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 Amu Darya Basin EPSC











THE AMU DARYA BASIN OIL TENDER OF 2011








MINISTRY OF MINES


ISLAMIC REPUBLIC OF AFGHANISTAN
































EXPLORATION AND


PRODUCTION SHARING CONTRACT








FOR





HYDROCARBONS EXPLORATION,


DEVELOPMENT AND PRODUCTION























26 December, 2011


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TABLE OF CONTENTS


Page


ARTICLE I DEFINITIONS & INTERPRETATION.....................................................................2


ARTICLE II GRANT OF RIGHTS TO THE CONTRACTOR.....................................................8


ARTICLE III TERM.......................................................................................................................9


ARTICLE IV RELINQUISHMENT.............................................................................................10


ARTICLE V GENERAL OBLIGATIONS OF THE CONTRACTOR........................................12


ARTICLE VI COMMENCEMENT OF HYDROCARBONS OPERATIONS...........................19


ARTICLE VII DISCOVERY; DEVELOPMENT AND PRODUCTION....................................20


ARTICLE VIII FINANCIAL AND PERFORMANCE GUARANTEES....................................30


ARTICLE IX OBLIGATIONS OF THE MINISTRY..................................................................30


ARTICLE X ALLOCATION OF PRODUCTION.......................................................................33


ARTICLE XI FORMULA PRICE FOR HYDROCARBONS; MEASUREMENT OF


HYDROCARBONS................................................................................................................35


ARTICLE XII DOMESTIC REQUIREMENTS..........................................................................38


ARTICLE XIII PAYMENT PROCEDURE.................................................................................39


ARTICLE XIV SURFACE RENTAL FEES................................................................................40


ARTICLE XV NATURAL GAS..................................................................................................41


ARTICLE XVI INCOME TAX....................................................................................................42


ARTICLE XVII CUSTOMS DUTIES..........................................................................................43


ARTICLE XVIII EXCHANGE AND CURRENCY CONTROLS..............................................43


ARTICLE XIX TREATMENT UNDER INTERNATIONAL LAW...........................................44


ARTICLE XX TRAINING, EMPLOYMENT AND LOCAL CONTENT..................................44


ARTICLE XXI PURCHASES IN AFGHANISTAN...................................................................45


ARTICLE XXII JOINT DEVELOPMENT / UNITIZATION.....................................................46


ARTICLE XXIII HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION..................47


ARTICLE XXIV DISPUTE SETTLEMENT/ ARBITRATION..................................................50


ARTICLE XXV TERMINATION, REVOCATION AND RENEGOTIATION.........................51


ARTICLE XXVI BOOKS, ACCOUNTS AND AUDITS; RECORDS, REPORTS


AND INSPECTIONS..............................................................................................................53


ARTICLE XXVII INSURANCE AND INDEMNIFICATION...................................................55


ARTICLE XXVIII ASSIGNMENT AND SUBCONTRACTORS..............................................56


VVi





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ARTICLE XXIX LAW OF THE CONTRACT............................................................................58


ARTICLE XXX FORCE MAJEURE...........................................................................................58


ARTICLE XXXI ENTIRE CONTRACT AND AMENDMENTS...............................................59


ARTICLE XXXII WAIVERS; CUMULATIVE REMEDIES.....................................................59


ARTICLE XXXIII TRANSPARENCY IN AFGHAN HYDROCARBONS


OPERATIONS........................................................................................................................60


ARTICLE XXXIV NOTICES.......................................................................................................60


ARTICLE XXXV EFFECTIVENESS AND REGISTRATION..................................................61


ARTICLE XXXVI CHANGE OF LAW.......................................................................................61





EXHIBIT A DESCRIPTION OF CONTRACT AREA


EXHIBIT B MAP OF CONTRACT AREA


EXHIBIT C ACCOUNTING PROCEDURES





EXHIBIT D FINANCIAL GUARANTEE


EXHIBIT E GENERAL PERFORMANCE GUARANTEE


EXHIBIT F LONG RANGE PLAN FOR THE TRAINING OF AFGHAN NATIONALS


EXHIBIT G BIDDING FORM


EXHIBIT H MINIMUM EXPLORATION PROGRAMME; MINIMUM PRODUCTION


REQUIREMENTS FROM DESIGNATED FIELDS


EXHIBIT I LIST OF ITEMS TO BE IMPORTED FREE OF CUSTOMS DUTIES
























































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EXPLORATION AND


PRODUCTION SHARING CONTRACT











THIS CONTRACT, made and entered into this 26th day of December, 2011, by and between


THE MINISTRY OF MINES OF THE GOVERNMENT OF THE ISLAMIC REPUBLIC


OF AFGHANISTAN (hereinafter referred to as the “Ministry”), acting on behalf of the


Government of the Islamic Republic of Afghanistan, and CNPCI Watan Oil and Gas Afghanistan


Ltd. (CNPCIW) (hereinafter referred to as the “Contractor”), a limited liability company duly


organized and existing under the laws of the Islamic Republic of Afghanistan (hereinafter


referred to as “Afghanistan”).





RECITALS





1. WHEREAS, the entire property in, and control of, all Hydrocarbon resources in or under


the territory of Afghanistan is exclusively vested in the State under Article 3 of the


Hydrocarbons Law 2009;


2. WHEREAS, the Ministry wishes to promote the initiation of production and processing


of the known Hydrocarbon resources to meet current and future demands for energy and


related products, services and activities and prioritize the early production of


Hydrocarbons and, in parallel with the aforementioned activities, wishes that the


Contractor use sufficient resources to thoroughly assess the Hydrocarbon potential in the


Contract Area, and the Contractor desires to join and assist the Ministry in achieving


these objectives and goals for the exploration for, and production of, the Hydrocarbon


resources within the Contract Area;


3. WHEREAS, the Contractor represents that it has the financial resources, technical


competence and professional skills necessary to carry out the Hydrocarbons Operations


hereinafter described;


4. WHEREAS, the Contractor acknowledges that it is fully familiar with the laws and


regulations of Afghanistan and that it has the means to maintain such familiarity during


the term of this Contract; and


5. WHEREAS, in accordance with the Hydrocarbons Law 2009 of Afghanistan,


Exploration and Production Sharing Contracts for Hydrocarbons may be entered into


between the Ministry and foreign or domestic contractors.





CONTRACT





NOW, THEREFORE, the Parties hereto hereby agree as follows:

















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ARTICLE I


DEFINITIONS & INTERPRETATION








Definitions. In this Contract, the following terms shall have the following meanings:


“Accounting Procedures” shall mean the accounting procedures set forth in Exhibit C.


“Affiliated Entity” shall mean any entity directly or indirectly controlling, controlled by


or under 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 the 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 be deemed to


constitute control).


“Appraisal Programme” shall mean the programme for appraising a Discovery


established pursuant Section 7.1.


“Appraisal Programme Budget” shall mean the estimate of the costs of all items


included in the corresponding Appraisal Programme, including both capital and operating


budgets, all in a form acceptable to the Ministry.


“Appraisal Well” shall mean a Well drilled following a Discovery for the purpose of


delineating the Hydrocarbons reservoir(s) to which the Discovery relates in terms of


thickness and lateral extent and estimating the quantity of recoverable Hydrocarbons


therein.


“Arm’s-Length Sales” shall mean sales made at arm’s length between willing and


unrelated buyers and sellers in exchange for cash, excluding sales involving barter, sales


from government to government and other transactions motivated in whole or in part by


considerations other than the usual economic incentives involved in sales of


Hydrocarbons in the international market.


“Associated Gas” shall mean Natural Gas that is produced in association with Liquid


Hydrocarbons.


“Barrel” shall mean a quantity or unit of Liquid Hydrocarbons equal to 158.9874 litres


(forty-two (42) United States gallons) at a temperature of sixty (60) degrees Fahrenheit


(15.56 degrees Centigrade) under one atmosphere of pressure.


“Baseline Environmental Assessment” shall mean a report containing a description of


the environment in the subject area prior to the commencement of Hydrocarbons


Operations, including the then existing flora and fauna, soil, air quality, underground and


surface water, landscape aesthetics, farming conditions, and socio-economic conditions in


local communities.











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“Bazarkhami Block” shall mean the geographical area delineated as such in Exhibit B.


“Block’' shall mean any of the Kashkari Block, the Bazarkhami Block and the


Zamarudsay Block, and each such block shall mean the aggregate, whether continuous or


non-continuous, of its geological formations.


“CNPCI” shall mean CNPC International, Ltd., a company organized and existing under


the laws of the Cayman Islands.


“Commercial Discovery” shall mean a discovery of Hydrocarbons which, as determined


in accordance with the provisions of Section 7.1, can be produced commercially, based


on consideration of all pertinent operating and financial data, such as Hydrocarbons


volumes, recoverable reserves, sustainable production levels and other relevant technical


and economic factors, according to International Best Practices.


“Contract” shall mean this Exploration and Production Sharing Contract, including all


Exhibits hereto, as the same may be amended from time to time.


“Contract Area” shall mean the area described as such in Exhibit A and delineated as


such in Exhibit B, including all three Blocks, as the same may be reduced by


relinquishments made in accordance with the terms of this Contract.


“Contractor” shall mean the limited liability company designated as such in the


preamble or any of its permitted successors or assigns.


“Cost Recovery Hydrocarbons” shall mean the Hydrocarbons received by the


Contractor in recovery of Hydrocarbons Operations Expenditures in accordance with the


provisions of Section 10.1(b).


“Customs Duties” shall mean all duties, taxes or imposts (except charges paid to the


Government for actual services rendered, such as normal handling and storage charges)


which are payable as a result of the importation or exportation of the item or items under


consideration in accordance with the classification and rates stated in the Customs Tariff.


“Customs Tariff’ shall mean the customs tariff enacted in accordance with the Customs


Law of Afghanistan, as amended or replaced and in effect from time to time, specifying


the tariff classification of goods in accordance with the Harmonized System of the World


Customs Organization and the rates to be used in assessing any corresponding import or


export duties thereon.


“Day” shall mean a calendar day.


“Delivery Point” shall mean the point or points at which Hydrocarbons reach the outlet


flange of the Hydrocarbon delivery facility as specified in the Development Programme,


or such other point or points as may be agreed by the Ministry and the Contractor.


“Designated Fields" shall mean the Kashkari Field, the Angot Field, the Aq Darya Field,


the Bazarkhami Field and the Zamarudsay Field, each as described in Exhibits A and B








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and as may be further delineated in accordance with the provisions of Section 7.1(k), as


to which a Commercial Discovery shall be deemed to exist as of the Effective Date.


“Development and Production Operations” shall mean all Etydrocarbons Operations in


and relating to a Field, including those conducted to facilitate the extraction of


Hydrocarbons.


“Development and Production Phase’' shall mean the period referred to in Section


3.1(b).


“Development Programme” shall mean the programme for developing a Field


established pursuant to Section 7.1.


“Development Programme Budget” shall mean the estimate of the costs of all items


included in the corresponding Development Programme, including both capital


investment requirements and operating budgets, operating costs and sales revenues, and


the anticipated type and source of financing, all in a form acceptable to the Ministry.


“Discovery ' shall mean a structure or accumulation or group of structures or


accumulations proved by drilling to be bearing Hydrocarbons, whether deemed to be


subject of commercial development or not, including any extension of a previous


Discovery.


“Effective Date' shall mean December 26, 2011.


“Environmental Impact Assessment” shall mean a report containing a description of


the ecosystem in the subject area prior to the commencement of Hydrocarbons


Operations, including the flora and fauna, soil, air quality, underground and surface


water, landscape aesthetics, and the aspects of the ecosystem which may be affected


qualitatively and quantitatively by the Hydrocarbons Operations, the effect of said


operations on local populations, if any, and the socio-economic conditions of those


individuals.


“Exploration Operations” shall mean geological studies, geochemical studies,


geophysical studies, aerial mapping, seismic surveys, investigations relating to the


subsurface geology including structure test drilling, stratigraphic test drilling, drilling of


Exploration Wells, and other related activities such as surveying, drill site preparation


and all work necessarily connected therewith, that is conducted in connection with


Hydrocarbons exploration.


“Exploration Phase” shall mean the period referred to in Section 3.1(a).


“Exploration Well” shall mean a Well drilled in the course of Exploration Operations,


where the target or objective of such well is outside or at a different depth of horizon of


the known accumulations.


“Field'' shall mean a Designated Field or other area, as designated by agreement between


the Ministry and the Contractor, relating to the same geological structures or








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accumulations, where a Commercial Discovery of Liquid Hydrocarbons or Natural Gas


has been declared.


“Financial Guarantee” shall mean a standby letter of guarantee in the amount


determined in accordance with Exhibit H.I, in the form attached hereto as Exhibit D or in


a reasonably similar form acceptable to the Ministry, issued by a first class international


bank acceptable to the Ministry.


“First Extension Period'’ shall have the meaning set forth in Section 3.1(a).


“Force Maieure” shall have the meaning set forth in Article XXX.


“Formula Price ’ shall mean, in the case of Liquid Hydrocarbons, the price determined


in accordance with the formula set forth in Section 11.1, and in the case of Natural Gas,


the price determined in accordance with Section 11.5.


“General Performance Guarantee" shall mean the guarantee by CNPCI of the


Contractor’s obligations hereunder, in the form attached hereto as Exhibit E, to be


executed and delivered to the Ministry simultaneously with the execution of this


Contract.


“Government” shall mean the Government of the Islamic Republic of Afghanistan.


“Gross Contractor Revenues” shall mean, as of any date, the aggregate value of Cost


Recovery Hydrocarbons (such value determined pursuant to Section 10.1(b)) and Net


Hydrocarbons (such value determined in accordance with the applicable Formula Price)


allocated to the Contractor up to such date in accordance with Section 10.1 and any other


proceeds derived from Hydrocarbons Operations as set forth in the Accounting


Procedures.


“Hydrocarbons” shall mean Liquid Hydrocarbons and Natural Gas.


“Hydrocarbons Law” shall mean the Hydrocarbons Law 2009 of Afghanistan, as


amended or replaced and in effect from time to time.


“Hydrocarbons Operations” shall have the meaning given to it in the Hydrocarbons


Law, but shall not include transportation of Hydrocarbons beyond the Delivery Point.


“Hydrocarbons Operations Expenditures” shall mean expenditures made in


conducting Hydrocarbons Operations hereunder, as determined in accordance with the


Accounting Procedures.


“Hydrocarbons Register” shall mean the registration of documents, reports and records


of Hydrocarbons established in accordance with Article 6 of the Hydrocarbons Law.


“Income Tax” shall mean the tax imposed on net income pursuant to the Income Tax


Law 2009 of Afghanistan, as amended or replaced and in effect from time to time.











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initial Commercial Production'’ shall mean, with respect to any Field, the date on


which the first regular shipment of Liquid Hydrocarbons or Natural Gas, or both, is made


from such Field under a programme of regular production hereunder.


“Initial Exploration Period” shall have the meaning set forth in Section 3.1(a).


“International Best Practices'’ shall mean such practices, methods, standards (such as


API, GB, BSI, etc.) and procedures generally accepted and followed internationally by


prudent, diligent, skilled and experienced operators in Hydrocarbons Operations,


including practices, methods, standards and procedures intended to (a) conserve


Hydrocarbons by maximizing the recovery of Hydrocarbons in a technically and


economically sustainable manner, with a corresponding control of reserves decline and


minimization of losses at the surface; (b) promote operational safety and prevention of


accidents; and (c) protect the environment by minimizing the impact of Hydrocarbons


Operations thereon.


“Kashkari Block” shall mean the geographical area delineated as such in Exhibit B.


“Licence" shall mean the licence certifying that the Contractor holds this Exploration and


Production Sharing Contract and is therefore entitled to conduct Hydrocarbons


Operations within the Contract Area.


“Liquid Hydrocarbons" shall mean crude mineral oil, asphalt and all other kinds of


hydrocarbons and bitumen, regardless of gravity, which are produced at the wellhead in a


liquid or solid state at ambient conditions of temperature and atmospheric pressure, or


which are extracted from Natural Gas by condensation.


“Maximum Efficient Rate” shall mean the maximum rate of production of Liquid


Hydrocarbons in a Field, without excessive rate of decline of production or excessive loss


of reservoir pressure, and in accordance with International Best Practices and the


provisions of Section 7.2(b).


“Minimum Exploration Programme" shall mean the minimum work commitment for


Exploration Operations undertaken by the Contractor during the Exploration Phase as set


forth in Part I of Exhibit H.


“Minimum Production Requirements’* shall mean the minimum cumulative production


requirements from each of the Designated Fields as set forth in Part II of Exhibit H, as


may be amended by written agreement of the Parties.


“Month" shall mean a calendar month.


“Natural Gas" shall mean any Hydrocarbons which at specified atmospheric conditions


of temperature and pressure are found in a gaseous state, and includes dry mineral gas,


including coal-based methane, wet gas and residue gas remaining after the extraction,


processing or separation of Liquid Hydrocarbons from wet gas, as well as non-


Hydrocarbon gas or gases produced in association with liquid or gaseous Hydrocarbons;














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including the residue gas remaining after the condensation of Liquid Hydrocarbons, but


excluding condensed or extracted Liquid Hydrocarbons.


“Net Hydrocarbons” shall mean, for any Month, the total quantity of Hydrocarbons


produced and saved in such Month and not used in Hydrocarbons Operations or flared or


re-injected into the Contract Area, after deduction of the Royalty and the Cost Recovery


Hydrocarbons.


“Net Taxable Income” shall mean net taxable income as determined in accordance with


the provisions of the Income Tax Law 2009 of Afghanistan, as amended and in effect


from time to time.


“Non-Associated Gas” shall mean Natural Gas that is produced without association with


Liquid Hydrocarbons or in association with Liquid Hydrocarbons that cannot be


produced commercially.


“Parties" shall mean the Ministry and the Contractor and their permitted successors and


assigns.


“Person-in-Charge” shall mean a competent person appointed by the Contractor to be in


charge of all Hydrocarbons Operations hereunder.


“Quadrant” shall mean the area demarcated by five (5) minutes of longitude and five (5)


minutes of latitude. Quadrants containing known hydrocarbon accumulations are


identified in Exhibits A and B.


“Quarter” shall mean a period of three (3) consecutive Months commencing with the


first day of January, April, July or October of any Year.


“RGIIP” means Natural Gas initially in place and having a reasonable certainty of being


recoverable under existing economic and political conditions, using existing technology.


“ROUP” means Liquid Hydrocarbons initially in place and having a reasonable certainty


of being recoverable under existing economic and political conditions, using existing


technology.


“Royalty” shall mean, with respect to any Month, fifteen percent (15%) of the


Hydrocarbons produced and saved in such Month from the Contract Area and not used in


Hydrocarbons Operations or flared or re-injected into the Contract Area, which is


allocated to the Ministry before allocation to the Contractor of the Cost Recovery


Hydrocarbons, all as set forth in Article X.


“Second Extension Period” shall have the meaning set forth in Section 3.1(a).


“State” shall mean the Islamic Republic of Afghanistan.


“U.S. Dollars” or “US$” shall mean the lawful currency of the United States of America.














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“Watan" shall mean Watan Oil and Gas Limited, a company organized and existing


under the laws of Afghanistan.


“Weir shall mean any opening in the ground made or being made by drilling or boring,


or in any other manner, for the purpose of exploring for and/or producing Hydrocarbons,


or for the injection of any gas or fluid into an underground deposit, other than a seismic


hole or a stratigraphic test hole.


“Work Programme" shall mean the quarterly or annual work programme prepared by


the Contractor pursuant to Section 5.3, as applicable, itemizing the Hydrocarbons


Operations to be carried out in the Contract Area during the specified period.


“Work Programme Budget” shall mean the estimate of the cost of all items included in


the corresponding Work Programme, including both capital and operating budgets, all in


a form acceptable to the Ministry.


“Year'' shall mean a period of twelve (12) consecutive Months, commencing January 1st


and ending December 31st, except that the first Year shall begin on the Effective Date


and end on December 31,2012.


“Zamarudsav Block” shall mean the geographical area delineated as such in Exhibit B.


1.2 Interpretation. Unless the context otherwise requires:


(a) the word “including" means including, without limitation; words in the singular


include the plural and words in the plural include the singular; and the words


“hereof, “herein” and “hereunder” refer to this Contract as a whole;


(b) references herein to Articles, Sections and Exhibits are to the Articles, Sections


and Exhibits of this Contract;


(c) the headings of this Contract are included for purposes of convenience only and


are not to be used in the interpretation of this Contract; and


(d) any agreement, instrument or statute defined or referred to herein or in any


instrument or certificate delivered in connection herewith means such agreement,


instrument or statute as from time to time amended, modified, supplemented or


replaced.





ARTICLE II


GRANT OF RIGHTS TO THE CONTRACTOR





2.1 Exclusive Rights. Subject to the terms and conditions set forth in this Contract, the


Ministry grants to the Contractor the exclusive right to conduct Hydrocarbons


Operations within the Contract Area for the duration of this Contract. The Contractor


shall acquire a share of extracted Hydrocarbons as set out herein and shall, except as











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provided in Sections 12.1, 12.3 and 12.5, have the right, during the term of this


Contract, to freely take, sell and export such share.


2.2 Sole Risk, Cost and Expense. Except as otherwise expressly provided in this Contract,


the Contractor shall conduct all Hydrocarbons Operations hereunder at its sole risk, cost


and expense. The Contractor shall look only to the Hydrocarbons to which it is entitled


under this Contract to recover such costs and expenses, and such Hydrocarbons shall be


the Contractor's sole source of compensation for Hydrocarbons Operations hereunder.


2.3 Independent Contractor. The Contractor shall be responsible to the Ministry for the


execution of all Hydrocarbons Operations in accordance with the provisions of this


Contract. Without prejudice to the Contractor’s position as an independent contractor


hereunder, the extent and character of such work to be done by the Contractor shall be


subject to the general supervision, review and approval of the Ministry, to which the


Contractor shall report and be responsible as set forth herein and in the applicable


legislation and regulations.


ARTICLE III


TERM


3.1 Parts of Contract Area Outside of Designated Fields. The following provisions shall


apply to all parts of the Contract Area outside of the Designated Fields:


(a) The Contractor is authorised to conduct Exploration Operations during an


Exploration Phase, which shall be comprised of (i) an initial exploration period of


four (4) Years and six (6) Months (“Initial Exploration Period”) commencing on


the Effective Date, and (ii) subject to the conditions hereinafter provided, two (2)


successive extension periods (“First Extension Period” and “Second Extension


Period”) of two (2) Years each. Such extension periods shall be granted to the


Contractor upon the Contractor’s request delivered to the Ministry not later than


ninety (90) Days prior to the expiration of the then current period, subject to the


Contractor having fulfilled its obligations under this Contract for the then current


period, including the relinquishment provisions of Article IV, and having


submitted with such application a Work Programme and Work Programme


Budget, as well as a Financial Guarantee for an amount equal to the estimated


expenditures associated with the Minimum Exploration Programme for the period


of extension, all of which is to be consistent with the undertakings set forth in


Article VI.


(b) If a Commercial Discovery is made, the Contractor shall commence Development


and Production Operations (the “Development and Production Phase”) in respect


of the Field where such Commercial Discovery has occurred, subject to the


Ministry's approval of a Development Programme and Development Programme


Budget in accordance with Section 7.1(h)(ii).














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(c) If at the end of the Exploration Phase, no Commercial Discovery has been made


in any part of the Contract Area outside of the Designated Fields, this Contract


shall automatically terminate for all parts of the Contract Area other than the


Designated Fields, provided that the Ministry undertakes to grant an extension for


such period, and for such area as may be necessary (i) for the Contractor to


complete the drilling, testing, appraisal or plugging of any Well actually being


drilled, tested, appraised or plugged at the end of the Exploration Phase and (ii)


for the Ministry and the Contractor to determine that a Discovery resulting from


such a Well is a Commercial Discovery pursuant to Section 7.1.


(d) In the event of a Commercial Discovery, the extent of the area capable of


production of Hydrocarbons from the formation or formations so identified shall


be determined in accordance with the provisions of Section 7.1 or Article XV.


The area so determined shall thereupon be converted automatically into a Field,


with effect from the date of the declaration of the Commercial Discovery. The


term of the Development and Production Phase for each Field shall extend for a


maximum of twenty-five (25) years from the date the Discovery was made.


(e) In the event that the Contractor has fulfilled all its obligations for the specified


term of the Contract, the Contractor may request an extension of the Development


and Production Phase for a further period not exceeding ten (10) years. The


Ministry shall consider any such request in accordance with the provisions of the


Hydrocarbons Law.


3.2 Designated Fields. In the case of the Designated Fields, the duration of this Contract


shall not exceed twenty-five (25) years from the Effective Date.


ARTICLE IV


RELINQUISHMENT


4.1 Exploration Phase. During the Exploration Phase, the Contractor shall relinquish to


the Ministry parts of the original Contract Area as follows:


(a) subject to Section 4.1(d), on or before the end of the Initial Exploration Period,


the Contractor shall relinquish at least twenty percent (20%) of the original area


of each Block that has not been converted into a Field; provided, however, that for


each Block in which the Contractor has not drilled at least one (1) Exploration


Well, the Contractor shall relinquish at least fifty percent (50%) of the original


area of such Block that has not been converted into a Field;


(b) subject to Section 4.1(d), on or before the end of the First Extension Period, the


Contractor shall relinquish at least an additional area equal to twenty percent


(20%) of the remaining area of each Block that has not been converted into a


Field; provided, however, that for each Block in which the Contractor has not


drilled at least one (1) Exploration Well during the First Extension Period or at











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least two (2) Exploration Wells during the Initial Exploration Period, the


Contractor shall relinquish at least fifty (50%) of the remaining area of such


Block that has not been converted into a Field;


(c) subject to Section 4.1(d), at the end of the Exploration Phase, the Contractor shall


relinquish the remainder of each Block that has not been converted into a Field or


has not had a Discovery which is under evaluation for development; and


(d) the provisions of this Section 4.1 shall not be read or construed as requiring the


Contractor to relinquish any portion of the Contract Area corresponding to a


Discovery that has been converted to a Field or is under evaluation for


development.


4.2 Size and Shape of Relinquished Areas. The size and shape of the part or parts of the


Contract Area to be relinquished shall be determined by the Contractor; provided,


however, that:


(a) the Contractor shall advise the Ministry at least ninety (90) Days prior to the date


of relinquishment which parts of the Contract Area the Contractor wishes to


relinquish;


(b) the Contractor shall consult with the Ministry regarding the shape and size of each


individual portion of the areas being relinquished; and


(c) unless the Ministry expressly allows otherwise, the area being relinquished shall


not be divided into more than two portions per Block, each of which shall


comprise, and be defined by reference to, graticular sections as described in


Exhibit B, save where no such area or areas can be identified for relinquishment


in accordance with this Section without including in such area or areas in whole


or in part a Field or area in which a Discovery has been made which the


Contractor is not otherwise required to relinquish hereunder. Each such


relinquished individual portion shall be not less than twenty percent (20%) of the


area in the Block in question being relinquished at such time with sides parallel to


the boundaries of such Block, to the extent that the boundaries of such Block


permit, and with the longest side not more than three times as long as the shortest


side, and shall in any event be of sufficient size and convenient shape to enable


Hydrocarbons Operations to be conducted thereon.


4.3 Voluntary Relinquishment. The Contractor shall have the right to relinquish all or any


part of the Contract Area upon at least ninety (90) Days written notice to the Ministry.


In the event of partial relinquishment pursuant to this Section 4.3, the area relinquished


shall be credited against that portion of the Contract Area which the Contractor is next


required to relinquish pursuant to Section 4.1.


4.4 Compliance with Obligations. No relinquishment made in accordance with this


Article IV shall relieve the Contractor of: (a) its obligation to make payments due as a


result of surface rental fees incurred prior to the date of any such relinquishment; (b) its


obligation to comply with the Minimum Exploration Programme and Minimum








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Production Requirements; or (c) any other obligation which may have accrued prior to


the date of relinquishment.


4.5 Clean-up and Restoration. Upon relinquishment of any area, the Contractor shall


perform all necessary clean-up activities and undertake all necessary restoration


measures in accordance with International Best Practices and the prevailing legislation,


and shall take all other action necessary to prevent hazards to the environment, flora and


fauna, the local community, human health and life or third-party property.








ARTICLE V





GENERAL OBLIGATIONS OF THE CONTRACTOR





5.1 Conduct of Hydrocarbons Operations. The Contractor shall be responsible for


conducting all Hydrocarbons Operations within the Contract Area diligently,


expeditiously and efficiently in accordance with International Best Practices and the


prevailing legislation and pursuant to Work Programmes and Work Programme Budgets


approved in accordance with Section 5.3. Without limiting the generality of the


foregoing, the Contractor shall:


(a) advance all necessary funds and purchase or lease all technology, equipment,


machinery, materials and supplies required to be purchased or leased in


connection with Hydrocarbons Operations and furnish all other funds for the


performance of Hydrocarbons Operations as may be required, including payment


to third parties that perform services as contractors or subcontractors to the


Contractor;


(b) furnish all technical expertise and assistance, including foreign personnel,


required for the conduct of Hydrocarbons Operations;


(c) ensure that all equipment, materials, supplies, plant and installations used by the


Contractor, its contractors and subcontractors comply with International Best


Practices and are of proper construction and kept in good working order;


(d) ensure that all Exploration Wells with significant shows of Hydrocarbons are


properly tested;


(e) engage one or more internationally recognized, unaffiliated third parties through a


competitive bidding process to provide at least sixty percent (60%) of the Well


tests and at least sixty percent (60%) of the wireline logs within the Designated


Fields for the first two (2) Years. (The Parties agree that the Contractor may


amend its procurement program to accomplish the above commitment);


(f) use the resources in the Contract Area as productively as practicable, prevent


damage to producing formations, and ensure that Hydrocarbons discovered,


drilling fluids, mud or any other waste (solid or fluid) do not escape and are not


wasted;











12


 Amu Darya Basin EPSC





(g) use its best efforts to prevent damage to Hydrocarbon and water-bearing strata


that are adjacent to a producing formation, and prevent water from entering any


strata-bearing Hydrocarbons, except where water injection methods are used for


enhanced recovery operations or are intended otherwise in accordance with


International Best Practices;


(h) take all measures in accordance with International Best Practices to (i) protect the


environment such as to minimise any damage to flora and fauna and any other


pollution of the environment in accordance with applicable law, (ii) avoid flaring


of Natural Gas unless expressly authorised by the Ministry and (iii) secure the


safety, health and welfare of persons engaged in Hydrocarbons Operations and the


public;


(i) to the extent possible, prevent or mitigate any risks arising from Hydrocarbons


Operations;


(j) comply with laws relating to employment when employing domestic or foreign


staff, provide acceptable working conditions and living accommodations, and


access to medical attention and nursing care, for all personnel employed by it, its


contractors and its subcontractors in Hydrocarbons Operations, and otherwise


ensure that international norms related to labour, social protection and human


rights are respected and that no child labour or forced labour is used in connection


with Hydrocarbons Operations;


(k) comply with the applicable environmental laws and regulations of Afghanistan;


and


(l) have no less than four (4) drilling rigs (or drilling/service rigs) or three (3) drilling


rigs (or drilling/service rigs) and one set of 2D (or 3D) seismic equipment in the


Contract Area no later than December 31, 2012, and if the Contractor complies


with this Section 5.1(1), its taxable income shall be subject to the then prevailing


Income Tax rate for the term of the Contract, without stabilization.


The Contractor Representatives. The Contractor shall appoint and notify the Ministry


of the name of a Person-in-Charge, who shall ensure to the best of his ability that he and


all workers in his charge know and comply with all relevant laws and regulations, and


with any safety manual that is applicable to the operations under his control.


Appointment of the Person-in-Charge shall be done prior to commencement of the


Hydrocarbons Operations and the Ministry shall be notified of the name and address of


that person as soon as possible thereafter. Furthermore, the Contractor shall appoint and


notify the Ministry of the names of a legal representative and an alternate legal


representative. The representative and the alternate legal representative shall have an


office in an adequate location in Afghanistan for exercising the tasks of such


representatives, be residents in Afghanistan with legal address and have full authority to


represent the Contractor for all purposes of this Contract. Notification of


representatives and the Person-in-Charge is to be made within thirty (30) Days after the


Effective Date. In the event of replacement of such representatives and/or Person-in-


 Amu Darya Basin EPSC





Charge, such replacement shall be similarly notified to the Ministry upon the effective


date of the replacement.








5.3 Work Programmes and Budgets.


(a) The Contractor shall prepare and submit to the Ministry for approval the


following Work Programmes and Work Programme Budgets for Hydrocarbons


Operations and Hydrocarbons Operations Expenditures within the time periods


specified:


(i) no later than one (1) month after the Effective Date, a quarterly Work


Programme and Work Programme Budget for the period beginning on the


Effective Date and ending on March 31,2012;


(ii) no later than February 29, 2012, a quarterly Work Programme and Work


Programme Budget for the period beginning on April 1, 2012 and ending


on June 30, 2012;


(iii) no later than May 31, 2012, a quarterly Work Programme and Work


Programme Budget for the period beginning on July 1, 2012 and ending


on September 30, 2012;


(iv) no later than August 31, 2012, a quarterly Work Programme and Work


Programme Budget for the period beginning on October 1, 2012 and


ending on December 31, 2012; and


(v) at least ninety (90) Days prior to the beginning of each Year commencing


on or after January 1, 2013, an annual Work Programme and Work


Programme Budget for Hydrocarbons Operations and Hydrocarbons


Operations Expenditures by Quarter, setting forth the Hydrocarbons


Operations the Contractor proposes to carry out during the ensuing Year.


(b) Notwithstanding any other provision of this Contract, each respective Work


Programme and Work Programme Budget prepared and submitted pursuant to


Section 5.3(a) shall include the quarterly forecast statement described in Section


7.2(c), the quarterly estimates described in Section 10.3, and the portion of the


annual training programmes described in Sections 20.1 and 20.2 to be carried out


during the period covered by the Work Programme and Work Programme Budget.


The Ministry and the Contractor shall promptly agree on each Work Programme


and Work Programme Budget submitted pursuant to Section 5.3(a).


(c) To the maximum extent practicable, the Contractor shall involve representatives


of the Ministry in the preparation of the Work Programmes and Work Programme


Budgets.














14


 Amu Darya Basin EPSC





(d) Each Work Programme and Work Programme Budget shall comply with the


Minimum Exploration Programme and the Minimum Production Requirements,


as well as with International Best Practices and the prevailing legislation and


regulations.


(e) Approval by the Ministry of the proposed Work Programmes and Work


Programme Budgets will not be unreasonably withheld or delayed.


(f) Should the Ministry wish to propose revisions to the annual Work Programme or


Work Programme Budget, it shall within thirty (30) Days after receipt thereof so


notify the Contractor, specifying in reasonable detail its reasons therefor.


Promptly thereafter, the Parties shall meet and endeavour to agree on the revisions


proposed by the Ministry.


(g) If the Contractor and the Ministry fail to agree upon any revisions proposed by the


Ministry within sixty (60) Days of the receipt of the Contractor’s proposals, the


points of disagreement shall be resolved as follows:


(i) with respect to annual Work Programmes and Work Programme Budgets


that relate to Exploration Operations, the Contractor’s proposals, revised


in accordance with any agreed amendments or additions thereto, shall be


deemed adopted, provided that they are in compliance with Section 5.3(d);


and


(ii) with respect to annual Work Programmes and Work Programme Budgets


that relate to Development and Production Operations, the Contractor’s


proposals, revised in accordance with any agreed amendments or additions


thereto, shall be deemed adopted provided that they are consistent with the


Development Programme and Development Programme Budget adopted


pursuant to Section 7.1 (h)(ii) or Section 7.1(k), as applicable, and are in


compliance with Section 5.3(d).


(h) The Parties recognize that the details of a Work Programme may require changes


in light of the then prevailing circumstances. In such event, the Contractor may


introduce such changes as may be necessary, following consultation with the


Ministry, but subject to the following:


(i) in the case of changes to a Work Programme and Work Programme


Budget relating to Exploration Operations, such changes may be


implemented provided that compliance with Section 5.3(d) is maintained;


(ii) in the case of changes to a Work Programme and Work Programme


Budget relating to Development and Production Operations, such changes


may be implemented to the extent that they are not inconsistent with the


applicable Development Programme and Development Programme


Budget adopted pursuant to Section 7.1 (h)(ii) or Section 7.1 (k), as


applicable, and compliance with Section 5.3(d) is maintained.


_i& V 15


 Amu Darya Basin EPSC





Drilling Operations.


(a) The Contractor is required to design Wells and conduct drilling operations,


including the casing, cementing and plugging of Wells, in accordance with


International Best Practices.


(b) Every Well in the Contract Area shall be identified by name, number and


geographic co-ordinates, which shall be shown on maps, plans and similar records


that the Contractor shall keep and submit to the Hydrocarbon Data Bank.


(c) Prior to commencing the drilling of any Well or re-entering any Well on which


work has been discontinued for more than ninety (90) Days, the Contractor shall


give the Ministry written notice no later than seven (7) Days before such work


shall commence and submit a proposed Well programme. The proposal shall


include the following information:


(i) the official name and number of the Well and a description of its precise


location by reference to geographical coordinates;


(ii) a detailed work programme describing the drilling technique to be


employed and all ancillary operations (including casing, cementing, mud,


coring, logging, Well control and testing), an estimate of the time to be


taken and depth objective, the estimated costs of the Well programme, and


the safety measures to be employed in the drilling of the Well;


(iii) a summary of the geological and geophysical data, and any interpretations


thereof, upon which the Contractor made the decision to drill or


commence work on the respective Well (accompanied by appropriate


maps and cross-sections);


(iv) the name of the drilling contractor, if applicable, and designation of the


drilling rig; and


(v) the name of other service companies to be employed, together with a brief


description of the equipment and services, if applicable, to be provided.


(d) In case any work related to any Well is suspended for a period exceeding thirty


(30) Days, the Contractor shall notify the Ministry in writing to that effect.


(e) The Contractor shall give forty-eight (48) hours notice in writing before


recommencing work on any Well on which work has been suspended for more


than thirty (30) Days but for less than ninety (90) Days.


(f) The Contractor shall not, without the prior written approval of the Ministry, drill


any Well from any surface area within the Contract Area which is less than five


hundred (500) meters from a boundary of the Contract Area, or from within the


Contract Area through any vertical boundary of the Contract Area.











16


 Amu Darya Basin EPSC





(g) The Contractor shall securely plug and clearly mark any Well that it abandons, in


accordance with International Best Practices, to prevent pollution and damage to


the deposit and underground strata through the entry of water or otherwise. The


Contractor shall, except when the Ministry otherwise directs or this Contract


otherwise provides, remove all equipment, materials and facilities relating thereto


and provide that cemented strings or other forms of casing shall not be withdrawn


without the written approval of the Ministry.


(h) In relation to every Well being drilled, completed, tested or abandoned, the


Contractor shall submit to the Ministry daily well reports during the conduct of


drilling operations describing the progress and results of the operations. In


addition, the Contractor shall submit a Well completion report accompanied by


copies of all logs obtained from the Well within two (2) Months from the date of


rig release of a Well.


(i) The Contractor shall, within one hundred and eighty (180) Days of the completion


of any survey, test or drilling operations, or, in the case of data that cannot


reasonably be obtained or compiled in that period, as soon as possible thereafter,


submit to the Ministry copies of all geological and geophysical data obtained by


the Contractor in the course of conducting Hydrocarbons Operations, including


any interpretations thereof and logs and records of Wells.


(j) The Contractor shall drill each Exploration Well to the depth set forth in the Well


programme, unless:


(i) formation is encountered at a lesser depth than originally anticipated;


(ii) basement is encountered at a lesser depth than originally anticipated;


(iii) in the Contractor’s reasonable opinion, continued drilling of the


Exploration Well is too hazardous because of abnormal or unforeseen


conditions;


(iv) it is impractical to continue drilling because insurmountable technical


problems have been encountered;


(v) Hydrocarbons formations have been encountered, penetration of which


will require laying protective casing as a consequence of which the


Exploration Well cannot be drilled to the depth required by the Well


programme; or


(vi) the Ministry and the Contractor agree in writing to terminate the drilling


operation in respect of the Exploration Well.


(k) If the Contractor determines it is reasonable to stop drilling pursuant to Section


5.4(j), it will notify the Ministry immediately and a determination will be made


jointly as to whether to amend the Work Programme, the Minimum Exploration


Programme and Well programme accordingly to:








17


 Amu Darya Basin EPSC








(i) enable successful completion of the Exploration Well;


(ii) substitute another Exploration Well; or


(iii) determine an alternative solution acceptable to the Parties.


In the event the Parties elect to substitute another Exploration Well pursuant to


Section 5.4(k)(ii), the amount guaranteed under the Financial Guarantee shall be


reduced by the cost of the abandoned Exploration Well.


Reports on Hydrocarbons Operations. The Contractor shall keep the Ministry


regularly and fully informed of the progress and results of all Hydrocarbons Operations


and shall provide the Ministry with all geologic information, data, samples,


interpretations and reports, including progress and completion reports, and keep such


original data, records and full particulars at its registered office in Afghanistan, which


are required under this Contract, the Hydrocarbons Law or applicable regulations.


Other Minerals.


(a) If, in the course of Hydrocarbons Operations, the Contractor discovers minerals


other than Hydrocarbons in the Contract Area that are of economic value and are


capable of being developed, it shall within thirty (30) Days inform the Ministry of


the minerals discovered, their location and such other information as the Ministry


may reasonably request and in addition submit a sample of the discovered


minerals to the Ministry.


(b) If, after the Effective Date, others are granted licences within the Contract Area


authorizing prospecting for, exploration for or mining of any minerals or other


substances other than Hydrocarbons, or the Ministry proceeds with such


prospecting, exploration or mining directly in its own behalf, the Contractor shall


afford proper passage for the licensee of mineral rights to the relevant parts of the


Contract Area, and use its best efforts to avoid obstruction or interference with


such licensees' or Ministry operations within the Contract Area. The Ministry


shall use its best efforts to ensure that operations of third parties do not obstruct or


interfere with the Hydrocarbons Operations within the Contract Area.


Historic and Cultural Items.


(a) If, in the course of Hydrocarbons Operations, the Contractor Finds signs or marks


or discovers items of any historical or cultural significance, including fossils and


other items included on the Archaeological and Cultural Heritage list, it shall


immediately inform the Ministry of the find or discovery.


(b) The Contractor undertakes not to remove any such items as mentioned above.


The Contractor undertakes to keep any such items safe on its own account on


behalf of the State until they are transported by the relevant State authorities.


However, in case such transportation is not provided by the State within sixty (60)


 Amu Darya Basin EPSC





Days of reporting, the subsequent expenses shall be borne by the relevant State


authority.





ARTICLE VI





COMMENCEMENT OF HYDROCARBONS OPERATIONS





6.1 Commencement of Hydrocarbons Operations. The Contractor shall commence


Hydrocarbons Operations hereunder not later than thirty (30) Days after the date that the


Ministry approves the first Work Programme and Work Programme Budget.


6.2 Baseline Environmental Assessment. Prior to commencing Hydrocarbons Operations


in any Designated Field or other area of a Block outside a Designated Field, the


Contractor shall carry out a Baseline Environmental Assessment to determine the then


prevailing situation relating to the environment, social conditions, local communities,


farming and wildlife (flora and fauna) in such Designated Field or other area.


6.3 Minimum Exploration Programme. The Contractor undertakes to carry out and


comply with the work commitments established by the Minimum Exploration


Programme. The amount estimated to be expended by the Contractor in conducting the


Minimum Exploration Programme is set forth in Part I of Exhibit H.


6.4 Minimum Production Requirements. The Contractor undertakes to meet the


Minimum Production Requirements set forth in either Option 1 or Option 2 of Part II of


Exhibit H. The Contractor shall notify the Ministry in writing of its election of either


Option 1 or Option 2 not later than six (6) Months following the Effective Date. The


Contractor's election, once made, shall be irrevocable. The Ministry shall on the


Effective Date or as soon as practicable thereafter provide to the Contractor all


geological, geophysical, geographical, drilling, Well, production and other information,


including Well location maps relating to the Contract Area in its possession on the


Effective Date. If after performing reasonable investigation in a Designated Field,


including the services listed in Section 5.1(e), and conducting reservoir evaluations, the


Contractor considers that it would not be possible to meet the Minimum Production


Requirements, the Contractor shall notify the Ministry within ten (10) Days following


such evaluation and the Parties shall meet as soon as reasonably practicable to agree on


revised Minimum Production Requirements. In the event that no agreement is reached


between the Ministry and the Contractor within thirty (30) Days following their initial


meeting, the Ministry or the Contractor may refer the matter for expert determination


pursuant to Section 24.3. In the event the Parties fail to resolve the matter by expert


determination, the matter shall proceed to arbitration in accordance with Section 24.1.


The determination in accordance with Section 24.1 shall be final. Notwithstanding any


such evaluation by the Contractor, the Contractor shall continue with Hydrocarbons


Operations in accordance with the applicable Work Programme and Work Programme


Budget as expeditiously as possible. In the event that the Contractor fails to meet the


Minimum Production Requirements by twenty percent (20%) or less in any Field, the


Contractor shall have the option to make a financial settlement with the Ministry.











19


 Amu Darya Basin EPSC





ARTICLE VII


DISCOVERY; DEVELOPMENT AND PRODUCTION








Discovery; Development.


(a) The Contractor shall immediately notify the Ministry in writing of any Discovery,


specifying all pertinent information concerning the Discovery and submitting a


sample of the Hydrocarbons discovered to the Ministry.


(b) If the Contractor determines to conduct a drill-stem or production test, in open


hole or through perforated casing, with regard to the Discovery, it shall notify the


Ministry of the time of such test at least forty-eight (48) hours prior to the


proposed test, and the Ministry shall have the right to have a representative


present during such test. Not later than one hundred and twenty (120) Days after


completion of such test, the Contractor shall complete its analysis and


interpretation of the resulting data and submit a report to the Ministry, which shall


contain copies of such data and its analysis and interpretation thereof, and which


shall also contain a written notification of whether or not, in the Contractor’s


opinion, such Discovery is of commercial interest. If the Contractor plugs and


abandons the Well which encountered such Discovery without conducting a drill-


stem or production test, or fails to conduct a drill-stem or production test within


one hundred and eighty (180) Days from the date on which such Discovery was


made, it shall be deemed to have notified the Ministry that, in the Contractor’s


opinion, such Discovery is not of commercial interest.


(c) If, pursuant to Section 7.1(b), the Contractor notifies, or is deemed to have


notified, the Ministry that such Discovery is not of commercial interest, the


Ministry shall have the option, exercisable by notice in writing to the Contractor,


to require the Contractor to relinquish the area corresponding to such Discovery


and forfeit any rights relating to such Discovery and any production therefrom;


provided, however, that for any Discovery made during the Initial Exploration


Period or any extension thereof, the Ministry shall not exercise such option until


the end of such period and shall not require the Contractor to relinquish the area


corresponding to any Discovery that has been converted to a Field during such


period or is under evaluation for development. The area subject to relinquishment


shall not exceed the vertical projection to the surface of the prospective producing


area determined by taking into account the area of the structural closure of the


prospective horizon and other relevant technical factors.


(d) If, pursuant to Section 7.1(b), the Contractor notifies the Ministry that the


Discovery is of commercial interest, the Contractor shall within ninety (90) Days


prepare and submit to the Ministry for approval an Appraisal Programme and an


Appraisal Programme Budget for the appraisal of such Discovery. Such


Appraisal Programme and Appraisal Programme Budget shall include a complete


programme of appraisal operations necessary to determine whether such


Discovery is a Commercial Discovery.


 Amu Darya Basin EPSC





(e) Within thirty (30) Days after the submission of the Appraisal Programme and


Appraisal Programme Budget pursuant to Section 7.1(d), the Contractor and the


Ministry shall meet with a view to adopting such Appraisal Programme and


Appraisal Programme Budget or mutually agreeing upon amendments or


additions thereto. Failing agreement between the Contractor and the Ministry as


to such Appraisal Programme and Appraisal Programme Budget at such meeting,


or within twenty (20) Days thereafter, the original Appraisal Programme and


Appraisal Programme Budget submitted by the Contractor, revised in accordance


with any agreed amendments or additions thereto, shall be deemed adopted,


provided that it conforms to International Best Practices and the applicable


legislation and regulations, and the Contractor shall immediately commence


implementation thereof. On adoption of the Appraisal Programme and Appraisal


Programme Budget, the Work Programme and Work Programme Budget adopted


pursuant to Section 5.3 shall be revised accordingly.


(f) If, pursuant to Section 7.1(b), the Contractor has notified the Ministry that the


Discovery is of commercial interest, it shall, unless otherwise agreed:


(i) in respect of a Discovery of Liquid Hydrocarbons, advise the Ministry by


notice in writing whether or not in its opinion the Discovery is a


Commercial Discovery within a period of twelve (12) Months from the


date on which the Contractor notified the Ministry that the Discovery was


of commercial interest; and


(ii) in respect of a Discovery of Non-Associated Gas, advise the Ministry by


notice in writing whether or not in its opinion the Discovery is a


Commercial Discovery within such period as may be stipulated in an


agreement made pursuant to Article XV with respect to such Discovery or,


in the absence of such agreement, within twenty-four (24) Months from


the date on which the Contractor notified the Ministry that the Discovery


was of commercial interest.


(g) If the Contractor notifies the Ministry that the Discovery is not a Commercial


Discovery, or fails to notify the Ministry that the Discovery is a Commercial


Discovery, within the periods prescribed in Sections 7.1(f)(i) and (f)(ii), the


Ministry shall have the option, exercisable by notice in writing to the Contractor,


to require the Contractor to relinquish the area corresponding to such Discovery


and forfeit any rights relating to such Discovery and any production therefrom;


provided, however, that for any Discovery made during the Initial Exploration


Period or any extension thereof, the Ministry shall not exercise such option until


the end of such period and shall not require the Contractor to relinquish the area


corresponding to any Discovery that has been converted to a Field during such


period or is under evaluation for development. The area subject to relinquishment


shall not exceed the vertical projection to the surface of the prospective producing


area determined by taking into account the area of structural closure of the


prospective horizon and other relevant technical factors.














21


 Amu Darya Basin EPSC





(h)


(i)


The notice submitted to the Ministry by the Contractor pursuant to


Sections 7.1 (f)(i) and (f)(ii) shall be accompanied by a report on the


Discovery setting forth all relevant technical and economic data, including


geological and geophysical information, areas, thicknesses and extent of


the productive strata, petrophysical properties of the reservoir formations,


the reservoir’s productivity indices for the Wells tested at various rates of


flow, permeability and porosity of the reservoir formations, the relevant


characteristics and qualities of the Hydrocarbons discovered, additional


geological data and evaluations of the reservoir, Liquid Hydrocarbons and


Natural Gas reserves estimates and any other relevant characteristics and


properties of the reservoirs and fluids contained therein, as well as all


evaluations, interpretations and analyses of such data and feasibility


studies relating to the Discovery prepared by the Contractor, its


contractors, subcontractors and their respective Affiliated Entities.





In addition, if the Contractor believes that the Discovery is commercial, a


proposed Development Programme and a Development Programme


Budget for the development of such Discovery shall be submitted to the


Ministry for approval together with the report described in Section


7.1(h)(i). The Development Programme and the Development Programme


Budget shall include the following information:


a. a description and map of the area that contains such Discovery and


that the Contractor proposes to delineate as a Field. The map


should be defined by reference to graticular sections and


geological formations;


b. a detailed report, accompanied by supporting data and all analyses





and interpretations thereof, which demonstrates that the area


described in item (a) above contains, alone or in conjunction with


other areas, as the case may be, a Commercial Discovery;


c. detailed proposals for commencement and a working plan for the


operation of the Hydrocarbons Operations, including drilling


schedules, number of Wells and Well spacing, production forecasts


and a timing schedule in accordance with generally accepted


engineering practices and economics of the international petroleum


industry;


d. detailed proposals for the construction, establishment and


operation of all facilities and services for and incidental to the


development, extraction, production, storage, transportation, sale


and other disposal of Hydrocarbons and a proposed timetable for


the commencement of Hydrocarbons production, all of which shall














22


\


 Amu Darya Basin EPSC








ensure that the area does not suffer an excessive rate of decline of


production or an excessive loss of reservoir pressure;


e. a detailed forecast of cost estimates, capital investment


requirements, operating costs and sales revenues, and the


anticipated type and source of financing;


f. a risk management plan prepared in accordance with the


requirements of the Hydrocarbons Law and applicable regulations,


including the measures and directions established by the Ministry


to prevent any damage and remove any hazards that the


Hydrocarbons Operations may cause to affected communities, the


Contractor’s personnel and the environment;


g. an Environmental Impact Assessment;


h. an environmental management plan, including a socio-economic


management plan, prepared in accordance with the requirements of


the Hydrocarbons Law, including the measures planned for the


protection of the environment, the elimination or the reduction of


pollution and the protection and compensation of affected


populations if applicable, and the verification of the effectiveness


of such measures;


i. an emergency response plan prepared in accordance with the


requirements of the Hydrocarbons Law and applicable regulations,


including measures to respond to any accident that may occur at


the site of the Hydrocarbons Operations, medical treatment and


evacuation of employees and surrounding populations and the


protection of the environment; and


j. the Development Programme and Development Programme


Budget shall also contain particulars of feasible alternatives, if any,


considered by the Contractor for the development and exploitation


of the Discovery and economic feasibility studies carried out by or


for the Contractor with respect to the Discovery, taking into


account the location, meteorological conditions, cost estimates, the


price of Hydrocarbons and any other relevant data and evaluations


thereof.


The Ministry shall examine the report and any documents submitted pursuant to


Section 7.1 (h)(ii), and may require the Contractor to provide, within a specified


period of time, such additional information and data as it may reasonably require


in order to evaluate such documents. As soon as possible after the submission of


such documents pursuant to Section 7.1 (h)(ii) or receipt of such additional


information and data, the Ministry and the Contractor shall meet to determine the


boundaries of the area to be delineated as a Field and adopt a Development


 Amu Darya Basin EPSC








Programme and Development Programme Budget for the development of the


Discovery and an environmental management plan in connection therewith.





(j)


(i) At the meeting described in Section 7.1 (i), the Contractor shall carefully


consider and take into account any proposals of the Ministry and the


reasons therefor and shall attempt in good faith to reach agreement with


the Ministry on the points at issue, paying particular consideration to the


objective of achieving Initial Commercial Production expeditiously from


the Field in question, taking into account generally accepted engineering


practices and economics of the international petroleum industry.


(ii) If the Ministry and the Contractor agree upon the boundaries of the area to


be delineated as a Field and upon the adoption of a Development


Programme and Development Programme Budget for the development of


the Discovery, the date upon which such agreement is reached, as


reflected in writing signed by both parties, shall be the date of the


declaration of the Commercial Discovery for all purposes of this Contract.


The area so determined shall, on such date, be automatically converted


into a Field. The Ministry shall provide the Contractor with a permit to


conduct Development and Production Operations in the Field within


fifteen (15) Days after the later of (A) the adoption of the Development


Programme and Development Programme Budget and (B) approval by the


National Environmental Protection Agency of the Contractor’s


Environmental Impact Assessment and environmental management plan.


The Contractor shall, as soon as is practicable after receipt of such permit,


commence and continuously carry out Development and Production


Operations in the Field according to the adopted Development Programme


and the Development Programme Budget. Upon adoption of the


Development Programme and the Development Programme Budget, the


Work Programme and Work Programme Budget adopted pursuant to


Section 5.3 shall be revised accordingly.


(iii) In the event that no agreement is reached between the Ministry and the


Contractor within one hundred and eighty (180) Days from the date of


submission of the report and proposed Development Programme and


Development Programme Budget pursuant to Section 7.1(h) as to (i)


matters relating to the adoption of the Development Programme and


Development Programme Budget for the development of the Discovery,


(ii) the boundaries of the area to be delineated as a Field, or (iii) the


environmental management plan, the Ministry or the Contractor may refer


the matter for expert determination pursuant to Section 24.3. In the event


the Parties fail to resolve the matter by expert determination, the matter


shall proceed to arbitration in accordance with Section 24.1. The


determination in accordance with Section 24.1 shall be final and the


Development Programme and Development Programme Budget for the











24


 Amu Darya Basin EPSC





development of the Discovery and the boundaries of the area to be


delineated as a Field, as the case may be, shall be deemed to have been


adopted and agreed as determined, except that the Contractor may, within


sixty (60) Days of receipt of such determination, notify the Ministry that


the Discovery to which such Development Programme and Development


Programme Budget and area so determined relate is no longer considered


to be commercial. If the Contractor so notifies the Ministry, the


provisions of Section 7.1(g) shall apply. Failing such notification, the date


sixty (60) Days after the receipt of such determination shall be deemed to


be the date of the declaration of the Commercial Discovery for all


purposes of this Contract. The area so determined shall, on such date, be


automatically converted into a Field. The Ministry shall provide the


Contractor with a permit to conduct Development and Production


Operations in the Field within fifteen (15) Days after the later of (A) the


date a Commercial Discovery is deemed declared and (B) approval by the


National Environmental Protection Agency of the Contractor’s


Environmental Impact Assessment and environmental management plan.


The Contractor shall, as soon as is practicable after receipt of such permit,


commence and continuously carry out Development and Production


Operations in the Field according to the adopted Development Programme


and the Development Programme Budget. Upon adoption of the


Development Programme and Development Programme Budget as


aforesaid, the Work Programme and Work Programme Budget adopted


pursuant to Section 5.3 shall be revised accordingly.


In the case of each Designated Field, the Contractor shall prepare and submit to


the Ministry for approval a Development Programme and Development


Programme Budget for such Field containing the information referred to in


Section 7.1 (h)(ii) and complying with the Minimum Production Requirements for


such Field no later than twelve (12) Months prior to Initial Commercial


Production from such Field, except that:


(i) the submission for the Angot Field shall be made as soon as practicable


after the Effective Date;


(ii) where the Contractor has elected the Minimum Production Requirements


of Option 1, the submission for the Kashkari Field shall be made as soon


as practicable after the date of such election; and


(iii) where the Contractor has elected the Minimum Production Requirements


of Option 2, the submission for the Aq Darya Field shall be made as soon


as practicable after the date of such election.


The Ministry shall provide the Contractor with a temporary permit to conduct


Development and Production Operations for six (6) months in the Angot Field


and the Designated Field elected under Option 1 or 2 upon approval by the


National Environmental Protection Agency of the Contractor’s Environmental


 Amu Darya Basin EPSC





Impact Assessments and environmental management plans for those Fields. The


Ministry shall provide the Contractor with a permit to conduct Development and


Production Operations for the duration of the Contract in the Angot Field and the


Designated Field elected under Option 1 or 2. respectively, within fifteen (15)


days after the adoption of a Development Programme and Development


Programme Budget for such Field. The Contractor shall, as soon as is practicable


after receipt of such permit, commence and continuously carry out Development


and Production Operations in the Field according to the adopted Development


Programme and the Development Programme Budget. Upon adoption of the


Development Programme and the Development Programme Budget, the Work


Programme and Work Programme Budget adopted pursuant to Section 5.3 shall


be revised accordingly.


(1) Notwithstanding any other provision of this Contract:


(i) with respect to any Field other than the Designated Fields, in the event that


Initial Commercial Production from such Field has not occurred within


eighteen (18) Months, in the case of a Liquid Hydrocarbons Discovery, or


sixty (60) Months, in the case of a Non-Associated Gas Discovery, from


the date of declaration of Commercial Discovery, then the Contractor shall


relinquish the area comprising such Field and shall forfeit any rights


relating to such Field and any production therefrom;


(ii) with respect to either of the Bazarkhami Field or the Zamarudsay Field, in


the event that Initial Commercial Production from such Field has not


occurred within thirty-six (36) Months after the Effective Date, then the


Contractor shall relinquish the area comprising such Field and shall forfeit


any rights relating to such Field and any production therefrom;


(iii) with respect to the Aq Darya Field, in the event that (A) the Contractor has


elected the Minimum Production Requirements of Option 1 and Initial


Commercial Production from such Field has not occurred within twenty-


four (24) Months after the Effective Date or (B) the Contractor has elected


the Minimum Production Requirements of Option 2 and Initial


Commercial Production from such Field has not occurred within twelve


(12) Months after the Effective Date, then the Contractor shall relinquish


the area comprising such Field and shall forfeit any rights relating to such


Field and any production therefrom;


(iv) with respect to the Kashkari Field, in the event that (A) the Contractor has


elected the Minimum Production Requirements of Option 1 and Initial


Commercial Production from such Field has not occurred within twelve


(12) Months after the Effective Date or (B) the Contractor has elected the


Minimum Production Requirements of Option 2 and Initial Commercial


Production from such Field has not occurred within twenty-four (24)


Months after the Effective Date, then the Contractor shall relinquish the














26


 Amu Darya Basin EPSC





area comprising such Field and shall forfeit any rights relating to such


Field and any production therefrom;


(v) with respect to the Angot Field, in the event that Initial Commercial





Production from such Field has not occurred within twelve (12) Months


after the Effective Date, then the Contractor shall relinquish the area


comprising such Field and shall forfeit any rights relating to such Field


and any production therefrom; and


(vi) subject to Section 6.4 and without prejudice to Sections 7.1 (l)(i) 7.1 (l)(v)


above, in the event the Contractor has not met the Minimum Production


Requirements applicable to such Designated Field in any Year, then the


Contractor shall relinquish the area comprising such Designated Field and


shall forfeit any rights relating to such Designated Field and any


production therefrom; provided that if the Contractor is able to


demonstrate to the reasonable satisfaction of the Ministry that the


Contractor has performed the activities contemplated in the Work


Programmes in each case relating to such Designated Field, the deadline


by which the Contractor must satisfy the Minimum Production


Requirements for such Designated Field for such Year shall be extended


by the Ministry, it being understood that such extension shall not (x)


reduce the Minimum Production Requirements for such Designated Field


as may apply in respect of such Year or subsequent Years or (y) limit the


application of this Section 7.1(l)(vi) if the Minimum Production


Requirements for such Designated Field are not satisfied by the Contractor


by the extended deadline or in respect of any subsequent Years. If the


Contractor wishes that the Ministry consider granting an extension in


respect of any Year as provided in this Section 7.1(l)(vi), the Contractor


shall make such request to the Ministry, together with all supporting


materials, within thirty (30) Days after the end of such Year.


(m) If the Contractor is required to relinquish an area pursuant to the provisions of this


Section 7.1, ownership of all fixtures, including but not limited to pipes, pipelines,


installations, facilities, downhole well equipment, and wellhead equipment shall


be transferred to the Ministry. Leased equipment and other Contractor equipment


may be removed if such removal may be accomplished without damage to the


area.


Production.


7.2


(a) Not less than three (3) Months prior to Initial Commercial Production in any


Field, the Contractor shall submit to the Ministry for approval proposed


procedures and related operating regulations and financial terms covering the


scheduling, storage and lifting of Liquid Hydrocarbons from such Field. The


procedures, regulations and terms shall comprehend the subjects necessary to


efficient and equitable operations, including rights of parties, notification time,


maximum and minimum quantities, duration of storage, scheduling, conservation,











27


 Amu Darya Basin EPSC





spillage, liabilities of the parties, through-put fees, and safety and emergency


procedures.


(b) The Contractor shall produce Liquid Hydrocarbons from the Contract Area at the


Maximum Efficient Rate. For the first Year, the Contractor and the Ministry shall


establish the Maximum Efficient Rate of production of Liquid Hydrocarbons and


the production rate for Non-Associated Gas in conjunction with the adoption of


each Development Programme submitted during such Year. Thereafter, the


Contractor and the Ministry shall establish the Maximum Efficient Rate of


production for Liquid Hydrocarbons and the production rate for Noil-Associated


Gas in conjunction with the adoption of each annual Work Programme. In the


case of Non-Associated Gas, the production rate shall not be required by the


Ministry to be less than that required to satisfy any contracts then in existence for


the sale of such Natural Gas.


(c) No later than September 30 of each Year, the Contractor shall, in accordance with


International Best Practices, prepare and furnish to the Ministry for approval a


forecast statement setting forth by Quarter the total quantity of Liquid


Hydrocarbons (by quality, grade and gravity) and Natural Gas that the Contractor


estimates can be produced, saved and transported hereunder during the ensuing


Year, together with estimates, if available, of recoverable reserves of


Hydrocarbons, broken down into proven and proven plus probable. The


Contractor shall endeavour to produce in each Year the forecast quantity. The


Liquid Hydrocarbons shall be run to storage tanks, constructed, maintained and


operated by the Contractor in accordance with applicable regulations, in which


such Liquid Hydrocarbons shall be metered or otherwise measured for all


purposes of this Contract. Natural Gas shall be stored, transported and metered or


otherwise measured in accordance with the provisions of the Natural Gas


Development Programme adopted pursuant to the provisions of Article XV.


Cessation of Production.


(a) The Contractor shall submit to the Ministry for approval a proposed Field


decommissioning and abandonment plan (the “Decommissioning and


Abandonment Plan”) after exhaustion of fifty percent (50%) of Recoverable Gas


Initially in Place (RGIIP) / Recoverable Oil Initially in Place (ROUP), or seven


(7) Years before the likely termination of production from the development area,


whichever is later, which shall include a detailed technical and engineering


description of the decommissioning, removal and disposal of the facilities and


installations, and of the site clean-up and restoration measures, consistent with


International Best Practices and with the obligations of the Contractor under


Sections 4.5, 23.2 and 25.6, together with a detailed and itemized budget of the


Hydrocarbons Operations Expenditures to be incurred in connection therewith


(the “Decommissioning and Abandonment Budget”). The Contractor and the


Ministry shall set up a joint escrow account (the “Escrow Account”) with a bank


of good international reputation (the “Bank”) to finance the Hydrocarbons


Operations Expenditures specified in the Decommissioning and Abandonment


 Amu Darya Basin EPSC





Budget in accordance with Section 7.3(d). The Bank shall be located outside of


Afghanistan and shall not be an Affiliated Entity of the Contractor.


(b) No later than twelve (12) Months prior to the expiration of the Development and


Production Phase of any Field, the Contractor shall notify the Ministry of its


intention to terminate Hydrocarbons Operations. Within thirty (30) Days from the


date of the Contractor's notice under this Section 7.3(b), the Ministry shall notify


the Contractor in writing whether it will require the Contractor to carry out all or


part of the decommissioning measures set out in the Decommissioning and


Abandonment Plan. Following receipt of the Ministry’s notice, the Ministry and


the Contractor shall meet to agree upon a final Decommissioning and


Abandonment Plan and a final Decommissioning and Abandonment Budget.


(c) The Escrow Account shall be funded by monthly contributions made by the


Contractor on a unit-of-production basis until the target value of the


Decommissioning and Abandonment Budget is reached. The monthly


contribution will be calculated as follows: The amount in the Escrow Account


shall be subtracted from the Decommissioning and Abandonment Budget to


establish a net shortfall. In accordance with the methodology illustrated in


Appendix 1 to the Accounting Procedures, the net shortfall shall be divided by the


remaining RGIIP/ROIIP as of the beginning of the Month, then multiplied by that


Month’s production.


(d) The amount of the Decommissioning and Abandonment Budget, pro-rated on a


unit of production basis over the period from the date of opening of the Escrow


Account to the estimated date of cessation of production, shall be included in the


Hydrocarbons Operations Expenditures and shall be recovered by the Contractor


in accordance with Section 10.1(b). At the end of each Month in which the


Contractor shall have recovered any part of the Decommissioning and


Abandonment Budget, the Contractor shall deposit the amount so recovered in the


Escrow Account. Upon cessation of production, the Contractor shall diligently


carry out the Decommissioning and Abandonment Plan and the Hydrocarbons


Operations Expenditures due in connection therewith shall be paid by the Bank


upon receipt of a written joint instruction from the Ministry and the Bank. Any


un-spent monies remaining in the Escrow Account upon settlement of all


Decommissioning and Abandonment Expenditures shall be remitted by the Bank


to the Ministry. In the event the Ministry elects to continue Hydrocarbons


Operations in any Field following the Contractor’s termination of Hydrocarbons


Operations in relation thereto, the Contractor’s liability for decommissioning


measures shall be limited to the balance of the Escrow Account.
































29


 Amu Darya Basin EPSC





ARTICLE VIII





FINANCIAL AND PERFORMANCE GUARANTEES





8.1 Financial Guarantee. Not later than thirty (30) Days after the Effective Date, the


Contractor shall submit a Financial Guarantee in an amount equal to the estimated


expenditures necessary to perform the Minimum Exploration Programme for the Initial


Exploration Period. If the Contractor wishes to proceed to the First Extension Period or


the Second Extension Period, as the case may be, it shall submit the corresponding


Financial Guarantee as provided in Section 3.1(a).


8.2 Reduction of Financial Guarantee. During the Exploration Phase, the amount of the


Financial Guarantee shall be reduced as of the end of each Month by the amount


actually expended on the Minimum Exploration Programme during that Month.


8.3 Drawdown. If, at the end of the Initial Exploration Period or any extension thereof, the


Contractor has not performed the Minimum Exploration Programme required for such


period, an amount corresponding to the then current balance of the Financial Guarantee


for such period shall be paid to the Ministry in accordance with Article XIII. The


Ministry shall have the right to draw down on the Financial Guarantee to collect such


amount.


8.4 Drawdown Upon Termination or Relinquishment. If, upon the date of termination of


this Contract, or upon relinquishment of the entire Contract Area by the Contractor


pursuant to Article IV, whichever first occurs, the Contractor has not completed the


Minimum Exploration Programme, an amount corresponding to the then current balance


of the Financial Guarantee shall be paid to the Ministry in accordance with Article XIII.


The Ministry shall have the right to draw down on the Financial Guarantee to collect


such amount.


8.5 General Performance Guarantee. Simultaneously with the execution of this Contract,


CNPCI is executing and delivering the General Performance Guarantee to the Ministry.


ARTICLE IX


OBLIGATIONS OF THE MINISTRY


9.1 Data. The Ministry shall supply or otherwise make available to the Contractor:


(a) all geological, geophysical, geographical, drilling, Well, production and other


information, including Well location maps, relating to the Contract Area in the


possession of the Ministry or coming into its possession and which it has the right


to disclose to the Contractor;


(b) a list of the sites of national parks and/or ecological reserves, as well as sites


identified as having Archaeological and Cultural Heritage significance, such list











30


 Amu Darya Basin EPSC








to be provided prior to commencement of Hydrocarbons Operations and to


contain available details of the sites, including maps and other pertinent


information; and


(c) information reasonably available to the Ministry related to private land ownership


in the Contract Area.


9.2 Assistance. In accordance with the provisions of the Hydrocarbons Law, the Ministry


shall for the duration of this Contract:


(a) provide for the right of way and passage over State-owned land and facilitate the


right of way and passage over privately owned land in order to conduct


Hydrocarbons Operations (including nationalization to the extent permissible


under applicable law), provided that the Contractor shall bear any compensation


to the owner or occupier. Such costs and any compensation shall be considered a


Hydrocarbons Operations Expenditure recoverable by the Contractor in


accordance with Exhibit C;


(b) in respect of occupation and use of privately owned land for Hydrocarbons


Operations, and upon notice submitted by the Contractor no later than ninety (90)


Days prior to a proposed operation, obtain consent for such use from the owner or


occupier of the land in question to enable the Contractor to conduct the proposed


operations thereon, and provide the Contractor with evidence of such consent,


provided that the Contractor shall pay market prices for the use or occupation of


such land, and in the event the owner or occupier has suffered a disturbance to


activities or damage to land or assets caused by surface or sub-surface oil and gas


exploration operations, and the Contractor and the owner or occupier fail to agree


on the amount of compensation, review the matter and determine the amount of


damages in the first instance;


(c) provide reasonable access to and use of existing infrastructure and facilities in the


Contract Area, at no cost to the Contractor in the case that such infrastructure and


facilities are owned by the State;


(d) provide reasonable access to surface areas relinquished by the Contractor pursuant


to this Contract and reasonable access to and use of existing infrastructure and


facilities on such relinquished areas at no cost to the Contractor in the case that


such infrastructure and facilities are owned by the State;


(e) subject to the terms and conditions of an agreement between the Parties and the


National Environmental Protection Agency to be executed concurrently with this


Contract, assume responsibility for the rehabilitation of environmental


contamination on State owned and private land identified in Baseline


Environmental Assessments completed by the Contractor and approved by the


National Environmental Protection Agency;

















\ 31


 Amu Darya Basin EPSC





(f) on the Effective Date, or no later than fifteen (15) Days thereafter, issue to the


Contractor the appurtenant exclusive Licence for Hydrocarbons Operations


certifying that the Contractor holds this Contract; and


(g) upon application in the prescribed manner and pursuant to applicable legislation,


provide or facilitate all necessary visas, work permits, import licences, export


permits (including but not limited to licences for Hydrocarbons), rights of way


and easements which (i) may be required by the Contractor and its subcontractors


in connection with the Hydrocarbons Operations and (ii) may be available from


resources within the Government’s control.


Security. The Ministry shall endeavor to provide adequate security within the Contract


Area and any other areas in Afghanistan in which Hydrocarbons Operations or


operations related thereto are conducted, including during travel to and from such areas.


However, in the event that the Contractor, in its reasonable opinion, considers the


security provided for its personnel is inconsistent with its health, safety and


environmental policies, International Best Practices or inadequate to allow


Hydrocarbons Operations to be conducted safely and without threat to life, both


Ministry and the Contractor hereby agree supplementary security measures shall be


implemented by the Contractor, as the case may be, including, but not limited to, the


engagement of competent private security providers licensed to operate in Afghanistan,


such costs to be considered Hydrocarbons Operations Expenditures if included in an


approved Work Programme and Work Programme Budget. Such arrangements shall be


revised from time to time in response to changes in security conditions, subject to an


international independent third party conducting a security review.


Responsiveness. If the Ministry’s approval is required by the Contractor in accordance


with this Contract, the Ministry shall endeavour to respond to such request as soon as


reasonably practicable. Without prejudice to any time period otherwise specified herein


or under applicable law, the Ministry’s approval for any action or item (including Work


Programmes and Work Programme Budgets) shall be deemed to have been given if the


Ministry has not notified the Contractor of its disapproval or required clarification of


such request within thirty (30) Days following the Contractor’s request for such


approval. If the Contractor requires the approval of the State or a licence or permit from


an agency of the State in relation to Hydrocarbons Operations, the Ministry shall


procure that the State or agency of the State (as the case may be) responds to such


request as soon as reasonably practicable. The Ministry acknowledges and agrees that


to the extent the Contractor is unable to carry out certain Hydrocarbons Operations as a


result of a failure by the State or agency of the State to respond to or issue any approval,


permit or license relating to Hydrocarbons Operations that any time periods applicable


to the performance of the Contractor’s obligations hereunder shall be suspended for the


period during which the Contractor is prevented from performing and that the Parties


shall meet and seek to agree to further extensions of time with regard to such delay.


 Amu Darya Basin EPSC





ARTICLE X





ALLOCATION OF PRODUCTION





10.1 Royalty; Production Share. The Hydrocarbons produced and saved from the Contract


Area in any Month and not used in Hydrocarbons Operations or flared or re-injected


into the Contract Area shall be allocated as follows:


(a) The first fifteen percent (15%) of such Hydrocarbons shall be allocated to the


Ministry as the Royalty payable under the Hydrocarbons Law.


(b) After payment of the Royalty, the Contractor shall be entitled to recover


Hydrocarbons Operations Expenditures incurred by retaining and disposing of


that amount of such Hydrocarbons equal in value to the unrecovered


Hydrocarbons Operations Expenditures for that Month plus all unrecovered


Hydrocarbons Operations Expenditures from prior Months; provided, however,


that for Hydrocarbons Operations relating to areas other than the Designated


Fields, the Contractor shall only be entitled to recover Hydrocarbons Operations


Expenditures from Hydrocarbons produced from Fields other than the Designated


Fields. All such Hydrocarbons Operations Expenditures shall be recovered


without a ceiling in the manner and to the extent provided for in, and subject to,


the Accounting Procedures. For the purpose of determining the quantity of such


Hydrocarbons to which the Contractor is entitled in any Month pursuant to this


Section 10.1(b), each type and grade of Hydrocarbons shall be valued at the


weighted average net price per applicable unit, (i) in the case of Arm’s-Length


Sales made by the Contractor, actually received by the Contractor in respect of


sales of such Hydrocarbons produced in such Month and (ii) in the case of other


sales made by the Contractor, equal to the Formula Price for such Hydrocarbons;


provided that this clause (ii) shall apply only if the sales referred to in this clause


(ii) represent more than fifty percent (50%) of the total volume of sales made by


the Contractor of such Hydrocarbons produced and saved in such Month.


(c) The provisions and calculations of this Section 10.1(c) shall apply and be made


separately in respect of (i) the Designated Fields taken as a whole and the


Hydrocarbons Operations Expenditures, Net Hydrocarbons and Gross Contractor


Revenues therein and (ii) the remainder of the Contract Area taken as a whole and


the Hydrocarbons Operations Expenditures, Net Hydrocarbons and Gross


Contractor Revenues therein. After deduction of the Royalty and recovery of the


Hydrocarbons Operations Expenditures, the Ministry shall be allocated a portion


of the Net Hydrocarbons produced and saved in any Month determined in


accordance with the formula set forth below, and the remaining Net Hydrocarbons


after such allocation shall be allocated to the Contractor:





If R<1 then P = 0%


If 1

If 1.3

If R>2.5 then P = 70%








33


 Amu Darya Basin EPSC





In the above formula:


“P” shall mean the Ministry’s percentage share of Net Hydrocarbons, valued at


the applicable Formula Price; and


“R” shall mean the cumulative Gross Contractor Revenues up to the end of the


Month immediately preceding the Month in question, divided by the cumulative


Hydrocarbons Operations Expenditures incurred up to the end of the Month


immediately preceding the Month in question.


10.2 Calculations and Adjustments. The calculations required by this Article X shall be


made for each Month on a cumulative basis. To the extent that actual quantities, prices


and expenses are not known, calculations shall be made on the basis of the estimate, and


quarterly updates thereto, provided to the Ministry pursuant to Section 10.3. Within


thirty (30) Days after the end of each Quarter, adjustments shall be made based on


actual Hydrocarbons quantities, prices and expenses in relation to such Quarter to the


extent then available. Within ninety (90) Days after the end of each Year, final


calculations shall be prepared and submitted to the Ministry for approval, and any


necessary adjustments shall be made based upon the detailed accounts submitted for


such Year pursuant to Section 26.2.


10.3 Estimates and Approvals. Not less than ninety (90) Days prior to the beginning of


each Year, the Contractor shall prepare and furnish to the Ministry for approval an


estimate by Quarter for the forthcoming Year of all Gross Contractor Revenues and


Hydrocarbons Operations Expenditures, and of the value of the Royalty and of the


Ministry’s and the Contractor’s respective shares of Net Hydrocarbons, Net Taxable


Income and Income Tax for such Year. Such estimate shall be consistent with the


forecast statement furnished pursuant to Section 7.2(c) and the Work Programme


Budget approved pursuant to Section 5.3, and shall set forth the other assumptions and


projections upon which it is based. Upon approval by the Ministry, such estimate shall


serve as the basis for the quarterly calculations required pursuant to Section 10.2 and for


the Income Tax pursuant to Article XVI. Quarterly updates of such estimate shall be


submitted by the Contractor to the Ministry within thirty (30) Days after the end of each


Quarter.


10.4 Deemed Sales. The Hydrocarbons allocated to the Ministry under this Article X in any


Month shall, unless the Ministry otherwise elects in accordance with Section 10.5, be


deemed sold by the Ministry to the Contractor upon production at the wellhead. The


purchase price for each type of Hydrocarbons produced shall be the applicable Formula


Price for such Hydrocarbons, and shall be payable to the Ministry no later than the end


of the Month following the Month in which such Hydrocarbons are produced. Payment


shall be accompanied by a certificate from the Contractor setting forth in detail the basis


for computation of the purchase price, in a form acceptable to the Ministry. The


provisions of this Section 10.4 shall not apply to Hydrocarbons produced during


production testing and sold by the Contractor, the proceeds of which shall be applied to


reduce the amount of the Contractor’s capital expenditures in accordance with the


Accounting Procedures.











34


 Amu Darya Basin EPSC





10.5 Notice and Election. The Ministry may, in respect of any Year, elect to retain title to


all or any part of the Hydrocarbons allocated to it under this Article X, rather than sell


such Hydrocarbons to the Contractor. In such event, the Ministry shall provide the


Contractor with notice of its election at least six (6) Months prior to the commencement


of the Year in question.





ARTICLE XI


FORMULA PRICE FOR HYDROCARBONS; MEASUREMENT OF


HYDROCARBONS





11.1 Formula Price for Liquid Hydrocarbons. The Formula Price for the Liquid


Hydrocarbons produced and saved from any Field in the Contract Area in any Month


shall be determined in accordance with the following formula:


P = U + (B-U) * (1 + 0.15139 * A P.B - 0.1434 * SP.B) -T-D


Where


P is the price of the Liquid Hydrocarbons produced and


delivered to the Delivery Point (US$ per Barrel);


U is the average of the Platt’s Prices of Urals crude oil for the


Month in question (US$ per Barrel);


B is the average of the Platt’s Prices of Dated Brent crude oil


for the Month in question (US$ per Barrel);


Ap-b is the difference between the API degrees of the Liquid


Hydrocarbons produced and 38.3 degrees;


Sp.B is the difference between the percentage of sulphur content


of the Liquid Hydrocarbons produced and 0.4 percent;


T is the deemed transport cost of the Liquid Hydrocarbons


produced (US$ per Barrel), determined in accordance with


Section 11.3; and


D is the amount of the initial production discount (if any) on


the price of the Liquid Hydrocarbons produced (US$ per


Barrel), determined in accordance with Section 11.4.

















35


 Amu Darya Basin EPSC





For purposes of calculating the average monthly Platt's Price, the Platt’s Price for any


Day of the Month means (i) in the case of Dated Brent crude oil, the average of the high


and low spot prices for such crude oil as quoted for such Day in Platt’s Crude Oil


Marketwire (Spot Assessment Section, Dated Brent Assessment) and (ii) in the case of


Urals crude oil, the average of the high and low spot prices for such crude oil as quoted


for such Day in Platt’s Crude Oil Marketwire (Spot Assessment Section, Urals MED


Assessment). Transportation costs shall be reviewed every two (2) Years after the Initial


Exploration Period according to Section 11.3, and the other coefficients and parameters


in the Formula Price shall be reviewed by the Parties at the conclusion of the Initial


Exploration Period and then every four (4) Years thereafter.


11.2 Alternate Reference Prices. If the Platt’s Price is no longer available for either of the


crude oils referenced in U and B, the Parties shall agree on similar published reference


prices and adjust the parameters of the pricing formula accordingly.


11.3 Transport Costs. During the Initial Exploration Period, T in the formula set forth in


Section 11.1 shall have a value of five U.S. Dollars (US$ 5.00) per Barrel for Liquid


Hydrocarbons produced from each Field in the Bazarkhami and Kashkari Blocks and


seven U.S. Dollars (US$ 7.00) per Barrel for Liquid Hydrocarbons produced from each


Field in the Zamarudsay Block. Thereafter, the Parties shall meet at least once every


two (2) Years to negotiate in good faith any adjustments to T that may be appropriate


based upon then prevailing conditions regarding transportation costs for Liquid


Hydrocarbons originating from each Field and the applicable Delivery Point for use in


determining the Formula Price.


11.4 Initial Production Discounts. D in the formula set forth in Section 11.1 shall have a


value of (i) twenty U.S. Dollars (US$ 20.00) per Barrel for each Barrel of Liquid


Hydrocarbons produced from the Contract Area during the first Year, (ii) ten U.S.


Dollars (US$ 10.00) per Barrel for each Barrel of Liquid Hydrocarbons produced from


the Contract Area during the second Year, and (iii) zero U.S. Dollars (US$ 0.00) per


Barrel for each Ban-el of Liquid Hydrocarbons produced thereafter.


11.5 Formula Price for Natural Gas. The Formula Price for Natural Gas shall be


determined by agreement between the Ministry and the Contractor, provided, however,


that such price or value shall reflect the following: (i) the quantity and quality of the


Natural Gas; (ii) the price at which sales of Natural Gas from other sources in


Afghanistan, if any, are then being made; (iii) the price at which sales, if any, of Natural


Gas imported into Afghanistan for consumption in Afghanistan are being made; (iv) the


purpose for which the Natural Gas is to be used; and (v) the international market price


of competing or alternative fuels or feedstocks.


11.6 Verification. Within thirty (30) Days following the end of each Quarter, the Contractor


shall submit to the Ministry for its verification the volumes, gravity in API and sulphur


content of the Liquid Hydrocarbons produced and saved from the Contract Area during


the Quarter in question. In the event that the Ministry raises objections to the


Contractor’s determinations, the Parties shall meet within fifteen (15) Days from the


Ministry’s notice of objection to mutually agree upon the appropriate determinations.











36


 Amu Darya Basin EPSC





11.7 Segregation of Liquid Hydrocarbons. In the event that Hydrocarbons Operations


involve the segregation of Liquid Hydrocarbons of different quality, grade or gravity,


and if the Parties do not otherwise mutually agree, (i) any and all provisions of this


Contract concerning valuation of Liquid Hydrocarbons shall separately apply to each


segregated Liquid Hydrocarbon and (ii) each segregated Liquid Hydrocarbon produced


in a given Month shall contribute to (a) recovery by the Contractor of Hydrocarbons


Operations Expenditures pursuant to Section 10.1 and (b) the Liquid Hydrocarbons


entitlements of each Party in the same proportion as the quantity of such Liquid


Hydrocarbon produced and segregated bears to the total quantity of Liquid


Hydrocarbons produced and saved from the Contract Area.





11.8 Measuring Equipment. The Contractor shall supply, operate and maintain equipment


for measuring the volume and quality of the Hydrocarbons produced and saved, or


transported, stored or exported under this Contract, including gravity, density,


temperature and pressure measuring devices and any other devices that may be required.


All measurement equipment and devices shall, prior to their installation or usage, be


approved in writing by the Ministry. Such equipment and devices shall at all reasonable


times be available for inspection and testing by the Ministry or its authorised


representatives. Any such inspection or testing shall not interfere with the normal


operation of the facilities involved. The equipment and devices used or installed


pursuant to this Section 11.8 shall not be replaced or altered without the prior written


approval of the Ministry.





11.9 Measurement Standards. The Contractor shall undertake to measure the volume and


quality of the Hydrocarbons produced, saved, transported, stored and exported


hereunder, consistent with International Best Practices for fiscal metering, with such


frequency and according to such procedures as are approved in writing by the Ministry.


11.10 Notice. The Contractor shall give the Ministry timely notice of its intention to conduct


measuring operations and the Ministry shall have the right to be present at and


supervise, either directly or through authorised representatives, such operations.





11.11 Measurement Inaccuracies and Adjustment. If it is determined, following an


inspection or test carried out by the Ministry or its representatives, that the equipment,


devices or procedures used for measurement are inaccurate and exceed the permissible


tolerances which shall be established by agreement between the Ministry and the


Contractor to be entered into prior to the installation and usage of such equipment, and


such determination is verified by an independent surveyor 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 adjustments covering such period


shall be made within thirty (30) Days from the date of such determination.


























37








\A&


 Amu Darya Basin EPSC








ARTICLE XII


DOMESTIC REQUIREMENTS


12.1 Local Preference. In marketing any part of its share of the Liquid Hydrocarbons


produced and saved from the Contract Area, the Contractor shall give preference to


purchases by Afghan nationals and companies, provided that such purchases are at


prices that are not less than the price for Arm’s-Length Sales or not less than the


Formula Price.


12.2 Storage. Liquid Hydrocarbons that the Ministry has elected to take in kind and not to


sell to the Contractor shall be delivered by the Contractor at regularly spaced intervals at


the Delivery Point or to the Ministry’s storage facilities in the Field, or both, at the


option of the Ministry. The Ministry shall provide at such Delivery Points, at its sole


expense and risk, all storage, transportation and other facilities necessary to receive such


Liquid Hydrocarbons.


12.3 Internal Consumption of Liquid Hydrocarbons. Out of the total quantity of Liquid


Hydrocarbons production to which the Contractor is entitled in each Year, the Ministry


may elect to take a quantity of Liquid Hydrocarbons, of the gravity, grade and quality of


its choice, that the Ministry requires to satisfy the requirements of internal consumption


in Afghanistan for such Year. The Ministry shall reimburse the Contractor for such


quantity at the Formula Price. The maximum quantity of Liquid Hydrocarbons that the


Ministry may take to satisfy the internal consumption requirements of the country shall


be calculated as follows:


DMOc = APc x (DMOt - GOV) / APt


Where:


“DMOc” is the maximum quantity of Liquid Hydrocarbons from the Contract Area that


the Ministry may take to satisfy the internal consumption requirements of the country in


the period of reference;


“APc” is the total quantity of Liquid Hydrocarbons produced from the Contract Area


during the reference period, less (a) the amount of the Royalty, (b) the Ministry’s share of


Liquid Hydrocarbons production under Section 10.1(c), and (c) consumption of Liquid


Hydrocarbons incidental to Hydrocarbons Operations;


“DMOt” is the internal consumption requirements of Afghanistan during the reference


period;


“GOV” is (a) the quantity of Liquid Hydrocarbons rendered, in the reference period, to


the Ministry by all contractors in the form of production payments, royalties and


production shares plus (b) any quantity of Liquid Hydrocarbons produced directly by the


Ministry or any State oil company within Afghanistan in the reference period; and











38


 Amu Darya Basin EPSC





“APf ’ is the volume of Liquid Hydrocarbons produced in Afghanistan by all contractors


in the reference period as to which the Ministry has a right similar to that contained in


this Section 12.3.


The Ministry shall procure that each exploration and production sharing contract (or


similar agreement) that it enters into shall provide for the right of the Ministry to elect to


purchase a quantity of Liquid Hydrocarbons for internal consumption, at a price equal to


the value attributed in such other contract to Liquid Hydrocarbons to which the Ministry


is entitled. If it is conclusively determined that the Ministry entered into an exploration


and production sharing contract without such right, then the Contractor is excused from


performance of this Section 12.3. The Ministry shall provide the Contractor (and its


auditors) with such reasonable access to its records as may be requested in order for the


Contractor to evaluate the quantities used in calculation of DMOc.





12.4 Notification and Election. If the Ministry elects to exercise its rights under Section


12.3, it shall so notify the Contractor in accordance with the provisions of Section 10.5


relating to the Ministry’s election to take its share of Liquid Hydrocarbons production or


the Royalty in kind. The amounts to be taken shall be based upon estimates, including


those contained in the forecast statement furnished pursuant to Section 7.2(c), and final


adjustments shall be made within ninety (90) Days after the end of each Year on the


basis of actual quantities.





12.5 Internal Consumption of Natural Gas. Out of the total quantity of Natural Gas to


which the Contractor is entitled in each Year, the Ministry may elect to take a quantity


of Natural Gas to meet its internal consumption requirements. The Contractor shall be


obliged to provide and supply to the State such quantities on a prorated basis with all


other producing contractors (according to the principles set forth in Section 12.3 for


Liquid Hydrocarbons) at the price calculated pursuant to Section 11.5, provided that if


the Contractor has committed volumes of Natural Gas to purchasers under long term


sales contracts previously disclosed to the Ministry, such volumes shall be excluded


from the amounts that might be available to the State for internal consumption and


provided that the Contractor shall have no obligation to pay for any infrastructure


necessary to transport, process or deliver Natural Gas to the Ministry.


ARTICLE XIII





PAYMENT PROCEDURE





13.1 Payments to the Ministry. All payments due to the Ministry hereunder shall be made


in U.S. Dollars to the Treasury Single Account in Da Afghanistan Bank, details of


which may be provided from time to time by the Ministry, and shall be made in


accordance with the provisions of the Public Finance and Expenditure Management


Law.


13.2 Payments to the Contractor. All payments due to the Contractor hereunder shall be


made in U.S. Dollars at a domestic or an international bank with offshore banking








\





39





Wlf





 Amu Darya Basin EPSC





facilities to be designated by the Contractor or, at the Ministry’s election, such other


currency as is acceptable to the Contractor.


13.3 Timing of Payments. Except as otherwise expressly provided herein, all payments


required to be made pursuant to this Contract shall be made within thirty (30) Days


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


13.4 Late Payments. If any payment is not made when due, such unpaid amount shall bear


interest as from and after the due date until the date of payment at an interest rate,


compounded monthly, of five percent (5%) above the London Interbank Offer Rate


(“LIBOR”) for one (1) month deposits of U.S. Dollars, as reported in the London


Financial Times or any other agreed publication.


ARTICLE XIV


SURFACE RENTAL FEES


14.1 State-owned Land. The Contractor shall be liable for payment of the following annual


surface rental fees to the Ministry in respect of all State-owned land:


(a) during the Initial Exploration Period, one U.S. Dollar (US$ 1.00) per hectare of


all unsurrendered State-owned land forming part of the Contract Area, excluding


Fields;


(b) during the First Extension Period, four U.S. Dollars (US$ 4.00) per hectare of all


unsurrendered State-owned land forming part of the Contract Area, excluding


Fields;


(c) during the Second Extension Period and any extension granted pursuant to


Section 3.1(a), eight U.S. Dollars (US$ 8.00) per hectare of all unsurrendered


State-owned land forming part of the Contract Area, excluding Fields;


(d) during the period from the first declaration of Commercial Discovery with respect


to any Field other than a Designated Field, fifteen U.S. Dollars (US$ 15.00) per


hectare of all unsurrendered State-owned land forming part of such Commercial


Discovery; and


(e) during the Development and Production Phase with respect to each Field


(including the Designated Fields) in which production has started, the Contactor


shall pay forty U.S. Dollars (USS 40.00) per hectare of State-owned land forming


part of such Field.


14.2 Timing of Payments. The Contractor shall make surface rental fee payments to the


Ministry annually in respect of the then current Year. The first annual surface rental fee


payment under Section 14.1 shall be made within thirty (30) Days after the Effective


Date. All subsequent annual surface rental fee payments shall be made within thirty


(30) Days after each anniversary of the Effective Date. In the event the area of a Field











40


 Amu Darya Basin EPSC





is further delineated or otherwise adjusted during a Year so as to increase or decrease


the number of hectares of State-owned land forming part of such Field, no


corresponding adjustment shall be made to the amount of any surface rental fee payment


already paid in respect of such Year.


14.3 Privately Owned Land. For its use of privately owned land, the Contractor shall pay


such rental fees as are agreed with the owner, or decided by the Ministry as stipulated in


Article 12 of the Hydrocarbons Law, or as determined by a dispute resolution board


which shall consist of representatives from the Ministries of Justice, Mines, Agriculture,


and Finance and the National Environmental Protection Agency. If the Parties do not


agree with the decision of the dispute resolution board, the dispute shall be settled


through the courts. All such rental fee payments shall be considered Hydrocarbons


Operations Expenditures recoverable by the Contractor in accordance with Section


10.1(b).


14.4 Area Subject to Surface Rental Fees. The area of State-owned land subject to surface


rental fees under Section 14.1 shall be determined by a survey approved by the


Ministry; provided, however, that in the absence of such a survey, such area shall be


determined on the basis of a geographic projection approved by the Ministry. In the


case of the Designated Fields, in the absence of a survey approved by the Ministry, the


area of State-owned land subject to surface rental fees under Section 14.1(e) shall be


equal to the area comprising the Quadrants containing the Designated Fields.


ARTICLE XV


NATURAL GAS


15.1 Associated Gas. Associated Gas that is not processed and sold or subject to off-take by


the Ministry in accordance with this Section 15.1 may be used by the Contractor for


Hydrocarbons Operations, including reinjection for pressure, free of charge. Associated


Gas that is not used in Hydrocarbons Operations, and the processing and utilization of


which, in the opinion of both the Contractor and the Ministry, is not economical, shall


be returned to the subsurface structure, or shall be flared or otherwise disposed of, so


long as such alternate disposition is in accordance with International Best Practices. In


the event that the Contractor chooses to process and sell Associated Gas, the Contractor


shall notify the Ministry of the same and upon such notification, the Ministry and the


Contractor shall, as soon as practicable thereafter, meet together with a view to reaching


an agreement on the production, processing and sale of such gas. In the event the


Contractor chooses not to process and sell Associated Gas, the Ministry may elect to


off-take at the outlet flange of the gas-oil separator and use such Associated Gas which


is not required for Hydrocarbons Operations. There shall be no charge to the Ministry


for such Associated Gas, provided that the cost to gather such Associated Gas in the


Field and to process and utilize it shall be for the account of the Ministry.


15.2 Non-Associated Gas. Where Non-Associated Gas is discovered in the Contract Area


and the Contractor has, pursuant to Section 7.1(b), informed the Ministry that the











41


 Amu Darya Basin EPSC





Discovery is of commercial interest, a Natural Gas development committee composed


of representatives of the Ministry and the Contractor shall be established upon approval


of the Appraisal Programme relating to such Discovery for purposes of jointly


evaluating the use of such Natural Gas in the domestic market and the chain of


downstream activities required to bring the Natural Gas to the end consumers in such


market. Simultaneously, the Contractor shall be free to evaluate the viability of


exporting Natural Gas. Within one (1) year from the date of completion of the


Appraisal Programme, the Ministry and the Contractor will meet with a view to


assessing whether the outlets for such Natural Gas and other relevant factors warrant the


development and production of the Natural Gas for sale to the domestic market and/or,


if such market was found not to be capable of absorbing the Natural Gas production, for


export. The Ministry and the Contractor will, upon completion of the Appraisal


Programme or sooner if so agreed, or upon the Contractor notifying the Ministry that the


Discovery is a Commercial Discovery, meet with a view to reaching an agreement on


the development, production, processing, utilization, disposition, export duty status and


such other terms as may be necessary to enhance the commerciality of any Non-


Associated Gas development, or sale of such Non-Associated Gas in accordance with


Sections 7.1(h), 7.1 (i) and 7.1(j).





15.3 Allocation of Revenues and Expenditures. In the event that the development,


production, processing, utilization, disposition or sale of Natural Gas from the Contract


Area is determined by the Parties to be economically feasible in accordance with this


Article XV, the costs of development and production of the same from the reservoir to


the Delivery Point, and the revenues derived therefrom, shall, unless otherwise agreed


pursuant to Sections 15.1 and 15.2, be included in Hydrocarbons Operations


Expenditures and Gross Contractor Revenues, respectively, for all purposes of this


Contract, subject to the Accounting Procedures.





ARTICLE XVI





INCOME TAX





16.1 Income Taxes. Income tax issues related to Hydrocarbons Operations are governed by


the Income Tax Law of Afghanistan, as amended or replaced and in force from time to


time. At the Effective Date, the prevailing Income Tax rate in Afghanistan is twenty


percent (20%).


16.2 Income Tax Stabilization. The Contractor agrees that its taxable income shall be





subject to an Income Tax rate of thirty percent (30%) stabilized for the remaining period


of this Contract, subject to the provisions of Section 5.1(1).


16.3 Business Receipt Tax. The Contractor shall be exempted from Business Receipt Tax


during the term of this Contract for all business conducted in connection with this


Contract.

















■\ 42








V#


 Amu Darya Basin EPSC








ARTICLE XVII


CUSTOMS DUTIES





17.1 Customs Duties related to Hydrocarbons Operations are governed by the Customs Law


of Afghanistan, as amended or replaced from time to time. The Contractor shall be


subject to the applicable Customs Duties provided in the Customs Tariff in effect from


time to time in Afghanistan, provided, however, that:


(a) for the duration of this Contract, the Contractor shall be entitled to import into


Afghanistan the equipment and supplies listed in Exhibit I for use in the Contract


Area free of Customs Duties; and


(b) for a period of two (2) Years from the Effective Date, the Contractor shall be


entitled to export Liquid Hydrocarbons free of Customs Duties, which are


currently set by Code 2709.0000 of the Customs Tariff at two and one half


percent (2.5%). This temporary waiver of Customs Duties on Liquid


Hydrocarbons exported by the Contractor may be extended for the duration of the


Initial Exploration Period pursuant to the terms and conditions of a letter of


cooperation between the Parties, to be entered into on or about the date hereof,


leading toward the completion of a refinery contract by December 31, 2012.


(c) Customs Duties on Natural Gas shall be determined in accordance with the





provisions of Section 15.2.


17.2 Exhibit I is a statement of the equipment that, as of the execution date of this Contract,


the Parties consider will be required to be imported for Hydrocarbons Operations. The


Parties acknowledge and agree that such list is not exhaustive and that further items


shall be added to the list at the Contractor's request in writing, provided the Inter-


ministerial Commission approves of such request (such approval not to be unreasonably


withheld).





ARTICLE XVIII





EXCHANGE AND CURRENCY CONTROLS





The Contractor shall be subject to the applicable exchange control legislation and regulations in


effect from time to time in Afghanistan, provided, however, that:


(a) the Contractor shall be entitled to retain outside Afghanistan, and freely transfer,


foreign currency received by it outside of Afghanistan, including the proceeds of


sales of Hydrocarbons to which it is entitled hereunder;


(b) the Contractor shall be entitled to export from Afghanistan, free of limitation or


restriction, in the same currency as that in which the investment was made, the














43


 Amu Darya Basin EPSC





funds held by it, provided, however, that this subsection (b) shall not impose any


obligation upon the Ministry to provide foreign currency to the Contractor;


(c) in the matter of purchase and sale of currency within Afghanistan, whether of


Afghanistan or other countries, the rates of exchange shall not be less favourable


to the Contractor than those granted to any investor that introduces or transfers


foreign currency into Afghanistan. Any gain or loss resulting from the exchange


of currency in connection with Hydrocarbons Operations shall result in a


corresponding reduction or increase, as the case may be, in the Hydrocarbons


Operations Expenditures recoverable by the Contractor in accordance with


Section 10.1(b);


(d) no restriction shall be placed on the importation by the Contractor of funds


necessary for carrying out Hydrocarbons Operations under this Contract; and


(e) the Contractor shall have the right to pay directly outside of Afghanistan from its


offices abroad for purchases or services for Hydrocarbons Operations hereunder,


provided that no such payments shall be made to Afghan citizens or to firms using


Afghanistan as their main base of operations, whether natural or juridical,


contrary to the laws of Afghanistan.


ARTICLE XIX


TREATMENT UNDER INTERNATIONAL LAW


The treatment accorded to the Contractor by Afghanistan shall not be less favourable than the


treatment required to be accorded by Afghanistan to foreign investors under applicable law.


ARTICLE XX


TRAINING, EMPLOYMENT AND LOCAL CONTENT


20.1 Training of Afghan Nationals. The Contractor agrees to as far as possible train and


employ qualified Afghan nationals in the Hydrocarbons Operations and after Initial


Commercial Production will undertake the schooling and training of Afghan nationals


for staff positions, including administrative and executive management positions. The


Contractor will require its contractors and subcontractors to do the same. The


Contractor undertakes to give priority to Afghan nationals with equivalent qualifications


and experience and actively search for Afghan nationals in order to meet the training


and employment obligations established in the prevailing legislation and to gradually


replace its expatriate staff with qualified Afghan nationals as they become available. An


annual programme for training and phasing-in of Afghan nationals shall be established


by the Contractor and shall be submitted for approval to the Ministry. Such programme


shall be included in the Work Programmes submitted by the Contractor pursuant to


Section 5.3. Within thirty (30) Days after the end of each Year, the Contractor shall


submit a written report to the Ministry describing the number of personnel employed,


 Amu Darya Basin EPSC





their nationality, their positions and the status of training programmes for Afghan


nationals.


20.2 Training of Ministry Personnel. The Contractor shall also be required to establish a


programme, reasonably satisfactory to the Ministry, to train personnel of the Ministry to


undertake skilled and technical jobs in Hydrocarbons Operations for the State. Such


programme shall include provisions for involving representatives of the Ministry in the


preparation of the Work Programmes and Work Programme Budgets as required by


Section 5.3(c).


20.3 Minimum Expenditures. The Contractor shall expend a minimum of fifty thousand


U.S. Dollars (US$ 50,000.00) in the first Year for training pursuant to Sections 20.1 and


20.2. Thereafter the minimum expenditure for training pursuant to Sections 20.1 and


20.2 shall be increased by five thousand U.S. Dollars (US$ 5,000.00) annually. All


training costs pursuant to Sections 20.1 and 20.2 shall be recoverable by the Contractor


in accordance wih Exhibit C, Accounting Procedures.


20.4 Long Range Plan and Budget. A long range plan and budget for the training


programmes described in Sections 20.1 and 20.2 is attached hereto as Exhibit F. All


annual training programmes and budgets therefor shall be consistent with such long


range plan and budget.


ARTICLE XXI


PURCHASES IN AFGHANISTAN


21.1 Local Preference. In procurement, the Contractor shall give preference to goods that


are produced or available in Afghanistan and services that are rendered by Afghan


nationals and companies, provided that such goods and services are similar in quality,


quantity and price to imported foreign goods and services and available at the time. The


Contractor shall, upon request of the Ministry, develop local preference targets and


specific plans to meet such targets. Such plans shall be provided as part of the


Contractor’s Work Programmes to be approved by the Ministry and shall include, but


not be limited to, timelines, key milestones and formal review dates, a description of


potential areas of the Contractor’s business in which to integrate local preferences, and a


summary of the Contractor’s local preference initiatives and results, including the then


current percentage and sources of Afghan goods and services used in the Contractor’s


Hydrocarbons Operations.


21.2 Equivalency. Locally produced or available equipment, materials and supplies shall be


deemed equal in price to imported items if the local cost of such locally produced or


available items at the Contractor’s operating base in Afghanistan is not more than


fifteen percent (15%) higher than the cost of such imported items before Customs


Duties but after transportation and insurance costs have been added.

















45


 Amu Darya Basin EPSC





ARTICLE XXII


JOINT DEVELOPMENT / UNITIZATION


22.1 Joint Development in Other Awarded Areas. If a Field is designated within the


Contract Area and such Field extends beyond the Contract Area to other areas of


Afghanistan over which other parties have the right to conduct exploration, development


and production operations, the Ministry may require that the development of the Field


and the production of Hydrocarbons therefrom be carried out in collaboration with the


other contractors. The same rule shall be applicable if deposits of Hydrocarbons within


the Contract Area, although not equivalent to a Commercial Discovery if developed


alone, would be deemed to be a Commercial Discovery if developed with those parts of


the deposits that extend to areas controlled by other contractors.


22.2 Joint Development in Non-Awarded Areas. If a Hydrocarbons deposit extends onto a


non-awarded block or if deposits of Hydrocarbons within the Contract Area, although


not equivalent to a Commercial Discovery if developed alone, would be deemed to be a


Commercial Discovery if developed with those parts of the deposits that extend to such


areas, the Contractor shall promptly notify the Ministry. The Ministry may decide if


and how the non-awarded area shall be awarded, and any terms and conditions for such


joint development.


22.3 Collaborative Proposals. The Contractor shall collaborate with other contractors in


preparing a collective proposal for common development and production of the deposits


of Hydrocarbons for approval by the Ministry.


22.4 Ministry Proposals. If the proposal for common development and production has not


been presented within ninety (90) Days of the request described in Section 22.1, or if the


Ministry does not approve such proposal, the Ministry may prepare or cause to be


prepared, for the account of the Contractor and the other contractors involved, a


reasonable plan for common development and production. If the Ministry adopts such


plan, the Contractor shall comply with all conditions established in such plan.


22.5 International Coordination. This Article XXII shall also be applicable to Discoveries


of Hydrocarbons within the Contract Area which extend to areas that are not within the


dominion of Afghanistan, provided that in these cases the Government shall be


empowered to impose the special rules and conditions which may be necessary to


satisfy obligations under any agreements with international organizations or adjacent


states with respect to the development and production of such Hydrocarbons. If a


Liquid Hydrocarbons deposit extends onto the territory of another state, the Ministry


will assist the Contractor in, as far as possible, negotiating an agreement with the


government of that other state on the most efficient co-ordination of Hydrocarbons


Operations in connection with the Liquid Hydrocarbons deposit as well as on the


apportionment of the Liquid Hydrocarbons deposit. This shall apply similarly when, in


the case of several Liquid Hydrocarbons deposits, joint Liquid Hydrocarbons activities


would obviously be more efficient.











46


 Amu Darya Basin EPSC





22.6 Unitization. Within ninety (90) Days following the approval or adoption of a


unitization plan for common development and production by the Ministry, the


Contractor shall proceed to operate under any such plan. If a clause of a cooperative or


unitary development and production plan which has been approved or adopted by the


Ministry, and which by its terms affects the Contract Area or a part of the same,


contradicts a clause of this Contract, the clause of the cooperative or unitary plan shall


prevail.





ARTICLE XXIII


HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION


23.1 Compliance with Laws. In the conduct of the Hydrocarbons Operations, the


Contractor shall comply, and shall require its subcontractors to comply, with any


applicable laws and regulations, including the Hydrocarbons Law and any regulations


issued thereunder, relating to the protection of the environment and the health, safety


and welfare of workers and the public.


23.2 Oversight and Rehabilitation. Prior to the commencement of Hydrocarbons


Operations in a Designated Field or other area of a Block outside of a Designated Field,


the Contractor shall undertake and complete a Baseline Environmental Assessment of


the Designated Field or other area consistent with International Best Practices and


applicable laws and noting any existing deficiencies, including any environmental


contamination existing in the Designated Field or other area on or prior to the


commencement of Hydrocarbons Operations. In the course of the Hydrocarbons


Operations, the Contractor shall consider, investigate, assess and manage the impact of


the Hydrocarbons Operations on the environment and the socio-economic conditions of


any Person who might directly be affected thereby. Furthermore the Contractor shall,


upon completion of any Hydrocarbons Operations, rehabilitate as far as reasonably


practicable the environment affected thereby to its natural or predetermined state or to


land use.


23.3 Health and Safety Plan. The Contractor shall take all necessary measures to secure the


health, safety and welfare of individuals. Prior to the commencement of Hydrocarbons


Operations in the Contract Area, the Contractor shall establish, submit to the Ministry


and publish, implement and enforce a health and safety plan throughout all


Hydrocarbons Operations, which shall include the following measures:


(a) all equipment and facilities shall afford reasonable safety from accidents, and


shall be inspected by a qualified person as often as may be necessary to ensure the


safety of the equipment or facility and compliance with the relevant laws and


regulations;


(b) the person performing the inspection shall make a written report of the inspection


and shall forward a copy of the report to the Ministry, and any equipment found to


be defective or unsafe shall be repaired or replaced;











47


 Amu Darya Basin EPSC





(c) adequately designed, tested and maintained blowout prevention equipment shall


be employed in connection with the drilling, testing, completing or working over


of any Well;


(d) adequate, easily accessible and properly maintained fire fighting equipment shall


be provided at all operational locations where the potential of fire exists, the


personnel shall be trained in the effective use of such equipment and fire fighting


contingency procedures shall be published and displayed around the site;


(e) all completed Wells shall be reasonably protected and a notice warning persons of


the danger that exists shall be prominently displayed;


(f) all personnel shall wear clothing and footwear suitable for the operational


conditions and the work being performed, including, where appropriate, industrial


protective equipment, such as helmets, eye protectors, gloves and hearing


protection equipment;


(g) where appropriate, notices in English and in the prevalent language of the area of


operations shall be displayed at the operational sites warning all personnel of any


potential danger and of the associated safety requirements;


(h) adequate first aid equipment and personnel shall be available on all operational


sites while work is in progress and procedures shall be established for the


transportation of persons needing prompt medical attention;


(i) reliable communication facilities shall be provided at all operational locations;


and


(j) all aircraft operations shall be conducted in accordance with existing laws of


Afghanistan.


23.4 Manuals. The Contractor shall prepare and submit to the Ministry for approval prior to


the commencement of Hydrocarbons Operations:


(a) a manual of instructions for the safety operations which shall detail procedures to


be followed to safeguard the health and safety of all personnel associated with all


foreseen operations and to safeguard the environment;


(b) a manual of response to emergencies which may occur, including the escape or


ignition of Hydrocarbons, serious injuries, and other conditions requiring the


evacuation of the site; and


(c) a manual of procedures for the maintenance of Well control which shall detail


procedures and equipment which will be used in the event of a blowout.


All appropriate personnel at the site shall be made aware of and be trained in the


procedures detailed in the manuals.











48


 Amu Darya Basin EPSC





23.5 Additional Protective Measures. In addition to the requirements for the protection of


the environment as is provided in the environmental management plan approved by the


Ministry, the Contractor shall, when carrying out Hydrocarbons Operations, take all


practical measures to:


(a) prevent the pollution of any water well, spring, river, lake or reservoir by the


escape of Hydrocarbons, drilling fluids, chemical additives or any other waste


product or effluent;


(b) where pollution occurs, treat or disperse it in an environmentally acceptable


manner;


(c) dispose of all waste liquids used during the drilling of a Well in a manner


approved by the Ministry;


(d) properly secure permanent installations;


(e) remove all worn, damaged or surplus equipment and supplies, and other rubbish


from site to an approved waste disposal site to be reused or recycled if possible;


and


(f) on the completion or abandonment of a Well, promptly restore the Well site and


any surrounding area as near to the state existing prior to the conduct of


Hydrocarbons Operations as may practically be done and render that area safe.


23.6 Minimization of Flaring. When carrying out Hydrocarbons Operations, the Contractor


shall furthermore take all practical measures to minimize flaring of any Natural Gas by


re-injecting such Natural Gas into suitable strata or underground storage in accordance


with International Best Practices or in any other approved scheme. The Contractor shall


seek the Ministry’s approval to flare any such gas which cannot be re-injected due to


specific reservoir considerations or for other reasons that are accepted internationally or


in an approved scheme in line with International Best Practices. Before flaring, the


Contractor shall take reasonable measures to ensure the extraction of Natural Gas and


other liquids contained in the Associated Gas if the Ministry and the Contractor have


agreed that such extraction is economically justifiable. Notwithstanding anything in this


Article XXIII to the contrary, Associated Gas may be flared if necessary for the


conducting of Well and production tests and during any emergency.


23.7 Remedial Measures. If the Ministry reasonably determines that any works or


installations erected by the Contractor or any operations conducted by the Contractor


endanger or may endanger persons or third party property or cause pollution or harm


wildlife or the environment to an unacceptable degree, or are otherwise not in


compliance with the provisions of the applicable laws and regulations or of this


Contract, the Ministry may require the Contractor to take remedial measures within a


reasonable period established by the Ministry and to repair any damage to the


environment. If the Ministry deems it necessary, it may also require the Contractor to


discontinue Hydrocarbons Operations in whole or in part until the Contractor has taken


such remedial measures or has repaired any damage. The period of discontinuance shall








49


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not exceed six (6) Months. In the event that the Contractor fails to take the remedial


measures required by the Ministry within the time period established by the Ministry,


the Ministry may carry out such remedial measures for the Contractor's account.


23.8 Reporting of Accidents or Hazards. The Contractor shall as soon as possible report


any serious or fatal accident that occurs, or any imminent hazard that arises, in


connection with the Hydrocarbons Operations by the most rapid means of


communication to the Ministry and the local State administrative authorities under


whose jurisdiction the accident or hazard occurs or arises.


23.9 Emergency Measures. In case of imminent threat to life, property, or the environment,


the Contractor shall take every measure possible in accordance with the risk


management plan to mitigate or avoid such imminent threat and such immediate action


as is necessary to preserve life, prevent destruction of property, or protect the


environment. The Contractor shall as soon as possible thereafter notify the Ministry of


the action taken. The costs incurred by the Contactor in relation to such action shall be


recoverable as Hydrocarbons Operations Expenditures. The Ministry shall take such


measures to assist in efforts to mitigate or avoid such imminent threat as it deems


appropriate and issue such orders and/or instructions as it deems necessary.


ARTICLE XXIV


DISPUTE SETTLEMENT/ ARBITRATION





24.1 Arbitration. Subject to Section 24.3, any dispute, controversy or claim arising out of or


relating to this Contract which shall not be determined by mutual agreement within


forty-five (45) Days from the date on which the existence of a dispute is notified in


writing by one Party to the other shall be settled by arbitration initiated by either Party


by submission to the International Centre for Settlement of Investment Disputes


(ICSID) pursuant to the Convention on the Settlement of Investment Disputes between


States and Nationals of other States as of March 18, 1965 (ICSID Convention) and the


arbitration rules promulgated thereunder. For the avoidance of doubt, the State hereby


expressly consents to the submission of any dispute which may arise under this Contract


to ICSID for settlement by arbitration in accordance with Article 25 (1) of the ICSID


Convention. For the purpose of Article 25 (2) (b) of the ICSID Convention, the


Contractor shall be treated as a national of a state other than Afghanistan. The number


of arbitrators shall be three. The arbitration shall be conducted in the English language.


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. The award rendered shall be final


and conclusive. Judgment on the award rendered may be entered in any court having


jurisdiction or application may be made in such court for a judicial acceptance of the


award and an order of enforcement, as the case may be. As far as practicable, both the


Contractor and the Ministry shall continue to implement this Contract during pendency


of any dispute.














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24.2 Sovereign Immunity. The Ministry hereby waives any rights it may have now or in the


future to claim sovereign immunity for itself or any of its assets to the fullest extent


permitted by the laws of any applicable jurisdiction. This waiver includes a waiver of


any claim to immunity from any legal proceeding commenced in connection with this


Contract including any application for interim relief and any action to enforce or


execute any award or judgment.


24.3 Expertise Proceedings. In the event of any dispute arising out of or in connection with


Section 6.4, Section 7.1(j)(iii), or Section 36.2 of this Contract, the Parties agree to


submit the matter, in the first instance, to administered expertise proceedings in


accordance with the Rules for Expertise of the International Chamber of Commerce.


The determination of the expertise proceedings shall be non-binding and the


proceedings and all documents used or produced in connection therewith shall be


confidential and may not be used in connection with any arbitration or judicial


proceeding, whether pursuant to Section 24.1 or otherwise. If following such


administered expertise proceedings the dispute has not been resolved by mutual


agreement of the Parties it shall, after notification from the International Centre for


Expertise of the termination of the expertise proceedings, be finally settled by


arbitration conducted in accordance with Section 24.1.


ARTICLE XXV


TERMINATION, REVOCATION AND RENEGOTIATION





25.1 Termination for Default. In accordance with the provisions of the Hydrocarbons Law,


the Ministry shall have the right to terminate this Contract upon giving thirty (30) Days


written notice of its intention to do so if the Contractor: (a) fails to provide or maintain


in effect such guarantees required by law or under this Contract, including the Financial


Guarantee, on the due date for providing such guarantees; (b) fails to make any


monetary payment required by law or under this Contract, including any payment in


respect of the purchase price of the Hydrocarbons deemed sold by the Ministry to the


Contractor pursuant to Article X, for a period of thirty (30) Days after the due date for


such payment; (c) fails to comply with any other material obligation that it has assumed


under this Contract, including the obligation to perform the Minimum Exploration


Programme; (d) fails to comply with the Hydrocarbons Law or regulations thereunder or


fails to comply in any material respect with any other lawful acts, regulations, orders or


instructions issued by the Government or any department or agency of the Government;


or (e) becomes bankrupt, or goes into liquidation because of insolvency or makes a


composition with its creditors; provided, however, that a termination for failure to


perform part of the Minimum Exploration Programme shall only apply in respect of the


Block or Blocks (excluding any Fields therein) to which the unperformed obligation


relates.


25.2 Cure Period. If the circumstance or circumstances that result in termination under


Section 25.1 are remedied by the Contractor (i) in the case of Section 25.1(a) or (b),


within the sixty (60) Day period following the notice of termination as aforesaid or (ii)











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in the case of Section 25.1(c) or (d), within the ninety (90) Day period following the


notice of termination as aforesaid, such termination shall not become effective.


25.3 False or Fraudulent Information. If the Ministry finds that the Contractor has


presented false or fraudulent information or information has been withheld by the


Contractor, the Ministry may require the Contractor to provide any necessary


information and explanation. If the Contractor fails to provide such information or the


information and/or explanations provided are unsatisfactory, and the incorrect


information provided or the omission to provide information constitutes a material


breach of Contract, the Contract may be revoked and the State is entitled to


compensation for losses incurred as a result of the breach of contract or other remedies


for breach of contract. Likewise, where the Contractor otherwise repeatedly or


materially violates the Contract, or is in breach of the prohibition of bribing State


Officials pursuant to Article 69 of the Hydrocarbons Law, the Contract may be revoked


and the State is entitled to compensation for losses incurred as a result of the breach of


contract or other remedies for breach of contract. In case of revocation, the Ministry


shall publish reasons justifying revocation of the Contract and shall send a copy thereof


to the Contractor. In such case, the rights and privileges granted to the Contractor shall


be revoked, and the Contract Area shall be forfeited as well as the Financial Guarantee


in accordance with its terms.


25.4 Continuing Obligations. The termination or revocation of this Contract for whatever


reason shall be without prejudice to the obligations incurred and not discharged by the


Contractor prior to the date of termination. In the case of any termination, the Ministry


and the Contractor shall promptly agree on a plan for take-over and/or abandonment.


The Contractor is liable to pay compensation for any damage incurred in the Contract


Area, including the environment.


25.5 Continuing Performance. In the event of termination pursuant to Section 25.1,


Section 25.3 or Section 25.8, the Ministry may require the Contractor, for a period not


to exceed one hundred eighty (180) Days from the effective date of termination, to


continue, for the account of the Ministry, Liquid Hydrocarbons or Natural Gas


production activities until the right to continue such production has been transferred to


another entity. During such period, the Contractor shall be entitled to its share of


Hydrocarbons production as determined in accordance with Section 10.1. Upon


termination, the provisions of Sections 4.4 and 4.5 shall apply.


25.6 Mitigating Environmental Damages or Hazards. Within ninety (90) Days after the


termination or revocation of this Contract pursuant to Section 25.1, Section 25.3 or


Section 25.8, unless the Ministry has granted an extension of this period, the Contractor


shall complete any reasonably necessary action as directed by the Ministry to avoid


environmental damage or a hazard to human life or third-party property.


25.7 Transfer of Ownership. Upon the termination or revocation of this Contract for any


reason, ownership of all pipes, pipelines, installations, facilities, downhole well


equipment, wellhead equipment and other equipment or materials within the geographic


limits of the Contract Area shall be transferred to the Ministry, other than leased











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equipment and other Contractor equipment which can be removed without damage to


the Contract Area.


25.8 Area Closed to Hydrocarbons Operations. If, after the Contractor has signed this


Contract, the State declares or designates an area as disputed, prohibited or unauthorised


in accordance with Article 15 of the Hydrocarbons Law, then the Contractor shall be


entitled to terminate or re-negotiate this Contract. The Contractor shall also be entitled


to damages for losses incurred due to such declaration or designation.


ARTICLE XXVI


BOOKS, ACCOUNTS AND AUDITS;


RECORDS, REPORTS AND INSPECTIONS


26.1 Maintenance of Accounts, Books and Records. The Contractor shall, in accordance


with prevailing legislation and regulations and International Financial Reporting


Standards, be obliged to keep and maintain complete accounts, books and records at its


registered office in Afghanistan reflecting all Hydrocarbons Operations, Hydrocarbons


Operations Expenditures and Gross Contractor Revenues consistent with generally


accepted procedures and standards in the international petroleum industry and in


accordance with this Contract and the Accounting Procedures.


26.2 Submission of Accounts. No later than June 30 each Year, the Contractor shall submit


to the Ministry detailed accounts showing all Hydrocarbons Operations Expenditures


and all Gross Contractor Revenues during the past Year. Before submission to the


Ministry, the accounts shall be audited and certified by an independent chartered


accountant or certified public accountant acceptable to both Parties, at the expense of


the Contractor (such expense to be considered as Hydrocarbons Operations


Expenditures recoverable by the Contractor in accordance with Section 10.1(b)). It is


understood that the Ministry retains the authority to review and audit the Contractor’s


accounts, books and records with respect to Hydrocarbons Operations conducted


hereunder either directly or through an independent accountant designated by the


Ministry.


26.3 Inspection Rights. The Ministry shall have full and complete access to the Contract


Area at all reasonable times with a right to observe Hydrocarbons Operations and shall


have the right to inspect all accounts, books, records, assets and data kept by the


Contractor relating to Hydrocarbons Operations and this Contract, such observations


and inspections to be conducted at the expense of the Ministry. The Ministry may, upon


reasonable advance notice to the Person-in-Charge, perform examinations, surveys,


drawings, tests and analyses, inspect and make copies for the purpose of implementing


this Contract. In doing so, the Ministry shall not unduly interfere with the Contractor’s


Hydrocarbons Operations. The Ministry shall be entitled to make reasonable use of the


equipment and instruments of the Contractor for purposes of this Section 26.3, provided


that no damage to the equipment or instruments or impediment to the Hydrocarbons


Operations hereunder shall result from such use. The Ministry shall indemnify and








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reimburse the Contractor for any loss or damage that may in fact result from any such


use of equipment and instruments. The Ministry shall be given reasonable assistance by


the Contractor for such functions, and the Contractor, the Person-in-Charge and the


Contractor’s representatives shall be required to provide the Ministry with all reasonable


facilities and assistance for the effective exercise of its functions, inter alia by affording


to the Ministry all facilities and privileges afforded to its own personnel in the field


including the use of available office space and housing free of charge.


26.4 Current Recordkeeping and Reporting. The Contractor shall prepare and maintain


accurate and current records of its activities in the Contract Area. The Contractor shall


furnish the Ministry all information, reports and data concerning its activities and


operations under this Contract at such times and with such intervals as are required


under the Hydrocarbon Law and any regulations issued thereunder.


26.5 Samples. The Contractor shall save and keep for the duration of this Contract all


unused cores and samples taken from the Wells drilled, which shall be forwarded to the


Ministry or its representatives at such time and in the manner directed by the Ministry.


All cores and samples acquired by the Contractor shall be available for inspection by the


Ministry or its representatives at all reasonable times. Unless previously forwarded to


the Ministry pursuant to instructions given under this Section 26.5, the Contractor shall


forward to the Ministry all remaining cores and samples upon expiration or termination


of this Contract. Unless otherwise agreed to by the Ministry, in the case of exporting


any rock or Hydrocarbons samples from Afghanistan for the purpose of testing and


analysis, samples equivalent in size and quantity shall, before such exportation, be


delivered to the Ministry.


26.6 Exportation of Original Data. Originals of records and other data can be exported


only with the prior permission in writing of the Ministry; provided, however, that any


data which must be processed or analyzed outside Afghanistan may be exported if a


comparable record is maintained in Afghanistan and such exported records and data,


including processed and interpreted data, are repatriated to Afghanistan. Response to a


request for such permission shall be given without undue delay.


26.7 Ownership of Data. The Contractor shall provide to the Ministry in appropriate form


all original data resulting from Hydrocarbons Operations, including geological,


geophysical, petrophysical, engineering, Well logs, production data and completion


status reports and any other data (including derivative data) which the Contractor may


compile during the term hereof, including all reports, analyses, interpretations, maps and


evaluations thereof prepared by the Contractor and any contractors, subcontractors or


consultants to the Contractor or by its Affiliated Entities, and cuttings of all samples that


have been obtained or compiled during the term hereof (“Data”). The State shall have


title to all Data. The Data shall not be disclosed to third parties by the Ministry prior to


relinquishment of the area to which they relate, or prior to the end of the Exploration


Phase if such area is not sooner relinquished, provided, however, that the Ministry may


make copies available to professional consultants, legal counsel, accountants,


underwriters, lenders and such Government entities as may need to be made aware


thereof or have the right to require disclosure. In any event, the Contractor may retain








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copies of all Data. The Contractor shall not disclose the Data to any third parties


without the Ministry’s prior written consent, provided, however, that the Contractor may


make copies available to professional consultants, legal counsel, accountants,


underwriters, lenders, its Affiliated Entities and contractors and subcontractors of the


Contractor and such government entities as may need to be made aware thereof or have


the right to require disclosure. Any Data that are disclosed by the Ministry or the


Contractor to third parties pursuant to this Section 26.7 shall be disclosed on terms that


ensure that the Data are treated as confidential by the recipient. To the extent that there


is any inconsistency between the provisions of this Section 26.7 and the provisions of


Article XXXIII, the provisions of this Section 26.7 shall govern except to the extent that


application of this Section 26.7 would violate applicable law.





ARTICLE XXVII





INSURANCE AND INDEMNIFICATION








27.1 Insurance. To ensure that the Contractor shall meet its obligations to third parties, or to


Government agencies, that might arise in the event of damage or injury (including


environmental damage or injury and cleanup of accidents) caused by Hydrocarbons


Operations, notwithstanding that the damage is accidental, the Contractor shall maintain


in force a third-party liability insurance policy through an internationally recognized


insurance company reasonably acceptable to the Ministry covering the activities of


itself, its contractors and subcontractors and the employees of all such parties. Such


insurance policy shall include the Ministry as an additional insured, shall waive


subrogation against the Ministry, and shall provide that it may not be cancelled except


upon thirty (30) Days prior written notice to the Ministry. A certificate evidencing such


insurance policy shall be furnished to the Ministry within ninety (90) Days of the


Effective Date. The limits, coverage, deductibles and other terms thereof shall be


subject to approval in writing by the Ministry. To the extent that such third party


liability insurance is unavailable or is not obtained, or does not cover part or all of any


claims or damage caused by or resulting from Hydrocarbons Operations, the Contractor


shall remain fully responsible and shall defend, indemnify and hold the Ministry


harmless against all such claims, losses and damages of any nature whatsoever.


27.2 Indemnification. Subject to Section 27.3, the Contractor shall indemnify, defend and


hold the Government harmless against all claims, losses and damages of any nature


whatsoever, including, without limitation, claims for loss or damage to property or


injury or death to persons, caused by or resulting from any Hydrocarbons Operations


conducted by or on behalf of the Contractor, provided that the Contractor shall not be


held responsible to the Government under this Section 27.2 for any loss, claim, damage


or injury caused by or resulting from any negligent action of personnel of the


Government or from any environmental contamination existing in the Contract Area on


or prior to the Effective Date. The Ministry shall be solely responsible for its use of and


or reliance upon any interpretations, reservoir descriptions, recommendations or advice


furnished by the Contractor, the accuracy, correctness or completeness of which has not


been expressly warranted by the Contractor.











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27.3 Limitation on Liability. Neither Party shall be liable to the other Party (and for the


benefit of the Contractor, the Ministry agrees that no subcontractor of the Contractor


shall be liable to the Ministry) for reservoir or formation damage, inability to produce,


loss of use or disposal of Hydrocarbons, loss or deferment of income, loss of profits,


punitive damages, exemplary or indirect damages, business interruption damages or loss


of goodwill arising out of a breach of this Contract or in connection with Hydrocarbons


Operations, including under any indemnity provision under this Contract, unless such


Party has caused the damages or losses by its willful misconduct or gross negligence.


Reference to “willful misconduct or gross negligence'’ means (a) a marked and flagrant


departure from the standard of conduct that a reasonable and prudent person acting in


such circumstances would have been expected to display at the time of the purported


misconduct, or such wanton and reckless conduct as constitutes in effect an utter


disregard for harmful, foreseeable, and avoidable consequences; or (b) an act or failure


to act with knowledge or reckless disregard of the harmful, foreseeable, and avoidable


consequences. Nothing contained in this Section 27.3 shall limit any obligations of


either Party under applicable law or regulation in respect of its activities or limit any


remedies available to any regulatory agency (except for the Contractor’s limitation of


liability under this provision).


ARTICLE XXVIII


ASSIGNMENT AND SUBCONTRACTORS





28.1 Assignment. Subject to Article XXXVI, the Contractor may not sell, assign, transfer,


convey, pledge or otherwise dispose of any part or all of its rights or obligations under


this Contract to any person or entity, unless approved by the Council of Ministers and


subsequently authorised by the Ministry. In the case of any assignment authorised


under this Section 28.1, the assignor shall provide to the Ministry an unconditional


undertaking by the assignee to assume all obligations of the assignor under this


Contract. The assignment, encumbrance or transfer of this Contract or interests


hereunder shall not affect any liability that the assignor has incurred prior to the date


upon which such assignment, encumbrance or transfer takes effect. Notwithstanding


such undertaking, the assignor shall remain jointly and severally liable with the assignee


for performance of the obligations of the assignor unless the assignor assigns its entire


interest under this Contract.


28.2 Indirect Transfers; Change of Control. The Ministry shall have the right to terminate


this Contract upon notice to the Contractor if, without the prior approval of the Council


of Ministers and subsequent approval of the Ministry: (i) the Contractor, CNPCI, or


Watan shall, during the life of this Contract, undergo, directly or indirectly, a change in


control (it being understood that for this purpose “control” means the power, directly or


indirectly, to direct or change its management or policies, whether through ownership of


shares or other voting securities or by any other means); or (ii) CNPCI, Watan or any of


their respective Affiliated Entities sells, assigns, transfers, conveys, pledges or otherwise


disposes, directly or indirectly, of any interest in the Contractor. Notwithstanding the


foregoing, nothing in this Article XXVIII shall prohibit CNPCI, Watan or any other











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entity holding an ownership interest in the Contractor from entering into any merger,


acquisition or other business combination.


28.3 Application to the Ministry. Any proposed assignment, change of control or reduction


of ownership interest shall be notified to the Ministry in advance together with an


application which shall include:


(a) the name, address and nationality of the third party;


(b) in the case of the third party organized as a corporation:


(i) its place of registration or incorporation, its principal place of business, the


names, addresses and nationality of the directors, principal officers and


authorised signatories of the company and its capital structure;


(ii) the corporate structure of the third party, its parent company, if any, and


other Affiliated Entities;


(iii) financial information on the third party and its parent company, if any,


including annual reports, audited balance sheets and profit and loss


statements for the past three years, and any reports of relevance for the


Hydrocarbons Operations which the third party or its parent company may


have filed with government agencies responsible for securities regulation


during that period;


(c) how the Hydrocarbons Operations would be financed;


(d) the third party’s previous experience and technical expertise in Hydrocarbons


Operations, specifically including the third party’s experience in developing


countries;


(e) information concerning experience and technical competence of significance to


the area or areas to which an application applies;


(f) a description of the organization and expertise which the third party will have


available in Afghanistan and elsewhere for activities in connection with the


Contract Area;


(g) a description of the relevant equipment, machinery, tools and personnel that will


be available for the Hydrocarbons Operations of that third party;


(h) an indication of who in Afghanistan will be the representative in relation to the


authorities;


(i) a description of the third party’s experience and procedures that will apply for


securing the health, safety and welfare of persons involved in or affected by the


Hydrocarbons Operations;











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(j) a description of the third party’s experience and procedures that will apply for


protecting the environment, preventing, minimizing and remedying pollution and


other harm from the Hydrocarbons Operations;


(k) proposals with respect to the training of Afghan nationals and expenditures to be


incurred therefor;


(l) such guarantees required pursuant to Article 40, Section 14 of the Hydrocarbons





Law and as required herein; and


(m) such other particulars as the Ministry may reasonably require to be submitted


within a reasonable specified timeframe.


If such further information is not submitted within the specified timeframe, the


application shall be deemed to be withdrawn. The Ministry will not unreasonably


withhold its consent to any such assignment, change of control or reduction in ownership


interest, except that the Ministry may in its sole discretion withhold any such consent in


the event of any transaction which would result in the ultimate parent entity of CNPCI


owning, directly or indirectly, less than fifty-one percent (51%) of the Contractor at any


time during the Exploration Phase.


28.4 Subcontractors. The provisions of this Article XXVIII shall not apply to the


engagement of subcontractors that are engaged to perform special operations or provide


services. The Contractor undertakes to provide copies of all such subcontracts to the


Ministry and the Ministry of Finance.


ARTICLE XXIX





LAW OF THE CONTRACT








This Contract shall be governed by, construed under and interpreted in accordance with the laws


of Afghanistan, as such laws may be amended from time to time.


ARTICLE XXX


FORCE MAJEURE





Except as otherwise provided in this Article, each Party shall be excused from complying with,


or permitted to delay its performance of, this Contract, except for the payment of money due and


only with respect to those terms that are directly affected by the event in question, for so long as


such compliance is prevented or delay in performance is caused by Force Majeure. ‘‘Force


Maieure” shall mean any act or cause that is unforeseeable, unavoidable and reasonably beyond


the control of such Party and does not result from the fault or negligence of such Party, including


natural catastrophes, fires, earthquakes, strikes (except strikes by the Contractor’s employees),


wars (declared or undeclared), acts of terrorism, and acts of God. It is expressly understood that


Force Majeure shall not mean economic hardship or change in market conditions. In the event








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that either Party hereto is rendered unable, wholly or in part, by any of these causes to carry out


its obligations under this Contract, such Party shall give notice and details of Force Majeure in


writing to the 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, and the duration of any period specified in this Contract for carrying out the


obligations affected by any of the aforesaid causes shall be extended for a period equal to the


impact of delay caused by the Force Majeure occurrence; and the term of this Contract shall be


extended accordingly, provided that such extension does not violate the laws of Afghanistan.


The Party claiming Force Majeure shall use all reasonable efforts to remove or correct the event


that gave rise to the Force Majeure. If the duration of a Force Majeure event exceeds three


hundred and sixty-five (365) Days, either Party shall have the right, upon notice to the other, to


terminate this Contract with respect to the part or parts of the Contract Area affected.


ARTICLE XXXI


ENTIRE CONTRACT AND AMENDMENTS





31.1 Entire Agreement. This Contract embodies the entire agreement and understanding


between the Contractor and the Ministry 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 Contract.


31.2 Amendment. This Contract may not be amended, modified, varied or supplemented


except by mutual consent in writing, executed, endorsed and approved in accordance


with the Flydrocarbons Law, and signed by the Contractor and the Ministry.


ARTICLE XXXII





WAIVERS: CUMULATIVE REMEDIES





32.1 Express Waiver Required. Performance of any condition or obligation to be


performed hereunder shall not be deemed to have been waived or postponed except by


an instrument in writing signed by the Party that is claimed to have granted such waiver


or postponement.


32.2 No General Waivers. No waiver by either Party of any one or more obligations or





defaults by the other Party in the performance of this Contract shall operate or be


construed as a waiver of any other obligations or defaults, whether of a like or of a


different character.


32.3 Cumulative Remedies. All rights, powers, and remedies provided hereunder are





cumulative and not exclusive of any other rights, powers or remedies provided


hereunder or under applicable laws.

















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ARTICLE XXXIII





TRANSPARENCY IN AFGHAN HYDROCARBONS OPERATIONS





33.1 Transparency. The Ministry shall have the right to keep a copy of this Contract in the


Hydrocarbons Register, publish and keep publicly available and distribute to provincial


offices such information and reports on the Contract, related documents and the


Contractor as is required pursuant to the Hydrocarbons Law, any regulations issued


thereunder and internationally accepted norms relating to transparency in the extractive


industries, including production and financial data concerning all revenues from income


taxes, production shares, royalties, fees and other taxes and other direct or indirect


economic benefits received by the Ministry and all amounts paid by the Contractor


under or in relation to this Contract.


33.2 Trade Secrets. Notwithstanding the above, if such information concerns technical





devices, production methods, business analyses and calculations and any other industrial


and trade secrets and are of such a nature that others may exploit them in their own


business activities, the Ministry may approve that such information may rightfully be


subject to confidentiality for a certain period of time.


33.3 Press Release. All press releases and information intended to be reported to news


media relating to the contracting and/or Contract execution and/or Hydrocarbons


Operations shall be subject to prior mutual approval of both the Ministry and the


Contractor. Notwithstanding the foregoing, the Ministry may without the Contractor’s


consent report to news media or other public sources any information that the Ministry


is required by law to report and shall notify the Contractor of the information it reports


prior to such reporting if reasonably practicable.


ARTICLE XXXIV





NOTICES








All notices, reports 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 electronic mail, registered airmail or cable, except as


otherwise provided herein, at or to the address of such Party for whom intended as indicated


below, or such other address as either Party may from time to time designate by notice in writing


to the other Party:


THE CONTRACTOR: c/o CNPC International Ltd.


No. 6-1, Fuchengmen Beidajie, Xicheng District


Beijing, China 100034


Telephone +86 10 5855 1114


Fax+86 10 5855 1110


ATTN: Mr. BO Qiliang











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MINISTRY: Ministry of Mines


Pashtoonistan Watt


Across from Ministry of Finance


Kabul, Afghanistan


Telephone +93 (0) 202 100 309


ATTN: Director of Petroleum Authority


ARTICLE XXXV








EFFECTIVENESS AND REGISTRATION





35.1 Effective Date and Validity. This Contract, which has been endorsed by the Inter-


ministerial Commission, shall become effective and binding on the Parties on the


Effective Date. The Ministry shall inform the Contactor of the Effective Date within


forty-eight (48) hours thereof. The Ministry represents that is has all requisite power


and authority to enter into this Contract and perform its obligations hereunder and that


the execution, delivery and performance of this Contract by the Ministry has been duly


authorized in accordance with the constitutional and administrative procedures of the


Ministry and that only the approval of the Council of Ministers is required to give this


Contract legal effect.


35.2 Registration of Contract and License; Publication. Within ten (10) Days following


the Effective Date, the Ministry shall (i) register this Contract and the appurtenant


exclusive License for Hydrocarbons Operations in the Hydrocarbons Register and (ii)


publish in at least three (3) newspapers of national circulation in Afghanistan and on the


Ministry's website an announcement summarizing the material terms of the Contract.


35.3 No Corrupt Action. Each Party represents and covenants that it is, and during the term


of this Contract will remain, in full compliance with all laws applicable to it prohibiting


corrupt business practices, including Article 69 of the Hydrocarbons Law.


ARTICLE XXXVI


CHANGE OF LAW








36.1 Structure of the Contractor Subject to Article XXVIII, the Ministry undertakes that in


the event that, at any time during the term of this Contract, the Hydrocarbons Law or


any other applicable law changes in such a manner as to permit the Ministry to enter


into agreements similar to the Contract with more than one party, the Ministry shall, at


the request of the Contractor and at no cost to the Contractor, assign and novate this


Contract to CNPCI and Watan (or their Affiliated Entities) such that each such entity is


a party to the Contract with liability to the Ministry on a joint and several basis.


36.2 No Double Taxation. The Ministry acknowledges and agrees that the Contractor has


entered into this Contract in reliance on the Ministry’s representation that the revenues








61


 Amu Darya Basin EPSC








generated from Hydrocarbons Operations for the Contractor’s account shall only be


subject to income tax once in Afghanistan. The Ministry represents that either the


Contractor shall be liable to pay Income Tax on such revenue or the owners of the


Contractor shall be liable to pay Income Tax on such revenue in accordance with


applicable laws. If at any time after the Effective Date, there is any change in the legal,


fiscal and/or economic framework applicable to the Contract (or the interpretation


thereof) which results in the Contractor and the owners of the Contractor both being


liable to pay Income Tax on such revenue, the terms and conditions of this Contract


shall be altered so as to restore the Contractor and the owners of the Contractor to the


same overall economic position as that which such person would have been in, had no


such change in the legal fiscal and/or economic framework occurred. If the Contractor


believes that its economic position, or the economic position of its owners, has been


detrimentally affected herein by a change or interpretation of law that results in a double


taxation of income, upon the Contractor’s written request, the Parties shall meet to agree


on any necessary measure to resolve the issue. Should the Parties be unable to agree on


a method to resolve the issue, the Contractor may refer the matter in dispute to expertise


proceedings as provided in Section 24.3, without the necessity of first referring the


matter to negotiation and mediation.





































































































62


 Amu Darya Basin EPSC














IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed


by their respective duly authorised representatives as of the date first above written.














CNPCI WAT AN OIL AND GAS AFGHANISTAN
































THE MINISTRY OF MINES OF THE


GOVERNMENT OF THE ISLAMIC REPUBLIC





OF AFGHANISTAN

















































































































63


 Amu Darya Basin EPSC






































EXHIBIT A


DESCRIPTION OF CONTRACT AREA









































A-l


 Amu Darya Basin EPSC








COORDINATES OF CONTRACT AREA


The Contract Area consists of the following three Blocks comprising the interiors of the





geographic regions described by the respective corners, stated with reference to the meridian of


Greenwich and the Equator:





KASHKARI BLOCK





65°45’ 0” E 36°25’ 0” N


66° 10' 0” E 36°25’0”N


66° 10’ 0” E 36° 0’ 0” N


65°45’ 0” E 36° 0’ 0” N





BAZARKHAMI BLOCK





65°25’ 0” E 36° 25’ 0” N


65°45’ 0” E 36° 25’ 0” N


65°45’ 0” E 36° 5’ 0” N


65°25’ 0” E 36° 5’ 0” N





ZAMARUDSAY BLOCK





64° 35’ 0” E 36° 20’ 0” N


65°25’ 0” E 36° 20’ 0” N


65°25’ 0” E 36° 5’ 0” N


65° 0’ 0” E 36° 5’ 0” N


65° 0’ 0” E 36° 10’ 0” N


64° 35’ 0” E 36° 10’ 0” N
























































A-2








V.


 Amu Darya Basin EPSC








COORDINATES OF QUADRANTS CONTAINING THE DESIGNATED FIELDS


The Designated Fields consist of the following five Fields located in the quadrants comprising





the interiors of the geographic regions described by the respective corners, stated with reference


to the meridian of Greenwich and the Equator:


ANGOT FIELD








65° 55’ 0” E 36° 15’ 0” N


66° 05’ 0” E 36° 15’ 0” N


66° 05’ 0” E 36° 10’ 0” N


65° 55’ 0” E 36° 10’ 0” N





KASHKARI FIELD





65° 55’ 0” E 36° 10’ 0” N


66° 0’ 0” E 36° 10’ 0” N


66° 0’ 0” E 36° 5’ 0” N


65° 55’ 0” E 36° 5’ 0” N





AQ DARYA FIELD


66° O’ 0” E 36° 10’ 0” N


66° 5’ 0” E 36° 10’ 0” N


66° 5’ 0” E 36° 5’ 0” N


66° 0’ 0” E 36° 5’ 0” N








BAZARKHAMI FIELD





65° 40’ 0” E 36° 15’ 0” N


65°45’ 0” E 36° 15’ 0” N


65°45’ 0” E 36° 10’ 0” N


65° 40’ 0” E 36° 10’ 0” N





ZAMARUDSAY FIELD





65° 10’ 0” E 36° 15’ 0” N


65° 20’ 0” E 36° 15’ 0” N


65° 20’ 0” E 36° 10’ 0” N


65° 10’ 0” E 36° 10’ 0” N




















S A-3








vV3


 Amu Darya Basin EPSC









































EXHIBIT B


MAP OF CONTRACT AREA















































B-l


 Amu Darya Basin EPSC














«*WE 65-350'E 65‘4WE 6P4SVE 65-50TJ-E






























































<;Kashkari

















Zamarudsay Block


>6 13TTN














Bazarkhami Blo<





























■iS'-JJTTN















































65 10VE 65-«r0-fc 69*90trE 66'WE














B-2


 EXHIBIT C








ACCOUNTING PROCEDURES


 TABLE OF CONTENTS





Page





ARTICLE I General Provisions..................................................................................................C-3


1.1 Definitions and Scope..................................................................................................C-3


1.2 Inconsistency...............................................................................................................C-3


1.3 Accounting Records and Reports................................................................................C-3


1.4 Language and Units of Account..................................................................................C-4


1.5 Cash Basis....................................................................................................................C-4


1.6 “R” Factor Expenditure Account.................................................................................C-4


1.7 “R” Factor Income Account........................................................................................C-6


1.8 Arm’s Length Transactions.........................................................................................C-6


1.9 General Exclusions......................................................................................................C-6


1.10 Currency Exchange Rates............................................................................................C-8


1.11 Acceptance of Costs....................................................................................................C-8


ARTICLE II Accounting Methods and Principles......................................................................C-8


2.1 Labour Costs................................................................................................................C-8


2.2 Material Costs..............................................................................................................C-8


2.3 Technical Services Costs.............................................................................................C-9


2.4 Insurance and Claims...................................................................................................C-9


2.5 Legal and Litigation Costs...........................................................................................C-9


2.6 General Administration and Services Overhead Costs..............................................C-10


2.7 Office Costs, et cetera, in Afghanistan and Dubai....................................................C-l 0


2.8 Land Use and Surface Rental Fees............................................................................C-10


2.9 Training Costs............................................................................................................C-10








ARTICLE III Audit and Inspection Rights of the Ministry......................................................C-10


APPENDIX 1 Example Calculation of Escrow Under Section 7.3(c) of the Contract.............C-l 2


APPENDIX 2 Procurement Manual..........................................................................................C-l3



































C-2


 EXHIBIT C





ACCOUNTING PROCEDURES





ARTICLE I





General Provisions





1.1 Definitions and Scope


The Accounting Procedures described herein are to be followed and observed in the


performance of both Parties’ obligations for purposes of Article X of the Contract.


Except as otherwise provided in the Contract, these Accounting Procedures shall not


apply to the Contractor’s Income Tax obligations, which shall be governed by the


provisions of the Income Tax Law (2009) as amended or replaced and in effect from time


to time.


The definitions appearing in Article I of the Contract shall also apply to this Exhibit C.


In order to determine the “R” Factor, the Contractor shall keep a particular system of


accounts to record, in U.S. Dollars, income and expenditure related to the Hydrocarbons


Operations. This system shall consist of two main accounts: the “R” Factor Income


Account, and the “R” Factor Expenditure Account as defined in this Exhibit C. A


separate system of accounts shall be kept in respect of Hydrocarbons Operations relating


to (i) the Designated Fields and (ii) each Block (excluding any Designated Fields in such


Block).


1.2 Inconsistency


In the event of any inconsistency or conflict between the provisions of this Exhibit C and


the other provisions of the Contract, the other provisions of the Contract shall prevail.


1.3 Accounting Records and Reports


(a) The Contractor shall establish and maintain at its business office in Afghanistan


complete accounts, books and records of all revenues, costs and expenses relating


to all Hydrocarbons Operations hereunder in accordance with International


Financial Reporting Standards and generally accepted procedures and standards in


the international petroleum industry. Such accounts, books, records and reports


will be available for the inspection and use of the Government and its


representatives in carrying out its supervisory, financial and fiscal functions under


the Contract.


(b) All accounts, books, records, reports and statements will be prepared in


accordance with the Contract, the laws of Afghanistan, and where there are no








C-3


relevant provisions of either of these, in accordance with International Financial


Reporting Standards and International Best Practices.


(c) The Ministry may, in accordance with the prevailing laws and regulations, from


time to time by no less than thirty (30) Days notice to the Contractor, specify the


style, format and level of details of the reports, documents and materials that


Ministry may reasonably require from the Contractor.


1.4 Language and Units of Account


Unless otherwise agreed or prescribed in prevailing legislation, all accounts, records,


books and reports shall be maintained and prepared in the English language and shall be


recorded in U.S. Dollars.


1.5 Cash Basis


All financial books, accounts and records shall be prepared on a cash basis. All cash


receipts and cash expenditures will be attributed to the time period in which the cash


receipt or expenditure is realized.


1.6 “R” Factor Expenditure Account


Hydrocarbons Operations Expenditures may consist of capital and operating expenditures


as follows:


(a) Capital Expenditures


Capital expenditures are those Hydrocarbons Operations Expenditures for assets


that normally have a useful life that extends beyond the year in which the asset


was acquired.


In addition to expenditures relating to assets that normally have a useful life


beyond the year in which the asset was acquired, the costs of exploration and


development operations, as described in Sections 1.6(a)(v), (vi), (vii), (viii), (ix),


and (x) of this Exhibit C, will be classified as capital expenditures. Capital


expenditures shall be reduced by the amount of any proceeds received by the


Contractor from sales of Liquid Hydrocarbons or Natural Gas produced during


production testing, such sales to be valued at the net realized price obtained by the


Contractor therefor.


Capital expenditures include, but are not limited to, the following:


(i) Construction utilities and auxiliaries - work shops, power and water


facilities, warehouses, and field roads. Cost of Liquid Hydrocarbons


treating plants and equipment, secondary recovery systems, Natural Gas


plants and steam systems;











C-4


(ii) Construction housing and welfare housing - recreational facilities and


other tangible property incidental to construction;


(iii) Production facilities - production rigs (including the costs of labour, fuel,


hauling and supplies for both the offsite fabrication and onsite installation


of rigs, and other construction costs in erecting rigs and installing


pipelines), wellhead equipment, subsurface lifting equipment, production


tubing, sucker rods, surface pumps, flow lines, gathering equipment,


delivery lines and storage facilities;


(iv) Movables - surface and subsurface drilling and production tools,


equipment and instruments, barges, floating craft, automotive equipment,


aircraft, construction equipment, furniture and office equipment and


miscellaneous equipment;


(v) Development and production drilling - labour, materials and services used


in drilling Wells with the object of penetrating a proven reservoir,


including the drilling of delineation Wells as well as redrilling, deepening


or recompleting Wells, and access roads, if any, leading directly to Wells;


(vi) Exploration drilling - labour, materials and services used in the drilling of


Wells with the object of finding unproven reservoirs of Liquid


Hydrocarbons and Natural Gas, and access roads, if any, leading directly


to Wells;


(vii) Surveys - labour, materials and services used in aerial, geological,


topographical, geophysical and seismic surveys, and core hole drilling;


(viii) Security and De-mining - the engagement of private security providers


licensed in Afghanistan and de-mining or mine clearance costs associated


with Hydrocarbons Operations;


(ix) Third-Party Assessments - the engagement of internationally recognized


third parties to conduct assessments, including Baseline Environmental


Assessments, wireline, well-logging and testing, logistics, security and de-


mining assessments;


(x) Other exploration expenditures - auxiliary or temporary facilities having


lives of one year or less used in exploration and purchased geological and


geophysical information; and


(xi) Any expenditures in relation to the foregoing incurred prior to the


Effective Date of the Contract, provided the Ministry has provided


approval in writing of such expenditure.


Operating Expenditures











\ C-5


Operating expenditures are all Hydrocarbons Operations Expenditures other than


capital expenditures.


“R” Factor Income Account


The following shall be recognized as income and recorded in the “R” Factor Income


Account:


(a) The value of Cost Recovery Hydrocarbons allocated to the Contractor in


accordance with Section 10.1(b) of the Contract.


(b) The value of Net Hydrocarbons allocated to the Contractor in accordance with


Section 10.1(c) of the Contract, determined in accordance with the Formula Price


applicable to such Hydrocarbons.


(c) Income from sales of assets acquired by the Contractor for Hydrocarbons


Operations, the cost of which was recorded in the “R” Factor Expenditure


Account.


(d) Income from services rendered to third parties involving personnel whose


remuneration and benefits are recorded in the “R” Factor Expenditure Account


and/or involving goods whose acquisition cost has been recorded in the “R”


Factor Expenditure Account.


(e) Income from letting assets belonging to the Contractor, whose acquisition cost has


been recorded in the “R” Factor Expenditure Account or subletting of goods


whose hire is charged to the “R” Factor Expenditure Account.


(f) Compensation received from insurance policies taken out in relation to Contract


activities for damaged goods, including compensation for loss of profits.


(g) Income resulting from the exchange of currency in accordance with Section 1.10.


(h) Other income representing credits applicable to charges to the “R” Factor


Expenditure Account.


Arm’s Length Transactions


Except as may be otherwise agreed in writing between the Ministry and the Contractor,


all transactions giving rise to revenues, costs or expenses 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 higher or lower, as the case may be, than


would result from a transaction conducted at arm’s length on a competitive basis with


third parties.


1.9 General Exclusions





The following expenditures shall not be included in Hydrocarbons Operations


Expenditures:





(a) costs and expenses incurred at any time prior to the Effective Date, except any


expenditures pursuant to Section 1.6(a)(xi);


(b) costs relating to Hydrocarbons refining, marketing or transportation beyond the


Delivery Point;


(c) contributions and donations, except those approved by the Government;


(d) gifts or rebates to suppliers, and gifts or commissions to intermediaries arranging


service or supply contracts;


(e) any costs relating to the provision of the Financial Guarantee including payments





made to the Ministry pursuant thereto or otherwise for failure to perform the work


commitments in accordance with Section 6.3 of the Contract;


(f) any interest, fees and other financial charges relating to loans and credits obtained


by the Contractor to acquire funds for the execution of Hydrocarbons Operations,


as well as amortization of such loans and credits;


(g) any fines, interest, monetary corrections or increases in expenses resulting from


the Contractor’s failure to comply with its obligations under the Contract,


applicable law or agreements with third parties;


(h) overhead or payments to any Affiliated Entity of the Contractor or CNPCI or


Watan that do not comply with Section 1.8 and are not otherwise allocable to


Hydrocarbon Operations Expenditures pursuant to Section 2.6;


(i) any other expenditures not directly related to Hydrocarbons Operations or not in


compliance with the provisions of this Exhibit C; and


(j) costs that would otherwise be recoverable as Hydrocarbons Operations


Expenditures but exceed by ten percent (10%) or more the approved Work


Programme Budget as may be amended by the Parties from time to time;


provided, however, that costs in excess of one hundred and ten percent (110%) of


any approved Work Programme Budget shall be included in Hydrocarbons


Operations Expenditures where such costs are associated with emergency


measures taken in accordance with Section 23.9 of the Contract. Without


prejudice to the foregoing, costs that are less than ten percent (10%) in excess of


the approved Work Programme Budget shall be recovered as Hydrocarbons


Operations Expenditures without need for further review by the Ministry.





The following shall not be recognized as income for the purposes of calculating the “R”


Factor:








C-7


(a) Financial income in general.


(b) Income received for services rendered by the Contractor or sales of the


Contractor’s assets occurring before the Effective Date.


(c) Income received for activities not related to the Hydrocarbons Operations.


1.10 Currency Exchange Rates


For conversion purposes between Afghanis, or any other currency, and U.S. Dollars, the


average of the buying and selling rate of exchange shall be used as issued by Da


Afghanistan Bank on the first Day of the Month in which the revenues, costs or expenses


are recorded.


1.11 Acceptance of Costs


The acceptance by the Ministry of the values and treatment proposed by the Contractor


relating to all costs and expenses may be conditional upon the presentation by the


Contractor, following a request by the Ministry or its representatives, of all records and


original documents supporting such costs and expenses, such as invoices, cash vouchers,


debit notes, price lists or similar documentation verifying the value and treatment


proposed.





ARTICLE II


Accounting Methods and Principles


Hydrocarbons Operations Expenditures incurred hereunder shall be calculated and


accounted for in a manner consistent with the following principles and definitions and


shall include:


2.1 Labour Costs


Costs of salaries and wages of the Contractor’s employees directly engaged in


Hydrocarbons Operations, including costs of holidays, vacations, sickness, living and


housing allowances, travel time, bonuses and other established plans for employee


benefits customarily granted to the Contractor’s employees and their families in similar


ventures.


2.2 Material Costs


Costs of materials, equipment, machines, tools and any other goods of a similar nature


used or consumed in Hydrocarbons Operations, subject to the following:


Acquisition - the Contractor shall only supply or purchase materials for use in


Hydrocarbons Operations that may be used in the foreseeable future. The accumulation


of surplus stocks and inventory shall be avoided. Inventory levels shall, however, take


into account the time lag for replacement, emergency needs and similar considerations;





V


C-8





w


Components of Costs - costs of materials purchased by the Contractor for use in


Hydrocarbons Operations may include, in addition to the invoice price for such materials


(subtracting the discounts given, if any) and provided that they are properly documented


with invoices:


(a) freight costs and costs of transportation between the supply point and delivery


point (provided that such costs are not included in the invoice price);


(b) inspection costs;


(c) insurance; and


(d) customs duties, taxes and other items that may be charged to imported materials


or to materials purchased in Afghanistan; and


Inventories - the Contractor shall maintain both a physical and accounting inventory of


all materials in stock in accordance with International Best Practices. The Contractor


shall make a physical inventory of all such materials at least once in any Year. The


Ministry may carry out total or partial inventories whenever it deems it necessary.


2.3 Technical Services Costs


The value of technical services costs relating to Hydrocarbons Operations, which shall


be:





In the case of technical services performed by third parties directly subcontracted,


including outside consultants, the contractors and utilities, the price paid by the


Contractor, provided that such prices are no higher than the prices charged by other


suppliers for comparable work and services; and


In the case of technical services performed by the Contractor or its Affiliated Entities,


prices which are no higher than the prevailing prices charged to other Affiliated Entities


of the Contractor and to third parties for comparable services.


2.4 Insurance and Claims


Costs relating to insurance, provided such insurance is customary, affords prudent


protection against risks and is at a premium no higher than that charged on a competitive


basis by insurance companies which are not Affiliated Entities of the Contractor. The


proceeds of any insurance or claim shall be credited against Hydrocarbons Operations


Expenditures. Except in cases where insurance coverage is required pursuant to Article


XXVII of the Contract, if no insurance is carried for a particular risk, all costs incurred by


the Contractor in settlement of any related loss, claim, damage or judgment, including


legal services, shall be includable in Hydrocarbons Operations Expenditures, provided


that such costs did not result from the Contractor’s gross negligence.














C-9


Legal and Litigation Costs





Costs and expenses of litigation and legal or related services necessary or expedient for


the protection of the Contract Area. Any damages or compensation received shall be


credited against Hydrocarbons Operations Expenditures. Under no circumstances may


the Contractor’s costs incurred in the course of arbitration entered into under Article


XXIV of this Contract be included in Hydrocarbons Operations Expenditures.


Overhead Costs


Overhead costs, other than direct costs, including:


(a) The Contractor’s personnel, personnel of CNPCI or Watan, and services costs,


incurred outside of Afghanistan, relating to administration, legal, accounting,


treasury, auditing, taxation, planning, employee relations, purchasing and other


functions required for Hydrocarbons Operations under the Contract; and


(b) Reasonable travel expenses of the Contractor’s, CNPCI’s or Watan’s personnel in


the general and administrative categories listed in (a) above for the purpose of


inspection and supervision of Hydrocarbons Operations in Afghanistan;


shall be allocable to Hydrocarbons Operations Expenditures according to methods agreed


to by the Contractor and the Ministry. The methods agreed shall result from a detailed


study and the methods selected following such study shall be applied each Year


consistently unless otherwise agreed by the Parties. These general and administration


and services overhead costs shall not exceed two percent (2%) of the direct costs incurred


in Hydrocarbons Operations in each Month.


Office Costs, etcetera, in Afghanistan and Dubai


Staffing and maintenance of the Contractor’s head office in Afghanistan and other offices


in Afghanistan and Dubai, including rent, telephone and radio expenses, as well as the


expenses of general facilities such as bases, warehouses, water, power and


communications systems, roads and bridges.


Land Use and Surface Rental Fees


Any compensation paid to private landowners or occupiers pursuant to Section 9.2 of this


Contract and any annual surface rental fees paid to the Ministry in respect of State-owned


land in accordance with Article XIV of this Contract shall be included in Hydrocarbons


Operations Expenditures.


Training Costs


Any expenditures pursuant to Sections 20.1 or 20.2 of this Contract for the purposes of


training Afghan nationals and Ministry personnel.











C-10


 ARTICLE III





Audit and Inspection Rights of the Ministry


The Ministry, upon thirty (30) Days advance written notice to the Contractor, shall have


the right to inspect and audit, during normal business hours, the Contractor’s accounts,


books and records with respect to the Hydrocarbons Operations conducted hereunder.


During the Exploration Phase of the Contract, it may be necessary to conduct such an


examination at the Contractor’s or an Affiliated Entity’s office in Beijing, the People’s


Republic of China. Where this is the case, the Contractor agrees to reimburse the


Ministry direct economy airfare costs to and return from Beijing, the People’s Republic


of China, and a reasonable foreign per diem living allowance for a reasonable period for


two auditors to conduct such an examination. The cost of any audits or examinations by


the Ministry within Afghanistan shall be for its sole expense. Any audit exceptions must


be in writing within one hundred and eighty (180) Days following completion of such


audit and failure to give such written exception within such time shall establish the


correctness of the Contractor’s books and accounts.


For purposes of auditing, the Ministry may examine and verify, at reasonable times upon


prior notice to the Contractor, all charges and credits relating to the Hydrocarbons


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.


The auditors shall have the right in connection with such audit, to visit and inspect at


reasonable times, all sites, plants, facilities, warehouses and offices of the Contractor


directly or indirectly serving the Hydrocarbons Operations.


The Contractor shall include in its contracts with subcontractors provisions granting to


the Ministry the same audit and inspection rights in respect of the subcontractors that it


has in respect of the Contractor pursuant to this Contract.


The provisions of the present Article shall not infringe with the power of inspection for


authorised representatives of the Ministry pursuant to the laws and regulations of


Afghanistan.


All agreed adjustments resulting from an audit shall be made in the Contractor’s


accounts.
































C-ll


APPENDIX 1


TO ACCOUNTING PROCEDURES


Example Calculation of Escrow Under Section 7.3(c) of the Contract:


At beginning of month,


ROUP = 2,000,000 barrels


Decommissioning and Abandonment Budget = US$ 2,400,000


Amount in Escrow Account = US$ 800,000


Net shortfall = US$ 2,400,000 - US$ 800,000 = US$ 1,600,000


Monthly production = 100,000 barrels


Monthly contribution = 100,000/2,000,000 x US$ 1,600,000 = US$ 80,000


At end of month,


ROUP = 1,900,000 barrels


Amount in Escrow Account = US$ 880,000



























































C-12


 APPENDIX 2


TO ACCOUNTING PROCEDURES


PROCUREMENT MANUAL











































































































C-13


Procurement Procedure Manual (Revision 2.0)





Procurement Procedures


Table of Contents





1. Introduction


2. Procurement Objectives and Principles


3. Definitions / Abbreviations


4. Material Requisition forms and Approvals





5. Purchasing Method and Authority


6. Tender Procedure Flow


7. Purchase and Service Order Flow


8. Tender and Evaluation Methodology


9. Payment Policy


10. Tax and Duty Instructions


11. Expediting


12. Inspection





13. Receiving Material


14. Material Transfers and Returns


15. Ethical Practices Statement


16. Emergency Procurement








i


Procurement Procedure Manual (Revision 2.0)





1.0 INTRODUCTION


1.1 PURPOSE OF THE MANUAL


1.1.1 The purpose of Operator (hereafter called “the COMPANY”) Procurement


Procedures Manual (hereafter called “Manual”) is to provide COMPANY with


guidelines and procedures that are to be adhered to in conducting its procurement


activities. Note that “procurement” covers both purchasing and contracting.


1.1.2 This manual is designed to ensure that:


The COMPANY procurement objectives, policies and principles are


explicitly stated and consistently applied;


a) Standards of ethics and fairness in procurement of materials and services


are maintained; and


b) Standard guidelines are presented to all departments in COMPANY.


1.2 SCOPE OF THIS MANUAL


1.2.1 This Manual shall apply to inquires and tenders issued and contracts entered


into for procurement of equipment, facilities, goods, materials, supplies and


services required by COMPANY for carrying out Hydrocarbons


Operations.


1.2.2 Failure to follow the procedures of this Manual for procurement may result


in the purchase or contract being disallowed from inclusion as a


Hydrocarbons Operations Expenditure under the CONTRACT.


1.3 CONTROL OF THE MANUAL


1.3.1 The Procurement Department of the COMPANY shall be responsible for


the contents of the manual and shall ensure that all relevant functional and


procedural checks have been made before authorizing any amendment


thereto.


2.0 PROCUREMENT OBJECTIVES AND PRINCIPLES











\


2 WA





Procurement Procedure Manual (Revision 2.0)





2.1 COMPANY PROCUREMENT OBJECTIVES








The COMPANY’S objectives in procurement and contracting are to ensure


that all equipment facilities, goods, materials, supplies and services required


for Hydrocarbons Operations are obtained at the right time in the right


quantity and right quality at the right price from the right sources.


2.2 COMPANY PROCUREMENT PRINCIPLES/POLICIES





The following shall form the basis of COMPANY’S procurement


principles/policies for purchases and contracts;


2.2.1 All procurement of equipment, facilities, goods, materials, supplies and


services required for Hydrocarbons Operations shall be on arms length basis


and shall be obtained as a result of competitive bidding. Any deviation shall


be fully justified by a technical and cost-benefit analysis and shall provide


the report to detail the reason, and shall be agreed in writing by the


President.





2.2.2 All purchases and contracts shall be adequately covered under an approved


Work Program and Budget.


2.2.3 Contracts shall not be segmented to circumvent the requirement for


competitive bidding or to circumvent the requirements of the Limits of


Authority or to circumvent the need to obtain Partners.





2.2.4 Contracts shall at all times be awarded to the technically acceptable bidder


that offers the best overall cost advantage to the COMPANY. Contracts


may be awarded to companies on other considerations provided that the


quality of materials and services are not sacrificed.


2.2.5 Where technically possible and practicable, due consideration and


preference should be given to local companies to supply materials and


services provided they are competitive in price and in conformity to the


specifications, terms and conditions of the purchase inquires or tender


documents. Note that under Section 21.2 of the CONTRACT, locally


produced or available equipment, materials and supplies that cost no more


than 15 percent more than the equivalent imported equipment, materials or


services (before import duties) shall be deemed to be equivalent in price.








3


Procurement Procedure Manual (Revision 2.0)








2.2.6 The COMPANY shall have a program for qualification of local vendors to


be eligible to supply materials and services, with a goal of having at least


three qualified competitive local suppliers for every nontechnical good or


service generally available in the market. In resource-poor emergency or


special cases, with the written approval of President, 2 qualified


competitive local suppliers for every nontechnical good or service will be


acceptable.


2.2.7 Procurement of materials and contracts for services shall, as and when


practicable, be grouped together to take advantage of bulk buying and


consolidation. All Divisions and Departments in the COMPANY shall


endeavor to plan and group their procurement requirements for each budget


year based on the foregoing principles.


2.2.8 Procurement of spare or salvage materials and services from affiliates of


CNPCI or Watan shall be priced at the lower of cost or market, plus


transportation and other charges. To take advantage of potential salvage


from other activities of CNPCI or Watan or their affiliates, from time to


time CNPCI, Watan, and their affiliates may make available to the


COMPANY spare or surplus materials or services previously purchased for


other projects or activities.


2.2.9 Tenders shall be advertised in a manner to ensure that all potential bidders


who are qualified have the opportunity to be aware of the tender.


3.0 DEFINITION / ABBREVIATION





The following definitions and/or abbreviations shall apply to this Manual:





3.1 AA


“Approving Authority” as designated in the COMPANY Limits of


Authority (LOA) Manual.





3.2 AGREEMENT


A document identifying and binding the parties to an agreement and


outlining all the applicable terms and conditions thereto.


3.3 BOARD OFDIRECTORS





“Board of Directors” means the board of directors of the Company.


3.4 COMPANY











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Means Operator.





3.5 CONTRACT


“CONTRACT” means EPSC, to explore and exploit hydrocarbons


resources in the Contract Area within the contract period.





3.6 INCOTERMS


“International Commercial Terms” as defined by the International


Chambers of Commerce outlining the responsibilities and obligations of


the parties in the purchasing supplying agreement. Examples of Incoterms


are FOB (Free on Board), CFR (Cost and Freight), CIF (Cost, Insurance


and Freight), etc.


3.7 ITB





“Invitation to Bid” means the document sent to an approved bidder for


purposes of inviting the bidder to submit a bona-fide proposal. The ITB


outlines the scope of supply/services required, and the proposed


contractual terms and conditions.


3.8 LOA





“Limits of Authority” means the levels of delegated responsibility and


accountability for approving of commitments accorded to the respective


management officer of Operator.


3.9 MR





“Materials Requisition” is a form raised by the user department and


approved according to the LOA, to request for the supply of materials


required for the operations as per approved budgets. The MR specifies


the description of the materials, the required delivery date, final


destination for delivery and estimated budgets. The MR is used by the


purchasing / materials personnel to source the items internally from


warehouse stock or to call against existing contracts, price agreements or


any open purchase orders or to initiate a new ITB/ purchasing inquiry.





3.10 PA


“Price Agreement” is a form of a long-term supply contract, normally


limited by a specified maximum quantity or maximum total price or














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duration of time. Supply and delivery of individual requirement is


initiated via an approved indent.


3.11 PO


“Purchase Order” is a company document issued by the COMPANY to


an approved Supplier for the supply and delivery of materials, the PO


will contain name and address of the supplier, the delivery required date,


the delivery point, the terms and conditions of purchase, the descriptions,


quantity and unit price of the individual line items and the total value.


The PO is to be signed by the AA according to Operator LOA.


3.12 SR


“Service Requisition” is a form raised by the user department and


approved according to the LOA, to request for the provision of service


required for operation as per approved budgets. The SR is used for the


contract personnel to source the required services either from existing


contract or service agreements or to initiate a new ITB.


3.13 TC


“Tender Committee” is an organization within the COMPANY, whose


responsibility is to oversee the proper conduct in the Procurement


activities, ensure all established policies and principles are being


followed and review and endorse the respective ITB, procurement


schedules, evaluation reports and award recommendation.


3.14 USER DEPARTMENT


The department holding the approved budgets, which is responsible to


raise the MR, SR or WO.


3.15 WO


“Work Order” is a form raised by the User Department and approved


according to the LOA to a service company for the provision of service.


The WO will contain name and address of the service company, the


phone and fax number or E-mail address, period of service, work site,


the terms and condition of service, scope of work, price etc.


4.0 MATERIAL / SERVICE REQUISITION FORMS AND APPROVALS














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4.1MR / SR APPROVAL


All Material/Service Requisitions must be approved and signed by User


Department and AA according to LOA. Without proper authorized


approval, Procurement Department shall not process the purchasing


request, unless written approval has been obtained from AA according to


LOA.


4.2 MR / SR PROFESSIONAL





The User Department will describe in detail the material and


specifications including Technical parameters model and/or part number


for each item as well as details of service required.





In case the description of the item is incomplete, Procurement


Department may return it to User Department for clarification and


modification. In those instances where the User Department has


indicated a technical preference in material, service or source of supply,


Procurement Department may, evaluate alternative sources. In all such


instances the User Department will be advised of the alternatives and


mutual agreement reached prior to placement of the commitment, of the


purchase order or contract as the case may be. All changes to the


requisition must be subject to LOA.


A soft copy of each MR/SR should be submitted to Procurement


Department for convenience of processing.





When raising any MR, User Departments should contact warehouse to


check the inventory first to ensure a reasonable stock.


All MR should be reviewed and item coded by warehouse supervisor





first before sending to Procurement Department.


4.3 CENTRALIZED ITEMS


For centralized items, the User Department shall send its detailed


requirement to the Department - in - Charge. The Department - in -


Charge will then compose a consolidated request and send the


consolidated material requisition with detailed specifications, on


Quarterly basis or as deemed necessary to Procurement Department for


action.











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For the purpose of centralized control of materials, approval by the


Department - in - Charge will be required as follows, for example:





Department-in -Charge Material/Service Description





General Services Includes Office Vehicle, Catering,


House Rental, Maintenance, Furniture,


Book & Publication and Stationary.


Operation Vehicle, Fuel,


Air Conditioner.








Information Technology Computer, Photocopier, Telephone, Fax


Machine, Radio and Software, Overhead


Projector.





Human Resource Consultant, Labor, Direct Hires.











4.3 MR / SR ISSUE IN ADVANCE


Except for emergency requirement, all materials, equipment and service


requisitions should be planned in advance with a four to six month lead-


time in order to follow a normal bid evaluation and purchasing process.


Some daily-required materials like casing, bits, wellhead, mud and other


consumables, will be encouraged to be requisitioned in bulk, reducing


cost both for material and administration.





4.4 MR PLANNING


User Departments shall work out detailed material requisition plan each


year. The material requisition plan shall be presented to COMPANY


management for approval according to LOA. This is to establish the best


material stock to meet the User Departments needs. This timing may be


revised to suit the needs and planning of the operations.


4.6 MR /SR RECEIVING





The Manager of Procurement Department will be responsible to receive,


register and assign all Material/Service requisitions. The material


requisition will be forwarded to the Section Head of Purchasing for











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action. Service requisitions shall be forwarded to the Section Head of


Contracts for action. All requisitions shall be logged, with a unique


number for the purpose of tracking through Procurement and ultimately


to the User Department.


4.7 M R / SR FORMALITY


A Material/Service requisition prepared by the User Department will


include Budget Code, approved AFE Number and proper account coding.


The User Department is responsible to ensure that such information is


present and accurate.


5.0 PURCHASING METHOD AND AUTHORITY


5.1 SCOPE OF WORK


5.1.1 Procurement Department will be responsible for receiving Material or


Service Requisitions, and in consultation with the User Department,


preparing inquiry and tender documents, evaluating quotations or bids,


commercial terms, preparing Tender Committee approval documents,


issuing Purchase Orders or the result of evaluation of informal bids,


coordinating quality control and inspection, expediting delivery and


mobilization in international logistic, monitoring and analyzing material


receiving, transfer, and inventory through the Material Management


System.


5.2 PURCHASING METHOD AGAINST EXPENDITURE LEVELS


5.2.1 For the purchase and services not exceeding US $100,000, the


procurement method is subject to or governed by the terms of Single


Source; For the purchase and services not exceeding US $500,000, the


procurement method is subject to or governed by the terms of Inquiry


purchase ; For the purchase and service orders exceeding US $500,000,


and not exceeding US $2,000,000, the procurement method is subject to


or governed by the terms of Limited Tendering bidding; For the purchase


and service orders exceeding US $2,000,000, the procurement method is


subject to or governed by the terms of Public Tendering bidding.


5.2.2 Competitive sealed bids will be solicited for all material and service


requirements where the anticipated cost exceeds the limits set out below:











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(a) Material and/or Equipment supply where the anticipated cost


exceeds US $500,000 total requirement.


(b) Miscellaneous Service Contracts for operations maintenance


services where the anticipated costs exceed US$500,000 per job


or extend over a six (6) month time period.


(c) Except in special circumstances, such as bids could not arrive by


post and have to use e-mail, etc., competitive sealed bids will not


be solicited


5.2.3 Written and duly signed competitive quotations/bids must be received


for any material and/or service requirement.


5.2.4 Low value purchase, less than US$500,000 spot check price and rotate


opportunity to quote.


5.2.5 Consultants, Contractors and Agents who are required to purchase


materials and services on behalf of the COMPANY will be required to


follow the same procurement procedures.


5.2.6 Purchase Orders and Contracts may only be issued and signed by


authorized personnel or their delegate whom has been authorized by the


LOA of COMPANY.


5.3 PURCHASE ORDERS


5.3.1 Purchase Orders shall apply to all the purchasing activities for and by


COMPANY, for the acquisition of materials and or services.


5.3.1 Only authorized personnel can issue Purchase Orders according to the


LOA.


5.3.2 The Procurement Department shall register all Purchase Orders in the


PO register for ease of tracking.





5.4 SERVICE CONTRACTS











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5.4.1 Service Contracts apply to all the services provided by a contractor,


supplier, consultant, including, but not limited to drilling, oil testing,


production testing, seismic data acquisition, data processing and


interpretation, transportation, house rental, consultants and any other


supporting operations or services, etc.





5.4.2 Service contracts should be awarded according to the procurement


procedures and signed according to the LOA.


5.4.3 All contracts shall be vetted by the Legal Department/Legal Advisor to


safeguard the legal aspect and agreed to by the User Department.





5.4.4 All contracts will be registered and assigned a unique contract number


by the Procurement Department. The contract number shall be indicated


in all the related documents including invoices.


5.5 TERM PURCHASE ORDERS


5.5.1 In consultation with the User Departments, the term of the Purchase


Orders, are arranged by the Procurement Department for procurement of


equipment, materials, and/or supplies that are ordered frequently. This is


also known as a Price Agreement (PA).


5.5.2 Term Purchase Orders will be effective for a specific time period unless


it is in the best interest of COMPANY to extend or reduce the period.


Such extensions or reductions will be subject to approval assigned in the


LOA.





5.6 PURCHASE AND SERVICE ORDER APPROVAL AUTHORITY





5.6.1 Purchasing and service approval authority is derived from duly approved


material /service requisitions, and is subject to Bid Evaluation approval


authority or other approvals authorized according to LOA.


5.6.2 For the purchase and service orders exceeding US $500,000, Tender


Committee approval is required.





5.7 PURCHASE AND SERVICE ORDER SIGNING AUTHORITY








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5.7.1 Purchase/Service Order signing authority is restricted to the AA


according to LOA.


5.8 CONTRACT SIGNING AUTHORITY


5.8.1 Contract signing authority is conveyed from duly approved service


requisition and is subject to competitive bidding procedures and AA


delegated by LOA.


5.8.2 Contract signing authority is limited to the AA according to LOA.


6.0 TENDER PROCEDURE FLOW


6.1 PURPOSE


6.1.1 To describe the normal practice to be followed when the purchase of


materials or services is subject to or governed by the terms and


conditions of a written contract or agreement.





6.2 TENDER PROCEDURE FLOW


6.2.1 Procurement Department shall receive Material Requisitions (MR) and





Service Requisitions (SR) from User Department with proper approvals


according to the LOA.


6.2.2 The Tender Working Team will be organized according to Tender





Committee Working Procedures.


6.2.3 The Tender Working Team will draft the contract strategy, which shall


be reviewed by User Department Manager and Procurement Department


Manager, endorsed by President. This signed approved strategy will then


be presented to the Tender Committee for final review and approval.





6.2.4 The Tender Working Team shall prepare the Tender Documents and


have them reviewed by Legal Department/Legal Advisor, User


Department, Procurement Department, Finance and Planning


Department and HSE Department (if necessary).








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6.2.5 The President will seek input for adding Bidders to the short list


approved by the Tender Committee in cases where the estimated cost is


in excess of US $1,000,000 for material or US $1,500,000 for service.


6.2.6 The Secretary of Tender Committee will then formally issue the tender


as per approved short list and schedule. Tender invitation to bidders shall


be made at least 30 days before the closing date or otherwise decided by


tender working team.


6.2.7 In consultation with the User Department, the Secretary of Tender





Committee or his/her Designee will clarify bidders inquires.


6.2.8 The Secretary of Tender Committee, or his Designee will receive


bidding documents.


6.2.9 Tender Working Team will open bids, but in no case shall bids be





opened without three or more representatives being present. Bids will


not be opened prior to closing time.





6.2.10 Tender will be evaluated in a two layer system, i.e. technical evaluation


and the commercial evaluation according to Tender Committee Working


Procedure. “NOTE THE COMMERCIAL PORTION OF ANY


TENDER OR BID SHALL NOT BE OPENED UNTIL THE


TECHNICAL EVALUATION IS COMPLETED AND SIGNED OFF


BY ALL USER DEPARTMENT MANAGER (SV’AND THE


PRESIDENT ACCORDING TO LOA AND TENDER COMMITTEE


WORKING PROCEDURES.





6.2.11 A joint recommendation approved and signed by all User Departments


if required will be prepared and presented to Tender Committee.





6.2.12 The Tender Working Team will respond to all queries or questions on


clarifications requested by the Tender Committee. All major exceptions


proposed by the bidder will not be taken into consideration unless


approved by Tender Committee














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6.2.13 The Tender Committee will approve or comment on the


recommendation.


6.2.14 Once all questions have been answered and approvals given, the


Secretary will then prepare the letter of approval, signed by President,


according to Tender Committee Working Procedure.


6.2.15 Letter of Award will be prepared by the Secretary of Tender


Committee, reviewed by Legal Department/Legal Advisor and signed


by the President or other delegate according to LOA after receiving


approval.


6.2.16 If performance Bank Guarantee is applicable, the successful bidder


shall submit the required Bank Guarantee within 30 days after issuing


date of Letter of Award or signature of contract. The original Bank


Guarantee will be submitted and kept by Finance Department.


6.2.17 The Contract will be signed within one month from the date of Letter


of Award and by the President or other delegate according to LOA. In


case the contract value is more than US$4,000,000 the approval from


Board of Directors is required.


6.2.18 The original contract will be kept in Procurement Department for safe


keeping, and one more copy retained in procurement. Two copies will


be distributed to User Department, one copy to Finance/Planning


Department and any other copy will be available upon the approval of


Procurement Manager for department or person who requires a copy to


perform his/her duties related to the contract. Priced copies of purchase


orders and contracts will be supplied to those departments or persons


who require them for contract management.


7.0 PURCHASE AND SERVICE ORDER FLOW


7.1 PURPOSE


7.1.1 To describe the normal practice to be followed when the purchase of


materials or services is subject to or governed by the terms and


conditions of Purchase/Service Order.











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7.2 PURCHASE AND SERVICE ORDER FLOW


7.2.1 Material Requisitions (MR) and Service Requisitions (SR) shall be





received by Procurement Manager for proper approvals according to


LOA.





7.2.2 The Section Head of Purchasing will register and assign Material


requisition to Buyers.


7.2.3 The Buyer will issue at least 3 inquiries to the vendors from the


domestic or international market. EXAMPLE: Far East, Middle East,


Europe, and North America. The inquiry shall state the detailed material


specification and requirements along with COMPANY Standard terms


and conditions. The buyer will at all times source the materials or


services from at least three of the market locations or companies listed


above. Any deviation from this will require the Procurement


Department Manager’s written approval in advance.


7.2.4 The buyer shall state the complete information in its inquiries including,


but not limited to, specification, quantity, delivery and destination, time


for submission of quotation etc. No one shall disclose COMPANY


estimated cost to the supplier and the supplier’s competitor in any


circumstances.


7.2.5 The buyer shall receive the qualified quotations for the inquiry. After the


technical confirmation by User Department, the buyer will then prepare


a commercial evaluation to the Management or TC for approval as per


the requirement of LOA. The evaluation will be based on the DDP xxx,


DDF xxx Warehouse^CIF Port XxxxxxxxHairatan Port of Entry only.


7.2.6 A material Requisition shall not be purposely split in an attempt to


circumvent the requirement for competitive bidding on LOA Manual on


the need to obtain Manager, Vice President, President approval.


7.2.7 The award of the Purchase /Service Order shall be based on the Bid


Evaluation and approved according to LOA. The Bid Evaluation Form


shall be supported by MR/SR, inquiries, quotations and prepared by the


Procurement Procedure Manual (Revision 2.0)





Buyer, approved by Procurement Department Manager or other AA as


per LOA.


7.2.8 The Purchase Order (PO) shall only be signed by President as per LOA.


7.2.9 The original Purchase Order (PO) will be kept in Procurement


Department and copies shall be distributed to Logistics, User


Department, Finance Department, Warehouse, and any other department


or person requiring the information.


7.2.10Buyer may fill out a Payment Requisition (PR) duly verified by


Procurement manager and approved by Line Manager or President as per


LOA and submit it to the Finance Department for action. The Payment


Requisition (PR) shall be registered in the Accounting Management


System and the copy shall be retained in the Procurement Department.


The Payment Term refers to the Payment Policy hereinafter.


7.2.11 For the local purchase, the Payment requisition (PR) shall be attached to


the vendor’s original commercial invoices, with the tax stamp affixed to


the invoice prior to requesting payment. The buyer and Procurement


Department Manager must sign all payment requests which should be


duly approved by AA as per LOA prior to submission to Finance


Department for payment.


7.2.12 The Payment Requisition (PR) shall attach the copies of Purchase Order


(PO), Material Requisition (MR), Bill of Lading/Airway Bill, and


Packing List. The commercial invoice or pro-forma invoice sent by


courier or fax is needed for payment in advance.


8.0 TENDER AND EVALUATION METHODOLOGY


8.1 GENERAL


8.1.1 Upon selection of the supplier of material and/or service through the


sealed bid, price negotiation, written quotation, verbal quotation, rate


schedule, etc., the Procurement Department is responsible for ensuring


that the contractual agreement is properly documented and authorized.


And also that the following is included in the Purchase Order (PO): all








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pertinent cost, specifications, inspections, testing, services, technical,


routing, packaging, insurance, warranty information, payment terms,


promised delivery and delivery time constraint data.


8.1.2 The confidentiality of the information provided above must be strictly


observed and not used for personal gain and/or divulged to any third


parties. Breach of or failure to comply and follow this guideline will be


grounds for immediate dismissal from the employ of COMPANY or


punishment.


8.2 TC WORKING PROCEDURES





As per Tender Committee Working Procedures in the separate document.


9.0 PAYMENT POLICY


9.1 PURPOSE


9.1.1 To describe practices and procedures to be followed to provide


protection of COMPANY’S interests in cases where suppliers of services


or materials fail to perform.


9 2 PURCHASE ORDER


9.2.1 Payment to suppliers will be made within thirty (30) days after receipt of


vendor’s undisputed invoice and shipping documents, or Letter of Credit


as agreed in the Purchase Order or Contract.


9.2.2 In any case, 100 percent payment in advance will not be allowed unless


proper approval has been obtained. If the supplier does not accept net


thirty (30) days payment as described in Article 9.2.1., COMPANY can


accept payment in several installments, i.e. at placing Purchase Order, at


presentation of original shipping documents and/or thirty (30) days


presentation of shipping documents.


9.3 SERVICE CONTRACT BONDS














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9.3.1 The Bank Guarantees and/or Parent Company Guarantee may apply to


COMPANY service contracts. Unless otherwise approved by Tender


Committee, the Bank Guarantee will not be waived or reduced.


9.4 BID BOND


9.4.1 This is usually 2-5% of contract price and is provided by a bidder on a


project and it is payable to COMPANY, should the successful bidder not


accept the contract award.


9.5 PERFORMANCE BANK GUARANTEE


9.5.1 The performance bank guarantee is binding the contractor to complete


the contract. The performance bank guarantee will be five to ten (5-10)


percent of the contract value and be valid for sixty (60) days after the


contract has expired. If the contractor is unable to perform its obligation


against the contract, or major defects are found in the completed work


the performance bank guarantee will be paid to COMPANY


unconditionally.


10.0 TAX AND DUTY INSTRUCTIONS


10.1 GENERAL


10.1.1 All taxes are charged on all material purchases and service contracts


except where specifically exempt, or a tax exemption can be obtained.


10.1.2 The Purchase Order must indicate any item, which are exempt.


10.1.3 If unsure of the tax status on a specific item, on a Purchase Order,


contact the Finance/Planning Manager for assistance and clarification.


10.2 TAX


10.2.1 According to CONTRACT, the COMPANY will be permitted and shall


be exempted from all customs duties with respect to the importation of


certain listed machinery, equipment, material, vehicles, supplies and











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consumable or movable property which is a piece of capital equipment


and/or necessary for Hydrocarbons Operations .


10.2.2All goods and services purchased in Xxxxxxxx Afghanistan will be


subject to Xxxxx-x--Taxes Laws of XxxxxxxxAfghanistan. unless


exempted by CONTRACT. The COMPANY will not pay the VAT but


instead of issuing the VAT certificate for contractor or supplier to refund


from the government according to CONTRACT


10.2.3 Material re-exported from Xxxxxxxx Afghanistan may be exempt from


tax. However, all customs duty exemption certificates shall be kept by


Logistic Section, Procurement Department, for this purpose.


10.2.4 Tax policy and procedure questions regarding the import and/or export


of materials should be directed to the Finance/Planning Department


Manager.


10.2.5 All contractors shall be responsible for their own taxes, including but


not limited to Xxxxxxxx Afghanistan income taxes, sales taxes, etc. The


COMPANY will only assist contractors for the exemption of the


customs duties.


11.0 EXPEDITING


11.1 PURPOSE


11.1.1 The expediter is a delegated responsibility from the Procurement


Department. Expeditor or Logistic Supervisor is responsible of


supervising and follow up the custom clearance and transportation of


materials from and to the site. These missions are performed by agents


through a contract with specified obligations and price lists.


11.2 RESPONSIBILITIES


11.2.1 Expediter is responsible of seeking exemption and other necessary


governmental approvals for all the imported and exported materials and


submits the relevant documents to the agent.











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11.2.2Expediter will follow up the custom clearance process to avoid the


occurrence of any delay and to ensure the process duration is within the


duration agreed upon and stated in the contract.


11.2.3 Expediter is responsible of measuring and weighing the consignments to


specify the load capacity of the trucks needed for inland transportation to


the site.


11.2.4 Full loads will be utilized at all times when and wherever possible.


This will include the holding of some items whenever conditions and


schedules will allow.


11.3 CUSTOMS CLEARANCE (IMPORT AND EXPORT)


The Logistic Section/Procurement Department will be responsible for the


custom clearance together with the custom clearance agent for the importation


of the equipments, materials, or personal effects into Xxxxxxxx (and also with


the export arrangements for any of the foregoing) and for regular maintenance


items and/ or emergency services.


11.3.1 For importation, the needed documents are


a. One Original of commercial invoice.


b. One original of Bill of Lading or Airway Bill.


c. One original of packing list


d. One original of certificate of Origin.


e. Three copies of the purchase order.


These documents will be prepared by Purchasing Section/Procurement


Department in sufficient lead - time (preferably 72 hours).





11.3.2 For exportation, the needed documents are:


(a) Two originals of commercial invoice {For custom purposes only}


(b) Two originals of packing lists


These documents will be prepared by the user end in the cases of


dispatching samples for testing and analysis, maintenance, warranty and


others.








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12.0 INSPECTION


12.1 PURPOSE


12.1.1 Inspection is performed preferably at the vendor’s manufacturing


facilities and alternatively at the storage or marshalling location prior to


shipment, or after it reaches the COMPANY operation site in order to


ensure that the material and equipment is of the same design, dimensions,


material and quality as specified and conforms to minimum


requirements of the COMPANY’S purchase order or contract.


Procurement Department will be responsible for, arranging and assisting


the User Department with inspection arrangements.





12.2 USER/PROCUREMENT DEPARTMENT RESPONSIBILITIES


12.2.1 User Department, via Material Requisition, is responsible for


determining any specific items that will require inspection.


12.2.2Procurement Department will indicate on the Purchase Order that the


material and/or equipment are subject to shipment, and the scope of


inspection.


13.0 RECEIVING MATERIAL


13.1 PURPOSE


13.1.1 To outline the practices to be followed when receiving materials and


services. Warehouse will follow this procedure.


13.2 GENERAL


13.2.1 The following general instructions apply for all receiving regardless of


the type of commitment document (purchase order, contract, etc.)


13.3 RECEIVING








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13.3.1 The person who receives goods or services from a supplier is responsible


to ensure that:


a) Quantities and description of services or materials received, and all





exceptions are properly recorded on the packing slip, time sheets,


waybill and or material receiving report. The purchase order number


shall be recorded on all documents.


b) A receiving exception report (over short damaged report) is


prepared for all shipments received that are not as ordered, or that are


over, short, or damaged.


c) Appropriate copies of the above documents are sent to Accounts


Payable who will attach to the supplier’s invoice, they may then


forward to User Department and/ or Procurement Department for


approval, or pay invoice directly in accordance with the Financial


Procedure.


MATERIAL TRANSFERS AND RETURNS


14.0


14.1 PURPOSE





14.1.1 To control and record the movement or transfer of materials, equipment





or services controlled or owned by COMPANY or in COMPANY’S


custody through the material management system.


14.2 SCOPE


14.2.1 The material transfer form is used to accomplish the above purpose and





is to be completed when:


a) Materials are moved from one cost center, AFE, or inventory location


to another.


b) Surplus materials are returned to suppliers for credit or in.


c) Materials are lost or destroyed.


d) Materials are sold to outsiders.


e) Materials are sent to outside suppliers or contractors for repair and will


be away more than 15 days or where otherwise necessary for control


purposes.











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f) Materials are returned from repairing suppliers or contractors as in


14.2.1 above.


g) Services are performed or supplied by COMPANY to or for contractors


and are chargeable to the contractor or other third party.


14.3 RESPONSIBILITIES





14.3.1 Complete and register the Materials Transfer Form in material


management system before the material moves or services are supplied.


14.3.2 Send the Materials Transfer Form to Accounting in Field Office.





14.3.3 Send a copy of Material Transfer Form to receiving Unit for signature.





15.0 ETHICAL PRACTISES STATEMENT


15.1 PURPOSE


15.1.1 The purpose of this policy is to provide guidance on ethical practices


when an employee, consultant, contractor, or agent is engaged in a


supplier - related activity.


15.2 GENERAL


15.2.lit is the responsibility of all employees to maintain the good name and


reputation of the COMPANY and its partners and to consistently


exercise good judgment in the interest of COMPANY. The COMPANY


and reputation for honest, forthright treatment of suppliers is an


indispensable asset.


15.2.2 In personal contacts with suppliers, all employees represent COMPANY


and their actions and decisions on behalf of COMPANY, must be


impartial and objective in the performance of their work.


15.2.3Employees must maintain an impeccable standard of integrity in all


transactions and must not allow themselves to be put into a position


where their judgment can be influenced or be seen to be influenced.











23


Procurement Procedure Manual (Revision 2.0)








15.2.4No employee shall use their authority of office or position for personal


gain, or other advantages. In any business transaction, the employees


must not allow themselves, to be put into a position, which might affect


or be seen by others as possibly affecting the employee’s judgment or


impartiality.


15.2.5 No employee shall seek or accept gifts other than items of small


intrinsic value that is not normally saleable and is designed primarily


for advertising and represents cordial relations only.


15.2.6No employee shall seek or accept any payments, loans or services from


any organization, company, or person doing or seeking to do business


with COMPANY.


15.2.7Any personal interest which may impinge or might reasonably be


deemed by others to impinge on an employee’s impartiality must be


declared to COMPANY in writing. This shall be ground for the


company to prohibit the employees from taking part in certain purchases


of products, goods or sendees as well in ITB for goods or services.


15.2.8No employee shall use or cause to be used, COMPANY’S name or the


employee’s title or position within COMPANY to obtain any benefits


for any other affiliated or unaffiliated company or organization without


proper management approval.


15.2.9The confidentiality of information received in the course of the


employee’s duties must be strictly observed at all times and shall not be


released to any other company, person, or organization and shall not be


used for personal gain or himself or others.


16.0 EMERGENCY PROCUREMENT


16.1 APPLICABILITY








16.1.1 From time to time, local management may be required to


purchase materials or sendees for the preservation of life, for protection


of the environment, or to prevent destruction of property. The emergency











24 wj:





Procurement Procedure Manual (Revision 2.0)








purchase materials or services should not exceeding US $500,000, and


such occasions are to last no longer than 48 hours without the written


approval of the President.


16.2 PROCEDURES





16.2.1 When an emergency situation occurs, the onsite manager must first take


action to preserve life, protect the environment, or prevent destruction of


property. As soon as is reasonably practicable, the onsite manager must notify


COMPANY of the nature of the emergency and the actions taken.


16.2.2 Procurement of materials or services under emergency circumstances is


presumed prudent and the policies in this manual are waived temporarily to the


extent necessary to contain the emergency for up to 48 hours.


16.2.3 Upon notice of the emergency, COMPANY will immediately activate





emergency procurement procedures. These may include previously


purchased services (e.g., well control, fire fighting) or services from


affiliates. If the emergency is of longer than 48 hours duration, local


management emergency procurement authority is superseded by the


COMPANY procurement authority. After procurement, the User


Department should submit purchase report to LOA relate personnel.















































25


 EXHIBIT D








FINANCIAL GUARANTEE FOR


MINIMUM EXPLORATION PROGRAMME






























































D-l


 EXHIBIT D





FINANCIAL GUARANTEE











Ministry of Mines of the Islamic Republic of Afghanistan


Kabul


Islamic Republic of Afghanistan


Gentlemen:





Re: Our Irrevocable Letter of Guarantee No.


In compliance with the request of CNPCI Watan Oil and Gas Afghanistan Ltd. (the


“Contractor”), we, (Name of bank), issue this unconditional irrevocable letter of guarantee in


your favour for a sum not exceeding _ U.S. Dollars (US$


__), which represents the total estimated expenditures for the Minimum


Exploration Programme during [the Initial Exploration Period] [the First Extension Period] [the


Second Extension Period], as set forth in Part I of Exhibit H of the Exploration and Production


Sharing Contract (the “Contract”), dated December 26, 2011, between the Contractor and the


Ministry of Mines of the Government of the Islamic Republic of Afghanistan (the “Ministry”),


relating to Hydrocarbons Operations in Afghanistan, to guarantee the Contractor's faithful


performance of such Minimum Exploration Programme. The said sum of_


U.S. Dollars (US$_) shall be reduced as of the end of each Month in [the


Initial Exploration Period] [the First Extension Period] [the Second Extension Period] by the


amount determined in accordance with Section 8.2 of the Contract, as such amount is evidenced


by a signed certificate from the Ministry.


The terms and conditions of this Letter of Guarantee are as follows:


1. Capitalized terms used herein and not otherwise defined shall have the meanings as set


forth in the Contract.


2. The said amount, or any part thereof, shall be paid to the Ministry upon our receipt of


your demand by way of a written statement that the amount claimed is duly payable


under the Contract.


3. We hereby waive diligence, presentment, demand for payment, protest, any requirement


that the Ministry exhaust any right or power or take any action against the Contractor, all


notices (whether of non-payment by the Contractor, 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 Ministry, the waiver or consent by the Ministry with respect to any provision of


the Contract, and irrespective of the validity, regularity, enforceability or value of the








D-2











Contract, 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.


4. Our obligations hereunder shall be paid in U.S. Dollars to the bank account designated by


the Ministry, 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 [name of jurisdiction of issuing bank] or any political sub-division or taxing 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 Guarantee.


5. In order to give effect to this Letter of Guarantee, we hereby declare that the Ministry


shall be at liberty to act as though we were the principal debtor, and we hereby waive all


and any of the rights as surety which may at any time be inconsistent with any of the


above provisions.


6. 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 Guarantee.


7. This Letter of Guarantee shall be effective immediately [enter date that is ninety (90)


days after the last day of the Initial Exploration Period, the First Extension Period or the


Second Extension Period, as applicable], 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)















































D-3


 EXHIBIT E


GENERAL PERFORMANCE GUARANTEE



































E-l


 EXHIBIT E





GENERAL PERFORMANCE GUARANTEE








Reference is made to the Exploration and Production Sharing Contract (the “Contract”), dated


December 26, 2011, entered into between CNPCI Watan Oil and Gas Afghanistan Ltd. (the


“Contractor”) and the Ministry of Mines of the Government of the Islamic Republic of


Afghanistan (the “Ministry”).


With regard to the obligations assumed by the Contractor under the Contract or that may be


imposed upon the Contractor under or in connection with the Contract, we, CNPC International


Ltd. (the “Guarantor”), a corporation organized under the laws of Cayman Islands, agree as


follows:


1. Capitalized terms used herein and not otherwise defined shall have the meanings as set


forth in the Contract.


2. The Guarantor hereby expressly represents and warrants to the Ministry that (i) it is duly


organized, validly existing and in good standing order under the laws of its jurisdiction of


organization, (ii) it has all requisite corporate power and authority to execute, deliver and


perform this Guarantee, (iii) the execution, delivery and performance of this Guarantee


have been duly authorised by all necessary corporate action, (iv) this Guarantee


constitutes the legal, valid and binding obligation of the Guarantor, enforceable against


the Guarantor in accordance with its terms, (v) no governmental approvals are required in


connection with the execution, delivery and performance of this Guarantee, except as has


been obtained and is in force on this day of signature as set forth below, and (vi)


execution, delivery and performance of this Guarantee by the Guarantor will not violate


any provision of any existing law or regulation to which the Guarantor is subject or any


provision of the Guarantor’s constitutive documents or of any material agreements to


which it may be a party.


3. The Guarantor hereby unconditionally and irrevocably guarantees to the Ministry, as a


primary obligor, the due and punctual performance of all the obligations of the Contractor


under or in connection with the Contract.


4. This Guarantee is irrevocable and unconditional and shall remain in full force and effect


until all obligations of the Contractor under or in connection with the Contract are fully


and irrevocably satisfied and discharged, notwithstanding (a) any amendment or


termination of the Contract, (b) any extension of time, or (c) any delay or failure of the


Government in pursuing any remedies against the Contractor.


5. The Ministry shall have no obligation to pursue any remedy or take any action against or


in respect of the Contractor or any other Guarantor or surety prior to enforcing its right


directly against the Guarantor. In addition, the Guarantor may not claim that the Ministry








E-2


could have avoided or mitigated, in any manner or through any action, the damages


resulting from a default of the Contractor under the Contract or resort to any other


guarantee held at any time in its favour, before proceeding against the Guarantor in


connection with its obligations under this Guarantee. The Guarantor’s obligations under


this Guarantee shall be independent and absolute, and the Guarantor shall have no right to


set-off or counterclaim with respect to any other claims it may have against the


Government or any other Person.


All of the obligations of the Guarantor set forth herein shall bind the Guarantor and its


successors. The Guarantor may not assign or delegate its duties hereunder without the


prior written consent of the Ministry, and any purported assignment or delegation without


such consent shall be null and void. The Guarantor confirms that this Guarantee shall


remain in effect with respect to any assignee of the Contractor that is an Affiliated Entity


of the Contractor. Upon any such assignment the assignee shall be considered the


Contractor for all purposes hereunder to the extent of the assigned obligations. The


Guarantor also confirms that any assignee of the Ministry under the Contract may


exercise all rights and remedies of the Ministry under this Guarantee. No other person or


entity shall be a beneficiary of this Guarantee or have or acquire any rights by reason of


this Guarantee.


This Guarantee shall be governed and construed in accordance with the laws of


Afghanistan, as amended or replaced and in effect from time to time.


Any failure of the Ministry to exercise any right, in whole or in part, hereunder shall not


be construed as a waiver of the right to exercise the same or any other right.


No amendment or modification of this Guarantee shall be effective unless in writing and


signed by both the Guarantor and the Ministry.


Any dispute concerning the legal interpretation hereunder shall be settled in accordance


with Article XXIV of the Contract.


The Guarantor shall pay upon demand and presentation of invoices all reasonable and


actual costs and expenses incurred by the Ministry in connection with the successful


enforcement of this Guarantee, including, without limitation, reasonable fees and


expenses of counsel.


All notices, demands, instructions, waivers, consents or other communications hereunder


shall be in writing in the English language and deemed to have been properly effective


upon receipt, and shall be sent by personal delivery, courier, first class mail or fax to the


following addresses:


GUARANTOR: CNPC International Ltd.


No. 6-1, Fuchengmen Beidajie, Xicheng District


Beijing, China 100034


Telephone+86 10 5855 1114


Fax +86 10 5855 1110


ATTN: Mr. BO Qiliang


MINISTRY: Ministry of Mines


Pashtoonistan Watt


Across from Ministry of Finance


Kabul, Afghanistan


Telephone +93 (0) 202 100 309


ATTN: Director of Petroleum Authority


The Addresses and fax numbers by either Party for notices given pursuant to this


Guarantee may be changed by means of written notice to the other Party at least 14


working days prior to effective date of such change.


13. This Guarantee shall be effective immediately.


IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed and the


Ministry duly authorised the same, both parties represented by their respective duly authorised


representatives on this day of_.











CNPC INTERNATIONAL LTD.








By_


President








THE MINISTRY OF MINES OF THE


GOVERNMENT OF THE ISLAMIC REPUBLIC


OF AFGHANISTAN











By_


The Minister of Mines









































E-4


 EXHIBIT F


LONG RANGE PLAN FOR


THE TRAINING OF AFGHAN NATIONALS












































F-l


 EXHIBIT F








LONG RANGE PLAN FOR


THE TRAINING OF AFGHAN NATIONALS








Introduction


One of the fundamental principles of CNPCI is the development of local resources in the places


where we work. This consists primarily of a national workforce and reliable supporting suppliers


and service organizations. Our staffing philosophy has been developed over sixty-five years of


oilfield operations, in established, emerging and new oil sectors throughout the world. CNPCI is


committed to recruiting, training and developing nationals in all the countries in which we operate


and committed to complying with local laws and regulations. Our objective is to have, within


CNPCI, sufficient national personnel to completely staff all our operations in that country. To


ensure key employees are continually developed, we offer engineers the opportunity of overseas


assignments, which broaden their technical and experience horizons. Cultivation of international


talents is a key part of our internationalization strategy. On June 1, 2006, the International


Talents Training Project was launched in a aim to cultivate a group of international talents with


excellent specializations, work ethics, language skills, and a profound understanding of


management and international operation rules.


Workforce Nationalization


A competent national workforce at all levels of our local organizations is crucial in enabling us to


perform at a world class level. Engineers, managers and technical staff are especially important,


and significant resources are dedicated to recruiting, training and developing this population.


To ensure common, high standards of recruiting, we have a dedicated recruiting department that


focuses on recruiting engineers and technicians from the best universities and institutions in


Afghanistan. Our recruiters have the charter to hire sufficient national personnel to staff all our


operations in a particular country, and such is the case in Afghanistan.


Once an individual is recruited, he/she should follow a structured training programme. CNPCI


respects the personalities and interests of all employees and pays attentions to their career plans.


Through the skills cultivation, selection and allocation mechanism, we aim to create a suitable


development channel for every employee. Recruited employees follow a structured training


programme comprised of about [70%] technical material and about [30%] management material.


This split has been set to ensure that individuals are technically prepared for running any wellsite


operation as well as prepared to eventually take management positions.








10494821v3 !! PAGE

Development Plan, Career Paths, and Technical Training of Afghan Nationals


Any training programme shall incorporate a mix of theoretical and practical training. Some of


training courses we will provide are:





Health, Safety, and Environment:


Field Introduction, Specific Location Induction, H2S Safety, Explosives Safety, Radiation


Safety, Lifting & Stepping, Rig Safety Language Training, Defensive Driving and Journey


Management, First Aid, all tailored to the needs of the individual's development plan.


The above training will be mandatory training for all Afghan national and expatriate technical





professionals to ensure safe operations in all hydrocarbons operations.








Technical Skills:


Technical training is key to all hydrocarbons operations. All new hires in Afghanistan hired


for technical positions will follow an intensive three-year technical training programme. A


technician training system is occupied to train front-line teams and cultivate highly skilled


staff. The training programmes for the different functions involved in hydrocarbons


operations will include intensive classroom and on-the-job training with regular review and


assessment.








Management:


We focus on the enhancement of management and innovative capabilities. All field


professional staff, irrespective of discipline, will participate in the following management skills


seminars:


• Introduction to Exploration & Production Industry (2 weeks)


• Basic Management Tools (1 week)


• People Skills (1 week)


• Finance (1 week)





Logistics:


In order to ensure success of this crucial role, we will focus on training logistics personnel in


local Afghan procedures as well as the provision of industry logistics.














10494821v3 I! PAGE H 21


 Administration:





Centrally administered training for personnel, financial and legal, professional and


administrative staff, including computer training and language training.








E-learning in CNPC:


Our parent entity, China National Petroleum Corporation ("CNPC"), has developed CNPC E-


learning College, which is a specialized remote training institution devoted to establishing a


modern enterprise training system offering both classroom and online training. By leveraging


the network training resources of CNPC and its subsidiaries, the college provides employees


with an autonomic learning platform. About 20,000 person times of employees are expected


to be trained through the E-learning College in [2009]. The CNPC E-learning website also


provides a way for publics to learn more about petroleum.


Mentoring


CNPCI understands that to provide sustainable economic gains for Afghanistan, we must





facilitate learning-by-doing for our Afghan personnel to progressively assume greater leadership


roles and responsibility in hydrocarbons operations. CNPCI will pair senior project staff and junior


project staff to develop on-the-job mentoring opportunities. This approach will allow senior staff


to enter into a surge capacity on new sites and junior staff to step into more senior roles on


existing sites.


Ministerial Training Courses


In addition to developing Afghan nationals for the private sector, a wide range of courses and


programmes, covering all hydrocarbons operations, will be offered to ministerial staff. This will be


in addition to the mentoring required during the development of the Work Programmes. Such


courses could be in reservoir studies, evaluation, as well as modeling and production


management.





Nationalization Plan





Position Start Up 2013 2014


AFG % of Total AFG % of Total AFG % of Total


Management 0% 10% 20%


Engineers & Professionals 20% 30% 40%


Field Technicians 40% 50% 60%











10494821v3 !! PAGE 1131


As seen in the table above, CNPCI is committed to developing Afghan national personnel to


assume positions at ALL levels within the organization.








Key Technical and Management Positions


Development of Afghan nationals into key technical and management jobs is an operational


priority. Several positions have been identified and targeted for Afghan national employees.


These positions will be tracked accordingly. The CNPCI plan for key technical and management


positions is illustrated in the following graph.


Nationalization by Key Positions











70% ---








60%





50%


Engineers &


40% Professionals


Manageme it





30% Field


Technicians





20%





10%





0%


Startup 2013 2014















































10494821v3 PAGE H41


Training plan of students abroad and officer and staff from 2012 to 2014








Personnel Total Training site Content Budget








2012





Students abroad 2 China Professional education 10000


Governor Officer 2 China Management ,HSE, etc 12000





Management 5 Afghanistan HSE .Management,E-language, etc 6000





Engineers & 10 Afghanistan HSE , E-language, 9000





Professionals specialty knowledge


specialty skill, etc





technician 50 Afghanistan Operation skill, HSE, E-language ,etc 13000





2013


Students abroad 2 China Professional education 10000





Governor Officer 2 China Management ,HSE, etc 10000





Management 10 Afghanistan HSE .Management,E-language ,etc 8000





Engineers & 20 Afghanistan HSE , E-language, 12000


Professionals specialty knowledge





specialty skill ,etc


technician 100 Afghanistan Operation skill, HSE, E-language ,etc 15000





2014





Students abroad 2 China Professional education 10000





Governor Officer 2 China Management ,HSE, etc 10000





Management 15 Afghanistan HSE .Management,E-language, etc 11000





Engineers & 20 Afghanistan HSE , E-language, 14000











10494821v3 !! PAGE H 51


 Professionals specialty knowledge


specialty skill, etc





technician 150 Afghanistan Operation skill, HSE, E-language ,etc 15000














In addition to the sourcing and hiring of experienced, qualified management and technical staff


currently employed within the Ministry, additional hiring will be done at the university level. The


recruiting of personnel must provide several candidates with the necessary levels of training,


expertise and experience to develop into field managers. In the hydrocarbons operations


disciplines there will be candidates working in Afghanistan and abroad who will be selected for


development into a field management role during the first three years of the EPSC.











In the first three years. CNPCIW will arrange Students abroad, Governor Officers of mine ministry,


managements, Engineers and technicians take part in training in china or in Afghanistan, in next


five years, we will arrange an another long term training plan according to the development of AD


project, there are the particular description in follow chart:













































































10494821v3 !! PAGE <1161


 AD PROJECT LONG TERM TRAINNING PLAN








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X yeax2013 two students 2013^01^310 XlWXiXW





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X year2012 two pezsons 2012^07^030 2012^08^080





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X year2013 lOpersons 2013^04^020 2013^06^260





X year2014 15persons 2014^04^030 2014^06^300


X 2nd, 5year 2015^02^020 2019^09^300


X Engineers & Professionals 2012^100 080 2019^090300 w=





X year2012 lOpersons 2012^10^080 2012^12^ 180 o





X year2013 20persons 2013^05^080 2013^10^300


X year2014 20pezsons 2014^05^080 2014^10^300


X 2nd, 5year 2015^02^020 2019^09^300





X technician 2012^090 050 2019^090 300 w=


X year2012 50persons 2012^09^050 2012^12X80 o





X year2013 lOOpersons 2013^03^040 2013^09^270


X yeax2014 150persons 2014^03^050 2014^10^ 300





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10494821v3 !! PAGE H 1L


 EXHIBIT G


BIDDING FORM












































G-l


 Exhibit IV: Bidding Form


AMU DARYA OIL TENDER OF 2011





BIDDING FORM











Ministry of Mines of the Islamic Republic of Afghanistan


Kabul


Islamic Republic of Afghanistan











BIDDER: Consortium of CNPC International. Ltd, and Watan Oil and Gas. Ltd.








ROYALTY BID:_Fifteen_percent f 15.000 %1





The undersigned, CNPC International, Ltd. and Watan Oil and Gas Ltd., hereby


unconditionally commit that, if selected as the winning bidder in the above-


referenced tender process, they will cause a company organized under the laws of


the Islamic Republic of Afghanistan and wholly owned by them to enter into the


Exploration and Production Sharing Contract (the "EPSC") in the final form


distributed to the bidders in the above-referenced tender process, with the royalty


referred to in Section 10.1 of the EPSC being the percentage indicated above. Unless


such period is extended by the Ministry, the EPSC shall be executed no later than


thirty (30) days after notification by the Ministry of award of the EPSC. The


undersigned acknowledge that non-compliance with the obligation set forth above


shall result in a drawing on the Bid Guarantee.








Zhu Xiangdong Ahmad Rateb Popal






































9470803v2














W>


 EXHIBIT H








MINIMUM EXPLORATION PROGRAMME;


MINIMUM PRODUCTION REQUIREMENTS FOR


DESIGNATED FIELDS


 EXHIBIT H





MINIMUM EXPLORATION PROGRAMME;


MINIMUM PRODUCTION REQUIREMENTS


FOR DESIGNATED FIELDS








I. Minimum Exploration Programme


The Contractor shall perform the following minimum Exploration Operations during the


Exploration Phase:








Block 2D Seismic (km) Wells


Initial


Kashkari 100


Exploration 3


Period Bazarkhami 100


Zamarudsay 100


First


Kashkari 100


Extension 3


Period Bazarkhami 100





Zamarudsay 100


Second Kashkari 100


Extension


Period Bazarkhami 100 3





Zamarudsay 100





For purposes of the foregoing and for calculation of the amount of the Financial


Guarantee required pursuant to Section 3.1(a), each kilometer of 2D seismic survey shall


be deemed to have a value of US$30,000; each square kilometer of 3D seismic survey


shall be deemed equivalent to 3 kilometers of 2D seismic survey; and each Exploration


Well shall be drilled to the Hauterivian horizon and shall be deemed to have a value of


US$2,000,000. The Contractor may drill the required Exploration Wells in any portion


of the Contract Area outside of the Designated Fields. The Ministry may grant credit for


Wells that do not reach target depth in accordance with Section 5.4(k). The amount of


any seismic surveys undertaken or Exploration Wells drilled in excess of the required








H-2


minimum Exploration Operations for any given period shall be carried forward to the


next period and shall be taken into account to satisfy the required minimum Exploration


Operations and/or calculate the amount of the Financial Guarantee required for such


subsequent period.


II. Minimum Production Requirements for Designated Fields


The Contractor shall meet the minimum cumulative production requirements from each


of the Designated Fields during the Years indicated under either Option 1 or Option 2


below. The Contractor shall elect either Option 1 or Option 2 in the manner prescribed


by Section 6.4 of this Contract. Liquid Hydrocarbons produced during production testing


shall not be counted toward satisfaction of the minimum cumulative production


requirements.





Option 1





Designated Cumulative Production


Field (thousand barrels of Liquid Hydrocarbons)








Year 1 Year 2 Year 3 Year 4 Year 5





Kashkari


Field 50 1400 3000 5000 7000





Angot


Field 100 250 400 500 600





Aq Darya


Field 0 0 500 1500 2700





Bazarkhami 0 0 0 100 200


Field


Zamarudsay


0 0 0 300 1800


Field


 Option 2


Designated Cumulative Production


Field (thousand barrels of Liquid Hydrocarbons)


Year 1 Year 2 Year 3 Year 4 Year 5


Kashkari 0 1400 3000 5000 7000


Field


Angot 100 250 400 500 600


Field


Aq Darya 50 1050 2250 3500 4700


Field


Bazarkhami 0 0 0 100 200


Field


Zamarudsay 0 0 0 300 1800


Field









































H-4