation costs for employees:


(h) premiums, overtime, customary allowances and benefits which will be


applicable to national employees in the Republic of Albania, all as chargeable


under (a) hereof.


2.3 Employees training expenses


Training expenses for Contractor's employees or assigned or temporarily assigned or loaned


to Contractor.


2.4 Material


2.4.1 The cost of Material shall be charged to the Cost Account on the basis set


forth below. Contractor does not guarantee Material. The only guarantees are


the guarantees given by the manufacturers or the vendors, as long as they are


in force.


2.4.1.1 Except as otherwise provided in Subpart 2.4.1.2 below, Material shall


be charged at the actual net cost incurred by Contractor as the vendor's








Wjj:


net invoice price, packaging, transportation, loading and unloading


expenses, insurance costs, duties, fees and applicable taxes if any less


all discounts actually received.


2.4.] ,2 Material supplied by Contractor from its own warehouse shall be


charged at the price specified herein below:


(a) New Material (Condition "A") shall be valued at the current


international net invoiced cost which shall not exceed the price


prevailing in normal arm's length transactions on the open market.


(b) Used Materia! (Conditions *6". "C" and "D" and junk Material):


(i) Material which is in sound and serviceable condition and is


suitable for re-use without reconditioning shall be classified as


Condition "B" and priced at seventy-five percent (75%) of the


current price of new Material defined in (a) above.


(ii) Material which cannot be classified as Condition "B" but which





after reconditioning will be further serviceable for its original


function shall be classified as Condition MC" and priced at fifty


percent (50%) of the current price of new Material as defined in


(a) above, The cost of reconditioning shall be charged to the


reconditioned Material provided that the value of Condition


”C" Material plus the cost of reconditioning do not exceed the


value of Condition "B" Material.


(hi) Materia] which has a value yet cannot be used in its original





function and which therefore cannot be classified as Condition


"Bt! or Condition "C” shall be classified as Condition "D" and


priced at a value commensurate with its use.


(iv) Material which is usable and which cannot be classified as


Condition "B" or Condition "C" or Condition "DM shall be


classified as junk and shall be considered as having no value.


2.4.2 Inventories





At reasonable intervals, at least annually, inventories shall be taken by Contractor of all


Controllable Material, and following each inventory, books and records shall be adjusted to


reflect the results of the inventory. Contractor shall give thirty (30) days written notice of the


intention to take such inventories to allow Albpetrol to choose whether to be represented


when the inventory is taken, or not to be represented.


2.5 Indirect Expenses





Base overhead and facilities such as shore base, warehouses, water systems, road systems,


salaries and expenses of field supervisor)' personnel, field clerks, assistants, and other general


employees indirectly serving the Project Area.


Commissions and marketing or brokerage fees related to sale of Petroleum.


 4-





2.6





Transportation of Material and other related costs, including but not limited to origin


services, expediting, crating, dock charges, forwarder's charges, surface and air freight, and


customs clearance and other destination services. Transportation of Petroleum to the


relevant Delivery Point, including without limitation pipeline charges (both fixed and


variable) and trucking costs.


2.7 Sendees


2.7.1 The actual costs of contract service, professional consultants, and other


services performed by third parties.


2.7.2 Costs of use of facilities and equipment located inside or outside the Republic


of Albania for the direct benefit of the Petroleum Operations, furnished by


Contractor or its Affiliated Companies or third parties at rates corresponding


with the cost of ownership, or rental, and the cost of operation thereof.


2.8 Administrative and General Expenses in the Republic of Albania


While Contractor is conducting activities under the Agreement, cost of staff and maintaining


Contractor's head office in the Republic of Albania, and/or other offices established in the


Republic of Albania shall be charged to Petroleum Costs.


In the event such personnel and office costs of Contractor or Contractor's Affiliates for the


purpose of this Agreement are not fully attributable to the Petroleum Operations then such


costs shall be charged on an equitable basis.


Costs of travel and accomodation related to Advisory Committee meetings shall be charged


to Petroleum Costs, whether such meetings occur inside or outside of the Republic of


Albania.


2.9 Administrative Overheads


Contractor’s parent company administrative overheads outside die Republic of Albania


applicable to the operations under this Agreement shall be charged each year in accordance


with the following rates:


Contractor's parent company personnel who are involved in administering Contractor


activities related to the Petroleum Operations shall record the time spent on matters related to


such administration. There shall be a charge to Petroleum Costs for die time spent by each of


those personnel, calculated as follows: such personnel's time spent in each month on


administration of the Petroleum Operations shall be divided by such personnel's total working


time spent on all matters in that month, and the fraction shall be multiplied by the sum of the


salary costs and benefit costs of such personnel.


In no case may the amount charged to Petroleum Costs under this Article 2.9 exceed


S250.0Q0 in the 2005 Calendar Year, and in any subsequent Calendar Year, $250,000


adjusted for inflation using the U.S. Consumer Price Index. 1


 - ;> -





2-10 Taxes


All taxes, duties or levies paid in the Republic of Albania by Contractor with respect to this


Agreement other than those covered by Article 13.1 of the Agreement, if any.


2.11 Surface Rights


All direct costs attributable to the acquisition* renewal or relinquishment of surface rights


acquired and maintained in force for the Area.


2.12 Damages and Losses to Material and Facilities


Subject to Article 26.2 of the Agreement, ail costs or expenses necessary for the repair or


replacement of Material and facilities resulting from damages or losses incurred by fire,


flood, storm, theft, accident, or any other cause beyond the reasonable control of Contractor,


2-13 Insurance and Claims


2.13.1 Premiums paid for insurance to cover the risks related to Petroleum


Operations according to Contractor's practice or any of its employees and/or


outsiders, which is in compliance with international petroleum practice or


which is required by law,


2.13.2 Subject to Article 26.2 of the Agreement, actual expenditure incurred in the


settlement of all losses, claims, damages, judgements, and other expenses


(including legal expenses as set out below) for the benefit of the Petroleum


Operations.


2.14 Legal Expenses


AH costs or expenses of litigation or legal services to protect Contractor's interest in the


Contract Area under or pursuant to the Agreement and otherwise necessary or expedient


including but not limited to legal counsel's fees, arbitration costs, court costs, cost of


investigation or procuring evidence and amounts paid in settlement or satisfaction of any


such litigation or claims. These services may be performed by Contractor's legal staff and/or


an outside firm as necessary, provided these costs are not originating from Contractor's


unsuccessful disputes with Albpetrol.


2.15 Charges and Fees


All charges and fees which have been paid by Contractor with respect to the Agreement.


2.16 Offices. Camps and Miscellaneous Facilities


Cost of establishing, maintaining and operating any offices, sub-offices, camps, warehouses,


housing and other facilities such as recreational facilities foT employees. If these facilities


service more than one (1) contract area the costs thereof shall be allocated on an equitable


basis.

















J50.V5 I4204?JVUM v)


 -6-





2.17 Service Agreement Expense





Expenditures under any service agreement entered into between Contractor and any of its


Affiliated Companies.


2.18 Environment





Costs incurred for any of the operations foreseen in Article 20.


2.19 Abandonment


Costs incurred or amount accrued in accordance with Article 22.


2.20 Other Expenditures


Subject to Albpetrol approval which shall not be unreasonably withheld any reasonable


expenditures not covered or dealt with in the foregoing provisions which are incurred by


Contractor for the necessary and proper performance of the Petroleum Operations and the


carrying out of its obligations under the Agreement or related thereto.


2.21 Currency Gains or Losses


Currency losses incurred by Contractor shall be charged to Petroleum Costs* and currency


gains incurred by Contractor shall be credited to Petroleum Costs.


2.22 Credits under the Contract


The net proceeds of the following transactions will be credited to the accounts under the


Contract:


(a) the net proceeds of any insurance if the premium was cost recoverable or claim m


connection with the Petroleum Operations or any assets charged to the accounts under


the Contract;


(b) revenue received from outsiders for the use of property or assets charged to the


accounts under the Agreement which have become surplus to Petroleum Operations


and have been leased or sold;


(c) any adjustment received by Contractor from the suppliers/ manufacturers or their


agents in connection with defective equipment or material the cost of which was


previously charged by Contractor under the Contract;


(d) rentals, refunds or other credits received by Contractor which applies to any charge


which has been made to the accounts under the Contract;


(e) proceeds from all sales of surplus Material charged to the account under the


Agreement, at the net amount actually collected.


 -7-








2.23 No Duplication of Charges and Credits


Notwithstanding any provision to the contrary' in this Accounting Procedure, it is the


intention that there shall be no duplication of charges or credits in the accounts under the


Agreement.





Article 3


Contractor’s Revenues





3,1 Contractor's Revenues shall be determined on a cash basis based on sales at the


Delivery Point Costs upstream of the Delivery Point are included in Petroleum Costs under


Article 2 above.





Article 4


Financial Reports to Albpetrol


4.1 The reporting obligation provided for in this Part shall apply to Contractor and shall


be in the manner indicated hereunder.


4.2 Contractor shall submit to Albpetrol within forty-five (45) days of the end of each


Calendar Quarter:


4.2.1 A report of expenditure and receipts under the Agreement analysed by budget


item showing:


(a) actual expenditure and receipts for the Calendar Quarter in question;


(b) actual cumulative expenditure to date;


(c) variances between budget expenditure and actual expenditure, and


explanations thereof.


4.2.2 A Cost Account statement containing the following information:


(a) Petroleum Costs brought forward from the previous Calendar Quarter, if any;


(b) Petroleum Costs incurred during the Calendar Quarter;


(c) total Petroleum Costs for the Calendar Quarter (a) plus (b) above;


(d) amount of Petroleum produced for the Calendar Quarter, the amount of


Petroleum sold for the Calendar Quarter, and the amount of Contractor's


Revenue lor the Calendar Quarter;


(e) calculation of the R Factor for the Calendar Quarter; and


(f) amount of Petroleum Costs to be carried forward into the next Calendar


Quarter, if any,


4.3 After the commencement of production Contractor shall, within thirty' (30) days after


the end of each Calendar Quarter, submit a production report to Albpetrol showing for the


Development and Production Area the quantity of Petroleum, expressed in tonnes, cubic


meters arid barrels:





(a) held in stocks at the beginning of the month;


(b) produced during the month;





(c) lifted, and by whom;


(d) lost and consumed in Petroleum Operations, and


(e) held in stocks at the end of the month.





 ANNEXC





PARENT COMPANY GUARANTEE


WHEREAS, Saxon international Energy I.td. ("Contractor") and Albpetrol Sh. A.


(’’Albpetrol"} have entered into a Petroleum Agreement for the Evaluation, Development and


Production of Petroleum in Patos-Marinza Field, dated_ . 2004 ("Agreement");


and


WHEREAS, Contractor’s PARENT COMPANY, a company organized and existing under


the laws of____, with its registered office at_owns 100 % of the


shares of Contractor; and


WHEREAS pursuant to the terms of the Agreement, Contractor undertook to submit a


guarantee to Albpetrol executed by its PARENT COMPANY in such form as hereinafter set


forth ("Parent Company Guarantee”); and


WHEREAS, Contractor holds hundred Percent (100%) participating interest in the rights,


privileges duties and obligations of Contractor under the Contract; and


WHEREAS, Albpetrol desires that Contractor's obligations relating to its minimum


expenditure required for the Evaluation Program pursuant to Article 6.1 of tbs Agreement


(hereinafter referred to as the "Obligations1') be guaranteed by the PARENT COMPANY;


and


WHEREAS, the PARENT COMPANY acknowledges to be fully cognizant of the extent of


the Obligations of Contractor under the Agreement and hereby agrees, in consideration of the


participation of Contractor in and under the Agreement, to provide this Parent Company


Guarantee as required under the Agreement


NOW, THEREFORE it is hereby stipulated as follows:


1. Subject to Clause 3 and Clause 6 hereinbeiow PARENT COMPANY hereby


irrevocably guarantees to Albpetrol and NPA. the payment to NPA of any sums which


may become due and payable by Contractor under the Agreement as a result of the


non-fulfillment by Contractor of its Obligations.


2. This Parent Company Guarantee is issued for the purpose of meeting the guarantee


requirements in respect of Contractor under the Agreement and shall become


available and effective on the Effective Date of the Agreement and shall terminate on


the latest date at which Contractor has fulfilled its Obligations for the respective


Evaluation Period pursuant to Article 6,1 of the Agreement, as the case may be.


3. The maximum sum, calculated in accordance with Article 6.1 of the Agreement, for


which Parent Company may be held liable hereunder during the Evaluation Period


shall amount to United States Dollars Two Million (US $2,000,000.00).


4. In the event that Contractor assigns its interest under the Agreement to an Affiliate of


Contractor, this Parent Company Guarantee shall continue in force and apply mutatis


ntutemdis to the Obligations of such Affiliate. Should Contractor assign all of its


participating interest to a third party, this Parent Company Guarantee shall cease to


have effect, and all the obligations of the PARENT COMPANY- hereunder shall





1920*«J


 -2-





terminate on the date the assignment to the third party is approved by Albpetrol and


NPA and accepted by the third party. Should Contractor assign part but not all of its


participating interest to a third party, the PARENT COMPANY shall, upon the date


the assignment is approved by Albpetrol, be relieved of its obligations hereunder to


the extent of the participating interest so assigned, and the liability of the PARENT


COMPANY shall be reduced accordingly,


5. Failure by Albpetrol at any time to require performance by the PARENT COMPANY


of any provisions herein shall in no way affect the right of NPA thereafter to enforce


the same in respect of a subsequent default by Contractor nor shall it affect Albpetrol's


right to enforce any of the other provisions of this Parent Company Guarantee.


6. Where the performance of the obligations of Contractor is suspended as a


consequence of force majeure or otherwise as provided for in the Agreement, the


obligations of the PARENT COMPANY under this Parent Company Guarantee shall


likewise be suspended.


7. Terras used in this Parent Company Guarantee which are defined in the Agreement


shall have the meaning as assigned to them in the Agreement.


IN WITNESS WHEREOF this Parent Company Guarantee is signed by a duly authorized


officer of_on the__day of__2004. hA
















































































JM32M92M.V4MtM.vi


 ANNEX D





E V ALU ATI ON PROGRAM





1, Evaluation Wells. Contractor will:


(i) select eight wells from the Contract Area for reactivation or re-


completion in the Driza reservoir;


(ii) select two wells from the Contract Area for reactivation or re¬


completion in the Marinza reservoir;


(iii) select two wells from the Contract Area for reactivation or re¬


completion in the Southern Area Patos Marinza (Driza); and


(iv) maintain the following existing 28 producing wells and disposal well:


all Pad D and Pad H wells and pre-existing wells 989, 1317, 2250,


2471, AAP-1, 976, 3013, 876 and disposal well 1842.


The above wells are the "Evaluation Wells". The square area 142.25 m North, East,


South and West centered on each Evaluation Well shall comprise the irEvaluation


Area".


2. Evaluation Program. The following program of work (the "Evaluation Program")


shall be conducted on the Evaluation Wells and the Evaluation Area during the


Evaluation Period:





(i) conduct reactivation or re-completion activity according to a program


of Contractor's choosing;


(ii) maintain existing operational and PISE standards in the Contract Area;





(iii) evaluate performance of the Evaluation Wells, from an engineering


and economic basis;


(iv) evaluate requirements for additional water disposal capacity and


increase capacity as required;


(v) prepare a production, reserves and reservoir performance report.





3, Expenditure Commitment. Contractor commits to expend at least US$2,000,000 in


capital expenditures during the first eighteen months after the Effective Date in


conducting the Evaluation Program and adding the water disposal well contemplated


in clause 4(iv). If the cost of the capital expenditures for the Evaluation Program and


the water disposal well are less than USS2,000,000, Contractor may elect to expand


the activities of the Evaluation Program by selecting additional wells for reactivation


or re-completion.


4. Other Activities During Evaluation Period. Contractor shall also conduct the \


following activities during the Evaluation Period:











3.JMM92M9


 -2-








(i) carry out an update of the reserves evaluation of the Contract Area to a


level of detail determined by Contractor;





(ii) evaluate existing and future infrastructure for development and


commercialisation of product for internal and export markets;


(iii) review gas conservation and utilisation within the Evaluation Area;


and


(iv) increase water disposal capacity in the Evaluation Area by adding an


additional disposal well;


(v) develop truck offloading options at either Fier or Ballsh refineries for


crude oil sales delivery of production; and





(vi) review and report on Continuous Sand Extract Technology.



















































































JSOJ?-! •i206fSfl»9&ri


 ANNEX E





INSTRUMENT OF TRANSFER








THIS INSTRUMENT OF TRANSFER is made the day of..................., 2004


BETWEEN:





(1) ALBPETROL SH.A. ("AltapetTol”) an Albanian State Company, whose principal


place of business is at Palos. Albania;


(2) SAXON INTERNATIONAL ENERGY LTD. ("Saxon"); a Cayman company, with a


branch registered in the Republic of Albania; and


(3) AGJENSIA KOMBETARE E HIDROKARBUREVE (“MPA”) a legal entity


authorized by Decision No, 445, dated September 3, 1993, of the Government of the


Republic of Albania.





WHEREAS:


Albpetrol is a party to a Licence Agreement made the [ ] day of [ ] 2004 with the


Ministry of industry' and Energy as represented by NPA and Saxon wish to join with


Albpetrol in the conduct of Petroleum Operations (as therein defined).


NOW THIS INSTRUMENT WITNESSES that in consideration of and subject to Saxon


entering into a Petroleum Agreement (as defined in the said Licence Agreement) with


Albpetrol:


(1) Albpetrol hereby transfers all its rights, privileges and obligations under the Licence


Agreement mentioned above to Saxon subject to said Petroleum Agreement,


(2) Albpetrol and Saxon agree that they will jointly and severally be liable to the Ministry


under the said Licence Agreement for all duties and obligations of the Licensee subject only


as specifically provided in the said Licence Agreement.


(3) By its execution of this Instrument of Transfer, the NPA confirms that it has given its


prior written approval to this transfer, that Saxon has handed to the NPA reasonable evidence


of their financial and/or technical competence and that the NPA was not asked in an


unreasonable or unfair way not to refuse its consent and that they accept that Albpetrol and


Saxon are parties to the said Licence Agreement as the Licensee.


(4) This Instrument of Transfer is conditional upon Albpetrol and Saxon entering into the


said Petroleum Agreement and the approval of the Council of Ministers to that Petroleum


Agreement.


(5) Following execution of this Instrument of Transfer, the interests of Saxon and


Albpetrol shall be as defined in the said Petroleum Agreement.


IN WITNESS WHEREOF, the parties have executed this Instrument of Transfer the day and


year first above written:


 2-





SIGNED by


duly authorised for and


on behalf of





"Albpetrol" (.........................................................)





SIGNED by


duly authorised for and


on behalf of


"SAXON" (.........................................................}





SIGNED by





duly authorised for and


on behalf of


"NPA" (..................................................


















































35 W i 9 >'i


 ANNEX F





TAKEOVER PROCEDURE


A. General Take Over Procedures





Promptly after the Effective Date, Albpetro] and Contractor shall undertake a transfer of


operating responsibilities for the Project Area. This transfer will be a process similar to the


one pursuant to which Anglo-Albanian Petroleum transferred operating responsibilities to


Albpetrol in March. 2004 including without limitation the preparation of any inventory list of


assets, rights, documents and materials. This includes, without limitation, the transfer and


delivery to Contractor by Albpetrol, Albpetrol Q.ZK.T.N.N.R. Patos and any of their


Affiliates of the following assets, rights, documents and materials located in the Contract


Area or at Lagjjia Kastriot, Rruga Vasil Peruke, Fier, and used or useful in connection with


activities in the Project Area. The assets, rights, documents and materials will be


substantially the same as those described in the Patos Marinza Development Project,


Handover List, Rev. 3 24/03/2004 Final Updated List, except for consumed materials, and


shall include, without limitation, the following:





1. Current &. Fixed Assets, including:





(a) Portacabins;







(c) Furniture; and





(d) Information Technology Equipment.





2. Facilities, including:


(a) Pad D Inventory;





(b) Pad FI Inventory;





(C) Single Well Lease Inventory (for the nine wells outside of Pads D and H to be


identified by Contractor on or about the Effective Date); and


(d) New Ecology Pit,





3. Material/Stock Inventory, including:





(a) Category 2 materials; and


(b) Medical Equipment & Stock.





4. Studies, as described in the Patos Marinza Development Project, Handover Study


Lists, Rev 3 24/3/2004.





5, Title <& Contract Transfers, including


(a) Land leases; and





 {b) Vehicle documents, including title and licence documents.





6. All Pad D and Pad H wells and pre-existing wells 989, 1317, 2250. 2471, AAP-l,


976, 3013, 876 and disposal well 1842.





B. Well Take Over Procedures*!


1 • Contractor Responsibilities


(a) Contractor Notice:


(i) Contractor will provide Albpeirol with a preliminary list of wells


intended for take over for each Calendar Quarter, within thirty days of


the start of that Calendar Quarter. This preliminary list may be revised


after well file information and well and casing condition are verified.


(ii) Two weeks notice will be provided prior to required take-over date.


(iit) If Contractor elects to perform preliminary casing verification work


utilising Albpetrol tractor ng and services, die take over is not official


until Contractor has provided written notice of its acceptance of well


conditions. For the purposes of calculating Deemed Production of a


particular well, the effective date of the well take over will be


retroactive to the date the preliminary casing verification work


commenced. If preliminary well verification work is performed, and


Contractor elects not to take over the well, then Contractor shall


compensate Albpetrol for lost production during the period that the


well was shut in for verification work. Compensation shall be paid in


kind, based on the average daily production in the ten days preceding


the shutting in of the well.


(iv) If Contractor elects to add additional wells not provided in the


preliminary list for that Calendar Quarter, Albpetrol will not


unreasonably withhold or delay such approval,


(b) Well Data and Services for Wellbore Integrity


(i) Contractor will make request for required information either with the


notice delivered two weeks prior to the Calendar Quarter or at any


other time,


(ii) Contractor will submit program requirements for well casing


verification to Albpetrol and the other requested services Albpetrol is


required provide. It is Contractor's intent to only take over wells which


do not exhibit significant down hole casing or well bore integrity


problems. Should a well be found to have such damage. Contractor


will have Albpetrol re-run equipment as to the condition prior to


servicing at Contractor's cost, and Contractor will have no further


liabilities associated with such well. Only with final take-over of the


well does Contractor take on liabilities for any well (provided that


 -3-





liability for conditions prior to take over remain with Albpetrol as per


the Petroleum Agreement).


(iii) Contractor may request Albpetrol to carry out tractor rig services to


verify casing integrity and other wellbore cleanout work as required by


Contractor's program. Contractor and Albpetrol will agree to a Service


Agreement outlining conditions and costs for Albpetrol'a services on


terms similar to those available from arm's length third parties. A


Request for Services (RFS) will be submitted by Contractor with the


program should it require AlbpetroFs services.


(c) Lease Construction


(i) Contractor wiil remove Albpetrol derrick and equipment to Albpetrol


designated location within the Contract Area at Contractor’s cost when


the well is being taken over for production operations and not in


situation where it is taken over only for suspension of Albpetrol


operations within designated reservoir area or for monitoring purposes.


(ii) Contractor will remove contamination to Albpetrol’s designated


contaminated soil site at Contractor’s cost. Environmental Damages for


removed material remains with Albpetrol as being a pre-existing


condition.


(iii) Contractor may request Albpetrol to carry out removal of contaminated


soils, removal of derrick and equipment and possibly construction of


new lease. Such requests will be made through a RFS and be carried


out in accordance with an agreed Service Agreement.


(iv) Contractor will reconstruct lease to its standards and as per


Environmental permit and regulations.


(d) Takeover Weils for Monitoring


(i) Contractor may take over wells but not place on active production for


reasons of monitoring reservoir conditions and for optimal reservoir


recovery and spacing requirements.


(ii) Liability^ for future operations on these wells will be limited to the


wellbore and any fluids released from them. Contractor will not be


required to remove Albpetrol’s equipment from these leases, nor


remove any contamination. Should equipment be required by AlbpetTol


(except for down hole tubing which may be required to remain in the


hole), Albpetrol is entitled to remove it at its cost and in its current


condition. Wellhead will remain secured and locked, and power to site


de-ac rivaled.


(iii) The only inventory recorded for transfer will be related to the wellhead


and downhole.


(iv) Contractor will have free access to this site.


 4





(e) Inventory


(i) On prior day to official take-over Contractor representatives will meet


at site to take an inventory of equipment to be taken over by


Contractor.


(ii) Inventory will be included in a take-over release form to be signed by


both Albpetrol and Contractor representatives. This will include pre¬


existing liabilities for Albpetrol and assumption of lease by Contractor


at these conditions.


(iii) It should be noted that inventory taken over may not be available in the


future due to operations consumption and deterioration, and Contractor


is not liable in any way to return such.


(f) Pre-Existing





(i) Pre-Existing production win be calculated based on formula in the


Petroleum Agreement and based upon production data supplied by


Albpetrol, Contractor has the right to review' in details such


calculations and methods for past calculation. Once accepted by both


Parties this production will be the basis for future pre-existing


calculations.


2. Albpetrol Responsibilities





(aj Handover Well Site


Albpetrol will provide well and site to Contractor within two weeks.


(b) Well Data





(i) Albpetrol will provide by the 15ln day of each subsequent month


production data (net oil, water, sand and producing tars) for all wells


within the Contract Area that are Operated by Albpetrol.


(ii) Albpetrol will provide well file information (either copy of original)


within 1 week of request from Contractor, whether for a take-over well


or otherwise.


(c) Pre-Existing Conditions


(i) Pre-existing conditions will remain the liability of Albpetrol.


Contaminated materials removed from the site prior to the take-over


date will go to Albpetrol’s designated storage and remediation site and


remain Albpetrol’s liability.


(ii) As per the Petroleum Agreement, a Baseline Study will be performed


on each well prior to take-over to identify pie-existing conditions.


Albpetrol will cooperate with any such study. No further activities will


occur on these sites once this has been completed and Contractor has


taken over the well (whether for monitoring or for production).








3 r/


 - 5 -





(iii) Any activities by Albpetrol on well sites taken over will result in


immediate default by Albpetrol of previous and future pre-existing


production obligations by Contractor, with all liabilities passed to


Albpetrol, unless Contractor accepts Albpetrol's cessation of such


activities and resumption of take over responsibilities.


(d) Well Site Services & Lease Construction


(i) It is Contractors intent to utilise Albpetrol tractor rig for casing


integrity verification well services prior to accepting some leases.


Albpetrol will offer if available a tractor rig unit for Contractor within


notice period and as per agreed Service Agreement.


(ii) For well bores only which are taken over (not wellsite) by Contractor,


Albpetrol will provide free access to Contractor. Albpetrol will ensure


wellsite power is deactivated. All surface equipment and lease


conditions will remain Albpetrol’s responsibility. Any removal of


surface equipment will be at Albpetrol’s discretion and cost.


(e) Inventory & Release





(i) On the day prior to official take-over Contractor representatives will


meet at site to take an inventory of equipment to be taken over by


Contractor.


(ii) Inventor}' will be included in a take-over release form to be signed by


both Albpetrol and Contractor representatives, This will include pre¬


existing liabilities for Albpetrol and assumption of lease by Contractor


at these conditions.


(iii) It should be noted that inventory taken over may not be available in the


future due to normal wear and tear and consumption of consumable


material, and Contractor is not liable in any way to return inventor}' in


the condition in which it was delivered to Contractor.


















































350121W2M9UGMM1 W