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 CONCESSION AGREEMENT





. FOR


PETROLEUM EXPLORATION AND EXPLOITATION


BETWEEN


THE ARAB REPUBLIC OF EGYPT


AND


THE EGYPTIAN GENERAL PETROLEUM


CORPORATION


AND


KRITI OIL & GAS S.A.





IN


NORTH WEST GEMSA AREA





EASTERN DESERT


 INDEX











ARTICLE TITLE PAGE








I Definitions 2


II Annexes to the Agreement 6


III Grant of Rights and Term 8


IV Work Program and Expenditures During


V Exploration Period 17


Mandatoiy and Voluntary Relinquishments 23


VI Operations After Commercial Discovery 25


VII Recovery of Costs and Expenses and Production


VIII Sharins 27


Title to Assets 45


IX Bonuses 46


X Office and Service of Notices 49


XI Saving of Petroleum and Prevention of Loss 49


XII Customs Exemptions 50


XIII Books of Account: Accounting and Payments 53


XIV Records, Reports and Inspection 54


XV Responsibility for Damages 56


XVI Privileges of Government Representatives 56


XVII Employment Rights and Training of Arab Republic


XVIII Of Egypt Personnel 57


Laws and Regulations 58


XIX Stabilization 60


XX Right of Requisition 60


XXI Assignment 61


XXII Breach of Agreement and Power to Cancel 62


XXIII Force Majeure 64


XXIV Disputes and Arbitration 65


XXV Status of Parties 67


XXVI Local Contractors and Locally Manufactured


XXVII Material 67


Arabic Text 68


XXIII General 68


XXIX Approval of the GOVERNMENT 69


 ANNEXES TO THE CONCESSION


AGREEMENT








Annex “ A “ Boundary Description of the Concession Area 70


Annex “ B “ Illustrative Map showing Area Covered 72


Annex “ C “ Letter of Guaranty 73


Annex “ D “ Charter of Operating Company 75


Annex “ E “ Accounting Procedure 79


Annex “ F “ Map of the National Gas Pipeline Grid System 96


 CONCESSION AGREEMENT FOR PETROLEUM


EXPLORATION AND EXPLOITATION


BETWEEN





THE ARAB REPUBLIC OF EGYPT


AND


THE EGYPTIAN GENERAL PETROLEUM CORPORATION





AND


KRITI OIL & GAS S.A.


IN


NORTH WEST GEMSA AREA


EASTERN DESERT


A.R.E.





This Agreement made and entered on this day of


2002, by and between the ARAB REPUBLIC OF EGYPT (hereinafter


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


EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity


created by Law No. 167 of 1958 as amended (hereinafter referred to


as "EGPC")and KRITI OIL & GAS S.A., a company organized and


existing under the laws of Panama (hereinafter referred to as


“KRITI" or as "CONTRACTOR").


WITNESSETH


WHEREAS, all minerals including petroleum, existing in mines and


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


subject to its jurisdiction and extending beyond the territorial waters,


are the property of the State; and


WHEREAS, EGPC has applied for an exclusive concession for the


exploration and exploitation of petroleum in and throughout the area


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


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


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


WHEREAS, “KRITI” agrees to undertake its obligations provided


hereinafter as a CONTRACTOR with respect to the Exploration,


development and production of petroleum in NORTH WEST GEMSA


AREA , EASTERN DESERT; and


WHEREAS, the GOVERNMENT desires hereby to grant such


Concession; and


WHEREAS, the Minister of Petroleum pursuant to the provisions of


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


EGPC, and with KRITI as a CONTRACTOR in the said Area.


NOW, THEREFORE, the parties hereto agree as follows:








ARTICLE I


DEFINITIONS


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


and other surveys as may be contained in the approved Work


Programs and Budgets, and the drilling of such shot holes, core


holes, stratigraphic tests, holes for the discovery of Petroleum or


the appraisal of Petroleum discoveries and other related holes


and wells, and the purchase or acquisition of such supplies,


materials, services and equipments therefor, all as may be


contained in the approved Work Programs and Budgets. The


verb "explore" means the act of conducting Exploration.


(b) "Development" shall include, but not be limited to, all the


operations and activities pursuant to approved Work Programs


and Budgets under this Agreement with respect to:


(i) the drilling, plugging, deepening, side tracking, re-drilling,


completing, equipping of development wells and the

















2


 (ii) design, engineering, construction, installation, servicing and


maintenance of equipments, lines, systems facilities, plants


and related operations to produce and operate said


development wells, taking, saving, treating, handling,


storing, transporting and delivering Petroleum, re¬


pressuring, recycling and other secondary recovery


projects, and





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


necessary or ancillary to the activities specified in (i) and


(ii).





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


asphalt, Gas, casinghead gas and all other hydrocarbon


substances that may be found in, and produced, or otherwise


obtained and saved from the Area under this Agreement, and all


substances that may be extracted therefrom.


(d) "Liquid Crude Oil" or "Crude Oil" or "Oil" means any


hydrocarbon produced from ihe Area which is in a liquid state at


the wellhead or lease separators or which is extracted from the


Gas or casinghead gas in a plant. Such liquid state shall exist at


sixty degrees Fahrenheit (60°F) and atmospheric pressure of


14.65 PSIA. Such term includes distillate and condensate.


(e) "Gas" means natural gas both associated and non-associated,


and all of its constituent elements produced from any well in the


Area (other than Liquid Crude Oil) and all non-hydrocarbon


substances therein. Said term shall include residual gas, that


Gas remaining after removal of LPG.


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


principally of butane and propane liquefied by pressure and


temperature.


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


liquid measure, corrected to a temperature of sixty degrees


hrenheit (60°F) at atmospheric pressure of 14.65 PSIA.


(h) (1) "Commercial Oil Well" means the first well on any


geological feature which after testing for a period of not


more than thirty (30) consecutive days where practical, but


in any event in accordance with sound and accepted


industry production practices, and verified by EGPC, is


found to be capable of producing at the average rate of not


less than two thousand (2000) Barrels of oil per day


(BOPD). The date of discovery of a "Commercial Oil Well"


is the date on which such well is tested and completed


according to the above.


(2) "Commercial Gas Well" means the first well on any


geological feature which after testing for a period of not


more than thirty (30) consecutive days where practical, but


in any event in accordance with sound and accepted


industry production practices and verified by EGPC, is


found to be capable of producing at the average rate of not


less than fifteen million (15,000,000) standard cubic feet of


Gas per day (MMSCFD). The date of discovery of a


"Commercial Gas Well" is the date on which such well is


tested and completed according to the above.


(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.


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


Agreement is signed by the GOVERNMENT, EGPC and


CONTRACTOR, after the relevant Law is issued.


(k) (1) "Year" means a period of twelve (12) months according to


the Gregorian Calendar.


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


according to the Gregorian Calendar being 1st January to


31st December.


(l) "Financial Year" means the GOVERNMENT'S financial year


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


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


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





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








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


stockholders' meetings of such company, is owned directly





or indirectly by a party hereto; or








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


conferring a majority of votes at stockholders' meetings of a


party hereto; or








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


stockholder's meetings of such company and the share


capital conferring a majority of votes at stockholders'


meetings of a party hereto are owned directly or indirectly by


the same company.








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


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


minutes latitude and longitude divisions, according to the


International Grid System where possible or with the existing


boundaries of the Area covered by this Concession Agreement


as set out in Annex "A".








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


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


minute latitude and longitude divisions, according to the


International Grid System where possible or with the existing


boundaries of the Area covered by this Concession Agreement


as set out in Annex "A". i


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


Blocks covering the geological structure capable of production,


the corner points of which have to be coincident with one (1)


minute by one (1) minute latitude and longitude divisions


according to the International Grid System where possible or


with the existing boundaries of the Area covered by this


Concession Agreement as set out in Annex "A".


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


Annexes.


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


EGPC and CONTRACTOR (as sellers) and EGPC or The


Egyptian Natural Gas Holding Company “EGAS” or mutually


agreed third party (as buyer), which contains the terms and


conditions for Gas sales from a Development Lease entered into


pursuant to Article VII (e).


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


fill one (1) cubic foot of space at atmospheric pressure of 14.65


PSIA at a base temperature of sixty degrees Fahrenheit (60° F).











ARTICLE II





ANNEXES TO THE AGREEMENT








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


Agreement, hereinafter referred to as the "Area".


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


approximately 1:500,000 indicating the Area covered and affected


by this Agreement and described in Annex "A".


Annex "C" is the form of a Letter of Guaranty to be submitted by


CONTRACTOR to EGPC one (1) day before the time of signature by


the Minister of Petroleum of this Agreement, for the sum of nine


million U.S. Dollars ($9,000,000) guaranteeing the execution of


CONTRAC^"’ ~ ' " ' " ” ' 'bt for the


initial three and half ( 3.5 ) year Exploration period. In case


CONTRACTOR extends the initial Exploration Period for Two (2)


additional periods of two (2) years each , each in accordance with


Article III (b) of this Agreement, a similar Letter of Guaranty shall be


issued and be submitted by CONTRACTOR on the day the


CONTRACTOR exercises its option to extend. The first such letter of


Guaranty shall be for the sum of seven million U.S. Dollars


($7,000,000) and the second such Letter of Guaranty shall be for


the sum of eight million U.S. Dollars ($ 8,000,000) less in both


instances any excess expenditures of the preceding Exploration


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


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


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


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


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


thereof.


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


formed as provided for in Article VI hereof.


Annex "E" is the Accounting Procedure.


Annex "F" is a current map of the National Gas Pipeline Grid


System established by the Government.


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


CONTRACTOR under a Gas Sales Agreement, which point of


delivery shall be located at the flange connecting the development


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


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


and CONTRACTOR .


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


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


and effect with the Drovisions of this Aareement




















7


 ARTICLE III








GRANT OF RIGHTS AND TERM








The GOVERNMENT hereby grants EGPC and CONTRACTOR


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


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


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


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


in Annexes "A" and "B".





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


provided to a royalty in cash or in kind of ten percent (10%) of


the total quantity of Petroleum produced and saved from the


Area during the Development period including renewal. Said


royalty shall be borne and paid by EGPC and shall not be the


obligation of CONTRACTOR. The payment of royalties by


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


CONTRACTOR.





(b) An initial Exploration period of three and half ( 3.5 ) years shall


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


the initial Exploration period, each of two (2) years, shall be


granted to CONTRACTOR at its option, upon not less than thirty


(30) days prior written notice to EGPC, such notice to be given


not later than the end of the then current period, as may be


extended pursuant to the provisions of Article V (a), and subject


only to its having fulfilled its obligations hereunder for that


period. This Agreement shall be terminated if neither a


Commercial Oil Discovery nor a Commercial Gas Discovery is


established by the end of the seven and half (7.5) year of the


Exploration period, as may be extended pursuant to Article V


(a).The election by EGPC to undertake a sole risk venture under


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


the termination of this Agreement as to CONTRACTO/


.4 ^




















8


(c) Commercial Discovery:


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


of one producing reservoir or a group of producing reservoirs


which is worthy of being developed commercially. After


discovery of a Commercial Oil or Gas Well CONTRACTOR


shall, unless otherwise agreed upon with EGPC, undertake as


part of its Exploration program the appraisal of the discovery


by drilling one or more appraisal wells, to determine whether


such discovery is worthy of being developed commercially,


taking into consideration the recoverable reserves, production,


pipeline and terminal facilities required, estimated Petroleum


prices, and all other relevant technical and economic factors.





(ii) The provisions laid down herein postulate the unity and


indivisibility of the concepts of Commercial Discovery and


Development Lease. They shall apply uniformly to Oil and


Gas unless otherwise specified.


(iii) CONTRACTOR shall give notice of a Commercial Discovery





to EGPC immediately after the discovery is considered by


CONTRACTOR to be worthy of commercial development


but in any event with respect to a Commercial Oil Well not


later than thirty (30) days following the completion of the


second appraisal well or twelve (12) months following the


date of the discovery of the Commercial Oil Well, whichever


is earlier or with respect to a Commercial Gas Well not later


than twenty four (24) months following the date of the


discovery of the Commercial Gas Well (unless EGPC


agrees that such period may be extended) except that


CONTRACTOR shall also have the right to give such notice


of Commercial Discovery with respect to any reservoir or


reservoirs even if the well or wells thereon are not


"Commercial" within the definition of "Commercial Well" if, in


its opinion, a reservoir or a group of reservoirs, considered


collectively, could be worthy of commercial development.








CONTRACTOR may also give a notice of a Commercial Oil


Discovery in the event it wishes to undertake a Gas Recycling


Project. _ 1 4^ A











9


 A notice of Commercial Gas Discovery shall contain all


detailed particulars of the discovery and especially the area of


Gas reserves, the estimated production potential and profile


and field life.





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


Commercial Oil or Gas Discovery, EGPC and CONTRACTOR


shall meet and review all appropriate data with a view to


mutually agreeing upon the existence of a Commercial


Discovery. The date of Commercial Discovery shall be the


date EGPC and CONTRACTOR jointly agree in writing that a


Commercial Discovery exists.





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


to be a Commercial Oil Discovery under the above provisions of


this paragraph (c), EGPC shall one (1) month after the expiration


of the period specified above within which CONTRACTOR can


give notice of a Commercial Oil Discovery, or thirteen (13)


months after the completion of a well not considered to be a


"Commercial Oii Weil", have the righi, following sixiy (60) days


notice in writing to CONTRACTOR, at its sole cost, risk and


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


the geological feature on which the well has been drilled. Said


notice shall state the specific area covering said geological


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


facilities to be installed and EGPC's estimated cost thereof.


Within thirty (30) days after receipt of said notice


CONTRACTOR may, in writing, elect to develop such area as


provided for in the case of Commercial Discovery hereunder. In


such event all terms of this Agreement shall continue to apply to


the specified area.





If CONTRACTOR elects not to develop such area, the specific


area covering said geological feature shall be set aside


for sole risk operations by EGPC, such area to be mutually


agreed upon by EGPC and CONTRACTOR on the basis of


good petroleum industry practice. EGPC shall be entitled to


perform or in the event Operating Company has come into


existence, to have Operating Company perform such operations


for the account of EGPC and at EGPC's sole cost, ri^k and


expense. When EGPC has recovered from the Crude Oil


produced from such specific area a quantity of Crude Oil equal in


value to three hundred percent (300%) of the cost it has


incurred in carrying out the sole risk operations, CONTRACTOR


shall have the option, only in the event there has been a


separate Commercial Oil Discovery, elsewhere within the Area,


to share in further development and production of that specific


area upon paying EGPC one hundred percent (100%) of such


costs incurred by EGPC.


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


recovered by CONTRACTOR. Immediately following such


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


an ordinary Development Lease under this Agreement and


thereafter shall be operated in accordance with the terms hereof;


or (ii) alternatively, in the event that at such time EGPC or its


Affiliated Company is conducting Development operations in the


area at its sole expense and EGPC elects to continue operating,


the area shall remain set aside and CONTRACTOR shall only


be entitled to its production sharing percentages of the Crude Oil


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


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


any termination of this Agreement under the provisions of Article


III (b), this Agreement shall, however, continue to apply to


EGPC's operations of any sole risk venture hereunder, although


such Agreement shall have been terminated with respect to


CONTRACTOR pursuant to the provisions of Article III (b).


(d) Conversion to a Development Lease:


(i) Following a Commercial Oil Discovery or a Commercial Gas


Discovery the extent of the whole area capable of production


to be covered by a Development Lease shall be mutually


agreed upon by EGPC and CONTRACTOR and be subject to


the approval of the Minister of Petroleum. Such area shall be


converted automatically into a Development Lease without


the issue of any additional legal instrument or permission.

















ii


(ii) Following the conversion of an area to a Development Lease


based on a Commercial Gas Discovery (or upon the


discovery of Gas in a Development Lease granted following a


Commercial Oil Discovery). EGPC and CONTRACTOR shall


endeavor with diligence to find adequate markets capable of


absorbing the production of Gas and with respect to the local


market . EGPC shall advise CONTRACTOR of the potential


outlets for such Gas and the expected annual schedule of


demand Thereafter, EGPC and CONTRACTOR shall meet


with a view to assessing whether the outlets for such Gas and


other relevant factors warrant the development and production


of the Gas and in case of agreement the Gas thus made


available shall be disposed of to EGPC or EGAS under a


long-term Gas Sales Agreement in accordance with and


subject to the conditions set forth in Article VII .


(iii) The Development period of each Development Lease shall


be as follows:


(aa)ln respect of a Commercial Oil Discovery, twenty (20)


years from the date of such Commercial Discovery plus


the Extension Period (as defined below) provided that, in


the event that, subsequent to the conversion of a


Commercial Oil Discovery into a Development Lease. Gas


is discovered in the same Development Lease and is used


or is capable of being used locally or for export hereunder,


the period of the Development Lease shall be extended


only with respect to such Gas. LPG extracted from such


Gas and Crude Oil in the form of condensate produced


with such Gas for twenty (20) years from the date of first


deliveries of Gas locally or for export plus the Extension


Period (as defined below) provided that the duration of


such Development Lease based on a Commercial Oil


Discovery may not be extended beyond thirty-five (35)


years from the date of such Commercial Oil Discovery ,


unless otherwise agreed upon between EGPC and


CONTRACTOR and subject to the approval of the Minister

















12


CONTRACTOR shall immediately notify EGPC of any Gas


Discovery but shall not be required to apply for a new


Development Lease in respect of such Gas.


(bb)ln respect of a Commercial Gas Discovery, twenty (20) years


from the date of first deliveries of Gas locally or for export


plus the Extension Period (as defined below) provided that, if


subsequent to the conversion of a Commercial Gas Discovery


into a Development Lease, Crude Oil is discovered in the


same Development Lease, CONTRACTOR'S share of such


Crude Oil from the Development Lease (except LPG


extracted from Gas or Crude Oil in the form of condensate


produced with Gas) and Gas associated with such Crude Oil


shall revert entirely to EGPC upon the lapse of twenty (20)


years from the date of such Crude Oil Discovery plus the


Extension Period (as defined below).


Notwithstanding, anything to the contrary under this


Agreement, the duration of a Development Lease based on a


Commercial Gas Discovery shall in no case exceed thirty-five


(35) years from the date of such Commercial Gas Discovery ,


unless otherwise agreed upon between EGPC and


CONTRACTOR and subject to the approval of the Minister of


Petroleum .


CONTRACTOR shall immediately notify EGPC of any Oil


Discovery but shall not be required to apply for a new


Development Lease in respect of such Crude Oil.


The " Extension Period" shall mean a period of five (5) years


which may be elected by CONTRACTOR upon six (6) months


written request sent by CONTRACTOR to EGPC prior to the


expiry of the relevant twenty (20) year period supplemented


by technical studies including evaluation of production,


expected levels of production during extension period,


CONTRACTOR’S obligations and relevant economic


consideration. This extension period is subject to the approval














13


(e) Development operations shall upon the issuance of a


Development Lease granted following a Commercial Oil


Discovery, be started promptly by Operating Company and be


conducted in accordance with good oil field practices and


accepted petroleum engineering principles, until the field is


considered to be fully developed, it being understood that if


associated gas is not utilized, EGPC and CONTRACTOR shall


negotiate in good faith on the best way to avoid impairing the


production in the interests of the parties.


In the event no Commercial Production of Oil in regular


shipments or Gas deliveries from any Development Block within


four (4) years from the date of the Commercial Oil Discovery, or


from the date of first Gas deliveries for local or export , such


Development Block shall immediately be relinquished, unless


there is a Commercial Oil or Gas discovery in the Development


Lease. Each Development Block in a Development Lease being


partly within the radius of drainage of any producing well in such


Development Lease shall be considered as participating in the


Commercial Production referred to above .


Development operations in respect of Gas and Crude Oil in the


form of condensate or LPG to be produced with or extracted


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


Agreement or commencement of a scheme to dispose of the


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


be started promptly by Operating Company and be conducted in


accordance with good gas field practices and accepted


petroleum engineering principles and the provisions of such


agreement or scheme. In the event no Commercial Production


of Gas is established in accordance with such Gas Sales


Agreement or scheme, the Development Lease relating to such


Gas shall be relinquished, unless otherwise agreed upon by


EGPC.





If, upon application by CONTRACTOR it is recognized by EGPC


that Crude Oil or Gas is being drained from the Exploration


block under this Agreement into a Development Block on an


adjoining concession area held by CONTRACTOR, the Block


being drained shall be considered as participating in the


L 4^


j


14


 Commercial Production of the Development Block in question


and the Block being drained shall be converted into a


Development Lease with the ensuing allocation of costs and


production (calculated from the Effective Date or the date such


drainage occurs, whichever is later) between the two


Concession Areas. The allocation of such costs and production


under each Concession Agreement shall be in the same portion


that the recoverable reserves in the drained geological structure


underlying each Concession Area bears to the total recoverable


reserves of such structure underlying both Concession Areas.


The production allocated to a concession area shall be priced


according to the concession agreement covering that concession


area.





(f) CONTRACTOR shall bear and pay all the costs and expenses


required in carrying out all the operations under this Agreement


but such costs and expenses shall not include any interest on


investment. CONTRACTOR shall look only to the Petroleum to


which it is entitled under this Agreement to recover such costs


and expenses. Such costs and expenses shall be recoverable as


provided in Article VII. During the term of this Agreement and its


renewal, the total production achieved in the conduct of such


operations shall be divided between EGPC and CONTRACTOR


in accordance with the provisions of Article VII.





(g) (1) Unless otherwise provided, CONTRACTOR shall be


subject to Egyptian income tax laws and shall comply with


the requirements of such laws with respect to the filing of


returns, the assessment of tax, and keeping and showing


of books and records.


(2) CONTRACTOR'S annual income for Egyptian income tax


purposes under this Agreement shall be an amount


calculated as follows:





The total of the sums received by CONTRACTOR from the


sale or other disposition of all Petroleum acquired by


CONTRACTOR pursuant to Article VII (a) and (b);


. .. T /t, L\








jr


15


 Reduced by:








(i) The costs and expenses of CONTRACTOR;





The Value =>c Hofc>rrnin®H armr/Hinn tr> ArHH

I | I V V Ul U V 1m4W ^ l I Sm* w« W W W I Mil I M| « W I t » « • W « W val ^ wy , W I


EGPC’s share of the Excess Cost Recovery Petroleum


repaid to EGPC in cash or in kind, if any,





Plus:


An amount equal to CONTRACTOR'S Egyptian income taxes


grossed up in the manner shown in Article VI of Annex "E".





For purposes of above tax deductions in any Tax Year, Article


VII (a) shall apply only in respect of classification of costs and


expenses and rates of amortization, without regard to the


percentage limitation referred to in the first paragraph of


Article VII (a) (1). All costs and expenses of CONTRACTOR


in conducting the operations under this Agreement which are


not controlled by Article VII (a) as above qualified shall be





deductible in accordance with the provisions of the Egyptian


Income Tax Law.





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


behalf of CONTRACTOR, CONTRACTOR'S Egyptian income


tax out of EGPC's share of the Petroleum produced and saved


and not used in operations under Article VII. All taxes paid by


EGPC in the name and on behalf of CONTRACTOR shall be


considered income to CONTRACTOR.





(4) EGPC shall furnish to CONTRACTOR the proper official


receipts evidencing the payment of CONTRACTOR'S Egyptian


income tax for each Tax Year within ninety (90) days following


the receipt by EGPC of CONTRACTOR'S tax declaration for the


preceding Tax Year. Such receipts shall be issued by the


proper Tax Authorities and shall state the amount and other


























16


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


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


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


from commerce and industry and inclusive of taxes based on


income or profits including all dividends, withholding with


respect to shareholders and other taxes imposed by the


GOVERNMENT of A.R.E. on the distribution of income or profits


by CONTRACTOR.


(6) In calculating its A.R.E. income taxes, EGPC shall be entitled to


deduct all royalties paid by EGPC to the GOVERNMENT and


CONTRACTOR'S Egyptian income taxes paid by EGPC on


CONTRACTOR’S behalf.








ARTICLE IV





WORK PROGRAM AND EXPENDITURES


DURING EXPLORATION PERIOD





(a) CONTRACTOR shall commence Exploration operations


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


Not later than the end of the eighteenth (18th) month after the


Effective Date, CONTRACTOR shall start Exploratory drilling


operations in the Area during the initial Exploration period with a


commitment of acquiring one hundred and seventy (170 km2 )of


3D seismic survey and drilling three (3) wells. EGPC shall make


available for CONTRACTOR'S use all seismic, wells and other


Exploration data in EGPC's possession with respect to the Area


as EGPC is entitled to so do.





(b) The initial Exploration period shall be three and half ( 3.5 ) years.


CONTRACTOR may extend this Exploration period for two(2)


successive extension periods each of two (2) years , in


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


(30) days prior written notice to EGPC, subject to its expenditure


of its minimum Exploration obligations and of its fulfillment of the


drilling obligations hereunder, for the then current period.


A- &

















17


 CONTRACTOR shall spend a minimum of nine million U.S. Dollars


($9,000,000) on Exploration operations and activities related thereto


during the initial three and half (3.5) year Exploration period; provided


that CONTRACTOR shall acquire one hundred and seventy


(170km2)of 3D seismic survey and shall drill three (3) wells. For the


first two (2) year extension period that CONTRACTOR elects to extend


beyond the initial Exploration period .CONTRACTOR shall spend a


minimum of seven million U.S. Dollars ($7,000,000) and for the second


two ( 2 ) year extension period that CONTRACTOR elects to extend


beyond the two (2) year first extension period, CONTRACTOR shall


also spend a minimum of^ejght million U.S. Dollars. ($8,000,000)


During each of the first aind second extension periods that


CONTRACTOR elects to extend beyond the initial Exploration period,


CONTRACTOR shall acquire one hundred (100 Km2 )of 3D seismic


survey and shall drill two ( 2 ) wells in the first extension period and


drill three ( 3 ) wells in the second extension .








Ck-r'-J ^/-NPyJ-T NTRACTOR spend more than the minimum amount


Ol IUUIU UU


required to be expended or drill more wells than the minimum


required to be drilled or acquire more 3D seismic survey than the





minimum required during the initial three and half ( 3.5 ) year


Exploration period, or during any period thereafter, the excess may


be subtracted from the minimum amount of money required to be


expended by CONTRACTOR or minimum number of wells required


to be drilled during any succeeding Exploration period(s) , as the


case may be.





In case CONTRACTOR surrenders its Exploration rights under this


Agreement as set forth above before or at the end of the three and


half ( 3.5 ) year of the initial Exploration period, having expended


less than the total sum of nine million (9,000,000) U.S. Dollars, on


Exploration or in the event at the end of the three and half ( 3.5)


year, CONTRACTOR has expended less than said sum in the


Area, an amount equal to the difference between the said nine


million ( $ 9,000,000 ) U.S. Dollars and the amount actually spent on


Exploration shall be paid by CONTRACTOR to EGPC at the time of


surrendering or within six (6) months from the end of the three and


half ( 3.5 ) year of the initial Exploration period, as the case may be.


Any expenditure deficiency by CONTRACTOR at the end, of any


/jP* ^ ^ '■A-








, >.


additional period for the reasons above noted shall similarly result in


a payment by CONTRACTOR to EGPC of such deficiency. Provided


this Agreement is still in force as to CONTRACTOR, CONTRACTOR


shall be entitled to recover any such payments as Exploration


Expenditure in the manner provided for under Article VII in the event


of Commercial Production.


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


Discovery is established or no notice of Commercial Gas Discovery


is given by the end of the seven and half ( 7.5 ) years, as may be


extended pursuant to Article V (a) or in case CONTRACTOR


surrenders the Area under this Agreement prior to such time,


EGPC shall not bear any of the aforesaid expenses spent by


CONTRACTOR.





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


Year or at such other times as may mutually be agreed to by


EGPC and CONTRACTOR, CONTRACTOR shall prepare an


Exploration Work Program and Budget for the Area setting forth


lilt; Exploration operations which CONTRACTOR proposes to


carry out during the ensuing Year.





The Exploration Work Program and Budget shall be reviewed by


a joint committee to be established by EGPC and


CONTRACTOR after the Effective Date of this Agreement. This


Committee, hereinafter referred to as the "Exploration Advisory


Committee", shall consist of six (6) members, three (3) of whom


shall be appointed by EGPC and three (3) by CONTRACTOR.


The Chairman of the Exploration Advisory Committee shall be


designated by EGPC from among the members appointed by it.


The Exploration Advisory Committee shall review and give such


advice as it deems appropriate with respect to the proposed


Work Program and Budget. Following review by the Exploration


Advisory Committee, CONTRACTOR shall make such revisions


as CONTRACTOR deems appropriate and submit the


Exploration Work Program and Budget to EGPC for its approval.








^ *














19


 Following such approval, it is further agreed that:





(i) CONTRACTOR shall not substantially revise or modify said


Work Program and Budget nor reduce the approved


budgeted expenditure without the approval of EGPC;





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


or property, CONTRACTOR may expend such additional


unbudgeted amounts as may be required to alleviate such


danger. Such expenditure shall be considered in all aspects


as Exploration Expenditure and shall be recovered pursuant


to the provisions of Article VII hereof.





(d) CONTRACTOR shall advance all necessary funds for all


materials, equipments, supplies, personnel administration and


operations pursuant to the Exploration Work Program and


Budget and EGPC shall not be responsible to bear or repay any


ui me cnure&aiu ousis.





(e) CONTRACTOR shall be responsible for the preparation and


performance of the Exploration Work Program which shall be


implemented in a workmanlike manner and consistent with good


industry practices.


Except as is appropriate for the processing of data, specialized


laboratory engineering and development studies thereon, to be


made in specialized centers outside A.R.E., all geological and


geophysical studies as well as any other studies related to the


performance of this Agreement, shall be made in the A.R.E.


CONTRACTOR shall entrust the management of Exploration


operations in the A.R.E. to its technically competent General


Manager and Deputy General Manager. The names of such


Manager and Deputy General Manager shall, upon


appointment, be forthwith notified to the GOVERNMENT and to


EGPC. The General Manager and, in his absence, the Deputy


General Manager shall be entrusted by CONTRACTOR with


sufficient powers to carry out immediately all lawful written


directions given to them by the GOVERNMENT, or its


representative under the terms of this Agreement. All lawful


regulations issued or hereafter to be issued which are applicable


hereunder and not in conflict with this Agreement shall apply to


CONTRACTOR.


(f) CONTRACTOR shall supply EGPC, within thirty (30) days from


the end of each calendar quarter, with a Statement of


Exploration activity showing costs incurred by CONTRACTOR


during such quarter. CONTRACTOR'S records and necessary


supporting documents shall be available for inspection by EGPC


at any time during regular working hours for three (3) months


from the date of receiving each statement.


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


Statement, EGPC shall advise CONTRACTOR in writing if it


considers:


(1) that the record of costs is not correct; or


(2) that the costs of goods or services supplied are not in line


with the international market prices for goods or services


of similar quality supplied on similar terms prevailing at


the time such goods or services were supplied, provided


however, that purchases made and services performed


within the A.R.E. shall be subject to Article XXVI;or


(3) that the condition of the materials furnished by


CONTRACTOR does not tally with their prices; or


(4) that the costs incurred are not reasonably required for


operations.


CONTRACTOR shall confer with EGPC in connection with the


problem thus presented, and the parties shall attempt to reach a


settlement which is mutually satisfactory.


Any reimbursement due to EGPC out of the Cost Recovery


Petroleum as a result of reaching agreement or of an arbitral


award shall be promptly made in cash to EGPC, plus simple


interest at LIBOR plus two and half percent (2.5 %) per annum


from the date on which the disputed amount(s) would have been


paid to EGPC accordina to Article VII fa) (2) and Annex "E" of


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


Recovery Statement) to the date of payment. The LIBOR rate


applicable shall be the average of the figure or figures published


by the Financial Times representing the mid-point of the rates


(bid and ask) applicable to one month U.S. Dollars deposits in


the London Interbank Eurocurrency Market on each fifteenth


(15th) day of each month occurring between the date on which


the disputed amount(s) would have been paid to EGPC and the


date on which it is settled.


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


not published in the Financial Times in respect of such day for


any reason, the LIBOR rate chosen shall be that offered by


Citibank N.A. to other leading banks in the London Interbank


Eurocurrency Market for one month U.S. Dollar deposits.


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


are quoted in the London Interbank Eurocurrency Market, the


LIBOR rate to be used shall be that quoted on the next following


uay on which sucu rates are quoted.


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


in this paragraph, EGPC has not advised CONTRACTOR of its


objection to any Statement, such Statement shall be considered


as approved.


(g) CONTRACTOR shall supply all funds necessary for its


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


convertible currency from abroad. CONTRACTOR shall have the


right to freely purchase Egyptian currency in the amounts


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


entity authorized by the GOVERNMENT to conduct foreign


currency exchanges.


(h) EGPC is authorized to advance to CONTRACTOR the Egyptian


currency required for the operations under this Agreement


against receiving from CONTRACTOR an equivalent amount of


U.S. Dollars at the official A.R.E. rate of exchange, such amount


in U.S. Dollars shall be deposited in an EGPC account abroad


with a correspondent bank of the National Bank of Egypt, Cairo.


Withdrawals from said account shall be used for financing


 EGPC's and its Affiliated Companies' foreign currency


requirements subject to the approval of the Minister of





Petroleum.











ARTICLE V





MANDATORY AND VOLUNTARY RELINQUISHMENTS





(a) MANDATORY:





At the end of the three and half ( 3.5 ) years after the Effective


Date hereof , CONTRACTOR shall relinquish to the


GOVERNMENT a total of thirty percent ( 30 %) of the original


Area on the Effective date not then converted to a Development





Lease or Leases. Such relinquishment shall be in a single unit of


whole Exploration Blocks not converted to Development Leases


unless otherwise agreed upon between EGPC and


uuiI i \no i uf\ ov go tv ci iglmc me i oiil iv|uioi ii i Id it i eiji IIOII ICI ito


to be precisely fulfilled.





At the end of the five and half ( 5.5 ) years after the Effective


Date hereof, CONTRACTOR shall relinquish to the


GOVERNMENT an additional thirty percent (30 %) of the original


Area on the Effective date not then converted to a Development


Lease or Leases. Such relinquishment shall be in a single unit of


whole Exploration Blocks not converted to Development Leases


unless otherwise agreed upon between EGPC and


CONTRACTOR so as to enable the relinquishment requirements


to be precisely fulfilled.





Without prejudice to Articles III and XXIII and the last three


paragraphs of this Article V (a), at the end of the seven and half


(7.5) year of the Exploration period, CONTRACTOR shall


relinquish the remainder of the Area not then converted to a





Development Leases.





It is understood that at the time of any relinquishment the areas


to be converted into Development Leases and which are





submitted to the Minister of Petroleum for his approval


jV &


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


deemed converted to Development Leases.


CONTRACTOR shall not be required to relinquish any


Exploration Block or Blocks on which a Commercial Oil or Gas


We!! is discovered before the period of time referred to in Article


III (c) given to CONTRACTOR to determine whether such Well


is a Commercial Discovery worthy of Development or to


relinquish an Exploration Block in respect of which a notice of


Commercial Gas Discovery has been given to EGPC subject to


EGPC's right to agree on the existence of a Commercial


Discovery pursuant to Article III (c), and without prejudice to the


requirements of Article III (e).


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


of the two successive extensions of the initial Exploration period,


a well is actually drilling or testing, CONTRACTOR shall be


allowed up to six (6) months to enable it to discover a


Commercial Oil or Gas Well or to establish a Commercial


Discovery, as the case may be. However, any such extension of


up to six (6) months shall reduce the length of the next


succeeding Exploration period, as applicable, by that amount.


(b) VOLUNTARY:


CONTRACTOR may, voluntarily, during any period relinquish all


or any part of the Area in whole Exploration Blocks or parts of


Exploration Blocks provided that at the time of such


voluntary relinquishment its Exploration obligations under Article


IV (b) have been satisfied for such period.


Any relinquishments hereunder shall be credited toward the


mandatory provisions of Article V (a) above .


Following Commercial Discovery, EGPC and CONTRACTOR


shall mutually agree upon any area to be relinquished


thereafter, except for the relinquishment provided for above at


the end of the tota1 ^i:-----














24


 ARTICLE VI





OPERATIONS AFTER COMMERCIAL DISCOVERY





(a) On Commercial Discovery, EGPC and CONTRACTOR may form


in the A.R.E. an operating company pursuant to Article VI (b) and


Annex (D) (hereinafter referred to as "Operating Company")


which company shall be named by mutual agreement between


EGPC and CONTRACTOR and such name shall be subject to


the approval of the Minister of Petroleum. Said company shall be


a private sector company. Operating Company shall be subject


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


that such laws and regulations are not inconsistent with the


provisions of this Agreement or the Charter of Operating


Company.


However, Operating Company and CONTRACTOR shall, for the


purpose of this Agreement, be exempted from the following laws


and regulations as now or hereafter amended or substituted:


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


sector companies;





- Law No. 159 of 1981, promulgating the law on joint stock


companies, partnership limited by shares and limited liability


companies;


- Law No. 97 of 1983 promulgating the law concerning public





sector organizations and companies;


- Law No. 203 of 1991 promulgating the law on public





business sector companies; and





- Law No. 38 of 1994, organizing dealings in foreign


currencies.

















25


(b) The Charter of Operating Company is hereto attached as Annex


"D". Within thirty (30) days after the date of Commercial Oil


Discovery or within thirty (30) days after signature of a Gas Sales


Agreement or commencement of a scheme to dispose of Gas


(unless otherwise agreed upon by EGPC and CONTRACTOR),


the Charter shall take effect and Operating Company shall


automatically come into existence without any further


procedures. The Exploration Advisory Committee shall be


dissolved forthwith upon the coming into existence of the


Operating Company.





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


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


prepare a Work Program and Budget for further Exploration and


Development for the remainder of the year in which the


Commercial Discovery is made; and not later than four (4)


months before the end of the current Financial Year (or such


other date as may be agreed upon by EGPC and


n ONTRACTOR) Ul IX-4 fr\i\r (A\ mnnthc nror^nJinrt tW/a


v-/ Wdi y*K y i i iui hi to 1 i y vilW


commencement of each succeeding Financial Year thereafter (or





such other date as may be agreed upon by EGPC and


CONTRACTOR), Operating Company shall prepare an annual


Production Schedule, Work Program and Budget for further


Exploration and Development for the succeeding Financial Year.


The Production Schedule, Work Program and Budget shall be


submitted to the Board of Directors for approval.





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


Company shall furnish to CONTRACTOR a written estimate of


its total cash requirements for expenditure for the first half and


the second half of the succeeding month expressed in U.S.


Dollars having regard to the approved Budget. Such estimate


shall take into consideration any cash expected to be on hand at


month end.








Payment for the appropriate period of such month shall be made


to the correspondent bank designated in paragraph (e) below on


the first (1st) day and fifteenth (15th) day respectively, or the


next following business-day, if such day is not a business day.


.A. a' J








26 r


■f ' '


i'


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


abroad in an account opened with a correspondent bank of the


National Bank of Egypt, Cairo, the foreign funds advanced by


CONTRACTOR. Withdrawals from said account shall be used


for payment for goods and services acquired abroad and for


transferring to a local bank in the A.R.E. the required amount to


meet the expenditures in Egyptian Pounds for Operating


Company in connection with its activities under this Agreement.


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


Operating Company shall submit to the appropriate exchange


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


recognized firm of auditors, showing the funds credited to that


account, the disbursements made out of that account and the


balance outstanding at the end of the Year.


(f) If and for as long during the period of production operations there


exists an excess capacity in facilities which can not during the


period of such excess be used by the Operating Company ,


EGPC shall use the excess capacity if it so desires without any


financial or operational disadvantage to the CONTRACTOR or


Operating Company.








ARTICLE VII





RECOVERY OF COSTS AND EXPENSES AND


PRODUCTION SHARING





(a) (1) Cost Recovery Petroleum:





Subject to the auditing provisions under this Agreement,


CONTRACTOR shall recover quarterly all costs,


expenses and expenditures in respect of all the


Exploration, Development and related operations under


this Agreement to the extent and out of thirty percent


( 30 %) of all Petroleum produced and saved from all


Development Leases within the Area hereunder and not


used in Petroleum operations. Such Petroleum is


hereinafte ' 11 ~


For the purpose of determining the classification of all


costs, expenses and expenditures for their recovery, the


following terms shall apply:


1. "Exploration Expenditures" shall mean all costs and


expenses for Exploration and the related portion of


indirect expenses and overheads.


2. "Development Expenditures" shall mean all costs and


expenses for Development (with the exception of


Operating Expenses) and the related portion of indirect


expenses and overheads.


3. "Operating Expenses" shall mean all costs, expenses


and expenditures made after initial Commercial


Production, which costs, expenses and expenditures


are not normally depreciable.


However, Operating Expenses shall include workover, repair and


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


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


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


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


Exploration Expenditures, Development Expenditures and Operating


Expenses shall be recovered from Cost Recovery Petroleum in the


following manner:-


(i) “Exploration Expenditures”, including those accumulated prior


to the commencement of initial Commercial Production, which


for the purposes of this Agreement shall mean the date on


which the first regular shipment of Crude Oil or the first


deliveries of Gas are made , shall be recoverable at the rate


of twenty percent ( 20%) per annum starting either in the Tax


Year in which such expenditures are incurred and paid or the


Tax Year in which initial Commercial Production commences,


whichever is the later date.


(ii) “Development Expenditures”, including those accumulated


prior to the commencement of initial Commercial Production


which for the purposes of this Agreement shall mean the


date on which the first regular shipment of Crude Oil or the


first deliveries c'~





28


the rate of twenty percent (20%) per annum starting either


in the Tax Year in which such expenditures are incurred


and paid or the Tax Year in which initial Commercial


Production commences, whichever is the later date.


(iii) “Operating Expenses”, incurred and paid after the date of


initial Commercial Production, which for the purposes of this


Agreement shall mean the date on which the first regular


shipment of Crude Oil or the first deliveries of Gas are


made, shall be recoverable either in the Tax Year in which


such costs and expenses are incurred and paid or the Tax


Year in which initial Commercial Production occurs,


whichever is the later date.


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


expenditures recoverable per paragraphs (i), (ii) and (iii)


preceding, exceed the value of all Cost Recovery Petroleum


for such Tax Year, the excess shall be carried forward for


recovery in the next succeeding Tax Year(s) until fully


recovered, but in no case after the termination of this


Agreement, as to CONTRACTOR.


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


referred to above, shall be allocated to each quarter


proportionately (one fourth to each quarter). However, any


recoverable costs and expenses not recovered in one


quarter as thus allocated, shall be carried forward for


recovery in the next quarter.


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


CONTRACTOR shall each quarter be entitled to take and own all


Cost Recovery Petroleum, which shall be taken and disposed of


in the manner determined pursuant to Article VII (e). To the


extent that the value of all Cost Recovery Petroleum [as


determined in Article VII (c)] exceeds the actual recoverable costs


and expenditures, including any carry forward under Article VII


(a) (1) (iv), to be recovered in that quarter, then the value of such


Excess Cost Recovery Petroleum shall be paid by


CONTRACTOR to EGPC either (i) in cash in the manner set forth


in Article IV of the Accounting Procedure contained in Annex "E"


Or (ii) in kind in SC'"''"'1rr^x/i/ith Ar+ir'lo \/ll/a\


(3)Ninety (90) days prior to the commencement of each Calendar


Year EGPC shall be entitled to elect by notice in writing to


CONTRACTOR to require payment of up to one hundred percent


(100%) of EGPC's share of Excess Cost Recovery Petroleum in


kind. Such payment will be in Crude Oil from the Area F.O.B.


export terminal or other agreed delivery point provided that the


amount of Crude Oil taken by EGPC in kind in a quarter shall not


exceed the value of Cost Recovery Crude Oil actually taken and


separately disposed of by CONTRACTOR from the Area during


the previous quarter. If EGPC's entitlement to receive payment of


its share of Excess Cost Recovery Petroleum in kind is limited by


the foregoing provision, the balance of such entitlement shall be


paid in cash.





(b)Production Sharing


(1)The remaining seventy percent ( 70 %) of the Petroleum





shall be divided between EGPC and the CON I KACTOK


according to the following shares: Such shares shall be


taken and disposed of pursuant to Article VII (e):


i) Crude Oil





Crude Oil produced and EGPC CONTRACTOR


saved under this Agreement SHARE SHARE


and not used in Petroleum


operations. Barrels oil per day


(BOPD)(quarterly average).


That portion or increment (seventy seven percent) (twenty three percent)





less than 10,000 BOPD. (77%) (23%)








That portion or increment (seventy eight percent) (twenty two percent)


froml 0,000 and less than (78 %) (22 %)


25,000 BOPD.





That portion or increment ( eighty one percent) (nineteen percent )


from 25,000 and less than (81 %) (19%)


50,000 BOPD. t a


v i








30 ,n s


 That portion or increment (eighty three percent) (seventeen percent )


from 50.000 and less than (83%) (17%)


100.000 BOPD.





That portion or increment ( eighty five percent) ( fifteen percent )


from 100.000 BOPD and (85 %) ( 15 %)


above


(ii) Gas and LPG


Gas and LPG produced and EGPC CONTRACTOR


saved under this Agreement SHARE SHARE


and not used in Petroleum


operations (SCFD)


(quarterly average)


That portion or increment ( seventy four percent) (twenty six percent )


less than 50.000,000 SCFD. ( 74%) ( 26%)


That portion or increment ( seventy six percent ) (twenty four percent)


from 50.000,000 and less (76 %) ( 24 %)


than 125,000.000 SCFD.


That portion or increment ( seventy eight percent) (twenty two percent )


from 125.000.000 and less (78 %) ( 22%)


than 250.000,000 SCFD


That portion or increment ( eighty one percent ) ( nineteen percent )


from 250.000.000 and less ( 81 %) ( 19 %)


than 500,000,000 SCFD.


That portion or increment ( eighty five percent) ( fifteen percent )


from 500,000,000 SCFD (85 %) (15%)


and above.





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


Gas Sales Agreement entered into pursuant to Article VII (e),


EGPC and CONTRACTOR (as sellers) shall render to


EGPC or EGAS (as buyer) a statement for an amount


of Gas, if any , equal to the amount by which the


quantity of Gas of which EGPC or EGAS (as


buyer) has taken delivery falls below seventy five percent


- -i -i





31


(75%) of the Contract quantities of Gas as established by the


applicable Gas Sales Agreement (the "Shortfall"), provided


the Gas is available Within sixty (60) days of receipt of the


statement. EGPC or EGAS (as buyer) shall pay


EGPC and CONTRACTOR (as sellers) for the amount of


the Shortfall, if any The Shortfall shall be included in


EGPC’s and CONTRACTOR'S entitlement to Gas pursuant


to Article VII (a) and Article VII (b) in the fourth (4th) quarter


of such contractual year


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


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


of Gas ("Make Up Gas") which are delivered in subsequent


years in excess of seventy five percent (75%) of the contract


quantities of Gas as established by the applicable Gas Sales


Agreement, shall be set against and reduce quantities of Gas


in the Take-or-Pay" account to the extent thereof and, to


that extent, no payment shall be due in respect of such Gas.


Such Make Up Gas shall not be included in


CONTRACTOR'S entitlement to Gas pursuant to Article VII


(a) and (b) CONTRACTOR shall have no rights to such


Make Up Gas.


If at the end of any Contract year ,EGPC and CONTRACTOR


(as sellers) fail to produce seventy five percent (75%) of the


Annual Contract Quantity as defined in Gas Sales Agreement


with EGPC or EGAS (as buyer), the difference between


seventy five percent (75%) of the annual Contract quantity


and the actual produced quantity which referred to as the


Deliver- or- Pay Shortfall Gas". EGPC or EGAS (as buyer)


shall have the right to take a quantity of Gas equal to Deliver¬


er - Pay Shortfall Gas and such quantity shall be evaluated


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


Gas Sales Agreement.


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


of LPG produced from a plant constructed and operated by


or on behalf of EGPC and CONTRACTOR shall apply to all

















32


(c) Valuation of Petroleum:


(1) Crude Oil:


(i) The Cost Recovery Crude Oil to which CONTRACTOR is


entitled hereunder shall be valued by EGPC and


CONTRACTOR at "Market Price" for each calendar


quarter.


(ii) "Market Price" shall mean the weighted average prices


realized from sales by EGPC or CONTRACTOR during


the quarter, whichever is higher, provided that the sales


to be used in arriving at the weighted average(s) shall


be sales of comparable quantities on comparable credit


terms in freely convertible currency from F.O.B. point of


export sales to non-affiliated companies at arm's length


under all Crude Oil sales contracts then in effect, but


excluding Crude Oil sales contracts involving barter and,


(1) Sales, whether direct or indirect, through brokers or


otherwise, of EGPC or CONTRACTOR to any


Affiliated Company.


(2) Sales involving a quid pro quo other than payment


in a freely convertible currency or motivated in


whole or in part by considerations other than the


usual economic incentives for commercial arm's


length crude oil sales.


(iii) lt is understood that in the case of “C.I.F.” sales,


appropriate deductions shall be made for transport and


insurance charges to calculate the F.O.B. point of export


price; and always taking into account the appropriate


adjustment for quality of Crude Oil, freight advantage or


disadvantage of port of loading and other appropriate


adjustments. Market Price shall be determined


separately for each Crude Oil or Crude Oil mix, and for


each port of loading.


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


by EGPC and/or CONTRACTOR under the Crude Oil


sales contracts in effect. EGPC and CONTRACTOR


 shall mutually agree upon the Market Price of the barrel


of Crude Oil to be used for such quarter, and shall be


guided by all relevant and available evidence including


current prices in freely convertible currency of leading


crude oils produced by major oil producing countries (in


the Arabian Gulf or the Mediterranean Area), which are


regularly sold in the open market according to actual


sales contracts terms but excluding paper sales and


sales promises where no crude oil is delivered, to the


extent that such sales are effected under such terms and


conditions (excluding the price) not significantly different


from those under which the crude oil to be valued, was


sold, and always taking into consideration appropriate


adjustments for crude oil quality, freight advantage or


disadvantage of port of loading and other appropriate


adjustments, as the case may be, for differences in


gravity, sulphur, and other factors generally recognized


by sellers and purchasers, as reflected in crude prices,


transportation ninety (9H) days insurance premiums,


unusual fees borne by the seller, and for credit terms in


excess of sixty (60) days, and the cost of loans or


guarantees granted for the benefit of the sellers at


prevailing interest rates.





It is the intent of the Parties that the value of the Cost


Recovery Crude Oil shall reflect the prevailing market


price for such Crude Oil.





(v) If either EGPC or CONTRACTOR considers that the


Market Price as determined under sub-paragraph (ii)


above does not reflect the prevailing Market Price or in


the event EGPC and CONTRACTOR fail to agree on


Market Price for any Crude Oil produced under this


Agreement for any quarter within fifteen (15) days after


the end thereof, any party may elect at any time


thereafter to submit to a single arbitrator the question,


what single price per barrel, in the arbitrator's judgment,


best represents for the pertinent quarter the Market


Price for the Crude Oil in question. The arbitrator shall


make his determination as soon as possible following the


L^- - . O'





34





,s-


quarter in question. His determination shall be final and


binding upon all the parties. The arbitrator shall be


selected in the manner described below.


In the event EGPC and CONTRACTOR fail to agree on


the arbitrator within thirty (30) days from the date any


party notifies the other that it has decided to submit the


determination of the Market Price to an arbitrator, such


arbitrator shall be chosen by the appointing authority


designated in accordance with Article XXIV (e), or such


other appointing authority with access to such expertise


as may be agreed to between EGPC and


CONTRACTOR, with regard to the qualifications for


arbitrators set forth below, upon written application of


one or both of EGPC and CONTRACTOR. Copy of such


application by one of them shall be promptly sent to the


other.


The arbitrator shall be as nearly as possible a person


with an established reputation in the international


petroleum industry as an expert in pricing and marketing


crude oil in international commerce. The arbitrator shall


not be a citizen of a country which does not have


diplomatic relations with both the A.R.E. and Greece .


He may not be, at the time of selection, employed by, or


an arbitrator or consultant on a continuing or frequent


basis to, the American Petroleum Institute, the


Organization of the Petroleum Exporting Countries or


the Organization of Arab Petroleum Exporting Countries,


or a consultant on a continuing basis to EGPC,


CONTRACTOR or an Affiliated Company of either, but


past occasional consultation with such companies, with


other petroleum companies, governmental agencies or


organizations shall not be a ground for disqualification.


He may not have been, at any time during the two (2)


years before selection, an employee of any petroleum


 Should a selected person decline or be unable to serve


as arbitrator or should the position of arbitrator fall


vacant prior to the decision called for, another person


shall be chosen in the same manner provided in this


paragraph. EGPC and CONTRACTOR shall share


equally the expenses of the arbitrator.


The arbitrator shall make his determination in


accordance with the provisions of this paragraph, based


on the best evidence available to him. He will review oil


sales contracts as well as other sales data and


information but shall be free to evaluate the extent to


which any contracts, data or information is substantiated


or pertinent. Representatives of EGPC and


CONTRACTOR shall have the right to consult with the


arbitrator and furnish him written materials provided the


arbitrator may impose reasonable limitations on this


right. EGPC and CONTRACTOR each shall cooperate


with the arbitrator to the fullest extent and each shall


insure such cooperation of its trading companies. The


arbitrator shall be provided access to crude oil sales


contracts and related data and information which EGPC


and CONTRACTOR or their trading companies are





able to make available and which in the judgment of the


arbitrator might aid the arbitrator in making a valid


determination.





(vi) Pending Market Price agreement by EGPC and


CONTRACTOR or determination by the arbitrator, as


applicable, the Market Price agreed for the quarter


preceding the quarter in question shall remain


temporarily in effect. In the event either EGPC or


CONTRACTOR should incur a loss by virtue of the


temporary continuation of the Market Price of the


previous quarter, it shall promptly be reimbursed such


loss by the other party plus simple interest at the LIBOR


plus two and one - half percent (2.5%) per annum rate


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


disputed amount(s) should have been paid to the date


of payment. (\











36


r,>


(2)Gas and LPG





(i (The Cost Recovery and Production Shares of Gas subject to


a Gas Sales Agreement between EGPC and CONTRACTOR


(as sellers) and EGPC or EGAS (as buyer) entered into


pursuant to Article VII (e) shall be valued, delivered to and


purchased by EGPC at a price determined as follows :


* Cost Recovery Gas Price shall be evaluated on the





basis of (1.6 US$ / MMBTU ) .


* Production Sharing Gas Price shall be evaluated on the


basis of ( 1 US$/MMBTU ) .





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


produced from a plant constructed and operated by or on


behalf of EGPC and CONTRACTOR shall be separately


valued for Propane and Butane at the outlet of such LPG


plant according to the following formula (unless otherwise


agreed between EGPC and CONTRACTOR):





PLPG = 0 95 PR - (J X 0.85 X F )


6


42.96 X 10








Where





PLPG = LPG price (separately determined for Propane and


Butane) in U S. Dollars per metric ton.





PR =The average over a period of a month of the figures


representing the mid-point between the high and low


prices in U S. Dollars per metric ton quoted in "Platt's


LPGaswire" during such month for Propane and


Butane FOB Ex-Ref/Stor. West Mediterranean.





BTU's removed from the Gas stream by the LPG plant


per metric ton of LPG produced.





- -


/ /


37


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


Gulf of Suez Blend "FOB Ras Shukheir" ARE


calculated by referring to "Platt's Oilgram Price Report"


during a month under the heading "Spot Crude Price


Assessment for Suez Blend". This value reflects the total


averages of the published low and high values for a


Barrel during such month divided by the number of days


in such month for which such values were quoted. The


value per metric ton shall be calculated on the basis of a


conversion factor to be agreed upon annually between


EGPC and CONTRACTOR.


In the event that "Platt's LPGaswire" is issued on certain


days during a month but not on others, the value of (PR)


shall be calculated using only those issues which are


published during such month. In the event that the


value of (PR) can not be determined because


"Platt's LPGaswire" is not published at all during a


month, EGPC and CONTRACTOR shall meet and


agree to the value of (PR) by reference to other


published sources. In the event that there are no such


other published sources or if the value of (PR) cannot


be determined pursuant to the foregoing for any other


reason , EGPC and CONTRACTOR shall meet and


agree the value of (PR) by reference to the value of LPG


(Propane and Butane) delivered FOB from the


Mediterranean Area.


Such valuation of LPG is based upon delivery at the


delivery point specified in Article VII (e) (2) (iii).


(iii) The prices of Gas and LPG so calculated shall apply


during the same month.


(iv) The Cost Recovery and Production Shares of Gas and


LPG disposed of by EGPC and CONTRACTOR other


than to EGPC or EGAS pursuant to Article VII (e) shall


be valued at their actual realized price .











38


(d) Forecasts:


Operating Company shall prepare (not less than ninety (90)


days prior to the beginning of each calendar semester following


first regular production) and furnish in writing to CONTRACTOR


and EGPC a forecast setting out a total quantity of Petroleum


that Operating Company estimates can be produced, saved


and transported hereunder during such calendar semester in


accordance with good oil and gas industry practices.


Operating Company shall endeavor to produce each calendar


semester the forecast quantity. The Crude Oil shall be run to


storage tanks or offshore loading facilities constructed,


maintained and operated according to Government


Regulations, by Operating Company in which said Crude Oil


shall be metered or otherwise measured for royalty, and other


purposes required by this Agreement. Gas shall be handled by


Operating Company in accordance with the provisions of


Article VII (e).


(e) Disposition of Petroleum:


(1)EGPC and CONTRACTOR shall have the right and the


obligation to separately take and freely export or otherwise


dispose of, currently all of the Crude Oil to which each is


entitled under Article VII (a) and (b). Subject to payment of


sums due to EGPC under Article VII (a) (2) and Article IX,


CONTRACTOR shall have the right to remit and retain abroad


all funds acquired by it including the proceeds from the sale of


its share of Petroleum.





Notwithstanding anything to the contrary under this


Agreement, priority shall be given to meet the requirements


of the A.R.E. market from CONTRACTOR'S share under


Article VII ( b ) of the Crude Oil produced from the Area and


EGPC shall have the preferential right to purchase such Crude


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


The amount of Crude Oil so purchased shall be a portion of


CONTRACTOR'S share under Article VII (b).. Such amount


shall be proportional to CONTRACTOR'S share of the total


production of crude jdjI from the concession areas in the











r>' r r





A R E that are also subject to EGPC's preferential right to


purchase. The payment for such purchased amount shall be


made by EGPC in U S Dollars or in any other freely


convertible currency remittable by CONTRACTOR abroad


It is ag'eed upon that EGPC shall notify CONTRACTOR, at


least forty-five (45) days prior to the beginning of the Calendar


Semester, of the amount to be purchased during such


semester under this Article VII (e) (1).


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


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


market as determined by EGPC.


(ii) In the event that EGPC or EGAS is to be the buyer of Gas.


the disposition of Gas to the local markets as indicated above


shall be by virtue of long term Gas Sales Agreements to be


entered into between EGPC and CONTRACTOR (as sellers)


and EGPC or EGAS (as buyer).


EGPC and CONTRACTOR (as sellers) shall have the


obligation to deliver Gas to the following point where such


Gas shall be metered for sales, royalty, and other purposes


required by this Agreement:


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


(.ins. the delivery point shall be at the flange connecting


the Lease pipeline to the nearest point on the . National


Gas Pipeline Grid System as depicted in Annex ”F"


hereto, or as otherwise agreed by EGPC and


CONTRACTOR.


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


Gas, such Gas shall, for the purposes of valuation and


sales, be metered at the inlet to such LPG Plant.


However, notwithstanding the fact that the metering shall


take place at the LPG Plant inlet, CONTRACTOR shall


through the Operating Company build a pipeline suitable


for transport of the processed Gas from the LPG Plant


outlet to the nearest point on the National Gas Pipeline


Grid System as depicted in Annex "F" hereto, or


otherwise agreed by EGPC and CONTRACTOR. Such


pipeline shall be owned in accordance with Article VIII


(a) by EGPC, and its cost shall be financed and recovered


by CONTRACTOR as Development Expenditures


pursuant to Article VII.


(iii) EGPC and CONTRACTOR shall consult together to


determine whether to build an LPG plant for recovering


LPG from any Gas produced hereunder. In the event


EGPC and CONTRACTOR decide to build such a plant,


the plant shall, as is appropriate, be in the vicinity of the


point of delivery as determined in Article II and Article


Vll(e)2(ii). The delivery of LPG for, royalty and other


purposes required by this Agreement shall be at the outlet


of the LPG plant. The costs of any such LPG plant shall be


recoverable in accordance with the provisions of this


Agreement unless the Minister of Petroleum agrees to


accelerated recovery.


(iv) EGPC or EGAS (as buyer) shall have the option to elect, by


ninety (90) days prior written notice to EGPC and


CONTRACTOR (as sellers), whether payment for the Gas


which is subject to a Gas Sales Agreement between EGPC


and CONTRACTOR (as sellers) and EGPC or EGAS (as


buyer) and LPG produced from a plant constructed and


operated by or on behalf of EGPC and CONTRACTOR, as


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


CONTRACTOR is entitled under the Cost Recovery


and Production Sharing provisions of Article VII, of this


Agreement, shall be made 1) in cash or 2) in kind.


Payments in cash shall be made by EGPC or EGAS (as


buyer) at intervals provided for in the relevant Gas


Sales Agreement in U.S. Dollars, remittabie by


CONTRACTOR abroad.


Payments in kind shall be calculated by converting the


value of Gas and LPG to which CONTRACTOR is entitled


into equivalent barrels of Crude Oil to be taken concurrently


 by CONTRACTOR from the Area, or to the extent that such


Crude Oil is insufficient, Crude Oil from CONTRACTOR'S


other concession areas or such other areas as may be


agreed. Such Crude Oil shall be added to.the Crude Oil that


CONTRACTOR is otherwise entitled to lift under this


Agreement. Such equivalent barrels shall be calculated on


the basis of the provisions of Article VII (c) relating to the


valuation of Cost Recovery Crude Oil.





Provided that





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


made in cash in U.S. Dollars remittable by


CONTRACTOR abroad to the extent that there is


insufficient Crude Oil available for conversion as provided


for above;


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


made in kind as provided for above to the extent that


payments in cash are not made by EGPC.


Payments to CONTRACTOR (whether in cash or kind),





when related to CONTRACTOR’S Cost Recovery


Petroleum, shall be included in CONTRACTOR'S


Statement of Recovery of Costs and of Cost Recovery


Petroleum referred to in Article IV of Annex "E" of this


Agreement.





(v) Should EGPC or EGAS (as buyer) fail to enter into a long¬


term Gas Sales Agreement with EGPC and


CONTRACTOR (as sellers) within four (4) years from a


notice of Commercial Gas Discovery pursuant to Article III,


EGPC and CONTRACTOR shall have the right to take and


freely dispose of the quantity of Gas and LPG in respect of


which the notice of Commercial Discovery is given by


exporting such Gas and LPG.





(vi) The proceeds of sale of CONTRACTOR’S share of Gas


and LPG disposed of pursuant to the above sub-paragraph


(v) may be freely remitted or retained abroad by











i)


 (vii) In the event EGPC and CONTRACTOR agree to accept


new Gas and LPG producers to join in an ongoing export


project, such producers shall have to contribute a fair and


equitable share of the investment made.





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


to in Article VII (e) (2) (v), CONTRACTOR shall have


the obligation to exert its reasonable efforts to find an


export market for Gas reserves.


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


referred to under Article VII (e) (2) (v), CONTRACTOR


and EGPC have not entered into a Gas Sales


Agreement, CONTRACTOR shall retain its rights to


such Gas reserves for a further period of up to four (4)


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


which period EGPC shall attempt to find a market for


Gas reserves.


(cc) In the event that CONTRACTOR is not exporting the


Gas and CONTRACTOR has not entered into a Gas


Sales Agreement pursuant to Article VII (e) (2) prior


to the expiry of eight (8) years from CONTRACTOR'S


notice of Commercial Gas Discovery,


CONTRACTOR shall surrender the Gas reserves in


respect of which such notice has been given. It


being understood that CONTRACTOR shall, at any


time prior to the expiry of such eight ( 8 ) year


period , surrender the Gas reserves, if


CONTRACTOR is not exporting the Gas and


CONTRACTOR does not accept an offer of a Gas


Sales Agreement from EGPC within six (6) months


from the date such offer is made provided that the


Gas Sales Agreement offered to CONTRACTOR


shall take into consideration the relevant technical


 - A sufficient delivery rate.





- Delivery pressure to enter the National Gas Pipeline Grid


System at the point of delivery.


- Delivered Gas quality specifications not more stringent


than those imposed or required for the National Gas


Pipeline Grid System.


- The Gas prices as specified in this Agreement.





(dd) In the event that CONTRACTOR has not entered into a


Gas Sales Agreement pursuant to Article VII (e) (2)or


otherwise found an acceptable scheme for commercial


disposal of such Gas , at the time of the expiration of


eight ( 8 ) years from CONTRACTOR’S notice of


Commercial Discovery of Gas or failing agreement with


EGPC on gas disposal at the expiration of eight ( 8 )


years , CONTRACTOR shall surrender to EGPC such


Devplopment l ease (s) in which Gas discovery is made.





(ix) CONTRACTOR shall not be obligated to surrender a


Development Lease based on a Commercial Gas


Discovery, if Crude Oil has been discovered in


commercial quantities in the same Development Lease.





(f) Operations:





If following the reversion to EGPC of any rights to Crude Oil


hereunder, CONTRACTOR retains rights to Gas in the same


Development Lease, or if, following surrender of rights to Gas


hereunder, CONTRACTOR retains rights to Crude Oil in the


same Development Lease, operations to explore for or exploit


the Petroleum, the rights to which have reverted or been


surrendered (Oil or Gas as the case may be) may only be


carried out by Operating Company which shall act on behalf of


EGPC alone, unless CONTRACTOR and EGPC agree


otherwise.


L


f





S'








44


g) Tanker Scheduling:


At a reasonable time prior to the commencement of


Commercial Production EGPC and CONTRACTOR shall meet


and agree upon a procedure for scheduling tanker liftings from


the agreed upon point of export.





ARTICLE VIII


TITLE TO ASSETS


(a) EGPC shall become the owner of all CONTRACTOR acquired


and owned assets which assets were charged to Cost Recovery


by CONTRACTOR in connection with the operations carried out


by CONTRACTOR or Operating Company in accordance with


the following:


(1) Land shall become the property of EGPC as soon as it is


purchased.


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


automatically and gradually from CONTRACTOR to EGPC as


they become subject to recovery in accordance with the


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


movable assets shall be transferred automatically from


CONTRACTOR to EGPC when its total cost has been


recovered by CONTRACTOR in accordance with the


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


Agreement with respect to all assets chargeable to the


operations whether recovered or not, whichever first occurs.


The book value of the assets created during each calendar


quarter shall be communicated by CONTRACTOR to EGPC or


by Operating Company to EGPC and CONTRACTOR within


thirty (30) days of the end of each quarter.


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


EGPC, CONTRACTOR and Operating Company are entitled to


the full use and enjoyment of all fixed and movable assets


referred to above in connection with operations hereunder or


(











under any other Petroleum concession agreement entered


into by the Parties. Proper accounting adjustment shall be


made. CONTRACTOR and EGPC shall not dispose of the same


except with agreement of the other.


(c) CONTRACTOR and Operating Company may freely import into





the A.R.E., use therein and freely export at the end of such use,


machinery and equipments which they either rent or lease in


accordance with good industry practices, including but not limited


to the lease of computer hardware and software.








ARTICLE IX





BONUSES





(a) CONTRACTOR shall pay to EGPC as a signature bonus the


sum of one million (1,000,000 ) U.S. Dollars on the Effective


Date.


(b)CONTRACTOR shall pay to EGPC as a bonus the sum of one





million (1,000,000 ) U.S. Dollars upon approval of each


Development Lease.





(c) PRODUCTION BONUS : -


1) CRUDE OIL BONUS :





1- CONTRACTOR shall pay to EGPC the sum of one





million ( 1,000,000) U.S. Dollars as a production bonus


when the total average daily production from the Area


first reaches the rate of ten thousand ( 10,000 ) Barrels


per day for a period of thirty (30) consecutive producing


days. Payment will be made within thirty (30) days


thereafter.


2- CONTRACTOR shall also pay to EGPC the additional


sum of three million (3,000,000) U.S. Dollars as a


production bonus when the total average daily production


from the Area first reaches the rate of twenty five


 I














thousand ( 25,000) Barrels per day for a period of thirty


(30) consecutive producing days. Payment will be made


within thirty (30) days thereafter.


3- CONTRACTOR shall also pay to EGPC the additional sum


of five million ( 5,000,000) U.S. Dollars as a production


bonus when the total average daily production from the


Area first reaches the rate of fifty thousand ( 50,000 )


Barrels per day for a period of thirty (30) consecutive


producing days. Payment will be made within thirty (30)


days thereafter.


4- CONTRACTOR shall also pay to EGPC the additional sum


of eight million ( 8,000,000) U.S. Dollars as a production


bonus when the total average daily production from the


Area first reaches the rate of one hundred thousand


(100,000) Barrels per day for a period of thirty (30)


consecutive producing days. Payment will be made within


thirty (30) days thereafter.


2) GAS & LPG BONUS :


1- CONTRACTOR shall pay to EGPC the sum of one


million ( 1,000,000) U.S. Dollars as a production bonus


when the total average daily production from the Area


first reaches the rate of fifty million ( 50,000,000 )SCF.


per day for a period of thirty (30) consecutive producing


days. Payment will be made within thirty (30) days


thereafter.


2- CONTRACTOR shall also pay to EGPC the additional


sum of one and half million (1,500,000) U.S. Dollars as a


production bonus when the total average daily production


from the Area first reaches the rate of one hundred and


twenty five million (125,000,000) SCF. per day for a


period of thirty (30) consecutive producing days. Payment


will be made within thirty (30) days thereafter.


3- CONTRACTOR shall also pay to EGPC the additional sum


of three million ( 3,000,000) U.S. Dollars as a production


bonus when the total average daily production from the


Area first reaches the rate of two hundred and fifty million


(250,000,000 ) SCF. per day for a period of thirty (30)


consecutive producing days. Payment will be made within


thirty (30) days thereafter.


4- CONTRACTOR shall also pay to EGPC the additional sum


of five million ( 5,000,000) U.S. Dollars as a production


bonus when the total average daily production from the


Area first reaches the rate of five hundred million


(500,000,000 ) SCF. per day for a period of thirty (30)


consecutive producing days. Payment will be made within


thirty (30) days thereafter.


(d) CONTRACTOR shall pay to EGPC as a bonus the sum of three


hundred and fifty thousand (350,000) U.S. Dollars per each one


million (1,000,000) barrel of oil or barrel of oil equivalent for the


recoverable reserves within the five (5) years extension period


pursuant to Article III (i) paragraph (d) (3) (bb).


The followin'-1 formula shall be aooiied for equivalent barrels of


Gas :





MSCF x H x 0.167 = equivalent barrels of Crude Oil





where


MSCF = one thousand Standard Cubic Feet of Gas.








H = the number of million British Thermal Units


(BTU's per MSCF).


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


recovered by CONTRACTOR.


(f) In the event that EGPC elects to develop any part of the Area


pursuant to the sole risk provisions of Article III (c) (iv),


production from such sole risk area shall be considered for the


purposes of this Article IX only if CONTRACTOR exercises its


option to share in such production, and only from the initial


date of sharing..








48


 ARTICLE X





OFFICE AND SERVICE OF NOTICES


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


shall be validly served.


The General Manager and Deputy General Manager shall be


entrusted by CONTRACTOR with sufficient power to carry out


immediately all local written directions given to them by the


Government or its representatives under the terms of this


Agreement. All lawful regulations issued or hereafter to be issued


which are applicable hereunder and not in conflict with this


Agreement shall apply to the duties and activities of the General


Manager and Deputy General Manager.


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


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


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


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


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


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








ARTICLE XI


SAVING OF PETROLEUM AND PREVENTION OF LOSS


(a) Operating Company shall take all proper measures, according


to generally accepted methods in use in the oil and gas industry


to prevent loss or waste of Petroleum above or under the


ground in any form during drilling, producing, gathering, and


distributing or storage operations. The GOVERNMENT has the


right to prevent any operation on any well that it might


reasonably expect would result in loss or damage to the well or











49


and from the importation rules with respect to the importation of


machinery, equipment, appliances, materials, items, means of


transport and transportation (the exemption from taxes and


duties for cars shall only apply to cars to be used in operations),


electric appliances, air conditioners for offices, field housing and


facilities, electronic appliances, computer hardware and


software, as well as spare parts required for any of the imported


items, all subject to a duly approved certificate issued by the


responsible representative nominated by EGPC for such


purpose, which states that the imported items are required for


conducting the operations pursuant to this Agreement . Such


certificate shall be final and binding and shall automatically


result in the importation and the exemption without any further


approval, delay or procedure.


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


transportation imported by EGPC's, CONTRACTOR'S and


Operating Company's contractors and sub-contractors


temporarily engaged in any activity pursuant to the operations


which are the subject of this Agreement, shall be cleared under


the "Temporary Release System" without payment of customs


duties, any taxes, levies or fees (including fees imposed by


Ministerial Decision No. 254 of 1993 issued by the Minister of


Finance, as now or hereafter amended or substituted) of any


nature .upon presentation of a duly approved certificate issued


by an EGPC responsible representative nominated by EGPC for


such purpose which states, that the imported items are required


for conducting the operations pursuant to this Agreement. Items


(excluding cars not to be used in operations) set out in Article


XII (a) imported by EGPC's, CONTRACTOR'S and Operating


Company's contractors and sub-contractors for the aforesaid


operations, in order to be installed or used permanently or


consumed shall meet the conditions for exemption set forth in


Article XII (a) after being duly certified by an EGPC responsible


representative to be used for conducting operations pursuant to


this Agreement. y ^


Jr-

















51


(c) The expatriate employees of CONTRACTOR, Operating


Company and their contractors and sub-contractors shall not be


entitled to any exemptions from customs duties and other


ancillary taxes and charges except within the limits of the


provisions of the laws and regulations applicable in the A.R.E.


However, personal household goods and furniture (including one


(1) car) for each expatriate employee of CONTRACTOR and/or


Operating company shall be cleared under the "Temporary


Release System" (without payment of any customs duties and


other ancillary taxes) upon presentation of a letter to the


appropriate customs authorities by CONTRACTOR or Operating


Company approved by an EGPC responsible representative that


the imported items are imported for the sole use of the expatriate


employee and his family, and that such imported items shall be


re-exported outside the A.R.E. upon the repatriation of the


concerned expatriate employee.


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


from customs duties and other ancillary taxes and charges


hereunder, may be exported by the importing party at any time


after obtaining EGPC's approval, which approval shall not be


unreasonably withheld, without any export duties, taxes or


charges or any taxes or charges from which such items have


been already exempt, being applicable. Such items may be sold


within the A.R.E. after obtaining the approval of EGPC which


approval shall not be unreasonably withheld. In this event, the


purchaser of such items shall pay all applicable customs duties


and other ancillary taxes and charges according to the condition


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


sale, unless such items have already been sold to an Affiliated


Company of CONTRACTOR, if any, or EGPC, having the same


exemption, or unless title to such items (excluding cars not used


in operations) has passed to EGPC.


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


proceeds from such sale shall be divided in the following manner:


CONTRACTOR shall be entitled to reimbursement of its


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


shall be pa











52


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


any imported items when items of the same or substantially the


same kind and quality are manufactured locally meeting


CONTRACTOR'S and/or Operating Company's specifications for


quality and safety and are available for timely purchase and


delivery in the A.R.E. at a price not higher than ten percent (10%)


of the cost of the imported item, before customs duties but after


freight and insurance costs if any have been added.


(f) CONTRACTOR, EGPC and their respective buyers shall have the


right to freely export the Petroleum produced from the Area


pursuant to this Agreement; no license shall be required, and


such petroleum shall be exempted from any customs duties, any


taxes, levies or any other imposts in respect of the export of


Petroleum hereunder.





ARTICLE XIII


BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS


(a) EGPC, CONTRACTOR and Operating Company shall each


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


in accordance with the Accounting Procedure in Annex "E" and


accepted accounting practices generally used in the petroleum


industry, and such other books and records as may be necessary


to show the work performed under this Agreement, including the


amount and value of all Petroleum produced and saved


hereunder. CONTRACTOR and Operating Company shall keep


their books of account and accounting records in United States


Dollars.


Operating Company shall furnish to the GOVERNMENT or its


representatives monthly returns showing the amount of


Petroleum produced and saved hereunder. Such returns shall be


prepared in the form required by the GOVERNMENT, or its


representative and shall be signed by the General Manager or by


the Deputy General Manager or a duly designated deputy and


delivered to the GOVERNMENT or its representative within thirty














53


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


referred to above shall be available at all reasonable times for


inspection by duly authorized representatives of the


GOVERNMENT.


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


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


commencement of the following Tax Year to show its net profit


or loss from the Petroleum operations under this Agreement for


such Tax Year.


CONTRACTOR shall at the same time submit a year-end


Balance Sheet for the same Tax Year to EGPC. The Balance


Sheet and financial statements shall be certified by an Egyptian


certified accounting firm.





ARTICLE XIV








RECORDS, REPORTS AND INSPECTION





(a) CONTRACTOR and/or Operating Company shall prepare and, at


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


current records of its operations in the Area. CONTRACTOR


and/or Operating Company shall furnish the GOVERNMENT or


its representative, in conformity with applicable regulations or as


the GOVERNMENT or its representative may reasonably require


information and data concerning its operations under this


Agreement. Operating Company will perform the functions


indicated in this Article XIV in accordance with its role as specified


in Article VI.


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


for a reasonable period of time a representative portion of each


sample of cores and cuttings taken from drilling wells, to be


disposed of, or forwarded to the GOVERNMENT or its


representative in the manner directed by the GOVERNMENT. All


samples acquired by CONTRACTOR and/or Operating Company


for their own purposes shall be considered available for


inspection at anv reasonable time by the GOVERNMENT or its


represet








54


(c) Unless otherwise agreed to by EGPC, in case of exporting any


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


quality shall, before such exportation, be delivered to EGPC as


representative of the GOVERNMENT.


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


EGPC; provided, however, that magnetic tapes and any other


data which must be processed or analyzed outside the A.R.E.


may be exported if a monitor or a comparable record, if available,


is maintained in the A.R.E. and provided that such exports shall


be repatriated to A.R.E. promptly following such processing or


analysis on the understanding that they belong to EGPC.


(e) During the period CONTRACTOR is conducting the Exploration


operations, EGPC's duly authorized representatives or


employees shall have the right to full and complete access to the


Area at all reasonable times with the right to observe the


operations being conducted and to inspect all assets, records and


data kept by CONTRACTOR. EGPC’s reoresentative, in


exercising its rights under the preceding sentence of this


paragraph (e), shall not interfere with CONTRACTOR'S


operations. CONTRACTOR shall provide EGPC with copies of


any and all data (including, but not limited to, geological


and geophysical reports, logs and well surveys) information and


interpretation of such data, and other information in


CONTRACTOR'S possession.


For the purpose of obtaining new offers, the GOVERNMENT


and/or EGPC may, after the seven and half ( 7.5 ) year of the


Exploration period or the date of termination of this Agreement,


whichever is the earlier, show any other party uninterpreted basic


geophysical and geological data (such data to be not less than


one (1) year old unless CONTRACTOR agrees to a shorter


period, which agreement shall not be unreasonably withheld) with


respect to the Area, provided that the GOVERNMENT and/or


EGPC may at any time show another party such data directly


obtained over or acquired from those parts of the Area which


CONTRACTOR has relinquished as long as such data is at least











55


 ARTICLE XV








RESPONSIBILITY FOR DAMAGES


CONTRACTOR shall entirely and solely be responsible in law toward


third parties for any damage caused by CONTRACTOR'S Exploration


operations and shall indemnify the GOVERNMENT and/or EGPC


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


any such operations.








ARTICLE XVI


PRIVILEGES OF GOVERNMENT REPRESENTATIVES


Duly authorized representatives of the GOVERNMENT shall have


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


conducted thereon. Such representatives may examine the books,


registers and records of EGPC, CONTRACTOR and Operating


Company and make a reasonable number of surveys, drawings and


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


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


instruments of CONTRACTOR or Operating Company on the


condition that no danger or impediment to the operations hereunder


shall arise directly or indirectly from such use. Such representatives


shall be given reasonable assistance by the agents and employees of


CONTRACTOR or Operating Company so that none of the activities


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


CONTRACTOR or Operating Company shall offer such


representatives all privileges and facilities accorded to its own


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


of reasonable office space and of adequately furnished housing while


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


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


information obtained by the GOVERNMENT or its representatives


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

















56


 ARTICLE XVII





EMPLOYMENT RIGHTS AND TRAINING OF





ARAB REPUBLIC OF EGYPT PERSONNEL





(a) It is the desire of EGPC and CONTRACTOR that operations


hereunder be conducted in a business-like and efficient manner.


(1) The expatriate administrative, professional and technical


personnel employed by CONTRACTOR or Operating


Company and the personnel of its contractors for the


conduct of the operations hereunder, shall be granted a


residence as provided for in Law No. 89 of 1960 as amended


and Ministerial Order No. 280 of 1981 as amended, and


CONTRACTOR agrees that all immigration, passport, visa


and employment regulations of the A.R.E., shall be applicable


to aii aiien employees of CONTRACTOR working in irie


A.R.E.


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


salaries and wages of each of the expatriate administrative,


professional and technical personnel employed by


CONTRACTOR or Operating Company shall be paid


monthly in Egyptian Currency.


(b) CONTRACTOR and Operating Company shall each select its


employees and determine the number thereof, to be used for


operations hereunder.


(c) CONTRACTOR, shall after consultation with EGPC, prepare and


carry out specialized training programs for all its A.R.E.


employees engaged in operations hereunder with respect to


applicable aspects of the petroleum industry. CONTRACTOR and


Operating Company undertake to replace gradually their non¬


executive expatriate staff bv qualified nationals as thev are


available.











57


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


mutually agreed numbers of EGPC employees an opportunity to


attend and participate in CONTRACTOR'S and CONTRACTOR'S


Affiliated Companies training programs relating to Exploration


and Development operations. In the event that the total cost of


such programs is less than fifty thousand (50,000) United States


Dollars in any Financial Year during such period, CONTRACTOR


shall pay EGPC the amount of the shortfall within thirty (30) days


following the end of such Financial Year. However, EGPC shall


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


training, be paid directly to EGPC for such purpose.








ARTICLE XVIII





LAWS AND REGULATIONS





(a) CONTRACTOR and Operating Company shall be subject to Law


No. 66 of 1953 (excluding Articie 37 thereof) as amended by Law


No. 86 of 1956 and the regulations issued for the implementation


thereof, including the regulations for the safe and efficient


performance of operations carried out for the execution of this


Agreement and for the conservation of the petroleum resources


of the A.R.E. provided that no regulations, or modification or


interpretation thereof, shall be contrary to or inconsistent with the


provisions of this Agreement.


(b) CONTRACTOR and Operating Company shall be subject to the


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


and its executive regulation as may be amended , as well as any


laws or regulations may be issued , concerning the protection of


the environment








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


CONTRACTOR and Operating Company shall be exempted from


all taxes and duties, whether imposed by the GOVERNMENT or


municipalities including among others, Sales Tax, Value Added


Tax and Taxes on the Exploration. Develooment. extracting,


 -> •














producing, exporting or transporting of Petroleum and LPG as


well as any and all withholding taxes that might otherwise be


imposed on dividends, interest, technical service fees, patent and


trademark royalties, and similar items. CONTRACTOR shall also


be exempted from any tax on the liquidation of CONTRACTOR,


or distributions of any income to the shareholders of


CONTRACTOR, and from any tax on capital.





(d) The rights and obligations of EGPC and CONTRACTOR under,


and for the effective term of this Agreement shall be governed


by and in accordance with the provisions of this Agreement and


can only be altered or amended by the written mutual


agreement of the said contracting parties.





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


Operating Company shall be subject to the provisions of this


Agreement which affect them. Insofar as all regulations which are


duly issued by the GOVERNMENT apply from time to time and


are hot in accord with the provisions of this Agreement, such


regulations shall not apply to CONTRACTOR, Operating


Company and their respective contractors and sub-contractors,


as the case may be.





(f) EGPC, CONTRACTOR, Operating Company and their respective


contractors and sub-contractors shall for the purposes of this


Agreement be exempted from all professional stamp duties,


imposts and levies imposed by syndical laws with respect to their


documents and activities hereunder.





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


regulations granted to EGPC, CONTRACTOR, the Operating


Company, their contractors and sub-contractors under this


Agreement shall include such laws and regulations as presently


in effect or hereafter amended or substituted. ,


























59


 ARTICLE XIX





STABILIZATION





In case of changes in existing legislation or regulations applicable


to the conduct of Exploration, Development and production of


Petroleum, which take place after the Effective Date, and which


significantly affect the economic interest of this Agreement to the


detriment of CONTRACTOR or which imposes on


CONTRACTOR an obligation to remit to the A.R.E. the proceeds


from sales of CONTRACTOR'S Petroleum, CONTRACTOR shall


notify EGPC of the subject legislative or regulatory measure. In


such case, the Parties shall negotiate possible modifications to


this Agreement designed to restore the economic balance thereof


which existed on the Effective Date.


The Parties shall use their best efforts to agree on amendments to


this Agreement within ninety (90) days from aforesaid notice.





These amendments to this Agreement shall not in any event


diminish or increase the rights and obligations of CONTRACTOR


as these were agreed on the Effective Date.


Failing agreement between the Parties during the period referred





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


arbitration, as provided in Article XXIV of this Agreement.











ARTICLE XX





RIGHT OF REQUISITION





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


expectation of war or internal causes, the GOVERNMENT may


requisition all or part of the production from the Area obtained


hereunder and require Operating Company to increase such


production to the utmost possible maximum. The


GOVERNMENT may also requisition the Oil and/or Gas field


itself and, if necessary, related facilities


Vj/' ..=*





60 •^7


-> S'


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


after inviting EGPC and CONTRACTOR or their representative


by registered letter, with acknowledgement of receipt, to express


their views with respect to such requisition.


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


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


facilities shall be effected by a Presidential Decree duly notified to


EGPC and CONTRACTOR.


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


GOVERNMENT shall indemnify in full EGPC and


CONTRACTOR for the period during which the requisition is


maintained, including:


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


(2) ruii repayment each month for all Petroleum extracted by


the GOVERNMENT less the royalty share of such


production.


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


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


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


CONTRACTOR for Petroleum taken shall be calculated in


accordance with Article VII (c).








ARTICLE XXI


ASSIGNMENT


(a) Neither EGPC nor CONTRACTOR may assign to a person, firm


or corporation, in whole or in part, any of its rights, privileges,


duties or obligations under this Agreement either directly or


indirectly without the written consent of the Government and in


all cases priority shall be given to EGPC if it so desire to obtain


the interest intended to be assigned .


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


consent, the following conditions must be fulfilled:


(1) The obligations of the assignor deriving from this


Agreement must have been duly fulfilled as of the date such


request is made.


(2) The instrument of assignment must include provisions


stating precisely that the assignee is bound by all


covenants contained in this Agreement and any


modifications or additions in writing that up to such time


may have been made. A draft of such instrument of


assignment shall be submitted to EGPC for review and


approval before being formally executed .





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


pursuant to the provisions of this Article XXI shall be free of any


transfer, capital gains taxes or related taxes, charges or fees


including without limitation, all Income Tax, Sales Tax, Value


Added Tax, Stamp Duty, or other Taxes or similar payments.





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


Agreement, the assignor together with the assignee shall be


jointly and severally liable for all duties and obligations of


CONTRACTOR under this Agreement.








ARTICLE XXII








BREACH OF AGREEMENT AND POWER TO CANCEL








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


Agreement by Order or Presidential Decree, with respect to


CONTRACTOR, in the following instances:





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


GOVERNMENT which were of a material consideration for the


execution of this Agreement;





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


of Article XXI; Q_








r?


s





■j)


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


jurisdiction;





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


result of court proceedings conducted under Article XXIV(a);





(5) If it intentionally extracts any mineral other than Petroleum not


authorized by this Agreement or without the authority of the


GOVERNMENT, except such extractions as may be


unavoidable as the result of the operations conducted


hereunder in accordance with accepted petroleum industry


practice and which shall be notified to the GOVERNMENT or


its representative as soon as possible; and


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





provisions of Law No. 66 of 1953, as amended by Law No. 86


of 1956, which are not contradicted by the provisions of this


Agreement.


Such cancellation shall take place without prejudice to any


rights which may have accrued to the GOVERNMENT against


CONTRACTOR in accordance with the provisions of this


Agreement, and, in the event of such cancellation,


CONTRACTOR, shall have the right to remove from the Area


all its personal property.





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


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


exists to cancel this Agreement, the GOVERNMENT shall give


CONTRACTOR ninety (90) days written notice personally served


on CONTRACTOR'S General Manager in the legally official


manner and receipt of which is acknowledged by him or by his


legal agents, to remedy and remove such cause; but if for any


reason such service is impossible due to unnotified change of


address, publication in the Official Journal of the GOVERNMENT


of such notice shall be considered as valid service upon


CONTRACTOR. If at the end of the said ninety (90) day notice


period such cause has not been remedied and removed, this


Agreement may be canceled forthwith by Order or Presidential








63


r-'


 Decree as aforesaid; provided however, that if such cause, or the


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


omission of one party, cancellation of this Agreement shall be


effective only against that party and not as against any other party


hereto.








ARTICLE XXIII





FORCE MAJEURE


(a) The non-performance or delay in performance by EGPC and


CONTRACTOR, or either of them of any obligation under this


Agreement shall be excused if, and to the extent that, such non¬


performance or delay is caused by force majeure. The period of


any such non-performance or delay, together with such period as


may be necessary for the restoration of any damage done during


such delay, shall be added to the time given in this Agreement for


the performance of such obligation and for the performance of


any obligation dependent thereon and consequently, to the term


of this Agreement, but only with respect to the block or blocks


affected.


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


any order, regulation or direction of the GOVERNMENT of the


ARAB REPUBLIC OF EGYPT, or with respect to CONTRACTOR,


the Government of Greece whether promulgated in the form of a


law or otherwise or any act of God, insurrection, riot, war, strike,


and other labor disturbance, fires, floods or any cause not due to


the fault or negligence of EGPC and CONTRACTOR or either


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


such cause is beyond the reasonable control of EGPC and


CONTRACTOR, or either of them.





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


provided herein, the GOVERNMENT shall incur no responsibility


whatsoever to EGPC and CONTRACTOR, or either of them for


any damages, restrictions or loss arising in consequence of such


case of force majeure except a force majeure caused by the


order, regulations or directjpn-of the GOVERNMENT of the ARAB


REPUBLIC OF EGYPT. ^





64 . x


it


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


period or any extension thereof and continues in effect for a


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


upon ninety (90) days prior written notice to EGPC to terminate its


obligations hereunder without further liability of any kind.





ARTICLE XXIV





DISPUTES AND ARBITRATION








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


Agreement or the breach, termination or invalidity thereof,


between the GOVERNMENT and the parties shall be referred to


the jurisdiction of the appropriate A.R.E. Courts and shall be


finally settled by such Courts.


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


Agreement, or breach, termination or invalidity thereof between


EGPC and CONTRACTOR shall be settled by arbitration in


accordance with the Arbitration Rules of the Cairo Regional


Center for International Commercial Arbitration (the Center) in


effect on the date of this Agreement. The award of the


arbitrators shall be final and binding on the parties.


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


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


after receipt of the claimant's notification of the appointment of an


arbitrator the respondent has not notified the claimant in writing


of the name of the arbitrator he appoints, the claimant may


request the Center to appoint the second arbitrator.


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


arbitrator who will act as the presiding arbitrator of the tribunal. If


within thirty (30) days after the appointment of the second


arbitrator, the two arbitrators have not agreed upon the choice of


the presiding arbitrator, then either party may request the


rmanent Court of Arb......he


Hague to designate the appointing authority. Such appointing


authority shall appoint the presiding arbitrator in the same way


as a sole arbitrator would be appointed under Article 6.3 of the


UNCITRAL Arbitration Rules. Such presiding arbitrator shall be


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


a country which has diplomatic relations with both A.R.E.


and Greece and who shall have no economic interest in the


Petroleum business of the signatories hereto.


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


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


Cairo, A.R.E.


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


binding upon the Parties and the arbitral award rendered shall be


final and conclusive. Judgment on the arbitral award rendered,


may be entered in any court having Jurisdiction or application


may be made in such court for a judicial acceptance of the award


and for enforcement, as the case may be.


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


of any conflict between Egyptian Laws and this Agreement the


provisions of this Agreement (including the arbitration provision)


shall prevail. The arbitration shall be conducted in both English


and Arabic language.


(i) EGPC and CONTRACTOR agree that if, for whatever reason,


arbitration in accordance with the above procedure cannot take


place, or is likely to take place under circumstances for


CONTRACTOR which could prejudice CONTRACTOR'S right to


fair arbitration, all disputes, controversies or claims arising out of


or relating to this Agreement or the breach, termination or


invalidity thereof shall be settled by ad hoc arbitration in


accordance with the UNCITRAL Rules in effect on the Effective




















66


 ARTICLE XXV





STATUS OF PARTIES





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


and CONTRACTOR hereunder shall be several and not joint or


collective, it being understood that this Agreement shall not be


construed as constituting an association or corporation or


partnership.


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


is incorporated regarding its legal status or creation,


organization, charter and by-laws, shareholding, and ownership.


CONTRACTOR’S shares of capital which are entirely held abroad


shall not be negotiable in the A.R.E. and shall not be offered for


public subscription nor shall be subject to the stamp tax on capital


shares nor any tax or duty in the A.R.E. CONTRACTOR shall be


exempted from the application of Law No. 159 of 1981 as


amended.


(c) All CONTRACTOR Members shall be jointly and severally liable


for the performance of the obligations of CONTRACTOR under


this Agreement.








ARTICLE XXVI





LOCAL CONTRACTORS AND





LOCALLY MANUFACTURED MATERIAL





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


their contractors shall: ^^




















67


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


EGPC's Affiliated Companies as long as their performance is


comparable with international performance and the prices of their


services are not higher than the prices of other contractors and


sub-contractors by more than ten percent (10%).





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


machinery and consumables so long as their quality and time of


delivery are comparable to internationally available material,


equipment, machinery and consumables. However, such


material, equipment, machinery and consumables may be


imported for operations conducted hereunder if the local price


of such items at CONTRACTOR'S or Operating Company's


operating base in A.R.E. is more than ten percent (10%) higher


than the price of such imported items before customs duties, but


after transportation and insurance costs have been added.








ARTICLE XXVII





ARABIC TEXT








The Arabic version of this Agreement shall, before the courts of


A.R.E. be referred to in construing or interpreting this Agreement;


provided however, that in any arbitration pursuant to Article XXIV


herein above between EGPC and CONTRACTOR the English


and Arabic versions shall both be referred to as having equal


force in construing or interpreting the Agreement.








ARTICLE XXVIII





GENERAL





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


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


■ with respect to the interpretation_of said Articles. , /


&








68 S ’K





 ARTICLE XXIX








APPROVAL OF THE GOVERNMENT





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


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


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


and giving this Agreement full force and effect of law notwithstanding


any countervailing Governmental enactment, and the Agreement is


signed by the GOVERNMENT, EGPC, and CONTRACTOR. / /


KRITI OIL & GAS S.A.











BY:








EGYPTIAN GENERAL PETROLEUM CORPORATION











BY:








ARAB REPUBLIC OF EGYPT








BY:








DATE :


 ANNEX”AM


CONCESSION AGREEMENT





BETWEEN


THE ARAB REPUBLIC OF EGYPT





AND





EGYPTIAN GENERAL PETROLEUM CORPORATION


AND





KRITI OIL & GAS S.A.


IN


NORTH WEST GEMSA AREA





EASTERN DESERT


A.R.E.








BOUNDARY DESCRIPTION OF THE CONCESSION AREA


Annex "B" is a provisional illustrative map at an approximate scale


of ( 1: 500,000 ) showing the Area covered and affected by this


Agreement.


- The Area measure approximately five hundred and ninety


square kilometers ( 590km2) of surface Area. It is composed of


all or part of Exploration Blocks, the whole Blocks are defined on


a three (3 ) minutes latitude by three ( 3) minutes longitude grid.





It is to be noted that the delineation lines of the Area in Annex


"B" are intended to be only illustrative and provisional and may


not show accurately their true position in relation to existing


monuments and geographical features. JL


,Vrv - -X-





r''-








70


Coordinates of the corner points of the Area are given in the following table


which forms an integral part of Annex ”A":-


BOUNDARY COORDINATES


OF


NORTH WEST GEMSA AREA


IN


EASTERN DESERT





LATITUDE / NORTH LONGITUDE / EAST


01- 28° 06’ 00.00” 33° 18’ 00.00”





02- 28° 03’ 00.00” 33° 18’ 00.00”


03- 28° 03’ 00.00” 33° 21’ 00.00”


04- 28° 00’ 00.00” 33° 21’ 00.00”


05- LATITUDE 28° 00’ 00.00”


INTERSECTS THE HIGH TIDE LINE OF





WESTERN COAST OF G. O.S.


06- LATITUDE 27° 58’ 00.00”


INTERSECTS THE HIGH TIDE LINE OF


WESTERN COAST OF G. O.S.


07- 27° 58’ 00.00” 33° 30’ 00.00”


27° 56’ 00.00” 33° 30’ 00.00”


08-


09- 27° 56’ 00.00” 33° 31’ 00.00” .


10- 27° 54’ 00.00” 33° 31’ 00.00”


11- 27° 54’ 00.00” 33° 29’ 00.00”


27° 56’ 30.00” 33° 29’ 00.00”


12-


13- 27° 56’ 30.00” 33° 28’ 30.00”


14- 27° 57’ 00.00” 33° 28’ 30.00”


15- 27° 57’ 00.00” 33° 28’ 00.00”


16- 27° 58’ 00.00” 33° 28’ 00.00”





17- 27° 58’ 00.00” 33° 27’ 30.00”


18- 27° 58’ 30.00” 33° 27’ 30.00”


19- 27° 58’ 30.00” 33° 26’ 30.00”


20- 27° 59’ 00.00” 33° 26’ 30.00”


21- 27° 59’ 00.00” 33° 26’ 00.00”


27° 59’ 36.00” 33° 26’ 00.00”


22-


23- 27° 59’ 36.00” 33° 24’ 54.00”


24- 27° 54’ 00.00” 33° 24’ 54.00”


25- 27° 54’ 00.00” 33° 27’ 00.00”


27° 49’ 00.00” 33° 27’ 00.00”


26-


27- LATITUDE 27° 49’ 00.00 ” INTERSECTS THE


HIGH TIDE LINE OF WESTERN BANK OF G. O.S.


28- 27° 48’ 00.00” 33° 28’ 39.00”


29- 27° 48’ 00.00” 33° 18’ 00.00”


30- 27° 56’ 00.00” 33° 12’ 00.00”


28° 12’


31- 03’ 00.00” 33° 00.00”


32- LATITUDE 28° 06’ 00.00"INTERSECTSS.

















71


 ANNEX 46 B”




































































ANNEX(B) (


CONCESSION AGREEMENT FOR PETROLEUM


EXPLORATION AND EXPLOITATION On


BETWEEN


THE ARAB REPUBLIC OF EGYPT AujxJ! juia Ajj


AND J


THE EGYPTIAN GENERAL PETROLEUM JjjjjU AaUJI


CORPORATION


AND


KRITI OIL & GAS S. A. . 0*1 J-* ^ Jjj' ^jA


IN •


NORTH WEST GEMSA AREA A < u (JLaaIi A&IoLa





A.R.E. /a -e-AC


SCALE 1 : 500,000


s’





)


 ANNEX "C





LETTER OF GUARANTY


Letter of Guarantee No. --- (Cairo ------------ 2002), EGYPTIAN


GENERAL PETROLEUM CORPORATION.





Gentlemen,


The undersigned, National Bank of Egypt as Guarantor, hereby


guarantees to the EGYPTIAN GENERAL PETROLUEM


CORPORATION ( hereinafter referred to as “ EGPC ” ) to the


limit of nine million ( 9, 000, 000 ) U.S. Dollars , the performance by


“KRITI OIL & GAS S.A.” (hereinafter referred to as “CONTRACTOR”)


of its obligations required for Exploration operations to spend a


minimum of nine million (9, 000, 000 ) U.S. Dollars during the initial


three and half (3.5) year of the Exploration period under Article IV of


that certain Concession Agreement (hereinafter referred to as the


“Agreement”) covering that Area described in Annexes “A” and “B” of


said Agreement, by and between the Arab Republic of Egypt


(hereinafter referred to as “A.R.E”), EGPC and CONTRACTOR,


dated------- .





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


hereunder shall be reduced quarterly, during the period of


expenditure of said nine million (9, 000, 000 ) U.S. Dollars by the


amount of money expended by CONTRACTOR for such Exploration


operations during each such quarter. Each such reduction shall be


established by the joint written statement of CONTRACTOR and


EGPC.





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


the Agreement on the part of CONTRACTOR prior to fulfillment of


said minimum expenditure obligations under Article IV of the


Agreement, there shall be no liability on the undersigned Guarantor


for payment to EGPC unless and until such liability has been


established by written statement of EGPC setting forth the amount


due under the Agreement. •


•V^ / jO


 It is a further condition of this Letter of Guaranty that:





(1) This Letter of Guaranty will become available only provided that


the Guarantor will have been informed in writing by


CONTRACTOR and EGPC that the Agreement between


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


according to its terms, and said Guaranty shall become effective


on the Effective Date of said Agreement.


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





(a) Three and half ( 3.5 ) years and six (6) months after the


date it becomes effective, or





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


quarterly joint statements of EGPC and CONTRACTOR


equals or exceeds the amount of said minimum


expenditure obligation, whichever is earlier.





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


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


accompanied by EGPC’s written statement, setting forth the


amount of under-expenditure by CONTRACTOR to the effect


that:


(a) CONTRACTOR has failed to perform its expenditure


obligations referred to in this Guaranty, and





(b) CONTRACTOR has failed to pay the expenditure deficiency to


EGPC.





l/ Please return to us this Letter of Guaranty in the event it does not


become effective, or upon the expiry date

£l\ ~ r=T-»* - v


Yours Faithfully,


Accountant: ---





Manager:--------














74


 ANNEX "D"





CHARTER OF OPERATING COMPANY


ARTICLE I


A joint stock company having the nationality of the ARAB REPUBLIC


OF EGYPT shall be formed with the authorization of the


GOVERNMENT in accordance with the provisions of this Agreement


referred to below and of this Charter.


The Company shall be subject to all laws and regulations in force in


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


inconsistent with the provisions of this Charter and the Agreement


referred to below.





ARTIP.IF II


The name of the Operating Company shall be mutually agreed upon


between EGPC and CONTRACTOR on the date of the Commercial


Discovery and shall be subject to the approval of the Minister of


Petroleum.





ARTICLE III


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


Cairo.








ARTICLE IV





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


which EGPC and CONTRACTOR, carry out and conduct the


Development operations required in accordance with the provisions


of the Agreement signed on the ------ day of --------------- by and


between the ARAB REPUBLIC OF EGYPT, THE EGYPTIAN


GENERAL PETROLEUM CORPORATION and CONTRACTOR


covering Petroleum operations in NORTH WEST GEMSA


Area , EASTERN DESERT described therein. /


&


Operating Company shall be the agency to carry out and conduct


Exploration operations after the date of Commercial Discovery


pursuant to Work Programs and Budgets approved in accordance


with the Agreement.


Operating Company shall keep account of all costs, expenses and


expenditures for such operations under the terms of the Agreement


and Annex "E" thereto.


Operating Company shall not engage in any business or undertake


any activity beyond the performance of said operations unless


otherwise agreed upon by EGPC and CONTRACTOR.





ARTICLE V





The authorized capital of Operating Company is twenty thousand


Egyptian Pounds divided into five thousand shares of common stock


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


rights, fully paid and non-assessable.


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


throughout the life of Operating Company, one half (1/2) of the capital


stock of Operating Company provided that only in the event that


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


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


transferring or assigning party transfer or assign any of the capital


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


assigning party (and its successors and assignees) must


transfer and assign a stock interest in Operating Company equal to


the transferred or assigned whole or percentage of its ownership


interest in the entirety of the said Agreement.





ARTICLE VI





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


or under the Agreement or any Development Lease created


thereunder or in any of the Petroleum produced from any Exploration


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








76


equipment or other property obtained or used in connection


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


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


CONTRACTOR under the Agreement. Operating Company shall not


make any profit from any source whatsoever.





ARTICLE VII


Operating Company shall be no more than an agent for EGPC and


CONTRACTOR. Whenever it is indicated herein that Operating


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


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


decision or judgment of EGPC, CONTRACTOR or EGPC and


CONTRACTOR, as may be required by the Agreement.








ARTICLE VIII


Operating Company shall have a Board of Directors consisting of


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


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


designated by EGPC and shall also be a Managing Director.


CONTRACTOR shall designate the General Manager who shall also


be a Managing Director.








ARTICLE IX


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


Directors are present and any decision taken at such meetings must


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


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


held by another Director.





ARTICLE X





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


the capital stock of Operating Company is represented thereat. Any


decision taken at such meetings must have the affirmative vote of


Shareholders owning or representinga majority of the capital stock.








77


 ARTICLE XI





The Board of Directors shall approve the regulations covering the


terms and conditions of employment of the personnel of Operating


Company employed directly by Operating Company and not assigned


thereto by CONTRACTOR and EGPC.


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


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


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


provisions of Article X hereof.





ARTICLE XII





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


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


after signature of a Gas Sales Agreement or commencement of a


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


otherwise agreed by EGPC and CONTRACTOR).


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


duration of the said Agreement, including any renewal thereof.


The Operating Company shall be wound up if the Agreement referred


to above is terminated for a








KRITI OIL & GAS S. A.





By :











EGYPTIAN GENERAL PETROLEUM CORPORATION





By

















78


 ANNEX "E








ACCOUNTING PROCEDURE











ARTICLE I


GENERAL PROVISIONS








(a) Definitions:


The definitions contained in Article I of the Agreement shall apply


to this Accounting Procedure and have the same meanings.





(b) Statements of activity:





f 4 \ p A K |TH A PT A D ** U II i irr* i A l\ / nf ♦I"* ir* A


\ l ) OSJI >1 I I \nu I vJi \ oilciii, puiouuiu iv / \i uwiw iv vl u lio r\yi vwlnviu,


and until the coming into existence of the Operating Company -


in accordance with Article VI of the Agreement - render to EGPC


within thirty (30) days of the end of each calendar quarter a


Statement of Exploration Activity reflecting all charges and


credits related to the Exploration Operations for that quarter


summarized by appropriate classifications indicative of the


nature thereof.








(2) Following its coming into existence, Operating Company shall


render to EGPC and CONTRACTOR within fifteen (15) days of


the end of each calendar quarter a Statement of Development


and Exploration Activity reflecting all charges and credits related


to the Development and Exploration operations for that quarter


summarized by appropriate classifications indicative of the


nature thereof, except that items of controllable material and


unusual charges and credits shall be detailed.





(c) Adjustments and Audits:





(1) Each quarterly Statement of Exploration Activity pursuant to


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





i a\ \v _ X





79





4? S'


) > / / -


(e) Precedence of Documents:


In the event of any inconsistency or conflict between the


provisions of this Accounting Procedure and the provisions of


the Agreement treating the same subject differently, then the


provisions of the Agreement shali prevail.


(f) Revision of Accounting Procedure:


By mutual agreement between EGPC and CONTRACTOR, this


Accounting Procedure may be revised in writing from time to


time in the light of future arrangements.


(g) No Charge for Interest on Investment:


Interest on investment or any bank fees, charges or


commissions related to any bank guarantees shall not at any


time be charged as recoverable costs under the Agreement.





ARTICLE II





COSTS, EXPENSES AND EXPENDITURES





Subject to the provisions of the Agreement, CONTRACTOR shall


alone bear and, directly or through Operating Company, pay the


following costs and expenses, which costs and expenses shall be


classified and allocated to the activities according to sound and


generally accepted accounting principles and treated and recovered


in accordance with Article VII of this Agreement:


(a) Surface Rights:


All direct cost attributable to the acquisition, renewal or


relinauishment of surface riahts acauired and maintained in force














81


 be true and correct after three (3) months following the receipt of


each Statement by EGPC unless within the said three (3)


months EGPC takes written exception thereto pursuant to Article


IV (f) of the Agreement. During the said three (3) month period


supporting documents will be available for inspection by EGPC


during all working hours.





CONTRACTOR will have the same audit rights on Operating


Company Statements as EGPC under this sub-paragraph.


(2) All Statements of Development and Exploration Activity for any





calendar quarter pursuant to Article I (b) (2) of this Annex, shall


conclusively be presumed to be true and correct three (3)


months following the receipt of such Statement, unless within


the said three (3) months period EGPC or CONTRACTOR takes


written exception thereto. Pending expiration of said three (3)


months EGPC or CONTRACTOR or both of them shall have the


right to audit Operating Company accounts, records and


supporting documents for such quarter in the same manner as


provided in Article IV (f) of the Agreement.





(d) Currency Exchange:





CONTRACTOR'S books for Exploration and Operating


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


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


expenditures shall be charged in the amount expended. All


Egyptian Pounds expenditures shall be converted to U.S. Dollars


at the applicable rate of exchange issued by the Central Bank


of Egypt on the first day of the month in which expenditures are


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


translated to U.S. Dollars at the buying rate of exchange for such


currency as quoted by National Westminster Bank Limited,


London at 10.30 a.m. G.M.T., on the first day of the month in


which expenditures are recorded. A record shall be kept of the


exchange rates used in translating Egyptian Pounds or other


,npn-U.S Dollars expenditures to U.S. Dollars.


LSL / ■ . /i-


' " g/-' ' *





\:








80


(b) Labor and Related Costs:


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


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


the various activities under the Agreement including salaries


and wages paid to geologists and other employees who are


temporarily assigned to and employed in such activities. Such


salaries and wages to be certified by a certified public


accounting firm.


Reasonable revisions of such salaries and wages shall be


effected to take into account changes in CONTRACTOR'S


policies and amendments of laws applicable to salaries. For the


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


shall mean the assessable amounts for A.R.E. Income Taxes,


including the salaries during vacations and sick leaves, but


excluding all the amounts of the other items covered by the


percentage fixed under (2) below.


(2) For expatriate employees permanently assigned to Egypt:





1. All allowances applicable to salaries and wages;





2. Cost of established plans; and


3. All travel and relocation costs of such expatriate





employees and their families to and from the


employee's country or point of origin at the time of


employment, at the time of separation, or as a result


of transfer from one location to another and for


vacation (transportation costs for employees and


their families transferring from the A.R.E. to another


location other than their country of origin shall not














■) >











82


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


to seventy percent ( 70 %) of basic salaries and wages paid for such


expatriate personnel including those paid during vacations and sick


leaves as established in CONTRACTOR'S international policies,


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


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


However, salaries and wages during vacations, sick leaves and


disability are covered by the foregoing percentage. The percentage


outlined above shall be deemed to reflect CONTRACTOR'S actual


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


allowances and costs








1. Housing and Utilities Allowance.


2. Commodities and Services Allowance.


3. Special Rental Allowance .


4. Vacation Transportation Allowance.


5. Vacation Travel Expense Allowance.


6. Vacation Excess Baggage Allowance.


7. Education Allowances (Children of Expatriate


Employees).


8. Hypothetical U.S. Tax Offset (which results in a


reduction of the chargeable percentage).


9. Storage of Personal Effects.


10. Housing Refurbishment Expense.


11. Property Management Service Fees.


12. Recreation Allowance.


13. Retirement Plan.


14. Group Life Insurance.


15. Group Medical Insurance.


16. Sickness and Disability.


17. Vacation Plans Paid (excluding Allowable Vacation


Travel Expenses).


18. Savings Plan.


19. Educational Assistance.


20. Military Service Allowance.


21. F.I.C.A.


22. Workman's Compensation.

















1 >'


24. Personnel Transfer Expense.


25. National Insurance.


26. Any other Costs, Allowances and Benefits of a like


nature as established in CONTRACTOR'S


International Policies.


The percentages outlined above shall be reviewed at intervals


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


CONTRACTOR and EGPC will agree on new percentages to be


used under this paragraph.


Revisions of the percentages will take into consideration variances


in costs and changes in CONTRACTOR'S international policies which


change or exclude any of the above allowances and benefits.


The revised percentages will reflect as nearly as possible


CONTRACTOR'S actual costs of all its established allowances and


benefits and of personnel transfers.


(3) For expatriate employees temporarily assigned to Egypt all


allowances, costs of established plans and all travel relocation


costs for such expatriates as paid in accordance with


CONTRACTOR'S international policies. Such costs shall not


include any administrative overhead other than what is


mentioned in Article II (k) (2) of this Annex.


(4) Costs of expenditure or contributions made pursuant to law or


assessment imposed by Governmental authority which are


applicable to labor cost of salaries and wages as provided


under Article II (b) (1), Article II (b) (2), Article II (i), Article II (k)


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


(c) Benefits, allowances and related costs of national


employees :


Bonuses, overtime, customary allowances and benefits on a


basis similar to that prevailing for oil companies operating in the


A.R.E., all as chargeable under Article II (b) (1), Article II (i),


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


pay will be charged at a fixed rate applied to payrolls which will


equal an amount equivalent to the maximum liability for


(d) Material


Material, equipment and supplies purchased or furnished as such


by CONTRACTOR or Operating Company.


(1) Purchases:


Material, equipment and supplies purchased shall be at the


price paid by CONTRACTOR or Operating Company plus any


related cost and after deduction of all discounts actually


received.


(2) Material Furnished by CONTRACTOR:


Material required for operations shall be purchased directly


whenever practicable, except that CONTRACTOR may furnish


such material from CONTRACTOR'S or CONTRACTOR'S


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


following conditions:





1. New Material (Condition "A")





New Material transferred from CONTRACTOR'S or


CONTRACTOR'S Affiliated Companies warehouse


or other properties shall be priced at cost, provided


that the cost of material supplied is not higher than


international prices for material of similar quality


supplied on similar terms, prevailing at the time such


material was supplied.


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


a) Material which is in sound and serviceable condition





and is suitable for reuse without reconditioning shall


be classed as Condition "B" and priced at seventy -


five percent (75%) of the price of new material.


b) Material which cannot be classified as Condition "B"





M I It k t |U I AM I A A A rt 11 A A A U|a TA ■» A Ml M * A A 1 (l I M a4 ■ A M K ■ it


 substantially not suitable for reconditioning, shall


be classed as Condition "C" and priced at fifty


percent (50%) of the price of new material.


c) Material which cannot be classified as Condition "B"


or Condition "C” shall be priced at a value


commensurate with its use.


d) Tanks, buildings and other equipment involving


erection costs shall be charged at applicable


percentage of knocked - down new price.





(3) Warranty of Materials Furnished by CONTRACTOR


CONTRACTOR does not warrant the material furnished beyond or


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


defective material, credit shall not be recorded until adjustment has


been received by CONTRACTOR from manufacturers or their


agents.


(e) Transportation and Employee Relocation Costs:


(1) Transportation of equipment, materials and supplies necessary


for the conduct of CONTRACTOR’S or Operating Company's


activities.


(2) Business travel and transportation expenses to the extent


covered by established policies of CONTRACTOR or with


regard to expatriate and national employees, as incurred and


paid by, or for, employees in the conduct of CONTRACTOR'S or


Operating Company's business.


(3) Employees transportation and relocation costs for national


employees to the extent covered by established policies.


(f) Services:


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


 (2) Cost of services performed by EGPC or by CONTRACTOR, or


their Affiliated Companies in facilities inside or outside the


A.R.E. Regular, recurring, routine services, such as interpreting


magnetic tapes and/or other analyses, shall be performed and


charged by EGPC and/or CONTRACTOR or their Affiliated


Companies at an agreed contracted price. Major projects


involving engineering and design services shall be performed


by EGPC and/or CONTRACTOR or their Affiliated Companies


at a negotiated contract amount.


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





wholly owned equipment shall be charged at a rental rate


commensurate with the cost of ownership and operation, but


not in excess of competitive rates currently prevailing in the


A.R.E.





(4) CONTRACTOR’S and CONTRACTOR'S Affiliated Companies'


rates shall not include any administrative or overhead costs


other than what is mentioned in Article li (k) (2).


(g) Damages and Losses:


All costs or expenses, necessary to replace or repair damages or


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


cause not controllable by CONTRACTOR or Operating Company


through the exercise of reasonable diligence. CONTRACTOR or


Operating Company shall furnish EGPC and CONTRACTOR


written notice of damages or losses incurred in excess of ten


thousand ($10,000) U.S. Dollars per occurrence, as soon as


practicable after report of the same has been received by


CONTRACTOR or Operating Company.


(h) Insurance and Claims:


The cost of any public liability, property damage and other


insurance against liabilities of CONTRACTOR, Operating


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


and/or outsiders as may be required by the laws, rules and


regulations of the GOVERNMENT or as the parties may agree


'"v upon. The proceeds of any such insurance or claim collected,


' ... _a ..


less the actual cost of making a claim, shall be credited against


operations.


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


good international oil field practices, all related actual


expenditures incurred and paid by CONTRACTOR or Operating


Company in settlement of any and all losses, claims, damages,


judgments and any other expenses, including legal services.


(i) Indirect Expenses:


Camp overhead and facilities such as shore base, warehouses,


water systems, road systems, salaries and expenses of field


supervisory personnel, field clerks, assistants, and other general


employees indirectly serving the Area.


(j) Legal Expenses:


All costs and expenses of litigation, or iegai services otherwise


necessary or expedient for the protection of the Area, including


attorney’s fees and expenses as hereinafter provided, together


with all judgments obtained against the parties or any of them on


account of the operations under the Agreement, and actual


expenses incurred by any party or parties hereto in securing


evidence for the purpose of defending against any action or


claim prosecuted or urged against the operations or the


subject matter of the Agreement. In the event actions or claims


affecting the interests hereunder shall be handled by the legal


staff of one or more of the parties hereto, a charge


commensurate with cost of providing and furnishing such


services may be made to operations.


(k) Administrative Overhead and General Expenses:


(1) While CONTRACTOR is conducting Exploration operations,


the cost of staffing and maintaining CONTRACTOR'S head office


in the A.R.E. and/or other offices established in the A.R.E. as


appropriate other than field offices which will be charged as


provided in Article II (i), and excepting salaries of employees of


CONTRACTOR who are temporarily assigned to and directly








A 88


serving on the Area, which will be charged as provided in Article


II (b) of this Annex.


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


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


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


Exploration expenditures, provided that no administrative


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


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


operations conducted by Operating Company. No other direct


charges as such for CONTRACTOR'S administrative overhead


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


obligations. Examples of the type of costs CONTRACTOR is


incurring and charging hereunder due to activities under this


Agreement and covered by said percentage are:


1. Executive - Time of executive officers.


2. Treasury - Financial and exchange problems.


3. Purchasing - Procuring materials, equipment and supplies.


4. Exploration and Production-Directing, advising and controlling


the entire project.


5. Other departments such as legal, comptroller and engineering


which contribute time, knowledge and experience to the


operations.


The foregoing does not preclude charging for direct service


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


(3) While Operating Company is conducting operations, Operating


Company's personnel engaged in general clerical and office


work, supervisors and officers whose time is generally spent in


the main office and not the field, and all employees generally


considered as general and administrative and not charged to


other types of expense will be charged to operations. Such


expenses shall be allocated each month between Exploration


and Development operations accori" ' ' ' “


ccounting methods.

















89


 t t


I


• i,











(l) Taxes:





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


or Operating Company with respect to this Agreement other


than those covered by Article III (g) (1) of the Agreement.


(m) Continuing CONTRACTOR Costs:





Costs of CONTRACTOR activities required under the Agreement


and incurred exclusively in the A.R.E. after Operating Company


is formed. No sales expenses incurred outside or inside the


A.R.E. may be recovered as a cost.


(n) Other Expenditures:





Any costs, expenses or expenditures, other than those which


are covered and dealt with by the foregoing provisions of this


Article II, incurred by CONTRACTOR or Operating Company


under approved Work Programs and Budgets.








ARTICLE III





INVENTORIES





(a) Periodic Inventories, Notice and Representation:





At reasonable intervals as agreed upon by EGPC and


CONTRACTOR inventories shall be taken by Operating


Company of the operations materials, which shall include all


such materials, physical assets and construction projects.


Written notice of intention to take inventory shall be given by


Operating Company to EGPC and CONTRACTOR at least thirty


(30) days before any inventory is to begin so that EGPC and


CONTRACTOR may be represented when any inventory is


taken. Failure of EGPC and/or CONTRACTOR to be


represented at an inventory shall bind them to accept the


inventory taken by Operating Company, who shall in that event











90


 9 •» \


« * '*














(b) Reconciliation and Adjustment of inventories:


Reconciliation of inventory shall be made by CONTRACTOR and


EGPC, and a list of overages and shortages shall be jointly


determined by Operating Company and CONTRACTOR and


EGPC, and the inventory adjusted by Operating Company.








ARTICLE IV


COST RECOVERY





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


Petroleum:


CONTRACTOR shall, pursuant to Article VII of the Agreement,





render to EGPC as promptly as practicable but not later than


fifteen (15) days after receipt from Operating Company of the


Statements for Development and Exploration Activity for the


calendar quarter a Statement for that quarter showing:








1. Recoverable costs carried forward from the previous quarter,


if any.


2. Recoverable costs incurred and paid during the quarter.


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


4. Value of Cost Recovery Petroleum taken and separately


disposed of by CONTRACTOR for the quarter.


5. Amount of costs recovered for the quarter.


6. Amount of recoverable costs carried into the succeeding


quarter, if any.


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


taken and separately disposed of by CONTRACTOR over


costs recovered for the quarter.





(b) Payments:





If such Statement shows an amount due EGPC, payment of


that amount shall be made in U.S. Dollars by CONTRACTOR


with the rendition of such Statement. If CONTRACTOR fails to


make any such payment to EGPC on the date when such











■>) 91


payment is due, then CONTRACTOR shall pay interest of two


and one half percent (2.5%) per annum higher than the


London Interbank Borrowing Offered Rate (LIBOR) for three


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


interest is calculated. Such interest payment shall not be


recoverable.


(c) Settlement of Excess Cost Recovery Petroleum:


EGPC has the right to take its entitlement of Excess Cost


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


in kind during the said quarter . A settlement shall be required


with the rendition of such Statements in case CONTRACTOR


has taken more than its own entitlement of such Excess Cost


Recovery Petroleum.


(d) Audit Right:


EGPC shall have a period of twelve (12) months from receipt of


any Statement under this Article IV in which to audit and raise


objection to any such Statement. EGPC and CONTRACTOR


shall agree on any required adjustments. Supporting


documents and accounts will be available to EGPC during said


twelve (12) month period.





ARTICLE V





CONTROL AND MAJOR ACCOUNTS





(a) Exploration Obligation Control Accounts:


CONTRACTOR will establish an Exploration Obligation Control


Account and an offsetting contra account to control therein the


total amount of Exploration expenditures reported on


Statements of activity prepared per Article I (b) (1) of this Annex,


less any reductions agreed to by EGPC and CONTRACTOR


following written exceptions taken by a non-operator pursuant to


Article I (c) (1) of this Annex, in order to determine when











92


(b) Cost Recovery Control Account:


CONTRACTOR will establish a Cost Recovery Control Account


and an off-setting contra account to control therein the amount


of cost remaining to be recovered, if any, the amount of cost


recovered and the value of Excess Cost Recovery Petroleum, if


any.


(c) Major Accounts:


For the purpose of classifying costs, expenses and expenditures


for Cost Recovery as well as for the purpose of establishing when


the minimum Exploration obligations have been met, costs,


expenses and expenditures shall be recorded in major accounts


including the following:





Exploration Expenditures;





Development Expenditures other than Operating


Expenses;





Operating Expenses;





Necessary sub-accounts shall be used.


Revenue accounts shall be maintained by CONTRACTOR to





the extent necessary for the control of recovery of costs and


the treatment of Cost Recovery Petroleum.











ARTICLE VI





TAX IMPLEMENTATION PROVISIONS





It is understood that CONTRACTOR shall be subject to


Egyptian Income Tax Laws except as otherwise provided in the


Agreement, that any A.R.E. Income Taxes paid by EGPC on








93


 a V“* <4i! » *











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


income tax, that is "grossed up".





“CONTRACTOR'S annual income”, as determined in Article III (g) (2)


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


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


"Provisional Income".


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





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


to the A.R.E. Income Taxes.








THEREFORE:


Taxable Income = Provisional Income plus Grossed-up Value


and


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


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


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


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


income, then:


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





Combining the first and last equations above


Grossed-up Value= Provisional income X Tax Rate


1 - Tax Rate





where the tax rate is expressed as a decimal.





The above computations are illustrated by the following


numerical example. Assuming that the Provisional Income is $10


and the A.R.E. Income Tax rate is forty percent (40%), then the


Grossed-up Value is equal to: ^





$ 10X0.4 = $ 6.67


1 - 0.4





94


 1


%


























Therefore:








Provisional income $10.00


Plus Grossed-up Value 6.67





Taxable Income $16.67


Less: A.R.E. Income Taxes at 40% 6.67


CONTRACTOR'S Income after taxes





































































































95


ANNEX “F”