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1999 Model Production Sharing Contract
Model Production Sharing Agreement of August 1999
For Petroleum Exploration, Development & Production
TABLE OF CONTENTS
Article 1 DEFINITIONS
Article 2 AGREEMENT
Article 3 RESPONSIBILITIES AND GRANT OF RIGHTS
Article 4 EXPLORATION PROGRAMME
Article 5 ADVISORY COMMITTEE
Article 6 WORK PROGRAMMES AND BUDGETS
Article 7 DISCOVERY, DEVELOPMENT AND PRODUCTION
Article 8 RECORDS, REPORTS, DATA AND INSPECTION
Article 9 ROYALTY AND STATE PARTICIPATION
Article 10 COST RECOVERY AND PRODUCTION SHARING
Article 11 TAXATION
Article 12 VALUATION AND MEASUREMENT OF PETROLEUM
Article 13 PIPELINE TRANSPORTATION
Article 14 MARKETING AND LIFTING
Article 15 DOMESTIC REQUIREMENTS
Article 16 NATURAL GAS
Article 17 PURCHASES IN UGANDA
Article 18 TRAINING AND EMPLOYMENT
Article 19 TITLE TO ASSETS
Article 20 FOREIGN EXCHANGE CONTROL
Article 21 ASSIGNMENT
Article 22 DANGER TO PERSONS, PROPERTY OR ENVIRONMENT
Article 23 ARBITRATION
Article 24 INSURANCE AND INDEMNIFICATION
Article 25 FORCE MAJEURE
Article 26 ANNUAL SURFACE RENTALS
Article 27 TERMINATION
Article 28 ACCOUNTING AND AUDITS
Article 29 NOTICES
Article 30 APPLICABLE LAW
Article 31 ENTIRE AGREEMENT AND AMENDMENTS
Article 32 WAIVER
Article 33 CONFIDENTIALITY
Article 34 DISCLAIMER
A Description and Map of Contract Area
B-I Form of Exploration Licence
B-II Form of Production Licence
C Accounting and Financial Procedure
D Bank Guarantee
THIS AGREEMENT is made and entered into this -—————day of————
,200_ by and between the Government of the Republic of Uganda, acting through the
Ministry of Energy and Mineral Development, of P.O Box 7270 Kampala, Uganda
(hereinafter referred to as "Government") and ————————————————
——————————————————— a company duty organised and
existing under the laws of _____________.
WHEREAS, Petroleum in or under any land or water in Uganda is the property of the
Republic of Uganda;
WHEREAS, the Petroleum (Exploration and Production) Act 1985 makes provision
with respect to exploring for and producing Petroleum and authorises the Minister of
Natural Resources to grant Exploration and Production Licences to any person or
entity, subject to certain limitations and conditions;
WHEREAS, Section 2 of the Act authorises the Government to enter into an
agreement, not inconsistent with the Act, with any person or entity in respect of, inter
alia, the terms and conditions of the grant of a Licence under the Act;
WHEREAS, Licensee has applied for an Exploration Licence over the area described
in, and shown on the map in Annex A hereof aflame Minister, in accordance with
Section 9 of the Act, intends to grant the said Licence and
WHEREAS, Licensee intends, on terms and conditions set out under this Agreement
and has represented that he/she has or can obtain resources, to undertake Petroleum
Operations in the area aforesaid and has for that purpose the necessary financial
capacity, technical competence and professional skill to carry out such Operations;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1 Definitions
1.1. In this Agreement, unless the context otherwise requires:
1.1.1 "Act" means the Petroleum (Exploration and Production) Act of 1985 as
amended and in effect from time to time.
1.1.2 "Advisory Committee" means the Committee constituted pursuant to Article 5.
1.1.3 "Affiliated Company" means any entity directly or indirectly effectively
controlling, or effectively controlled by, or under direct or indirect effective common
control with a specified entity. For the purposes of this definition, "Control", when
used with respect to any specified entity, means the power to direct, administer and
dictate policies of such entity (it being understood and agreed that it is not necessary
to own directly or indirectly fifty percent (50%) or more of such entity's voting
securities to have control over such entity, but ownership, direct or indirect, of fifty
percent (50%) or more of such entity's voting securities shall automatically indicate
control), and the terms "controlling" and "controlled" have meanings corresponding to
1.1.4 "Agreement" means this instrument and the annexes attached hereto, including
any extensions, renewals or amendments thereof agreed to in writing by the parties.
1.1.5 "Albertine Graben" means that geological entity within the Republic of Uganda
together with such contiguous area or areas of the Democratic Republic of Congo
which together are known collectively as the Albertine Graben and recognised as such
by the international geological profession.
1.1.6 "Allowable Contract Expenditures" means those expenditures as so categorised
in the Accounting and Financial Procedure described in Annex "C".
1.1.7 "Appraisal Programme" means a programme carried out following one or more
Discovery (ies) of Petroleum for the purpose of delineating the Petroleum Reservoirs)
to which that discovery or these discoveries relate(s) in terms of thickness and lateral
extent and estimating the quantity of recoverable Petroleum therein.
1.1.8 "Appraisal Well" means any Well drilled for purposes of an Appraisal
1.1.9 "Associated Gas" means Natural Gas which is produced in association with
Crude Oil, and includes solution gas or gas cap gas, from a Petroleum Reservoir
recovered as gas at the surface by separation or other primary field processes.
1.1.10 "Barrel" means a quantity consisting of forty-two (42) United States gallons,
liquid measure, corrected to a temperature of sixty degrees (60°) Fahrenheit.
1.1.11 "Calendar Month" means any of the twelve (12) months of a Calendar Year.
1.1.12 "Calendar Quarter" means a period of three (3) consecutive Calendar Months
commencing with first day of January, April, July and October of each Calendar Year.
1.1.13 "Calendar Year" means a period of twelve (12) Calendar Months according to
the Gregorian Calendar starting with January 1st and ending with December 31st.
1.1.14 "Commercial Production" means production of Crude Oil or Natural Gas or
both and delivery of the same at the Delivery Point under a programme of regular
production and sale.
1.1.15 "Contract Area" means (a) on the Effective Date, the area described in Annex
A and shown on the map in Annex A; and (b) thereafter, the whole or any parrot such
area which, at any particular time, remains subject to an Exploration Licence granted
to Licensee pursuant to Article 3 and/or subject to a Production Licence granted to
Licensee pursuant to Article 7.
1.1.16 "Contract Expenses" means Exploration Expenditures, Development and
Production Expenditures and Operating Expenses incurred by Licensee in Conducting
Petroleum Operations hereunder determined in accordance with the Accounting and
Financial Procedure described in Annex "C".
1.1.17 "Contract Revenues" means the sum of all proceeds of sales of Petroleum and
monetary equivalent to the value of other dispositions of Licensee's share of
Petroleum produced and saved and not used in Petroleum Operations and any other
proceeds from Petroleum Operations hereunder.
1.1.18 "Contractor" means any person, company or entity employed by or on behalf
of the Licensee for the purpose of carrying out petroleum operations.
1.1.19 "Crude Oil" means any hydrocarbon which at atmospheric pressure and a
temperature of 60° Fahrenheit is in a liquid state at the well head or gas/oil separator
or which is extracted from Natural Gas in a plant, including distillate and condensate
and has been produced from the Contract Area.
1.1.20 "Delivery Point" means the point at which Crude Oil passes through the intake
valve of the pipeline or tanker (truck, aeroplane or rail wagon) at the terminal in
Uganda, or such other point which may be agreed to in writing by the Parties. In
respect of Natural Gas, the Delivery Point shall be such point as may be agreed to in
writing by the Parties.
1.1.21 "Development and Production Expenditures" means those expenditures as so
categorised in the Accounting and Financial Procedure described in Annex "C".
1.1.22 "Development Operations" has the meaning ascribed to it in the Act but does
not include operations beyond the Delivery Point.
1.1.23 "Development Plan" means a development plan referred to in Section 20(3) of
1.1.24 "Discovery" means a Discovery of Petroleum within the meaning of the Act.
1.1.25 "Effective Date" means the date on which this Agreement is signed by all
1.1.26 "Exploration Licence" means the petroleum exploration licence referred to in
paragraph 3.1 and granted pursuant to Section 8 of the Act.
1.1.27 "Exploration Expenditures" are all necessary, appropriate and economical,
direct and allocated indirect costs incurred in the search for petroleum and appraisal
of Discoveries in the Contract Area as so categorised in the Accounting and Financial
Procedures described in Annex C.
1.1.28 "Exploration Period" means the First, Second and Third Exploration Periods
referred to in paragraph 3.1.
1.1.29 "Exploration Well" means a Well, other than an Appraisal Well, drilled in the
course of Exploration Operations conducted hereunder.
1.1.30 "Good Oilfield Practices" means all of those things that are generally accepted
in the international petroleum industry as good, safe and efficient in the carrying out
of Exploration or, as the case may be. Development operations and that an
experienced, reasonable and prudent operator, engaged in a similar activity under
similar circumstances elsewhere, would use.
1.1.31 "Government" means the Government of the Republic of Uganda.
1.1.32 "Government Production Share" has the meaning ascribed to it in Article 10.
1.1.33 "Income Tax Act" means the Income Tax Act of 1997 as amended and in effect
from time to time.
1.1.34 "Joint Venture Agreement" means an agreement, not inconsistent herewith,
between Licensee and the Nominee of the Government to be negotiated and executed
pursuant to paragraph 9.4.
1.1.35 "Joint Operations" means operations in or relating to a Development Area
carried out under a Joint Vulture Agreement.
1.1.36 "Joint Venture Assets" has the meaning ascribed to it in paragraph 9.4.
1.1.37 "Joint Venture Interest" has the meaning ascribed to it in paragraph 9.4
1.1.38 "Licence Area" means an area over which an exploration or production licence
has been issued.
1.1.39 "Licensee" means any person, company or entity and includes any other person,
company or entity to whom the said companies or any of their approved assignees or
successors assign directly their Participating Interest in whole or in part in any
Exploration Licence or Production Licence.
1.1.40 "Market Price" has the meaning ascribed to it in paragraph 12.1.1.
1.1.41 "Maximum Efficient Rate" means the maximum rate of production of Crude
Oil from a Development Area, without excessive decline of production or excessive
loss of reservoir pressure, in accordance with good oilfield practice and the provisions
of paragraph 7.8.
1.1.42 "Natural Gas" means both Associated and Non-associated Gas and all its
constituent elements produced from any Well in the Contract Area and all nonhydrocarbon substances therein.
1.1.43 "Nominee" means a body corporate established by or under a law in force in
the Republic of Uganda wholly owned or controlled by the Government pursuant to
Article 9, designated for the purpose of holding Joint Venture Interest in the Joint
Venture Assets attributable to a Development Area, and includes an approved
assignee, of such body corporate provided such assignee satisfies the requirements of
1.1.44 "Non-Associated Gas" means Natural Gas other than Associated Gas.
1.1.45 "Operating Expenses" means those expenses as so categorised in the
Accounting Procedure described in Annex "C".
1.1.46 "Operatorship" means responsibility assigned to any person, company or entity
to conduct petroleum operations on behalf of the Licensee in the Licence Area.
1.1.47 "Participating Interest" in relation to any Licence held by Licensee hereunder
means an undivided and unencumbered interest in the rights and obligations under the
1.1.48 "Participation Share of Production" has the meaning ascribed to it in paragraph
1.1.49 "Party", or "Parties" means the signatories to this Agreement and any
successors or assignees thereof, either individually or collectively, as the case may be.
1.1.50 "Petroleum Operations" means Exploration Operations and Development
1.1.51 "Pipeline Company" means the company referred to in Article 13.
1.1.52 "Production Licence" means a petroleum production licence granted pursuant
to Section 21 of the Act and the provisions of this Agreement.
1.1.53 "Seaboard Terminal" means a terminal at Mombasa, Kenya or any other sea
port agreed to by the parties at which crude oil is lifted into the tankers for export.
1.1.54 "Sub-contractor" means any person, company or entity employed by or on
behalf of a Contractor for the purpose of carrying out petroleum operations.
1.1.55 "Tax Year" shall mean a period of twelve (12) consecutive calendar months
commencing on 1st January and ending on the following 31st December, according to
the Gregorian Calendar.
1.1.56 "Venture Assets" means the property whether real or personal owned or
acquired by Licensee in connection with Petroleum Operations hereunder and
includes the Exploration Licence and any Production Licences granted hereunder.
1.1.57 "Work Programme and Budget" means an itemised statement of Petroleum
Operations to be carried out in the Contact Area and a detailed breakdown of the
Contract Expenses associated therewith, including both capital and operating budgets,
all in a form acceptable to the Government.
1.2 The following words when used in this Agreement have the meanings ascribed to
them in the Act:
"Petroleum Production Licence"
ARTICLE 2 Agreement
This Agreement constitutes an agreement made under Section 2 of the Act.
This Agreement supersedes and replaces any provisions on the same subject to any
other agreement, whether written or oral, prior to the date of this Agreement.
ARTICLE 3 Responsibilities and Grant of Rights
3.1. Contemporaneously herewith. Licensee is granted, under and in accordance with
the Act, an Exploration Licence in respect of the Contract Area in the form set forth in
Annex "B-1". The said Exploration Licence shall have a term not exceeding four (4)
years ("First Exploration Period"), counted from the first day of the First Calendar
Month following the Effective Date. Not less than ninety (90) days prior to the
expiration of the First Exploration Period, Licensee may apply to the Government for
renewal of the Exploration Licence covering the Contract Area. Such renewal shall be
granted to Licensee subject to Licensee having (i) fulfilled its obligations under the
Act and this agreement, including its relinquishment obligations under paragraph 3.5,
during the First Exploration Period, and (ii) submitted with such application an
undertaking to comply with the minimum work and expenditure obligations for the
Second Exploration Period specified in Article 4. A maximum two (2) successive
renewals of said Exploration Licence not exceeding (2) years each ("Second
Exploration Period" and "Third Exploration Period") shall, subject to the requirements
of the Act, be granted to Licensee upon application by Licensee to the Government in
the prescribed manner.
3.2 Notwithstanding the provisions of the preceding paragraph and without prejudice
to the provisions of paragraph 3.4.2., in the event that on the ninetieth day before the
date on which an Exploration Licence is due to expire Licensee is in the process of
completing seismic or drilling operations under this Agreement, or the processing or
interpretation of data resulting therefrom, and provided that said operations are being
conducted diligently and starting in good time and in accordance with Good Oilfield
Practices, Licensee may apply for the renewal of any Exploration Licence pursuant to
paragraph 3.1 before but in no case later than fifteen (15) days prior to the date of
expiry of the then current period of validity of said Licence.
3.3 Licensee shall, subject to the Act and Regulations and the terms and conditions
herein set forth, have the exclusive right to conduct Petroleum Operations within the
Contract Area for the term of the Exploration Licences and any Production Licence
granted to it in accordance with all applicable legislation and provisions of this
3.4 Licensee, on giving to the Government not less than ninety (90) days notice in
writing (the "Surrender notice"), may:
3.4.1 Surrender its rights and be relieved of its obligations in respect of the whole of
the Contract Area if its minimum work and financial obligations under Article 4
hereof in respect of the relevant Exploration Period have been fulfilled in accordance
with Section 51 of the Act;
3.4.2 in respect of the Exploration Licence or any renewal thereof, elect to surrender
its rights in respect of the whole of the Contract Area and be relieved of its minimum
work and financial obligations under Article 4 in respect of the then current
Exploration Period at any time within sixty (60) days following the date on which
a. the interpretation of seismic works exceeding those provided under paragraph
4.2.1 (i) and actually being executed at the end of the preceding Exploration
b. the drilling, testing or plugging of any Exploration Well actually being
executed at the end of the preceding Exploration Period in which event(s) the
Surrender Notice shall be reduced to thirty (30) days; and
3.4.3 at any time after the grant of the Exploration Licence, surrender its rights and be
relieved of its obligations in respect of any block or blocks forming part of the
Contract Area provided, however, that no surrender by Licensee of its rights over any
part of the Contract Area shall relieve Licensee of its obligation to satisfy the
minimum work and financial obligations referred .to in Article 4 hereof in respect of
the Exploration Period during which it gives the Surrender Notice.
3.5 Notwithstanding the provisions of Section 15 of the Act, the following mandatory
relinquishment provisions shall apply:
3.5.1 if Licensee applies for a renewal of the Exploration Licence on or before the end
of the First Exploration Period, Licensee shall relinquish the number of blocks
constituting in total area not less than fifty percent (50%) of the original Contract
3.5.2 if Licensee applies for the second renewal of the Exploration Licence on or
before the end of the Second Exploration Period, Licensee shall relinquish an
additional number of blocks constituting in total area not less than twenty five percent
(25%) of the original Contract Area;
3.5.3 the Licensee shall relinquish land within the Contract Area so as to comply to
the satisfaction of the Minister with the following requirements:
a. no relinquishment of a part only of a Block shall be permitted;
b. the area(s) to be relinquished shall consist of a number of contiguous Blocks
so arranged that so far as possible:
each Block other than the Blocks defining the boundaries of such shall be
contiguous on all sides with other Blocks;
the shape of the relinquished area should be approximately rectangular;
the direction of its boundaries should be roughly north-south and east-west;
its longer boundaries should not be more than three times the length of its
3.5.4 Any areas which Licensee elects to surrender pursuant to paragraph 3.4.3 shall
be credited against the area which Licensee is next required to relinquish pursuant to
this paragraph 3.5. Licensee shall not be required to relinquish pursuant to this
paragraph 3.5 any area which constitutes a discovery or Development Area or any
part thereof and said Discovery or Development Area shall be subtracted from the
original Contract Area for the purpose of calculating the area to be relinquished
pursuant to paragraph 3.5.1 to 3.5.2.
3.6 The Government reserves the right to grant licences to other legal persons to
prospect for, explore for and mine minerals within the Contract Area, and further
reserves to itself the right to so prospect, explore and mine directly. Licensee shall use
its best efforts to avoid obstruction or interference with such Licensees' or
Government operations and similarly the Government shall use its best efforts to
ensure that its own operations or those of third parties do no obstruct or interfere with
Licensee's Petroleum Operations within the Contract Area.
3.7 In the event that Licensee discovers minerals other than Petroleum in the Contract
Area which may be of economic value, it shall report such discovery to the
government within thirty (30) days of the making of such discovery and shall supply a
sample of such minerals to the Government
3.8 If more than one person or entity comprises Licensee, the duties and obligations of
the persons or entities constituting Licensee hereunder shall be joint and several.
3.9 The Government shall in as far as is permitted by the law assist the Licensee to
obtain rights of ingress to and egress from the Contract Area and any petroleum
facilities used in Petroleum Operations and to obtain rights of way and rights to
construct related Petroleum Operations facilities as may be reasonably required by the
Licensee. The Licensee shall meet all the associated costs and expenses.
ARTICLE 4 Programme
4.1 Licensee shall commence Exploration Operations in Uganda within four (4)
calendar months of the Effective Date.
4.2 In discharge of its obligation to carry out Exploration Operations in the Contract
Area, Licensee shall, in accordance with the provisions of this Article, carry out the
following minimum work programmes and shall expend not less than the
corresponding sums specified as adjusted pursuant to paragraph 4.5:
4.2.1 First Exploration Period
Commencing on the day on which the Exploration Licence becomes effective
pursuant to Article 3 and terminating on the fourth anniversary of such date:
(a) Exploration Area [________]
Undertake geological, geochemical, geophysical and related studies and review all
existing gravity data, maps, reports, publications, research papers and other data and
The acquisition, processing and interpretation of not less than [_____] line kilometres
of seismic data; and the drilling of one exploration well whose location and depth
Government and Licensee shall agree on. The seismic data shall be acquired in such a
manner as to adequately sample the entire Contract Area.
(b) Minimum Exploration Expenditure US$ [_____] million
Preliminary Geological, Geophysical and other studies US$ [_____] Seismic Data
US$ [_____] Drilling US$ [_____]
4.2.2 Second Exploration Period.
Commencing on the day on which the Exploration Licence is renewed pursuant to
Article 3 hereof and terminating on the second anniversary of such date.
Exploration Area [_____]
(i) Minimum Work Programme:
The acquisition, processing and interpretation of not less than [ ] line kilometres of
seismic data, and the drilling of two exploration wells whose location and depth
Government and Licensee shall agree on. The seismic data shall be acquired in such a
manner as to adequately sample the remaining Contract Area.
(ii) Minimum Exploration Expenditure US$ [_____ ] million
Seismic Data US$ [_____] million Drilling US$ [_____] million
4.2.3 Third Exploration Period.
Commencing on the day on which the Exploration Licence is renewed pursuant to
Article 3 hereof and terminating on the second anniversary of such date.
4.2.4 Exploration Area
(i) Minimum Work Programme:
The acquisition, praising and interpretation of not less than [_____] line kilometres of
seismic data, and the drilling of [_____] exploration wells whose location and depth
Government and Licensee shall agree on. The seismic data shall be acquired in such a
manner as to adequately sample the remaining Contract Area.
(ii) Minimum Exploration Expenditure US$ [_____] million
Seismic Data US$ [_____] million Drilling US$ [_____] million
4.3 For the purpose of this Article, Exploration Wells shall, except as provided in
Article 42, be drilled on a location determined by Licensee and the Government and
to a depth necessary for the evaluation of the sedimentary section established by the
available data as the deepest objective formation and consistent with good oil industry
practices, unless before reaching the aforementioned depth:
a. basement is encountered;
b. further drilling would present a foreseeable danger which cannot reasonably
c. impenetrable formations are encountered;
d. significant hydrocarbon-bearing formations are encountered which require
protecting, thereby preventing such depth from being reached.
In such circumstances, the drilling of any Exploration Well may be terminated at a
lesser depth and such Well shall, except where the circumstances described in
subparagraphs (a), (b) and (c) immediately above occur. In all other circumstances in
which a Well is terminated at a lesser depth, Licensee shall have the option to either
(i) drill a substitute Exploration Well or (ii) pay to the Government the amount by
which the drilling budget for such well on a dry hole basis, pursuant to paragraph 4.2
exceeds actual expenditures incurred in the drilling thereof.
For the purpose of this paragraph 4.3, the term "Basement" shall mean the geological
basement below which hydrocarbons cannot be found and produced.
4.4 Compliance with the required minimum Exploration Expenditures in any
Exploration Period shall not relieve Licensee of its obligation to comply with the
required minimum Work Programme for such Exploration Period nor shall
compliance with the required minimum Work Programme for any Exploration Period
relieve Licensee of its obligation to comply with the required minimum Exploration
Expenditures for such Exploration Period.
4.5. The required minimum Exploration Expenditure stipulated in paragraph 4.2 for
each Exploration Period (other than the First Exploration Period), shall be adjusted at
the end of (i) the first Exploration Licence, in the case of the minimum Exploration
Expenditures for the Second Exploration Period, (ii) the Second Exploration Period,
in the case of the minimum Exploration Expenditures for the Third Exploration Period,
I' = I x B
I' == minimum Exploration Expenditures for the First Exploration Period or Second
and Third, as the case may be,
I == minimum Exploration Expenditures stipulated in paragraph 4.2 for the period in
A = "U.S. Industrial Goods Wholesale Price Index" as first reported in "International
Financial Statistics" as published by the International Monetary Fund for the Calendar
Month of the Effective Date;
B = "U.S. Industrial Goods Wholesale Price Index" as first reported in "International
Financial Statistics" as published by the International Monetary Fund of the Calendar
Month in which the period in question commences.
4.6 The Exploration Licences issued to Licensee pursuant to Article 3 and any
available renewal thereof shall be on terms and conditions relating to minimum work
Programmes and Exploration Expenditures which correspond to the obligations of
Licensee under this Article and it is accordingly understood and agreed that any
discharge by Licensee of its obligations under this Article in respect of any
Exploration Period will discharge for that period the minimum work and expenditure
obligations .of Licensee in respect of the Exploration Licences issued pursuant to
Article 3 and the terms and conditions of such Licences and any renewal thereof shall
be drawn accordingly.
a. On or before the Effective Date, the Licensee shall provide a Bank Guarantee
in the form set forth in Annex D, and amounting to the minimum expenditure
of the work program to be undertaken by Licensee in the Contract Area during
the First Exploration Period pursuant to paragraph 4.2.1. which shall, inter alia,
guarantee the payment by Licensee of the sums, if any due and payable to the
Government pursuant to paragraph 4.7(b) and (c) hereunder.
b. If, upon the expiration of the Exploration Licences, or upon the date of
termination of this Agreement, or upon surrender of the entire Contract Area
by Licensee pursuant to paragraph 3.4, whichever first occurs, Licensee has
not expended for Exploration Operations sums (including any sums previously
paid pursuant to paragraph 4.7(c) ) at least equal to the total minimum
Exploration Expenditures (as adjusted pursuant to paragraph 4.5) required
hereunder for the period in question, the shortfall amount corresponding to the
unexpended minimum Exploration Expenditures, as adjusted, shall be paid by
Licensee to the Government.
c. If, at the end of the initial term of the First Exploration Licence or any
Exploration Period, Licensee has not expended for Exploration Operations
sums at least equal to the minimum Exploration Expenditures, (as adjusted),
required hereunder for such period, the shortfall amount corresponding to the
unexpended minimum Exploration Expenditures (as adjusted pursuant to
paragraph 4.5) for such period shall be paid by Licensee to the Government.
4.8 For the purpose of this Act, and without prejudice to their recoverability as
Contract Expenses for other purposes under this Agreement, expenditure by Licensee
on the following shall not be treated as Exploration Expenditures for the purpose of
satisfying the minimum Exploration Expenditure obligations set out in paragraph 4.2:
a. any Appraisal Programme required to discharge Licensee's obligations under
Section 17(1)(b) of the Act;
b. the value of stock items listed in inventory; provided, however, that any loss
on the disposal of any such stock item, as well as the book value of those stock
items (if any) which become the property of the Government pursuant to
paragraph 19.2, shall be treated as Exploration Expenditure obligations set
forth in paragraph 4.2;
c. travel expenses in connection with Petroleum Operations;
d. property purchase or rental in connection with Petroleum Operations;
e. the training of Ugandan nationals pursuant to Article 18 of this Agreement;
f. any annual charges in respect of surface rentals due in accordance with Article
26 of this Agreement.
ARTICLE 5 Advisory Committee
5.1 Not later than ninety (90) days after the Effective Date, a Committee shall be
established by the Government and Licensee to be known as the Advisory Committee.
The Advisory Committee shall consist of four (4) members, two (2) of whom shall be
appointed by the Government and two (2) by Licensee. The Chairman of the Advisory
Committee shall be designated by the Government from among the members it has
appointed. The Government and Licensee shall also designate alternate members and
shall have the right to designate an alternate member at any time, which right shall be
exercised by written or telexed notification addressed to the other party hereto. In the
case of absence or incapacity of a member of the Committee, his alternate shall
automatically assume the rights and obligations of the absent or incapacitated member.
5.2 All meetings of the Advisory Committee shall be held in Kampala or such other
place in Uganda or elsewhere as may be unanimously agreed by the members of the
Committee. Ordinary Meetings of the Advisory Committee shall be held at least twice
a year during the Exploration Period and at least once a Calendar Quarter following
the grant of the first Production Licence. Special meetings of the Advisory Committee
may be called on reasonable notice by either party for the purposes of reviewing any
major development or problems in Petroleum Operations, and recommending
appropriate action to be taken. Meetings of the Committee shall require a quorum of
three (3) members. The Secretaryship of the Advisory Committee shall be entrusted to
Licensee. Votes at the Advisory Committee meetings shall only be made on matters
included in the respective agenda, unless the members of the Advisory Committee
unanimously agree otherwise. Any member of the Committee may vote by written
and signed proxy held by another member. The Government and Licensee shall have
the right to bring expert advisers to any meeting of the Committee to assist in the
discussions of technical and other matters requiring expert advice.
5.3 Without prejudice to the rights and obligations of Licensee for the conduct of the
Petroleum Operations carried out hereunder, the Advisory Committee shall have the
5.3.1 to review and approve:
any proposed Exploration Operations contained in the annual Work
Programmes and Budgets, or any amendment thereto, presented thereto by
Licensee under Article 6; and
any Appraisal Programmes, or any amendment thereto, presented thereto by
Licensee under Article 7 until such time as the provisions of paragraph 5.3.2
5.3.2 at any time after the date on which an application for a Production Licence is
made by Licensee in respect of any part of the Contract Area, and for as long as there
is production from the Contract Area, to review and approve, subject to such
reasonable modifications as the Advisory Committee may consider necessary, any
Appraisal Programmes, or any material amendments thereto, presented to the
Committee by Licensee under Article 7;
5.3.3 to review and approve:
the annual Work Programmes and Budgets, or any material amendment
thereto, presented to the Committee by Licensee which relate to Development
drilling programmes and related budgets submitted to the Committee by
Licensee pursuant to, and subject to the conditions provided in Article 4 in
respect of Exploration Wells;
5.3.4 to review and Improve the production forecast statements prepared by Licensee
prior to their presentation to the Government pursuant to paragraph 7.8;
5.3.5 to ensure that the accounting of costs and expenses and the maintenance of
operating records and reports for the Petroleum Operations are made in accordance
with this Agreement and the accounting principles and procedures generally accepted
in the international petroleum industry; and
5.3.6 to review and make recommendations to Licensee with respect to any proposals
made by Licensee concerning the application for renewal of the Exploration Licence,
or the surrender or relinquishment of any part of the Contract Area.
5.4 Decisions of the Advisory Committee pursuant to paragraph 5.3 shall be made
unanimously through consultation. All decisions made unanimously shall be equally
binding upon the Government and Licensee. Without limitation to the foregoing, any
Development Plan recommended by the Advisory Committee shall be deemed to have
met the requirements of Section 22 (1) of the Act. Regarding the matters on which
agreement cannot be reached, the Government and Licensee may convene another
meeting and shall attempt, in good faith, to find another solution. However, if the
Advisory Committee fails thereafter to reach a decision on the matters specified in
paragraph 5.3 above;
within thirty (30) days of the date of the Advisory Committee meeting at
which Licensee's first submission in respect of the matters specified in
paragraphs 5.3.1,5.3.5 and 5.3.6 above is considered;
within forty-five (45) days of the date of the Advisory Committee meeting at
which Licensee's first submission in respect of the matters specified in
paragraphs 5.3.2,5.3.3 and 5.3.4; is considered;
the parties may refer the matter for determination in accordance with paragraph 23.3.
The determination in accordance with paragraph 23.3 shall be final and with this
determination the programme, budget or forecast shall be deemed to have been
approved by the Advisory Committee as determined, except that Licensee, may, in the
case of a determination made concerning matters specified in paragraph 5.3.2, within
thirty (30) days of receipt of such determination notify the Government that the
Discovery to which such programme relates is no longer considered to be of
commercial or potential commercial interest, as the case may be, within the meaning
of proviso A to Section 17(1)(b) of the Act. If Licensee so notifies the Government,
the provisions of Section 18 of the Act shall apply.
Licensee's proposal shall prevail provided that such proposal is not inconsistent with
the relevant provisions of this Agreement and in particular, the minimum work and
expenditure obligations specified in Article 4.
5.5. All costs and expenses associated with the activities of the Advisory Committee
which are borne by Licensee may be treated as Contract Expenses.
ARTICLE 6 Work Programmes and Budgets
6.1 So long as any Exploration Licence or Production Licence issued to Licensee
herein remains in force, at least sixty (60) days prior to the beginning of each
Calendar Year, Licensee shall prepare and submit to the Advisory Committee for its
review and, where required pursuant to Article 5, approval, a detailed annual Work
Programme and Budget, setting forth the Exploration Operations and/or Development
Operations which Licensee proposes to carry out in the ensuing Calendar Year and
the estimated cost thereof. An annual Work Programme and Budget for the period
from the date of effectiveness of the First Exploration Licence to the end of the
Calendar Year in which such date falls shall be presented to the Advisory Committee
within ninety (90) days of the Effective Date for review in accordance with paragraph
6.2 Every Work Programme and Budget submitted to the Advisory Committee during
the Exploration Period pursuant to this Article and every revision or amendment
thereof shall be consistent with the requirements set out in Article 4 relating to
minimum work and expenditure for the Exploration Period within which the Work
Programme and Budget will fall.
6.3 After giving notice to the Advisory Committee, Licensee may amend any aspect
of the annual Work Programme or Budget relating to Exploration Operations
submitted to the Advisory Committee provided such amendment is consistent with
Licensee's obligations under Article 4. Any notice given pursuant to this paragraph
shall state reasons why, in the opinion of Licensee, an amendment is necessary or
desirable and the views and recommendations of the Advisory Committee with
respect to any such amendment shall be given due consideration by Licensee. In all
other cases where Licensee wishes to amend the annual Work Programme and Budget,
the amendment shall be referred to the Advisory Committee for its review and
approval, which approval shall not be unreasonably withheld, before Licensee may
proceed with its operations on the basis of such amended Work Programme and
ARTICLE 7 Discovery, Development and Production
7.1 Where, pursuant to Section 17 of the Act, notice has been given to the
Government of a Discovery in the Contract Area, Licensee shall forthwith inform the
Government of the steps it proposes to take to satisfy the requirements of Section
17(1)(a)(iii) of the Act.
7.2 Unless, following a Discovery by Licensee in the Contract Area, Licensee gives in
respect of such Discovery a notice to the Minister for the purpose of paragraph A of
the provision to section 17 (1) (b) of the Act or unless the provisions of paragraph B
of that Proviso are otherwise applicable. Licensee shall promptly after the technical
evaluation of the test results relating to such Discovery has been completed, prepare
and submit for the consideration of the Advisory Committee its proposals for an
Appraisal Programme to meet its obligations as Licensee under the Act.
Notwithstanding the foregoing, in the event that Licensee notifies the Government
within thirty (30) days following the date on which its technical evaluation of the test
results relating to a Discovery has been submitted to the Government, the said
Discovery does not in and of itself warrant immediate appraisal and provides
reasonable justification therefor, an exemption from the requirements of Section 17
(1)(b) of the Act may be granted by the Minister, pursuant to paragraph B of the
proviso to that Section, for so long thereafter as Licensee is carrying out continuous
Exploration Operations in the Contract Area.
7.3 As soon as the Advisory Committee has, pursuant to paragraph 5.3.2, reviewed
and approved an Appraisal Programme submitted by Licensee as aforesaid, Licensee
shall promptly thereafter commence implementation thereof.
If during the; term of any Exploration Licence or renewals thereof granted
pursuant to this Agreement, Licensee makes a Discovery of Petroleum in the
Contract Area which alone, or in conjunction with other discoveries
previously made in the Contract Area might be developed and brought into
early production with a view to satisfying the internal consumption
requirements of Uganda, the Government may notify licensee accordingly
upon which the parties shall meet to determine whether the development of the
said Discovery or Discoveries would be economically and technically feasible.
In determining whether the Discovery or Discoveries as the case may be is
(are) economically and technically feasible, the parties shall consider whether
an early production scheme would, inter alia, jeopardise the subsequent
recovery of Petroleum from the Petroleum reservoir(s), create a health or
safety risk or would otherwise involve a departure from the standards of Good
In the event that the parties determine the Discovery or Discoveries as the case
may be to be economically and technically feasible and agree upon the terms
and conditions for the implementation of an early production scheme
(including offtake arrangements), a Production Licence shall be granted to
Licensee in respect of the Discovery Area(s) subject thereto and thereafter
Licensee shall complete the facilities necessary for the Government to take
delivery of production from the said Discovery Area(s) ex-field and all costs
associated with the taking of delivery therefrom shall be for the Government's
It is understood, however, that Licensee shall not be required to produce crude
oil at a rate higher than the Maximum Efficient Rate in connection with the
Any crude oil production delivered to the Government pursuant to the
provisions of this Article 7.4 (iii) shall serve to reduce Licensee's obligation to
otherwise supply crude oil for the internal consumption requirements of
Uganda pursuant to Paragraph 15.1 and will not prejudice Licensee's rights
under paragraph 7.8 thereafter in respect of the subsequent grant of a
Production Licence in relation to a wider Discovery Area(s) which includes
the said Discovery Area(s). It is understood, however, that crude oil
production shall continue to be made available to the Government in
accordance with the terms and conditions agreed to in 7.4 (iii) above.
Nothing in this Article shall require Licensee to undertake the completion of
the field facilities required for the early production scheme in the event that
Licensee reasonably determines that such scheme (including the terms and
conditions for the implementation thereof) is not economically or technically
7.5 Before applying for a Production Licence pursuant to Section 19 of the Act,
Licensee shall consult with the Advisory Committee in connection with the
preparation of a Development Plan to be submitted by Licensee to the Minister in
accordance with Section 20 of the Act.
7.6 If the parties are unable to settle amicably any dispute or difference as to whether
the Development Plan meets the requirements of Section 22 of the Act within twelve
(12) calendar months of the date of the Minister's aforesaid notification, either party
may refer the matter to a sole expert pursuant to Article 23.
If, as a consequence of the said award. Licensee determines that the development
project (in respect of which the Development Plan was submitted) ceases to be
commercially attractive. Licensee may so notify the Government in writing within six
(6) Calendar Months of the date of said award, whereupon the Government shall have
the right to require Licensee to relinquish its rights with respect to the Discovery
Areas which are the subject of such Development Plan and to forfeit its rights to any
subsequent production therefrom.
7.7 Upon submission by Licensee of a Development Plan that meets the requirements
of Section 22 of the Act together with the application for a Production Licence, the
Minister shall promptly issue to Licensee a Production Licence in the form attached
hereto in Annex "B-II covering the Development Area for a period not exceeding
twenty five (25) years counted from its date of issuance.
A production Licence shall be renewable, upon application, by Licensee in the
prescribed manner, for a term equal to the period between the initial grant of such
Production Licence and the commencement of Commercial Production, but in no
event exceeding five (5) years. The Minister shall not impose conditions for the
granting or renewal of a Petroleum Production Licence under Sections 21(a) and 27 of
the Act which are inconsistent with the terms of this Agreement or the requirements
of the Act.
7.8 Licensee shall use its best efforts to produce Crude Oil from each Development
Area at the Maximum Efficient Rate. The Maximum Efficient Rate of production for
Crude Oil and the production rate for Non-associated Gas shall be estimated in the
Development Plan for each such area. Such rates shall be reviewed annually at the
time of submission by Licensee of the annual Work Programme and Budget to the
Advisory Committee pursuant to paragraph 5.3.3 and revised, if necessary, by mutual
7.9 Not less than sixty (60) days prior to the beginning of each Calendar Year
following the commencement of Commercial Production, Licensee shall prepare and
furnish to the Government for its review and approval (which approval shall not be
unreasonably withheld) a forecast statement setting forth by Calendar Quarter, the
total quantity of Crude Oil (by quality, grade and gravity) and Natural Gas that
Licensee estimates can be produced, saved and transported hereunder from each
Development area during such Calendar year in accordance with Good Oilfield
Practices. Licensee shall endeavour to produce in each Calendar Year the forecast
7.10 In the event that Licensee wishes to establish a refinery to refine the crude oil
and natural gas that the Licensee estimates can be produced. Government may grant
the Licensee the right to establish such refinery.
ARTICLE 8 Records, Reports, Data and Inspection
8.1 Licensee shall prepare and maintain accurate and current records of Petroleum
Operations and its activities in the Contract Area hereunder. The accounting records
will be maintained in accordance with accepted international petroleum industry
practices and standards. Licensee shall furnish the Government in conformity with the
Act and this Agreement, and as the Government may reasonably require, information,
reports and data concerning its activities and operations under this Agreement.
8.2 The Government and its duly authorised representatives shall have full and
complete access to the Contract Area at all reasonable times with a right to observe
Petroleum Operations and upon at least thirty (30) days advance written notice to the
Licensee shall have the right to inspect all assets, records and Data owned or
maintained by Licensee relating to Petroleum Operations and this Agreement. In
doing so, the Government and its representatives shall not unduly interfere with
Licensee's Petroleum Operations. Licensee shall provide the Government, on daily
basis where applicable, with copies of any Data acquired in the Petroleum Operations
(include geological and geophysical reports, logs and well surveys) arid information
and final interpretations of such Data in the Licensee's possession that are acquired
during Petroleum Operations. However, the Government and its representatives may
make a reasonable number of surveys, drawings, tests and copies for the purpose of
implementing this Agreement. In so doing, the Government and its representatives
shall be entitled to make reasonable use of the equipment or instruments of Licensee
provided that no damage to the equipment or instruments or interference with the
Petroleum Operations hereunder shall result from such use. The Government and its
representatives shall be given reasonable assistance by Licensee for such functions,
and Licensee shall afford to the Government and its representatives all facilities and
privileges afforded to its own personnel in the field including the use of office space
and housing free of charge.
8.3 Licensee shall save and keep for the duration of this contract a representative
portion of each sample of cores, cuttings and fluids taken from the Exploration Wells
drilled which shall be forwarded to the Government or its representatives at such time
and in the manner directed by the Government. All cores and samples acquired by
Licensee shall be available for inspection by the government or its representatives at
all reasonable times. Notwithstanding the above. Operator will supply to the
Government (Permanent Secretary, Ministry of Energy and Mineral
Development/copy to Commissioner, Petroleum Exploration and Production
Department) a telefaxed summary of field geological, and/or geophysical operations
from any field geological or geophysical survey being carried out including but not
limited to: details of locations sampled, foot traverses measured, kilometres of
aeromagnetic, gravity/seismic data acquired, etc.; and on a daily basis a telefax
containing details of drilling operations carried out during the previous 24 hours
including but not limited to a summary of lithologies penetrated, tops encountered,
gas and oil shows, tests, cores and logging runs, future plans (including abandonment
plans at least 24 hours prior to inception) and on a regular basis, and at any rate not
later than four months after the conclusion of any geological, geophysical or drilling
operation, reproducible copies and digital tapes of all surface logs, airmag, gravity,
seismic and other records as well as processed data, and all subsurface information
including but not limited to geological, electrical, mechanical and other logs, surveys,
reports, records, from a well on the geology and drilling operations carried out as well
as final well reports and final completion logs, together with one envelope of washed
and dried ditch cuttings and one cloth bag of unwashed ditch cuttings at all sampling
intervals and one vertical half of all cores cut.
8.4 Notwithstanding paragraph 8.3 above. Licence shall be freely permitted to export
samples for purposes of testing and analysis. Originals of technical data and records
can be exported with the permission of the Government provided that an exact copy
of that data, on a storage media similar to that being exported, is maintained in the
Republic of Uganda and provided that such exported records and data shall be
repatriated to the Republic of Uganda.
8.5 In addition to the material stipulated in paragraph 8.3, supra. Licensee shall
provide, in accordance with the standards and practice of the Petroleum Industry, at
no cost to the Government, in an appropriate and reproducible form and in a promptand timely manner all maps, sections, profiles and other representative original and
interpretational geophysical, geological or engineering data ("Data"), Such Data
(which shall include all magnetic tapes and any other storage media, whether raw,
processed or reprocessed) shall be forwarded to the Government or its representatives
in the prescribed manner or otherwise at such time and in the manner directed by the
Subject to the provisions of paragraph 8.6, all original data resulting from Petroleum
Operations are the property of the Republic of Uganda, including, but not limited to,
geological, geophysical, petrophysical, engineering, well logs, magnetic tapes, cuts of
core and cutting samples, production data and completion status reports and any other
data which the Licensee may compile during the term hereof, including all reports,
analyses, interpretations, maps and evaluations thereof prepared by the Licensee and
any sub-licensees or consultants to the Licensee or by Affiliated Companies, and
cuttings of all samples that have been obtained or compiled during the term hereof (in
this Agreement referred to as "Data").
8.6 Except as provided in paragraphs 8.7 and 8.8, all Data submitted to the
Government by Licensee shall be kept confidential and not reproduced or disclosed to
third parties by any party to this Agreement except, in the case of disclosure by the
Licensee, with the prior written consent of the Government or, in the case of
disclosure by the Government prior to the relinquishment of the area to which they
relate, with the prior written consent of Licensee, which consents (whether of the
Government or Licensee) shall not be unreasonably withheld or delayed.
8.7 The provisions of paragraph 8.6 shall not prevent disclosure by:
Licensee to an Affiliated Company, its home government or any department,
agency or instrumentality thereof if required by law, recognised stock
exchanges on which shares of the Licensee or its Affiliated Companies are
traded, financial institutions and professional advisers and arbitrators and
experts appointed pursuant to Article 23 of this Agreement;
Licensee to bona fide prospective assignees of a Participating Interest or to a
corporation with which Licence is conducting bona fide negotiations directed
towards a merger or consolidation, upon fifteen (15) days prior written notice
to the Government identifying the parties to which disclosure will be made;
provided, however, that the Government may veto any such disclosure where
a party to which such disclosure is proposed is in bona fide discussions with
the Government regarding rights to conduct Petroleum Operations Uganda;
the Government to any agency of the Government, financial institution or
person acting as a consultant or professional adviser to the Government, and
arbitrators and experts appointed pursuant to Article 23 of this Agreement; and
the Government for statistical purposes or in connection with award of new
All Data disclosed to third persons shall be disclosed on terms which to the extent
possible ensure that the same are treated as confidential by the recipient for so long as
such Data remains subject to the confidentiality undertakings specified in paragraph
8.8 Without prejudice to the above provisions, the Government may provide data and
information that may come into its possession and may be relevant to enable the
Licensee carry out its exploration activities under this Agreement. The Data shall be
treated with confidentiality and shall not be disclosed to third parties without the
written consent of Government.
8.9 None of the Parties hereto shall be bound by the confidentiality undertaking set
forth in paragraph 8.6 with respect to any Data which are or become in the public
domain through no fault of such Party or which were already known by such Party
before the Effective Date or which became known to such Party other than by reason
of a breach of the undertakings in paragraph 8.6.
8.10 Licensee, its Affiliated Companies, Contractor or Sub-Contractors shall disclose
to Government the technology necessary for the evaluation and understanding of any
raw data or processed data resulting from Licensee's work in the Contract Area.
ARTICLE 9 Royalty and State Participation.
9.1 In respect of the requirements of Section 46 of the Act, Licensee shall pay to
Government the following Royalty on the gross total daily production in barrels of oil
per day (bopd) for each Contract Area.
Gross Total Daily Production (BOPD)
Where the production does not exceed 2,500
Where the production is higher than 2,500
but does not exceed 5,000
Where the production is higher than 5,000
but does not exceed 7,500
Where the production exceeds 7,500
9.2. The Royalty stipulated in paragraph 9.1 shall be received by Government on a
monthly basis whether in kind or in cash depending on government's preference.
9.3. The bopd calculation shall be done monthly on the basis of monthly production.
9.4 The Government or its Nominee may elect to enter into a Joint Venture
Agreement with Licensee thereby allowing for State Participation for no more than
twenty percent (20%) and the Government shall inform the Licensee of its decision in
writing within 120 days of the receipt of the application for a Production Licence.
Government (or it's Nominee) shall be entitled to participate Development Area by
Development Area. The Licensee agrees to carry the costs of the Government or its
Nominee through development to production. These costs are recoverable including
interest at the London Inter Bank Offer Rate (LIBOR) quoted at or about 11:00 am on
the date next to when they were incurred by the Licensee. These costs will be repaid
out of sixty (60%) percent of Government's share of cost recovery oil. Government
will be responsible for any taxes arising out of its share of the Joint Venturea. For purposes of this provision the Venture Assets attributable to a
Development Area (hereinafter called the "Joint Venture Assets") are:
in case of the first Production Licence granted, the Production Licence and
any real or personal property wherever the same may be situated, acquired for
the purpose of carrying on Joint Operations in the Development Area subject
thereto or acquired for the purpose of carrying on Petroleum Operations in the
Contract Area where such property was acquired before the grant of the first
in the case of a second or subsequent Production Licence granted, that
Production Licence and any real or personal property acquired for the purpose
of carrying on Joint Operations in that Development Area or acquired for the
purpose of carrying on Petroleum Operations or Joint Operations in the
Contract Area where such property was acquired after the date on which a
Production Licence was last granted and before the grant of the second or, as
the case maybe the next subsequent Production Licence.
b. Immediately following the grant of each Production Licence, Licensee, or
each entity comprising Licensee at that time, will promptly take such action as
may be necessary to assign to the nominee of the Government, an undivided
proportionate share in the Venture Assets equal to the Nominee of the
Government's Participating Percentage Interest with effect that thereafter,
Licensee, or each such entity, shall have an interest in the Joint Venture Assets
(hereinafter referred to as its "Joint Venture Interest") equal to its Participating
Interest in those Assets immediately before the grant of such Production
Licence reduced by the product of that interest and the Joint Venture Interest
acquired by the Nominee of the Government.
c. "Participation Share of Production" means a proportion of the Petroleum
produced and saved from the Contract Area and not used or lost in Joint
Operations and such proportion attributable to Licensee and the Nominee of
the Government shall be equal to their respective Joint Venture Interests in
Joint Venture Assets.
d. Gas Royalties will be negotiated upon the discovery of gas.
ARTICLE 10 Cost Recovery and Production Sharing
10.1 For purposes of Cost Recovery and Production Sharing, ring fencing around each
Contract Area shall apply. In the event that a Licensee has more than one Contract
Area, the calculations shall be done on a contract by contract basis. There shall be no
10.2 All exploration, development, production and operating expenditures, as defined
in Annex C, incurred by the Licensee shall be recovered from 50% of gross oil
production after deduction of the Royalty specified in paragraph 9.1. Cost recovery in
respect of gas production will be negotiated upon the discovery of gas.
10.3 After the cost recovery specified in paragraph 10.2 the following
Government/Licensee split will apply on the remaining total daily production (profit
Where production does not exceed
Where production is higher than 5000
but does not exceed 10,000
Where production is higher than
10,000 but does not exceed 20,000
Where production is higher than
20.000 but does not exceed 30.000
Where production is higher than
30.000 but does not exceed 40.000
Where production is higher than
10.4 The Government/Licensee profit oil split is based on total production and not on
10.5 The calculation for the Government/Licensee split shall be based on monthly
10.6 The Government shall receive its share of profit oil in kind or in cash depending
on its (Government) preference. The valuation shall be in accordance with Article
10.7 The Licensee shall carry forward to subsequent years all unrecovered costs until
full recovery is completed
10.8 Not less than thirty (30) days. prior to the beginning of each Calendar Year,
Licensee shall prepare and furnish to the Government for approval, which approval
shall not be unreasonably withheld, an estimate by Quarters for the forthcoming
Calendar Year of (i) all Contract Revenues and Contract Expenses to be incurred, (ii)
Income Tax of Licensee (or each entity comprising Licensee, as the case may be) in
respect of taxable income derived from Petroleum Operations carried out hereunder,
for such Calendar Year. Such estimate shall be consistent with the forecast statement
furnished pursuant to paragraph 7.8 and the annual Work Programme Budget
approved by the Advisory Committee pursuant to Article 5. and shall set forth the
other assumptions and projections upon which it is based. Quarterly updates of such
estimate shall be submitted by Licensee to the Government for approval (which
approval shall not be unreasonably withheld) within thirty (30) days after the end of
ARTICLE 11 Taxation
All central, local district administrative, municipal or other taxes, duties, levies or
other lawful impositions applicable to Licensee shall be paid by the Licensee in
accordance with the laws of Uganda in a timely fashion.
ARTICLE 12 Valuation and Measurement of Petroleum
12.1 Crude Oil shall, for all purposes of this Agreement, be valued at the end of each
Calendar Quarter as follows:
12.1.1 Except as provided in paragraph 12.1.2, the market price ("Market Price") used
to value Crude Oil shall, where arm's length sales transactions in freely convertible
currencies of Crude Oil to third parties have been made during the preceding month,
be the weighted average of the per Barrel net realised price obtained FOB the
seaboard terminal point of export for such arm's length third party sales less, in the
event that a separate pipeline company is formed pursuant to paragraph 13.2 the
average tariff charge per Barrel for such month imposed by the pipeline company for
transporting the oil from the Delivery Point to the seaboard terminal point of export.
12.1.2 If less than fifty percent (50%) by volume, of Crude Oil sales from the
Contract Area during such month fall under paragraph 12.1.1, the Market Price for
such month shall be the simple arithmetical average of the prevailing per Barrel
selling prices in such quarter of a basket of the three (3) most similar internationally
traded crude oils listed by the American Petroleum Institute (API) and chosen from
the major crude oil producing countries in the Arabian Gulf and Africa, taking into
account differences in point of sale, quality, grade, gravity or sulphur content and any
special terms and conditions relating to the sale of such crude oils, less, in the event
that a separate pipeline company is formed pursuant to paragraph 13.2, the average
tariff charge per Barrel for that month imposed by the pipeline company for the
transportation of Crude Oil hereunder from the Delivery Point to the FOB seaboard
terminal point of export.
12.1.3 For the purposes of determining the Market Price as described above, no
account shall be taken of Crude Oil sales to Affiliated Companies or restricted or
distress transactions or any transactions not at arm's length including government to
government, barter or discount deals.
12.1.4 The Market Price shall be determined at the end of each month in United States
Dollars in accordance with paragraph 12.1.
12.2 Any disagreement concerning the determination of Market Price under paragraph
12.1 shall be first considered by a pricing committee composed of two (2)
representatives from the Government and two (2) representatives from Licensee. In
the event the pricing committee cannot reach a unanimous decision within thirty (30)
days of the end of the relevant month, either party may refer the matter for
determination by an expert in accordance with paragraph 23.2. During such referral,
which shall in no event take longer than thirty (30) days, the Market Price for the
preceding month shall apply and adjustments, if any, shall be made in the following
month based on the decision of the expert.
12.3 Natural Gas shall be valued in accordance with the provisions of paragraph 16.4.
12.4 Licensee shall install, operate and maintain at the Delivery Point equipment for
measuring the volume and quality of the Petroleum produced and save hereunder,
including gravity, density, temperature and pressure measuring devices and any other
devices that may be required for the purposes of implementing this Agreement. All
measurement equipment and devices shall, prior to their installation or usage, be
approved by the Government, which approval shall not be unreasonably withheld or
delayed. The Government or its authorised representatives, at its own expense and
risk (save where injury or damage results from the Gross Negligence or Willful
Misconduct of Licensee), shall have the right to inspect and require Licensee to test in
its presence such equipment and devices at all reasonable times. The equipment and
devices used or installed pursuant to this paragraph shall not be replaced or altered
without the prior approval of the Government, which approval shall not be
unreasonably withheld or delayed; provided, however, that in the case of urgency or
so as to prevent the interruption of ongoing production, Licensee may proceed with
such replacement or alteration without the prior approval of the Government but shall
immediately thereafter notify the Government of such replacement or alteration.
12.5 Licensee shall undertake to measure the volume and quality of the Petroleum
produced and saved hereunder, consistent with generally accepted practices in the
international petroleum industry, with the frequency and according to procedures
which shall be approved by the Government, which approval shall not be
unreasonably withheld or delayed.
12.6 If it is determined, following an inspection or test carried out or witnessed by the
Government or its representatives, that the equipment, devices or procedures used for
measurement are inaccurate and exceed the permissible terances, which shall be
established by agreement between the Government and Licensee with reference to
normal international oil industry standards, and such determination is verified by an
independent surveyor of international repute acceptable to both parties, such
inaccuracy shall be deemed to have existed for one-half of the period since the last
previous such inspection or test, unless it is proved that such inaccuracy has been in
existence for a longer or shorter period. Appropriate adjusting payments or refunds
covering such period shall be made within thirty (30) days from the date of such
ARTICLE 13 Pipeline Transportation
13.1 Licensee shall have the right to take and transport to an ocean port of loading for
export all Petroleum to which it is entitled hereunder and, in connection therewith,
shall have the right to construct, operate and maintain an export pipeline, pumping
stations, storage and related seaboard terminal facilities. The Government shall assist
Licensee on matters involving rights of way, licences or other authorisations required
under Uganda law in connection with such facilities and shall assist Licensee in its
negotiations with neighbouring countries regarding rights of way and other conditions
relating to the construction, operation and maintenance of such facilities in such
13.2 It is understood by the Parties hereto that the construction, financing, operation
and maintenance of an export pipeline, pumping stations and related seaboard
terminal facilities shall be carried on through separate pipeline company ("the
Pipeline Company") which shall be responsible for the handling and transportation of
Petroleum from the Delivery Point in Uganda to the ocean port of loading. In such
event, the operations of the Pipeline Company will not be included within the
meaning of Petroleum Operations under this Agreement and any related Licences.
13.3 Any Development Plan submitted to the Minister by Licensee pursuant to
Section 20 of the Act shall include Licensee's proposals with regard to the
arrangements for the transportation to the terminal of each of the Parties' production
In the event said transportation arrangements involve the formation of a separate
Pipeline Company pursuant to paragraph 13.2, such proposals shall, unless otherwise
agreed, be consistent with the following principles:
a. each Party shall assume and pay the transportation tariffs charged by the
Pipeline Company related to their respective shares of the Petroleum
transported, which obligation may, in the case of the Nominee or the
Government, be discharged by each of the Nominee and the Government
foregoing in favour of the Pipeline Company a portion of their respective
production entitlements so transported equal in value to the tariffs due in
respect of the transportation of such production entitlements from the Delivery
Point to the FOB seaboard terminal point of export;
b. the transportation tariff charged, to the extent that the Parties hereto are able to
determine the same, shall be set at a level at which the Pipeline Company will
cover the costs of constructing, financing, operating and maintaining the
export pipeline and related facilities together with a reasonable return thereon;
such return will be determined having regard to the risks assumed by
shareholders of the Pipeline Company in out-laying the funds for the
construction, operation and maintenance of such facilities and the cost of
borrowing such funds as are required; and
c. in the case of proposals by Licensee for the initial construction of the export
pipeline, such proposals shall ensure that the pipeline and related facilities are
of sufficient design capacity to handle and transport to the seaboard terminal
the estimated production entitlements of all Parties hereto from the Contract
Area. If at any time, the throughput capacity of such facilities should be
insufficient to handle and transport the respective production entitlements of
such Parties, available capacity shall be shared between the Parties in the
proportion which each Party's production entitlement bears to the total
quantity of production which would otherwise be available for transportation
13.4 The Government or its Nominee shall be fully involved in the determination of
the tariff charges for the pipeline.
13.5. Transportation tariff charges of the Pipeline Company, and any costs incurred
beyond the Delivery Point shall not be allowable Contract Expenses hereunder.
ARTICLE 14 Marketing and Lifting
14.1 It is understood that Licensee may itself purchase the Nominee's production
entitlement made available pursuant to this paragraph in lieu of disposal of same to
third parties, in which event the price at which any such purchase by Licensee shall be
effected shall be determined pursuant to Article 12. In the event that Licensee elects
not to exercise its rights under paragraph 14.2, the Government may, at any time by
notice in writing to Licensee, also require Licensee to assist the Government in the
sale of all or part of the Government Production Share attributable to Government
pursuant to Article 10. The terms and conditions on which Licensee will so assist the
Nominee and/or the Government to any such disposal will be agreed between the
Government and/or the Nominee, as the case may be, and Licensee.
14.2 Licensee shall have the right to purchase all or any part of the Government
Production Share attributable pursuant to Article 10 upon giving written notice to the
Government not less than ninety (90) days prior to the commencement of each six (6)
Calendar Months of each Calendar Year, specifying the quantity which it elects to
purchase, provided, however,; that such right of purchase shall not apply in respect of
all or any part of the Government Production Share which may be required to satisfy
the requirements of internal consumption of Uganda or in connection with
government to government sales or with barter transactions and provided further that
the price at which any such purchase by Licensee shall be effected shall be
determined pursuant to Article 12. The Licensee's right to purchase any part of
Government's Production Share should not be used in such a manner as to leave
Government with only a small volume of production that is unnecessarily difficult and
expensive to dispose of.
14.3 Not less than twelve (12) Calendar Months prior to the commencement of
Commercial Production from any Development Area, Licensee shall submit to the
Government for approval proposed procedures and related operating regulations and
financial terms covering the scheduling, storage and lifting of Crude Oil from each
such Development Area.
The procedures, regulations and terms shall comprehend the subjects necessary to
efficient and equitable operations including, but not limited to: rights of parties,
notification time, maximum and minimum quantities, duration of storage, scheduling,
conservation, spillage, liabilities of the parties and penalties for over-and under-lifting,
safety and emergency procedures. To the extent that such procedures, regulations and
terms are consistent with generally accepted practices in the International Petroleum
Industry, the Government may not unreasonably withhold such approval.
ARTICLE 15 Domestic Requirements
15.1 Out of the total quantity of Crude Oil production to which the Licensee is
entitled in each Calendar Quarter, the Government may elect to take a quantity of
Crude Oil, of the gravity, grade and quality of its choice, that the Government
requires to satisfy the requirements of internal consumption in Uganda for such
Calendar Year. The Government shall reimburse the Licensee for such quantity in
United States Dollars at the price as calculated pursuant to paragraph 12.1 hereof
within thirty (30) days after the end of the Calendar Month in which such delivery
takes place, unless otherwise agreed between the parties. The maximum quantity of
Crude Oil that the Government may take to satisfy the internal consumption
requirements of the country shall be calculated by multiplying the total quantity of
Crude Oil produced from the Contract Area during the period under consideration,
less consumption of Crude Oil incidental to Petroleum Operations, by a fraction, the
numerator of which is the internal consumption requirements of Uganda during the
period, and the denominator of which is the volume of Crude Oil produced in Uganda
by all Licensees (including Licensee). Any Crude Oil production dedicated to an early
production scheme in any such Calendar Year pursuant to paragraph 7.4 shall be
deducted from the maximum quantity so determined for such Calendar Year.
15.2 If the Government elects to exercise its rights under paragraph 15.1, it shall
notify Licensee in writing not less than ninety (90) days prior to the commencement
of each six (6) Calendar months of each Calendar Year specifying the quantity, and
designating the grade and quality, that it elects to take in kind based upon the
production forecasts and annual and quarterly estimates, famished to the Government
pursuant to paragraphs 7.8 and 11.5. Any adjusting payments or refunds shall be made
within ninety (90) days of the end of each Calendar Year on the basis of actual
ARTICLE 16 Natural Gas
16.1 licensee shall have the right to use Associated Gas for Petroleum Operations,
including, but not limited to, re-injection for pressure maintenance, power generation
and recycling operations.
16.2 Where Non-associated Gas has been discovered in the Contract Area and
Licensee has not pursuant to paragraph 7.2 given in respect of the Discovery a notice
to the Minister for (he purpose of paragraph A of the proviso to Section 17(1)(b) of
the Act, the Parties shall, unless the provisions of paragraph B of such proviso are
otherwise applicable, as soon as possible after completion by Licensee of an appraisal
programme, or sooner if so agreed, meet together with a view to reaching an
agreement on the development, production, processing and sale of such gas.
16.3 Associated Gas which is not used in Petroleum Operations, and the processing
and utilisation of which, in the reasonable opinion of Licensee is not economical,
shall be returned to the subsurface structure or may be flared with the consent of the
Government- In the event that Licensee chooses to process and sell Associated Gas,
Licensee shall notify the Government of the same and upon such notification, the
Government and Licensee shall, as soon as practicable thereafter, meet together with a
view to reaching an agreement on the processing and sale of such gas. In the event
Licensee chooses not to process and sell Associated Gas, the Government may elect
to offtake at the outlet flange of the gas-oil separator and use such Associated Gas
which is not required for Petroleum Operations, in which event. Licensee may flare
such gas until such time as the faculties are in place to enable the Government to take
delivery (hereof. There shall be no charge to the Government for such Associated Gas,
provided that the cost to gather such Associated Gas at the point of being flared and to
process and utilize it shall be for the account of the Government.
16.4 The value to be attributed to Natural Gas shall:
16.4.1 For arm's length sales to third parties, be equal to the net realised price
obtained for such Natural Gas at the Delivery Point;
16.4.2 For sales other than at aim's length to third parties, be determined by agreement
between the Government and Licensee, provided, however, that such price or value
shall reflect the following:
the quantity and quality of the Natural Gas;
the price at which arms length sales of Natural Gas from other sources in
Uganda, if any, are then being made;
the price at which arms length sales, if any, of Natural Gas imported into
Uganda are being made;
the purpose for which the Natural Gas is to be used; and
the international market price of competing or alternative fuels or feedstocks.
16.4.3 Arm's length third party sales shall not include sales to Affiliated Companies of
Licensee or to the Government, any Ugandan public authority or any other entity
controlled directly or indirectly by the Government.
ARTICLE 17 Purchases in Uganda
17.1 In procurement. Licensee shall give preference to goods which are produced or
available in Uganda and services which are rendered by Ugandan citizens and
companies, unless such goods and services are offered on terms which are not equal
to or better than imported goods and services with regard to quality, price and
availability at the time and in the quantities required.
17.2 The Licensee shall establish appropriate procedures, including tender procedures,
for the acquisition of goods and services which shall ensure that the suppliers and
Sub-Contractors in Uganda are given adequate opportunity to compete for the supply
of goods and services. The tender procedures shall include, inter alia. the financial
amounts or value of contracts which will be awarded on the basis of selective bidding
or open competitive bidding, (the procedure for such bidding, and the exception to
bidding in cases of emergency, and shall be subject to the approval of the Advisory
17.3. Within sixty (60) days after the end of each Calendar Year, the Licensee shall
provide the Government with a report outlining its achievements in utilising Uganda
during that Calendar Year.
17.4. Goods shall include equipment, materials and supplies.
ARTICLE 18 Training and Employment
18.1 Licensee agrees to train and employ suitably qualified Ugandan citizens in its
Petroleum Operations and, following the commencement of Commercial Production,
to undertake the schooling and training of Ugandan citizens for staff positions,
including administrative and executive management positions. Licensee will also
require its Contractors to do the same. Licensee undertakes to gradually replace its
expatriate staff with suitably qualified and experienced Ugandan citizens as are then
available but, if the Licensee satisfies the Advisory Committee that no suitably
qualified and experienced Ugandan citizens are available who are capable of filling
key senior management or technical positions. Licensee shall employ expatriate staff
in such positions. An annual programme for training and phasing in of Ugandan
citizens shall be established by Licensee and shall be submitted for approval to the
Advisory Committee, along with the annual Work Programmes and Budgets referred
to in Article 6. Within thirty (30) days of the end of each Calendar Year, Licensee
shall submit a written report to the Government describing the number of personnel
employed, their nationality, their positions and the status of training programmes for
18.2 Licensee shall also be required to establish an annual programme, satisfactory to
the Government, to train personnel of the Government to undertake skilled and
technical jobs in Petroleum Operations.
18.3 Licensee shall deposit with government, or its Nominee, upon the delivery of the
Bank Guarantee and each anniversary of the Effective Date thereafter, the following
amounts for training of Government personnel selected by the Government and other
associated costs for each twelve (12) Calendar Months period-First Exploration
Period US $ 200,000.00 per 12 months. Second Exploration Period US $ 200,000.00
per 12 months. Third Exploration Period US $ 200,000.00 per 12 months. Following
commercial production US $ 400,000.00 per 12 months.
18.4 Subject to the provisions of paragraph 18.1, Licensee shall be free to employ
foreign nationals to the extent that suitably qualified and experienced Ugandan
nationals cannot be found to fill a position.
Upon application in the prescribed manner by Licensee, the Government shall
expeditiously provide the necessary work permits and other approvals required for the
employment and residence of expatriate personnel and their families in Uganda by
Licensee or its Contractors for the purposes of this Agreement.
ARTICLE 19 Title to Assets
19.1 All land shall become the property of the Government as soon as it is acquired
by the licensee, subject to its continued use rent-free (save in respect of surface rentals
payable pursuant to Article 26) by Licensee until the date upon which this Agreement
19.2 All equipment and other assets, whether fixed or movable, acquired and owned
by Licensee for use in the Petroleum Operations hereunder shall become the property
of the Government (or the Nominee of the Government), if the Government so desires,
free from all mortgages and other encumbrances upon the earlier of the date upon
such equipment and assets have been fully depreciated for Income Tax
purposes, or the costs thereof have otherwise been fully recovered, pursuant to
Article 10 hereof; or
this Agreement is terminated.
19.3 Licensee shall have unlimited and exclusive use of such equipment and assets
where ownership thereof is transferred pursuant to paragraph 19.2(i) and shall not be
obligated to make any payment for the use of the same during the term of this
Agreement. Licensee, so long as such equipment and assets are used exclusively for
Petroleum Operations and are in its custody, shall be liable to keep the same in good
repair and working order, normal wear and tear excepted.
19.4 The provisions of this Article shall not apply to assets and equipment used in the
Petroleum Operations and owned by third parties, which assets may be freely
exported from Uganda.
ARTICLE 20 Foreign Exchange Control
20.1 Licensee shall comply with the procedures and formalities required by the laws
and regulations relating to foreign exchange in force from time to time in Uganda.
ARTICLE 21 Assignment
21.1 Licensee (which for the purposes of this Article shall include any person or
entity comprising Licensee) may not assign to any person. Affiliated Company, firm
or corporation not party hereto, in whole or in part, any of its rights, privileges, duties
or obligations under this Agreement without the prior written consent of the Minister.
The assignee shall undertake to the Government to be bound by the terms and
conditions of this Agreement. Any change of operatorship shall also require the prior
written consent of the Minister.
21.2 In the event that Licensee wishes to assign, in whole or in part, any of its rights,
privileges, duties or obligations hereunder or proposes a change of operatorship as
aforesaid, the written consent thereto of the Minister shall not be unreasonably
withheld or delayed.
21.3 Notwithstanding the provisions of paragraph 21.1, if Licensee assigns in whole
or in part to any Affiliated Company, Licensee, as assignor and the assignee, shall be
fully jointly and severally liable for the performance of all rights, duties and
obligations under this Agreement and any related Licences and shall be fully liable for
the performance of any such assignee unless the parties otherwise agree.
21.4 In the case of an assignment to a non-Affiliated Company, the assigning party
shall provide to the Government an unconditional undertaking by the assignee to
assume all obligation of Licensee under this Agreement, including a Bank Guarantee
substantially in the form set forth in Annex "D".
21.5 The application for assignment shall be made by the Licensee in accordance with
the Act and shall give fall information on the proposed assignee as required in respect
of an applicant for an Exploration Licence and such additional information as the
Minister may require.
ARTICLE 22 Danger to Persons, Property or Environment
22.1 If any works or installations erected by Licensee or any operations conducted by
Licensee endanger or may endanger persons or third party property or cause pollution
or harm wildlife or the environment to a degree unacceptable to Government in
accordance with international environmental standards and local circumstances, the
Licensee shall take appropriate remedial measures approved by Government within a
reasonable period and to repair as far as it is reasonably possible any damage to the
environment so caused. If, and to the extent necessary for this purpose. Licensee shall
discontinue Petroleum Operations in whole or in part until Licensee has taken such
remedial measures or has repaired any damage. In the event that Licensee fails to take
the appropriate remedial measures within a reasonable time period, the Government
may after consultation with Licensee, carry out such remedial measures for Licensee's
22.2 Before commencing any works or operations hereunder, or recommencing any
works or operations which have been discontinued for more than three (3) Calendar
Months, in any part of the Contract Area which includes the area of a National Park or
Game Reserve (as so designated under applicable Uganda law), Licensee shall consult
with the Government regarding the nature and extent of the work or operations to be
conducted in such areas taking into consideration Good Oilfield Practices. In carrying
out such works and operations in such areas, Licensee shall give disregard to the
importance of minimising the damage and disturbance to the environment and
wildlife and, where any damage or disturbance would result, shall take all reasonable
steps to limit the extent of the damage or disturbance so caused.
22.3 hi the event of protest from responsible concerned third parties within or outside
Uganda regarding the conduct of Petroleum Operations in any National Park or Game
Reserve and the consequent effects upon the environment or wildlife, the Government
and Licensee shall meet to determine what if any action should be taken.
22.4 The Licensee shall:
a. conduct the Petroleum Operations in a manner likely to promote the
conservation of the natural resources of Uganda and the protection of its
b. employ the most advanced techniques for the prevention of environmental
damage which may be caused by Petroleum Operations, and for the
minimisation of the effect of Petroleum Operations on adjoining or
neighbouring lands; and
c. implement the proposals contained in its Development Plan regarding the
prevention of pollution and take any further action as may be necessary for the
treatment of wastes, the safeguarding of natural resources and the progressive
reclamation and rehabilitation of lands disturbed by petroleum production.
22.5 The Licensee undertakes, for the purposes of this Agreement, to take all
necessary and adequate steps
a. to ensure adequate compensation for injury to persons or damage to property
caused by the effect of the Petroleum Operations; and
b. to avoid irremediable environmental damage to the Contract Area and
adjoining or neighbouring lands.
22.6 If the Licensee fails to comply with the terms of paragraph (b) of Clause 22.5 or
contravenes any law on the prevention of environmental damage and such failure or
contravention results in any environmental damage, the Licensee shall take all
necessary and reasonable measures to remedy such failure or contravention and the
22.7 The measures and methods to be used by the Licensee for purposes of complying
with the terms of paragraph (b) of Clause 22.5 shall be determined in timely
consultation with the Minister upon the commencement of Petroleum Operations or
whenever there is a significant change in the scope or method of carrying out
Petroleum Operations, and the Licensee shall take into account the international
standards applicable in similar circumstances and the relevant environmental impact
study carried out in accordance with Clause 22.8. The Licensee shall notify the
Minister in writing of the nature of the measures and methods finally determined by
the Licensee and shall cause such measures and methods to be reviewed from time to
time in view of prevailing circumstances, provided however, that any consultations or
approval given pursuant to this Agreement shall not be deemed to limit the
obligations of the Licensee as provided herein or the right of the Minister to take
appropriate regulatory or other action where Petroleum Operations pose a material
danger to public health and safety or may result in significant irreversible damage to
22.8 The Licensee shall cause a consulting firm or individuals of international
standing to carry out two environmental impact studies (together with the updating of
the latter referred to in Clause 22.11), in order
a. to determine the prevailing situation relating to the environment, human
beings, wildlife or marine life in the Contract Area and in the adjoining or
neighbouring areas at the time of the studies; and
b. to establish what the effect will be on the environment, human beings, wildlife
or marine life in the Contract Area in consequence of the Petroleum
Operations to be undertaken under this Agreement, and to submit for
consideration by the Parties measures and methods contemplated in paragraph
22.7 for minimising environmental damage and carrying out site restoration in
the Contract Area.
22.9 The timing of the above studies shall be determined by the Minister.
22.10 Such studies shall be updated and submitted the Minister.
with each application for a subsequent Production Licence (such updated
study to form part of its Development Plan relating thereto);
with each application for a renewal of the Exploration Licence under Article
3.2, or for relinquishment under Article 3.5;
not less than three months prior to the termination of the Exploration Licence;
on such other occasion as the Minister or the Commissioner or a government
environmental protection agency may request in the light of actual or
threatened environmental damage resulting from or relating to the Petroleum
22.11 The studies mentioned in Clause 22.8 shall contain proposed environmental
guidelines to be followed in order to avoid irremediable environmental damage and
shall include, but not be limited to
cleaning and timber salvage;
wildlife and habitat protection;
fuel storage and handling;
use of explosives;
camps and staging areas;
liquid and solid waste disposal;
cultural and archaeological sites;
selection of drilling sites;
protection of freshwater horizons;
blowout prevention plan;
flaring during completion and testing of gas and oil wells;
rig dismantling and site completion;
reclamation for abandonment; and
22.12 In addition to the studies mentioned in paragraph 22.8, the Licensee shall
include in each Work Programme and Budget to be submitted annually to the Minister
in accordance with Article 6, and in any amendment thereto, an environmental impact
statement relating to the work to be undertaken as provided in that document and
reporting on work undertaken in accordance with the preceding Work Programme.
22.13 The Licensee shall ensure that:
a. Petroleum Operations are carried out in an environmentally acceptable and
safe manner consistent with good international industry practice and
applicable laws and that such operations are property monitored;
b. the pertinent completed environmental impact studies are made available to its
employees and to its Contractors to develop adequate and proper awareness of
the measures and methods of environmental protection to be used in carrying
out the Petroleum Operations; and
c. any agreement entered into between the Licensee and its Contractors relating
to the Petroleum Operations shall include the terms set out in this Agreement
and any established measures and methods for the implementation of the
Licensee's obligations in relation to the environment under this Agreement.
22.14 The Licensee shall, before carrying out any drilling, prepare and submit for
review by the Minister an oil spill and fire contingency plan designed to achieve rapid
and effective emergency response in the event of an oil spill or fire.
22.15 In the event of
a. an emergency or accident arising from Petroleum Operations affecting the
environment, the Licensee shall forthwith notify the Minister accordingly;
b. any fire or oil spill, the Licensee shall promptly implement the relevant
contingency plan; and
c. any other emergency or accident arising from the Petroleum Operations
affecting the environment, the Licensee shall take such action as may be
prudent and necessary in accordance with good international petroleum
industry practice in such circumstances.
22.16 If the Licensee fails to comply with any terms contained in this Article within a
period determined by the Minister under any such terms, the Minister may, after
giving the Licensee reasonable notice, take any action which may be necessary to
ensure compliance with such term, and recover, immediately after having taken such
action, all expenditure incurred in connection with such action from the Licensee
together with such interest as may be determined in accordance with Section 1.4(c) of
Annex C to this Agreement.
22.17 The Licensee shall on the expiration or termination of this Agreement or on
relinquishment of part of the Contract Area
a. remove all equipment and installation from the Contract Area or relinquished
area in a manner agreed with the Minister in terms of an abandonment or
b. take all action necessary to prevent hazards to human life or to property of
others or the environment; and
c. take all action necessary in accordance with Good Oilfield Practice to reclaim
and rehabilitate all lands disturbed by Petroleum development and production.
ARTICLE 23 Arbitration
23.1 Except as otherwise provided in paragraph 23.2, any dispute, controversy or
claim arising out of or relating to this Agreement shall be settled by arbitration by
submission to the International Centre for Settlement of Investment Disputes ("the
Centre") pursuant to the convention on the Settlement of Investment Disputes
between States and Nationals or other States and the arbitration rules promulgated
thereunder. Pursuant to said convention and arbitration rules, the Parties hereby
consent to arbitration thereunder. For the purposes of Article 23(1) of said Convention,
the Parties agree that any dispute, controversy or claim arising out of or relating to
this Agreement is a legal dispute arising directly out of an investment. The arbitration
award may take the form of an order to pay a sum of money, or an order to perform an
act, or an order to refrain from an act, or any combination of such orders. The place of
arbitration shall be London, England. Arbitrators who are nationals of Uganda or of
any of the countries from which any of the entities comprising Licensee originate may
not be appointed to the arbitration panel. The award rendered shall be final and
conclusive. Judgement on the award rendered may be entered in any court having
jurisdiction or application may be made in such court for a judicial acceptance of the
award and an order of enforcement, as the case may be. As far as practicable, the
Parties shall continue to implement this Agreement during the pendency of any
23.2 If for any reason the requestor arbitration proceedings is not registered by the
Centre, or if the Centre fails or refuses to take jurisdiction over a dispute submitted to
it pursuant to the passions of paragraph 23.1, such dispute shall be finally settled by
arbitration under the Rules of Arbitration of the United Nations Centre for
International Trade Law by three (3) arbitrators appointed in accordance with the said
Rules, -the said arbitration shall take place in London, England. Judgement on the
award rendered may be entered in any court having jurisdiction or application may be
made in such court for a judicial acceptance of the award and an order of enforcement,
as the case may be. The Arbitration award shall be final and binding on the Parties to
23.3 Any matter in dispute between the Government and Licensee arising under
paragraphs 5.4, 7.6, 9.3(2), 12.2 and 32.2 may, at the election of either of such parties
by written notice to the other, be referred for determination by a sole expert to be
appointed by agreement between the Government and Licensee.
If the Government and Licensee fail to appoint the expert within sixty (60) days after
receipt of such written notice, either of such parties may have such expert appointed
by the then President of the Institute of Petroleum (London). If the aforesaid President
shall be disqualified to act by reason of professional, personal or social interest or
contract with the parties in dispute or their Affiliated Companies, the next highest
officer for the time being of said Institute of Petroleum, who is not disqualified shall
act in lieu of said President. No person shall be appointed to act as an expert under
unless he shall be qualified by education, experience and training to determine
the subject matter in dispute; or
if at the time of his appointment or at any time before he makes his
determination under such an appointment, he has or may have some interest of
duty which conflicts or may conflict with his function under such appointment.
The expert shall render his decision within (60) days after the date of this appointment,
unless the Parties otherwise agree. In rendering his decision, the expert shall do so
within the context of the provisions of this Agreement, the Act and the standards of
Good Oilfield Practices. The decision of the expert shall be final and binding on both
Licensee and the Government. The expert's fees and expenses, and the costs
associated within appointment, if any, made by the President of the Institute of
Petroleum (or the next highest officer thereof), shall be allocated to the Parties in
dispute in such manner as the expert may determine.
ARTICLE 24 Insurance and Indemnification
24.1 To ensure that Licensee, its Contractors and Sub-Contractors shall meet their
obligations to third parties, or to the Government, that might arise in the event of
damage, loss or injury (including environmental damage or injury, removal of wrecks
and cleaning up caused by accidents) caused by Petroleum Operations, Licensee shall
maintain in force an insurance policy through an international insurance company of
good financial standing covering the activities of itself, its Contractors and SubContractors and the employees of all such parties. Such insurance policy shall waive
subrogation against the Government, and shall provide that it may not be cancelled
except upon thirty (30) days' prior written notice to the Government. A certificate
giving evidence of such insurance policy shall be furnished to the Government within
ninety (90) days of the Effective Date. The limits, coverage, deductibles and other
terms shall be consistent with accepted practices in the international petroleum
industry. the event that no response is received by Licensee from the Governing
within fifteen (15) days of the submission by Licensee of such insurance terms to the
Government for approval, such approval shall be deemed granted. To the extent that
such third party liability insurance is unavailable or is not opined, or does not cover
part or all of any claims for damage, loss or injury caused by or resulting from
Petroleum Operations, Licensee shall remain fully responsible and shall defend,
indemnify and hold the Government harmless against all such claims by the
Government arising from any such damage, loss or injury.
24.2 Licensee shall indemnify, defend and hold the Government harmless against all
third party claims for damage, loss or injury, including, without limitation, claims for
loss or damage to property or injury or death to persons, caused by or resulting from
any Petroleum Operations conducted by or on behalf of Licensee.
ARTICLE 25 Force Majeure
Except as otherwise provided in this Article, each party shall be excused from
complying with the terms of this Agreement, except for the payment of monies due,
for so long as such compliance is prevented or delayed by strikes, wars (declared or
undeclared), hostilities, blockade, embargo, unavailability or rationing of supplies,
materials and/or equipment imposed by law, decree, regulation and/or instruction at
the insistence or request of any Government authority, insurrection, civil disorder,
terrorist acts, sabotage, quarantine restrictions, epidemics, accidents, riots, labour
disturbance, any act or failure to act of a Governmental agency or local body, acts of
God, perils of navigation, storm, flood, earthquake, lightning and other exceptional
adverse weather condition, explosion, fire or by any act or cause that is reasonably
beyond the control of such party, such causes, whether similar or dissimilar to the
events listed above, being herein called "Force Majeure". In the event that either party
hereto is rendered unable, wholly or in part, by any of these causes to carry out its
obligations under this agreement, such party shall give notice and details of Force
Majeure in writing to other party within seven (7) days after its occurrence. In such
cases, the obligations of the party giving the notice shall be suspended during the
continuance of any inability so caused. Such party shall do all reasonably within its
power to remove such cause. If through Force Majeure, the fulfilment by the parties
of any of the obligations under this Agreement shall be delayed, the period of such
delay, shall be added to the time allowed under this Agreement for the fulfilment of
such obligations or the exercise of any right dependent thereon, provided however,
where an event of Force Majeure is likely to exceed thirty (30) days, or where the
total period of the Force Majeure event exceeds ninety (90) days in any Calendar Year,
the Parties shall meet to discuss the consequences of the Force Majeure and the course
of action to be taken to mitigate the effects thereof and to be adopted in the
circumstances, and in such event, the additional period for fulfilment of obligations
and the extension of the term of the Exploration Licence, or the Petroleum Production
Licence, as the case may be, shall be agreed between the Parties.
ARTICLE 26 Annual Surface Rentals
26.1 Licensee shall pay an annual charge in respect of surface rentals for the area
subject to an Exploration Licence or any Production Licence granted hereunder as
a. annual surface rental for the area which remains subject to an Exploration
First Exploration Period:
US$2.50 per square kilometre or part thereof;
Second Exploration Period:
US$5.00 per square kilometre part thereof,
Third Exploration Period:
US$7.50 per square kilometre or part thereof.
b. Annual surface rental in respect of a Development Area subject to a
Production Licence: US$500.00 per square kilometre or part thereof.
26.2 Annual surface rentals payable pursuant to this Article shall be paid to the
Government in advance and without demand commencing with the date on which the
Licence or any renewal thereof is granted and thereafter on each anniversary of such
date during the term of said Licence. No rebates of surface rentals shall be made by
the Government in respect of any area that ceases to be subject to a Licence mid-year.
26.3 Annual surface rentals do not replace other charges that may be levied for entry
in parts of the Licence Area arising out of specialised land use such as national parks
or nature reserves.
ARTICLE 27 Termination
27.1 This Agreement shall be deemed to have been terminated if the Exploration
Licence granted to Licensee pursuant to Article 3 and any Production Licence granted
to Licensee under Article 7 have either expired, or have under and in accordance with
the Act, or any relevant provision of this Agreement, been surrendered by the
Licensee or been lawfully cancelled or terminated by the Government, but save as
aforesaid shall continue in fall force and effect so long as Licensee continues to hold,
or has a pending application for, any of the said Licences.
27.2 The Government shall have the right to terminate this Agreement and any
Exploration Licence and Production Licences granted hereunder, upon giving thirty
(30) days written notice of its intention to do so, if Licensee:
27.2.1 fails to make any monetary payment required by law or under this Agreement
for a period of thirty (30) days after the due date for such payment unless Licensee is
contesting the obligation to make such payment and has commenced arbitration
proceedings in respect thereof pursuant to paragraph 25.1 in which case the period of
thirty (30) days after notice shall be counted from the date of issuance of an
arbitration award requiring Licensee to pay the amount in dispute;
27.2.2 has otherwise committed a material breach of the terms and conditions of this
Agreement or any Licence granted pursuant to Articles 3 and 7;
27.2.3 fails to comply with the Act or any lawful acts. Regulations, orders or
instruction? issued by the Government or the terms of this Agreement; or
27.2.4 becomes bankrupt, or goes into liquidation because of insolvency or makes a
composition with its creditors;
27.3 If the circumstances that would result in termination under paragraph 27.2.1 and
27.2-2 are remedied by Licensee within the thirty (30) day period following the notice
of termination as aforesaid, such termination shall not become effective.
27.4 If the circumstance or circumstances that would result in termination under
paragraph 27.2.3 and 27.2.4 are remedied by Licensee within the sixty (60) day period
following the notice of termination as aforesaid or where the breach cannot be
remedied within a sixty (60) day period. Licensee has commenced the works or steps
necessary to remedy such breach during such period and is diligently continuing such
works thereafter, or, where it is otherwise impossible to remedy such breach, adequate
compensation has been offered to and accepted by the Government in respect thereof
within such sixty (60) day period, such termination shall not become effective.
27.5 If the circumstance or circumstances that would otherwise result in termination
under paragraph 27.2.3 or 27.2.4 are the result of Force Majeure, then termination
shall not take place so long as such Force Majeure continues and for such period
thereafter as provided in Article 25.
27.6 Where two or more persons constitute Licensee, this Agreement may not be
27.6.1 pursuant to paragraphs 27.2.1,27.2.2 or 27.2,3 above where, in respect of a
liability which is a several liability, one or some only of the persons constituting
Licensee is in breach of the provisions hereof or has so failed in compliance provided
that the Petroleum Operations continue in accordance with the provisions of this
27.6.2 pursuant to paragraph 27.2.4 above, where the bankruptcy, liquidation or
composition relates to one or some only of the persons constituting Licensee provided
that the Petroleum Operations continue in accordance with the provisions of this
27.7 In any case felling under paragraph 27.6 above, the Government, subject to
paragraphs 27.3,27.4 and 27.5 may, upon giving thirty (30) days written notice of its
intention to do so, terminate the Participating or Joint Venture Interest herein, and in
any related Licences, of the person or persons in breach, or which have failed in
compliance, or, as the case may be, have become bankrupt, gone into liquidation or
made a composition as aforesaid ("the Defaulting Party") but nothing in this
paragraph shall affect the rights and obligations of any other person who constitutes
Licensee which shall remain in fall force and effect.
In such event, the Defaulting Party shall forthwith assign, unconditionally and without
consideration, to the other persons constituting Licensee and, in respect of any
Licence in which the Nominee of the government has a Joint Venture Interest, to (he
Nominee of the Government its entire Participating or Joint Venture Interest under
this Agreement and any related Licences.
Such assignment will be made in undivided proportionate shares corresponding to the
undivided proportionate shares in which such other persons and, in respect of any
Licence in which the Nominee has a Joint Venture Interest, the Nominee hold
Participating or Joint Venture Interests in the subsisting Licences.
27.8 On termination of this Agreement and any related Licences or of an interest
therein, the rights thereunder of Licensee or the Defaulting Party, as the case may be,
shall cease but the termination shall not affect any liability incurred before the
termination, and any legal proceedings that might have been commenced or continued
against Licensee or such Defaulting Party may be commenced or continued against
ARTICLE 28 Accounting and Audits
28.1 Licensee shall be responsible for maintaining complete accounts, books and
records reflecting all revenues, costs and expenses associated with Petroleum
Operations under this Agreement in accordance with the Accounting Procedure set
out in Annex "C* of this Agreement and accepted international petroleum industry
accounting standards and procedures. The said accounting records shall be kept in
Uganda in US Dollars and in Uganda Shillings.
28.2 Within ninety (90) days after the expiration of each Calendar Year, Licensee
shall submit to the Government detailed accounts showing all Contract Expenses and
Contract Revenues during the past Calendar Year. Before submission to the
Government, the accounts shall be audited and certified by an independent chartered
accountant or certified public accountant of international standing acceptable to both
parties, at the expense of Licensee. It is understood that the Government retains the
authority to review and audit Licensee's books, at Licensee's expense, and records,
with respect to Petroleum Operations conducted hereunder, either directly or through
an independent accountant of international standing designated by the Government.
Subject to the provisions of the Accounting procedure set forth in Annex "C", such
audit right will terminate twenty-four (24) Calendar Months after the closure of the
subject year's accounts or such longer period as may be required in exceptional
circumstances. Any exceptions to Licensee's accounts must be officially
communicated to Licensee within thirty (30) Calendar Months of the closure of the
subject year's accounts.
28.3 "Nothing in this Article shall be construed as limiting the right of Government or
any Officer of Government pursuant to any statutory power to audit or cause to be
audited the books of any Company.
ARTICLE 29 Notices
All notices and other communications required or permitted hereunder or any notices
that one Party may desire to give to the other Party shall be in writing in the English
language and deemed to have been properly delivered if personally handed to an
authorised representative of the Party for whom intended or sent by registered airmail
or by cable, telex, or telefax, except as otherwise provided herein, at or to the address
of such Party for whom intended as indicated below, or such other addresses as any
Party may from time to time designate by notice in writing to the other Party:
Ministry of Energy and Mineral Development
P. 0 Box 7270 Kampala UGANDA
Attention: Commissioner for Petroleum Exploration and Production
Telefax No. 256-41-320437
ARTICLE 30 Applicable Law
This agreement shall be governed by, interpreted and construed in accordance with
the laws of Uganda.
ARTICLE 31 Entire Agreement and Amendments
This Agreement embodies the entire agreement and understanding between Licensee
and the Government relative to the subject matter hereof and supersedes and replaces
any provisions on the same subject in any other agreement between the Parties,
whether written or oral, prior to the date of this agreement. This Agreement may not
be amended, modified, varied or supplemented except by an instrument in writing
signed by Licensee and the Government.
ARTICLE 32 Waiver
32.1 The performance of any condition or obligation to be performed under this
Agreement shall not be deemed to have been waived or postponed, except by an
instrument in writing signed by the Party which is claimed to have granted such
waiver or postponement.
32.2 No delay, inaction, omission or other failure of either Party to act upon or
enforce any right, or to seek redress from the other Party of any breach or alleged
breach of any obligation, shall be deemed a waiver of such rights or acceptability of
32.3 No waiver by any Party of any one or more obligations or defaults by any other
Party in the performance of this Agreement shall operate or be construed as a waiver
of any other obligations or defies whether of a like or a different character,
ARTICLE 33 Confidentiality
33.1 This Agreement and any confidential information of any Party hereto which
becomes known to the other Party in connection with the performance of this
Agreement shall not be published or disclosed to third parties without the former
Party's written consent, except as otherwise provided herein, and provided however
that such other Party may communicate confidential information to legal counsel,
accountants, other professional consultants, underwriters, lenders, agents, licensees or
shipping companies to the extent necessary in connection with this Agreement, with
the obligation of the parties receiving such information to maintain confidentiality, or
to an agency of the government of the country of Licensee having authority to require
33.2 The terms "confidential information" as used herein shall mean information
identified as "confidential" by the Party originally in possession of it and disclosed to
the other Party, excluding information previously known to the other Party or
information which is publicly known except through disclosure of the other Party in
violation of this Article) or information that comes into the possession of such other
Party other than through a breach of this confidentiality undertaking.
33.3 Except as otherwise provided in Article 8, the confidentiality obligations of this
Article shall expire upon relinquishment of the area to which the information relates.
ARTICLE 34 Disclaimer
34.1 Any reviews, provision of data or requests for information, data or otherwise
from the Licensee by the Government or approvals by the Government or its Nominee
under this Agreement is solely for the information of the Government and its
satisfaction that the requirements of the Government as set forth herein have been
satisfied by the Licensee. By making such reviews, requests or approvals, the
Government makes no representation and the Licensee shall in no way so represent to
third parties that such reviews, requests, approvals or otherwise are proof of the
economic and technical viability of the Petroleum Operations to be undertaken by the
34.2 The Government shall not be liable to the Licensee for and the Licensee shall
defend and indemnify the Government from any claim, cost, loss, damage or liability
arising out of any contrary representation by the Licensee.
34.3 The Licensee is solely responsible for the economic and technical feasibility,
reliability or in case of discovery, realisation of the viability of the petroleum
production and production activities.
IN WITNESS HEREOF, the Parties hereto have caused this Agreement to be
executed by their respective duty authorised representatives as of the day and year
first above written.
Signed for and on behalf of The Government of Uganda
Minister for Energy and Mineral Development
In the presence of _____________________________
Signed for and on behalf of Licensee
In the presence of_____________________________
Description of Contract Area [_____]
Contract Area [_____] comprises some [_____] square kilometres, is of polygonal
shape and is bounded along its outer margin by a continuous line which runs through
the following geographical points and co-ordinates:
Form of Exploration Licence
I,__________, Minister of Energy and Mineral Development, pursuant to the powers
conferred upon me by Section 8 of the Petroleum (Exploration and Production) Act
1985 ("the Act") hereby grant to[__________] a company duly organised and existing
under the laws of ________, ("Licensee") this Exploration Licence to conduct
Exploration Operations within and with respect to the Contract Area described in the
Production Sharing Agreement entered into by and between the Government of the
Republic of Uganda and Licensee, dated ___, 200_ ("the Agreement"), hereby
conferring upon Licensee the exclusive right to explore for petroleum in the said
Contract Area and to carry on such operations and execute such works as necessary
for that purpose for a term of [_______] years from the Effective Date hereof [subject
to renewal] in accordance with the provisions of the Act and the terms and conditions
of said Agreement, which forms an integral part of this Licence.
IN WITNESS WHEREOF, I have granted the licence aforesaid with effect from
_______ 200 and set out my hand and seal this ___ day of ______ 200 __.
Minister of Energy and Mineral Development.
- Description of Exploration Area(s)
- Map of Exploration Area(s)
Form of Production Licence
I, __________, Minister of Energy and Minerals, pursuant to the powers conferred
upon me by Section 21 of The Petroleum (Exploration and Production) Act 1985 ("the
Act") hereby grant to _________, a corporation duty organised and existing under the
laws of _________, ("Licensee") this Petroleum production licence to conduct
Development Operations within and with respect to the Discovery Area(s) described
and shown on the map in the attachment to this licence hereby conferring upon
Licensee the exclusive right to develop said areas and produce petroleum therefrom,
and to carry on such operations and execute such works as are necessary for that
purpose for a term of [_______] (____) years from the effective date hereof in
accordance with the provisions of the Act, the Development Plan adopted in
connection therewith and the terms and conditions of the Production Sharing
Agreement entered into by and between the Government of the Republic of Uganda
and Licensee, dated __________, 200 which form an integral part of this Licence. The
subsequent execution of a Joint Operating Agreement by Licensee and [the Nominee
of the Government] in relation to the Discovery Area(s) subject hereto in accordance
with the terms of said Production Sharing Agreement, is a requirement of this
IN WITNESS WHEREOF, I have granted the licence aforesaid with effect from
_______, 200__ and set out my hand and seal this ___ day of_____ 200 .
Minister of Energy and Minerals
- Description of Discovery Area(s)
- Map of Discovery Area(s)
Accounting and Financial Procedure
SECTION 1 General Provisions
For the purposes of this Accounting and Financial Procedure the terms used herein
which are defined in the Agreement shall have the same meaning when used in this
Accounting and Financial Procedure.
1.2 Statements required to be submitted by Licensee
a. Within ninety (90) days of the Effective Date, Licensee shall submit to and
discuss with the Government a proposed outline of charts of accounts,
operating records and reports, which outline shall be in accordance with
generally accepted and recognised accounting systems and consistent with
normal practice of the international petroleum industry and the requirements
of this Agreement. Within ninety (90) days of receiving the above submission,
the Government shall either indicate its approval of the proposal or may
request revisions to the proposal to the extent that such outline is not in
accordance with generally accepted and recognised accounting systems and
consistent with the normal practices of the international petroleum industry
and the requirements of this Agreement. In the event that revisions are so
requested by the Government, Licensee and the Government shall within one
hundred and eighty (180) days after the Effective Date of the Agreement agree
on the outline charts of accounts, operating records and reports which shall
describe the basis of the accounting system and procedures to be developed
and used under the Agreement. Following such agreement. Licensee shall
expeditiously prepare and provide the Government with formal copies of the
comprehensive charts of accounts related to the accounting, recording and
reporting functions and allow the Government to examine Licensee's manuals
and to review procedures which are, and shall be, observed under the
b. All reports, books, accounts and records of Licensee will be prepared and
maintained in accordance with this Agreement and, where there are no
relevant provisions in the Agreement, in accordance with normal practices in
the international petroleum industry and generally accepted and recognised
c. All accounts, books, records and reports of Licensee required hereunder shall
be maintained at Licensee's business office in the Republic of Uganda and will
be available for the inspection and use of the Government and its
representatives in carrying out its supervisory function under this Agreement.
d. The licensee shall report to Government on a monthly basis, all expenditures,
production, prices, sales, receipts, cost recovery and production sharing related
to Petroleum Operations in the Licence area.
1.3 Language and Units of Account
a. Accounts shall be maintained in Uganda Shillings and in United States
Dollars; however, the United States Dollar accounts will prevail in case of
conflict. Metric units and Barrels shall be employed for measurements
required under this Annex. The language employed shall be English, Where
necessary for clarification. Licensee may also maintain accounts and records
in other languages, units of measurement and currencies.
b. It is the intent of this accounting and Financial Procedure that neither the
Government nor Licensee should experience an exchange gain or loss at the
expense of or to the benefit of, the other. However, any gain or Joss resulting
from the exchange of currency, will be credited or charged to the accounts.
Amounts received and costs and expenditures made in Uganda Shillings,
United States Dollars or any other currency shall be converted into Uganda
Shillings or United States Dollars, as the case may be, on the basis of the
average of the buying and selling exchange rates between the currencies in
question as published by Bank of Uganda, prevailing on the last Business Day
of the Calendar Month preceding the Calendar Month in which such amounts
are received and costs and expenditures are paid.
In the event of an increase or decrease, one time or accumulative, often
percent (10%) or more in the rates of exchange between the Uganda Shilling,
the United States Dollar or the currency in question, during any given
Calendar Month, the following rates will be used:
1. For the period from the first of the Calendar Month to the day when such
increase or decrease is first reached, the average of the official buying and
selling exchange rates between the United States Dollar, Uganda Shilling or
the currency in question as issued, on the last day of the previous Calendar
2. For the period from the day on which such increase or decrease is first reached
to the end of the Calendar Month, the average of the official buying and
selling exchange rates between the United States Dollar, the Uganda Shilling
or the currency in question as issued on the day on which such increase or
decrease is reached.
3. A record of the exchange rates used in converting Uganda Shillings, Unitedstates Dollars or any other currency hereunder shall be maintained by Licensee.
a. AH payments between the Parties shall, unless otherwise agreed, be in United
States Dollars and through a bank designated by each receiving party.
Payments between the Parties may be effected by way of set-off between
mutual and undisputed liabilities as and when such liabilities accrue.
b. Discharge of Licensee's obligation with respect to Income Tax, the Nominee
of the Government's Participation Share of Production and the Government's
Production Share shall be made in accordance with the Agreement.
c. All sums due by one party to the other under the Agreement during any
Calendar Month shall, for each day such sums are overdue during such month,
bear interest compounded daily at an annual rate equal to the average London
Interbank Offered Rate for six (6) months as quoted at 11.00 a.m. London time
on the first business day of such month by the London Office of Citibank N.A
plus five (5) percentage points.
1.5 Audit and Inspection Rights of Government
a. The Government shall have the right, upon fifteen (15) days' prior written
notice to Licensee, to audit directly or through an independent accountant, at
its own cost. Licensees' accounts and records maintained in relation to the
Petroleum Operations carried out hereunder with respect to each Calendar
Year within twenty four (24) Calendar Months after the closure of the subject
year's accounts. Notice of any exception to Licensee's accounts of any
Calendar Year must be notified to Licensee within thirty (30) Calendar
Months of the closure of the subject year's accounts.
For purposes of auditing, the Government may examine and verify at reasonable
times all charges and credits relating to the Petroleum Operations such as books of
account, accounting entries, material records and inventories, vouchers, payrolls,
invoices and any other documents, correspondence and records necessary to audit and
verify the charges and credits. Furthermore, the auditors shall have the right in
connection with such audit to visit and inspect at reasonable times all sites, plants,
facilities, warehouses and offices of Licensee directly or indirectly serving the
Petroleum Operations including visiting personnel associated with those operations.
If the Government desires verification of charges representing a proportionate
share in the cost of Licensee's activities other than those carried out hereunder,
it may require such verification to the extent Licensee is able to present the
required information without infringing the confidential or proprietary nature
of such information, hi the event that such infringement would occur, the
Government may require Licensee (at Licensee's expense) to obtain an audit
certificate from an independent external auditor of international standing
(selected by Licensee and acceptable to the Government) verifying such
charge(s). If Government desires verification of charges from Affiliates of
Licensee, Licensee shall, upon the Government's request and at Licensee's
expense, obtain an audit certificate to such effect from the statutory auditors of
the Affiliate concerned attesting that such rates do not include a profit element
and have been consistently and reasonably applied.
b. The Government shall make every reasonable effort to conduct audits in a
manner which will result in the minimum of inconvenience to Licensee.
Licensee shall make every reasonable effort to co-operate with the
Government and its statutory auditors or the independent auditors, as the case
may be, will provide reasonable facilities and assistance. Subject to the
provisions of paragraph 1.5(c) hereunder, only one audit may be carried out by
the Government in respect of the accounts for any single Calendar Year.
c. Any Government audit shall be completed within (6) Calendar Months of its
commencement. At the conclusion of each audit, the Government and
Licensee shall endeavour to settle outstanding matters and a written report will
be circulated to all parties within three (3) Calendar Months of the conclusion
of each audit. The report shall include all claims arising from such audit
together with comments pertinent to the operation of the accounts and records.
Licensee shall reply to the report in writing as soon as possible and in any
event not later than three (3) Calendar Months following receipt of the report.
Should the Government consider that the report or reply requires further
investigation of any items therein, the Government shall have the right to
conduct further investigations in relation to such item notwithstanding that the
said period of twenty-four (24) Months may have expired.
Such further investigation shall be commenced within thirty (30) days and be
concluded within sixty (60) days of the receipt of such reply and the report related to
such further investigation shall be circulated within ninety (90) days of the conclusion
of such father investigation. All adjustments resulting from an audit, as agreed
between Licensee and the Government, shall be made promptly by Licensee and be
reported to the Government Any unresolved dispute arising in connection with an
audit shall be referred to the Advisory Committee and if not resolved thereby shall be
referred for expert determination pursuant to paragraph 23.3 of the Agreement.
d. Without prejudice to the finality of matters as described in subsection 1.5(a),
all documents referred to in that subsection shall be maintained by the
Licensee and made available for inspection by Government for five (5)
Calendar Years Showing their date of issue.
e. All information obtained by the Government pursuant to the provisions of this
paragraph 1.5 shall be subject to the confidentiality requirements specified in
paragraphs 33.1 and 33.2 of this Agreement.
1.6 Accrual Basis
All books, accounts and records shall be prepared on an accrual basis. Contract
Revenues shall be attributed to the accounting period in which they are earned, and
costs and expenses to the accounting period in which they are incurred, without the
need to distinguish whether cash is received or disbursed in connection with a
particular transaction. Costs and expenses shall be deemed to have been incurred, in
the case of physical items, in the accounting period when Licensee acquires title
thereto, and in the case of services, in the accounting period when such services are
1.7 Arms Length Transactions
Except as may be otherwise agreed in writing between the Government and Licensee
or as may be provided in Article 12 of the Agreement, all transactions giving rise to
revenues, costs or expenses under this Agreement which will be credited or charged to
the books, accounts, records and reports prepared, maintained or submitted hereunder
shall be conducted at arm's length or on such a basis as will assure that all such
revenues, costs or expenses will not be materially higher or lower, as the case may be,
than would result from a transaction conducted at arms length on a competitive basis
with third parties.
1.8 Allocation of Shared Costs
To the extent that costs and expenses are incurred by Licensee in respect of activities
which would only in part qualify as Contract Expenses hereunder, such costs and
expenses shall be allocated to the books, accounts, records and reports maintained
hereunder in such a manner as to avoid any duplication of cost, to fairly and equitably
reflect the costs attributable to Petroleum Operations carried out hereunder and to
exclude any costs and expenses which should otherwise be allocated to those
activities which would not constitute Petroleum Operations hereunder.
It is understood, however, that any Exploration or Development and Production
Expenditures associated with a unit development involving a Discovery Area which
extends into a neighbouring country shall be allocated on the basis of the petroleum
reserves attributable to that portion of the Discovery Area located in each country.
SECTION 2 Classification, Definition and Allocation of Costs and Expenditures
Contract Expenses incurred in connection with Petroleum Operations carried out
hereunder shall be classified, deemed and allocated as follows:
2.1 Exploration Expenditures are all necessary, appropriate and economical direct
and allocated indirect costs incurred in the search for Petroleum and the appraisal of
Discoveries in the Contract Area, including:
a. aerial, geophysical, geochemical, palaeontological, geological, topographical
and seismic surveys and studies and their interpretation;
b. core hole drilling and water well drilling;
c. labour, materials and services used in drilling wells with the object of finding
new Petroleum Reservoirs or for the purpose of appraising the extent of or
subsequently producing Petroleum Reservoirs already discovered provided
such wells are dry or are otherwise not completed as producing wells;
d. facilities used solely in support of these purposes including access roads and
purchased geological and geophysical information;
e. a portion of all Service Costs (as hereinafter defined) allocated to Exploration
Operations on an equitable basis and consistently applied;
f. a portion of all General and Administrative Expenses (as hereinafter defined)
allocated to Exploration Operations based on projected budget expenditures
subject to adjustment on the basis of actual expenditure at the end of the
Calendar year concerned; and
g. any other Contract Expenses incurred prior to the commencement of
Commercial Production in a Development Area and not otherwise covered by
paragraph 2.2 below subject to paragraph 4.2.
2.2 Development and Production Expenditures shall consist of all necessary,
appropriate and economical expenditures (other than those referred to in paragraph
2.3) incurred in Development Operations in relation to a Development Area
a. drilling wells which are completed as producing wells and drilling wells for
purposes of producing a Petroleum Reservoir already discovered provided
such wells are completed as producing wells;
b. completing those wells described in paragraph 2.1 (c) by way of installation of
casing or equipment or otherwise after a well has been drilled for the purpose
of bringing the well into use as a producing well;
c. the costs of field facilities including field gathering systems, field production
and treatment units, wellhead equipment, subsurface equipment. Natural Gas
separation facilities, enhanced recovery systems, offshore platforms.
Petroleum storage facilities in the field and related facilities, and field access
roads for production activities;
d. the costs of transportation facilities installed up to the Delivery Point,
including but not limited to pipelines, compressors, and storage facilities;
e. engineering and design studies for field facilities;
f. a portion of all Service Costs allocated to the Development Operations on an
equitable basis and consistently applied;
g. a portion of all General and Administrative Expenses allocated to the
Development Operations based on projected budget expenditures which will
be adjusted to actual expenditures at Calendar Year end; and
h. any other expenditure incurred in Development Operations prior to the
commencement of Commercial Production in a Development Area, other than
those incurred in respect of operations carried out beyond the Delivery Point.
2.3 Operating Expenses are all necessary, appropriate and economical expenditures
incurred in the Petroleum Operations hereunder after the start of the Commercial
Production (but including intangible drilling costs such as, but not limited to, labour,
consumable material and services having no salvage value which are incurred in the
drilling operations related to the drilling or deepening of producing wells whether
incurred before or after the start of Commercial Production) which are other than
Exploration Expenditures, Development and Production Expenditures and general
administrative expenses and service costs otherwise allocated to Exploration
Expenditures or Development and Production Expenditures pursuant to subparagraphs
2.1(e) and (f) and 2.2(f) and (g) above; Operating Expenses shall not, however,
include tariff charges, if any, imposed by the Pipeline Company associated with the
transportation of Petroleum from the Delivery Point to the seaboard terminal point of
2.4 Service Costs are all necessary, appropriate and economical direct and indirect
expenditures in support of the Petroleum Operations including, but not limited to,
warehouse, piers, marine vessels, vehicles, motorised rolling equipment, aircraft, fire
and security stations, workshops, water and sewage plants, power plants, housing,
community and recreational facilities and furniture, tools and equipment used in these
activities. Service Costs in any Calendar Year shall include the total costs incurred in
such year to purchase and/or construct said facilities as well as annual costs to
maintain and operate the same. All Service Costs will be regularly allocated as
specified in subparagraphs 2.1(e), 2.2(f) and 2.3 to Exploration Expenditures,
Development and Production Expenditures and Operating Expenses.
2.5 General and Administrative Expenses
a. All main office, field office and associated general and administrative costs
incurred in relation to Petroleum Operations, including, but not limited to,
supervisory, accounting and employee relations services carried out by
Licensee in Uganda.
Licensee's Affiliated Companies' personnel and services costs (other than
those otherwise provided for in paragraph 4.1(e)(ii) of this Annex) incurred in
connection with the Petroleum Operations carried out hereunder, and
Reasonable travel expenses of such Affiliated Companies* personnel in the
general and administrative category listed in subparagraph (i) above in
connection with the Petroleum Operations carried out
c. All General and Administrative Expenses shall be necessary, appropriate and
economical and will be regularly allocated as specified in subsection 2.1(f),
2.2(g) and 2-3 to Exploration Expenditures, Development and Production
Expenditures and Operating Expenses.
SECTION 3 Income Tax and Allowable Contract Expenditures
3.1 Tax Accounting Principles
The following tax accounting principles shall apply:
3.1.1 Taxable Parties
Income Tax shall be assessed on the basis of the Taxable Income of all corporations,
individuals, partners, joint ventures, associates or other entities comprising Licensee
from Petroleum Operations hereunder in accordance with the laws of Uganda.
3.1.2 Consolidation Principles
Income Tax in each Tax Year shall be assessed on the basis of the Aggregate Contract
Revenues derived from, and allowable Contract Expenditures incurred in, the
Petroleum Operations carried out hereunder.
3.1.3 Carry Forward of Losses
Commencing in the Tax Year in which initial Commercial Production commences,
any deductions for Income Tax purposes in respect of allowable Contract
Expenditures which remain unrecovered in any Tax Year from Contract Revenues
shall be treated as an operating loss and may be carried forward as an allowable
deduction to subsequent Tax Years until fully recovered from Contract Revenues.
3.2 Classification of Expenditures for Income Tax Purposes
Contract Expenses shall be classified as follows for Income Tax purposes:
3.2.1 Petroleum Capital Expenditures
Petroleum capital Expenditures are those Contract Expenses which fall within the
category of Development and Production Expenditures as described in paragraph 2.2
of this Annex "C".
3.2.2 Petroleum Operating Expenditures
Petroleum Operating Expenditures are those Contract Expenses that fall within the
categories of Exploration Expenditure and Operating Expenses as described in
paragraphs 2.1 and 2.3 of this Annex "C".
3.3 Capital Allowances
Petroleum Capital Expenditures, as defined in paragraph 3.2.1 of this Annex "C",
shall be depreciated for Income Tax purposes. In determining the amount of
depreciation that is allowable as a deduction in any Tax Year, the following principles
3.3.1 Petroleum Capital Expenditures will be depreciated using the straight line
method over six (6) years, save in respect of those expenditures referred to in
subparagraph 2.2(d) of this Annex "C" which will be depreciated on a "unit of
production" basis. The "unit of production" depreciation charge in each Tax Year
shall be determined by dividing the total expenditure referred to in subparagraph
2.2(d) which remains unrecovered at the beginning of each such year by the then
recoverable reserves (in barrels of oil or barrels of oil equivalent) in the Contract Area
and multiplying the resulting figure by the total number of barrels of oil produced in
the Tax Year in question.
3.3.2 Deductions with respect to the depreciation of Petroleum Capital Expenditures
shall be allowable commencing with (a) the Tax Year in which the capital asset is
placed into service or if the Capital Expenditure does not relate to an asset which
normally has a useful life beyond the year in which it is placed in service, the Tax
Year in which the capital expenditure is incurred or (b) the Tax Year in which
Commercial Production commences from the Contract Area, whichever is later.
3.4 Definition of Allowable Contract Expenditures
For each Tax year, commencing with the Tax Year in which Commercial Production
commences from the Contract Area, Allowable Contract Expenditures which shall be
deductible for the purpose of the calculation of Income Tax payable by Licensee shall
consist of the sum of:
3.4.1 the current Tax Year's Petroleum Operating Expenditures as determined
pursuant to paragraph 3.2.2 of this Annex "C"; plus
3.4.2 the current Tax Year's allowable deductions for depreciation of Petroleum
Capital Expenditures as determined pursuant to paragraph 3.3 of this Annex "C" plus
3.4.3 an amount with respect to any operating loss from prior Tax Years, determined
in accordance with paragraph 3.1.3 of this Annex "C".
SECTION 4 Costs, Expenses, Expenditures and Credits of the Licensee
4.1 Costs Recoverable Without Further Approval of the Government
Subject to the provisions of the Agreement, Licensee shall bear and pay the following
costs and expenses in respect of the Petroleum Operations. These costs and expenses
will be classified under the headings referred to in paragraph 2 of this Annex. They
are recoverable Contract Expenses by Licensee under the Agreement.
(a) Surface Rights
This covers all direct costs attributable to the acquisition, renewal or relinquishment
of surface rights acquired and maintained in force for the Contract Area.
(b) Labour and Associated Labour Costs
gross salaries and wages including bonuses and cost of living, housing and
drifter customary allowance afforded to expatriate employees in similar
operations elsewhere of Licensee's employees directly engaged in the
Petroleum Operations, irrespective of the location of such employees;
Licensee's costs regarding sickness and disability payments applicable to the
salaries and wages chargeable under subparagraph (i) above;
expenses or contributions made pursuant to assessments or obligations
imposed under the laws of the Republic of Uganda which are applicable to
Licensee's cost of salaries and wages chargeable under (i) above;
Licensee's cost of established plans for employees' life insurance,
hospitalisation, pensions, stock purchase and thrift plans and other benefits of
a like nature customarily granted to Licensee's employees;
reasonable travel and personnel expenses of employees of Licensee and their
families including those made for travel and relocation of the expatriate
employees assigned to the Republic of Uganda, all of which shall be in
accordance with Licensee's normal practice, provided such is consistent with
generally accepted practices in the international petroleum industry; and
any personal income taxes of the Republic of Uganda incurred by employees
of Licensee and paid or reimbursed by Licensee.
(c) Offices, Camps, Warehouses and other facilities
The cost of establishing, maintaining and operating any offices, camps, warehouses,
workshops, housing, water systems and other facilities for the purpose of carrying out
the Petroleum Operations. The costs of those facilities, which are not used for the
exclusive purpose of carrying out the Petroleum Operations, shall be apportioned on a
consistent and equitable bias between the Petroleum Operations and the Licensee's
other operations and those of its Affiliates.
The cost of transportation of employees, equipment, materials and supplies necessary
for the conduct of the Petroleum Operations.
(e) Charges for Services
Third Party Costs
The actual costs of contracts for technical and other services entered into by Licensee
the Petroleum Operations, made with third parties other than Affiliated Companies of
Licensee are recoverable, provided that the prices paid by Licensee are in line with
those generally charged by other international or domestic suppliers for comparable
work and services.
Affiliated Companies of Licensee
Without prejudice to the charges to be made in accordance with paragraph 2.5 of this
Annex, in the case of specific services rendered to the Petroleum Operations under
contract with, and invoiced to. Licensee by an Affiliated Company of Licensee, the
allowable charges will be based on actual costs without profits, will be no higher than
the most favourable prices charged by the Affiliated Company to third parties for
comparable services under similar terms and conditions elsewhere, will be included in
any budget submitted to the Advisory Committee pursuant to Article 5 of the
Agreement and will not exceed the charges billed to any Joint Operations in respect of
such services pursuant to any Joint Operating Agreement relating to the Petroleum
Operations carried out hereunder. The Licensee will, if requested by Government,
specify the amount of such charges which represents an allocated proportion of the
general material, management, technical and other costs of the Affiliated Company,
and the amount which is the direct cost of providing the services concerned. If
necessary (but subject to the provision of paragraph 1.5(a) of this Annex), certified
evidence regarding the basis of prices charged may be obtained from the auditors of
the Affiliated Company.
So far as is practicable and consistent with efficient and economical operation, only
such material shall be purchased or furnished by Licensee for use in the Petroleum
Operations as may be required for use in the reasonably foreseeable future and the
accumulation of surplus stocks will be avoided.
Warranty of Material
Licensee does not warrant material beyond the supplier's or manufacturer's guarantee
and, in case of defective material or equipment, any adjustment received by Licensee
from the suppliers/manufacturers or their agents will be credited to the accounts under
Value of Material Charged to the Accounts Under the Agreement
a. Except as otherwise provided in subparagraph (b) below, material purchased
by Licensee for use in the Petroleum Operations shall be valued to include the
invoice price less trade and cash discounts (if any), purchase and procurement
fees plus freight and forwarding charges between point of supply and point of
shipment, loading and unloading fees, dock charges, forwarding and
documentation fees, packing costs, freight to port of destination, insurance,
taxes, customs duties, consular fees, other items chargeable against imported
material and where practicable handling and transportation expenses from
point of importation to warehouse or operating site, and its costs should not
exceed those currently prevailing in normal arms length transactions on the
b. Materials purchased from Affiliated Companies of Licensee shall be charged
at prices not higher than the following:
1. New Material (Condition "A") shall be valued at the current international price
which should not exceed the price prevailing in normal arms length
transactions on the open market.
2. Used Material (Conditions "B" and "C")
Material which is in sound and serviceable condition and is suitable for reuse
for its original function without reconditioning shall be classified as Condition
"B" and priced at seventy-five percent (75%) of the current price of new
material defined in subparagraph (1) above.
Material which cannot be classified as Condition "B" but which after repair
and reconditioning will be further serviceable for original function as good
used material (Condition "B") shall be classified as Condition "C" and priced
at fifty percent- (50%) of the current price of new material as defined in
subparagraph (1) above.
Material which cannot be classified as Condition "B" or condition "C" shall be
priced at a value commensurate with its use.
Material involving erection costs shall be charged at the applicable condition
percentage of the current knocked-down price of new material as defined in
When the use of material is temporary and its service to the Petroleum
Operations does not justify the reduction in price as provided for in
subparagraph (2)(ii) hereof, such material shall be priced on a basis that will
result in a net charge to the accounts under the Agreement consistent with the
value of the service rendered.
Stocks and consumables costs shall be charged to the accounts pursuant to the
"Average Cost" method.
(g) Rentals, taxes, duties, and Other Assessments
All rentals, levies, charges, fees, compensation or other charges in respect of rights of
way, contributions and any other assessment and charges levied by the Government or
any Government or foreign public authority in connection with the Petroleum
Operations, and paid directly or indirectly by Licensee, other than Income Tax
imposed on Licensee (except as provided in Article 11 of the Agreement) and the
Government Production Share attributable pursuant to Article 11 of the Agreement.
(h) Insurance and Losses
Insurance premia and costs incurred for insurance, provided that if such insurance is
wholly or partly placed with an Affiliated Company of Licensee, such premia and
costs shall be recoverable only to the extent generally charged by competitive
insurance companies other than an Affiliated Company of Licensee. Costs and losses
incurred as a consequence of events which are, and in so far as, not made good by
insurance obtained under the Agreement are recoverable under the Agreement unless
such costs have resulted solely from an act of wilful misconduct or negligence of
(i) Legal Expenses
All costs and expenses of litigation and legal or related services necessary or
expedient for the producing, perfecting, retention and protection of the Contract Area,
and in defending or prosecuting lawsuits involving the Area or any third party claim
arising out of activities under the Agreement, or sums paid in respect of legal services
necessary or expedient for the protection of the interest of Licensee are recoverable.
Where legal services are rendered in such matters by salaried or regularly retained
lawyers of Licensee or an Affiliated Company of Licensee, such compensation will be
included instead under subparagraph 4.1(b) or 4.1(d) above, as applicable.
(j) Training Costs.
Except where otherwise provided herein, all costs and expenses incurred by Licensee
in training of its Ugandan employees engaged in the Petroleum Operations and such
other training as required under Article 18 of the Agreement.
(k) General and Administrative Expenses
The costs described in subparagraph 2.5(a) and the charge described in subsection
(1) Interest and other financial charges incurred on loans raised by Licensee to finance
Development Operations provided that such interest rates and charges do not exceed
prevailing commercial rates and only to the extent that such interest and financial
charges relate to debt raised by Licensee to finance such operations (including loans
from both Affiliates and Non-Affiliates) do not exceed fifty per cent (50%) of the
total financing requirement. All loans from Affiliated Companies shall be subject to
review and approval of the Government, which approval shall be given provided that
the terms of such loans are comparable to those which could be obtained on an arms
length basis from a non-Affiliated Company lender.
(m) Commissions paid to intermediaries by Licensee unless such commissions exceed
the levels usually paid in the international oil industry under similar conditions in
which event the approval of the Government shall be required, which approval shall
not be unreasonably withheld.
(n) Expenditure on research into and development of new equipment, material and
techniques for use in searching for development and producing Petroleum directly
related to the conduct of Petroleum Operations carried out under this Agreement.
(o) Ecological and environmental charges: Costs for all measures taken to avoid waste
and prevent damage or pollution in the conduct of the Petroleum Operations.
(p) Leasing expense Costs incurred in connection with the leasing of property and
equipment provided that such costs do not exceed prevailing commercial rates and
that any such leasing arrangements are concluded with parties which are not Affiliated
Companies of Licensee.
(q) Communication charges: Costs of acquiring, leasing, operating and maintaining
communication systems including, but not limited to, radio, telephone, e-mail,
telecopier and telex systems.
4.2 Costs not Recoverable under the Agreement
a. Costs incurred before the Effective Date.
b. Petroleum marketing or transportation tariff charges incurred beyond the
c. The costs associated with the provision of the Bank Guarantee pursuant to
paragraph 4.7 of the Agreement and any payments made thereunder in respect
of failure by Licensee to comply with its contractual obligations under the
Agreement (and any other amounts spent on indemnities with regard to
fulfilment of contractual obligations by Licensee).
d. Legal and other costs of arbitration and the independent expert in respect of
any dispute referred for determination pursuant to Article 23 of the Agreement.
e. Income Tax imposed on Licensee in accordance with the laws of Uganda.
f. The Government Production Share determined pursuant to Article 10 of the
g. Fines and penalties imposed by Courts of Law of the Republic of Uganda.
h. Costs incurred as a result of Wilful Misconduct or Gross Negligence of
i. Interest incurred on loans raised by Licensee to finance Exploration
4.3 Other Costs and Expenses
Other costs and expenses not covered or dealt with in the provisions of this paragraph
and which are incurred by Licensee for the necessary and proper conduct of
Petroleum Operations are recoverable.
4.4 Credits Under the Agreement
The net proceeds of the following transactions will be credited to the accounts under
a. The net proceeds of any insurance or claim in connection with the Petroleum
Operations or any assets charged to the accounts under the Agreement when
such operations or assets were insured and the premia charged to the accounts
under the Agreement.
b. Revenue received from outside for the use of property or assets charged to the
accounts under the Agreement.
c. Any adjustment received by Licensee from the suppliers/manufacturers or
their agents in connection with a defective material the cost of which was
previously charged by Licensee to the accounts under the Agreement.
d. Rebates, refunds or other credits received by Licensee which apply to any
charge which has been made to the accounts under the Agreement, but
excluding any awards granted to Licensee, under the arbitration or
independent expert proceedings referred to in Subsection 4.2(d) above.
e. The actual net proceeds of sale realised from the disposal on an arms length
basis of inventory materials under the Agreement and subsequently exported
from the Republic of Uganda without being used-in inventory materials that
are disposed of other than on an be valued as used material and the value so
determined shall be credited to the Accounts.
4.5 Duplication of Charges and Credits
Notwithstanding any provision to the contrary in this Accounting and Financial
Procedure, it is the intention that there shall be no duplication of charges or credits in
the accounts under the Agreement.
SECTION 5 Records and Valuation of Assets
Licensee shall maintain detailed records of property and assets in use for the
Petroleum Operations in accordance with the normal practice in exploration and
production activities in the international petroleum industry. At reasonable intervals
but at least once a year with respect to movable assets and once every five (5) years
with respect to immovable assets, inventories of the property under the Agreement
shall be taken by Licensee. Licensee shall give Government at least thirty (30) days
written notice of its intention to take such inventory and Government shall have the
right to be represented when such inventory is taken. Licensee will clearly state the
principles upon which valuation of the inventory has been based. When an assignment
of rights under the Agreement takes place, a special inventory may be taken by
Licensee at the request of the Assignee provided that the costs of such inventory are
borne by the Assignee and not charged to Contract Expenses hereunder.
SECTION 6 Revision of Accounting and Financial Procedures and Conflicts
6.1 The provisions of this Accounting and Financial Procedure may be amended by
Agreement between Licensee and the Government. The amendments shall be made in
writing and shall state the date upon which the amendments shall become effective.
6.2 In the event of any conflict between the provisions of this Accounting and
Financial Procedure and the Agreement the provisions of the Agreement shall prevail.
Bank Guarantee (Date)
Ministry of Energy and Mineral Development PO Box 7270 Kampala Republic
RE: OUR IRREVOCABLE LETTER OF GUARANTEE NO.
In compliance with the request of ____ ("Licensee"), we, (Name of bank), issue this
unconditional irrevocable letter of guarantee in favour of the Government of the
Republic of Uganda ("the Government") for a sum not exceeding _________United
Dollars (US$_____), as set forth in paragraph 4.7 of the Production Sharing
Agreement ("Agreement"), dated _________, 200__, by and between Licensee and
the government, relating to Petroleum exploration, development and production in
Uganda, to guarantee Licensee's faithful performance of its minimum exploration
expenditure obligations as provided for in the Agreement. The said sum of
__________ United States Dollars (US$________) will be released in favour of
Licensee on presentation to the bank of a certificate from the Government that the
obligation of the Licensee has been fulfilled.
The terms and conditions of this Letter of Guarantee are as follows:
1. The said amount, or any part thereof, shall be paid to you upon our receipt of
your written statement that the claimed sum is duly payable under the
2. We hereby waive diligence, presentment, demand for payment, protest, any
requirement that the Government exhaust any right or power or take any
action against Licensee, all notices (whether of non-payment by Licensee,
dishonour, protest or otherwise) and all demands whatsoever. Our obligations
hereunder are continuing, absolute and unconditional, and will not be in any
way affected by giving of time or any forbearance by the Government, the
waiver or consent by the Government with respect to any provision of the
Agreement, and irrespective of the validity, regularity, enforceability or value
of the Agreement, or by any other circumstances which might otherwise
constitute a legal or equitable discharge or defence of a surety or guarantor, all
of which are hereby expressly waived.
3. Our obligations hereunder shall be paid in United States Dollars to the bank
account designated by you, free and clear of and without reduction by reason
of any and all present and future taxes, levies, imposts, deductions,
assessments, charges or withholdings whatsoever levied, assessed, imposed or
collected with respect thereto by the government of________ or any political
sub-division or taxation authority thereof or therein. We shall bear and pay
any and all fees and expenses in relation to or in connection with this Letter of
4. In order to give effect to this letter of Guarantee, we hereby declare that the
Government shall be at liberty to act as though we are the principal debtor,
and we hereby waive all and any of the right as surety which may at any time
be inconsistent with any of the above provisions.
5. Any claim or demand under this Letter of Guarantee shall be presented to us
on or before the expiration of the date of the validity of this Letter of
6. This Letter of Guarantee shall be effective immediately and expire on
_________, 200_, [being the date ninety (90) days after the end of the Initial
Exploration Period as defined in the Agreement], and thereafter automatically
without any formality become null and void for all its effects and this Letter of
Guarantee shall be returned to us immediately.
Yours very truly,
(Name of Bank)