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_______________________________________________________________________________

_______________________________________________________________________________

_________________________________________________________________________ Shares

of the capital stock represented by the within certificate and do hereby

irrevocably constitute and appoint

____________________________________________________________________ Attorney to

transfer the said stock on the books of the within named Corporation with full

power of substitution in the premises.



Dated _________________________________

_______________________________________________________________________________

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS

WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION

OR ENLARGEMENT OR ANY CHANGE WHATEVER.

</TEXT>

</DOCUMENT>

<DOCUMENT>

<TYPE>EX-10.(23)

<SEQUENCE>3

<DESCRIPTION>PRODUCTION SHARING CONTRACT

<TEXT>

<PAGE>



1

Exhibit 10(23)

PRODUCTION SHARING CONTRACT



BETWEEN



GEORGIA



GEORGIAN OIL AND JKX (NINOTSMINDA) LIMITED



COVERING: NINOTSMINDA, RUSTAVI AND MENAVI

DATED 15 February 1996

<PAGE>



2

TABLE OF CONTENTS



<TABLE>

<S>

<C>

PREAMBLE

...................................................................................



49

ARTICLE 1

DEFINITIONS........................................................................

50

ARTICLE 2

SCOPE OF CONTRACT AND GENERAL

PROVISIONS...........................................

57

ARTICLE 3

CONTRACT

AREA......................................................................

58

ARTICLE 4

CONTRACT

TERM......................................................................

59

ARTICLE 5

RELINQUISHMENTS....................................................................

59

ARTICLE 6

COORDINATION

COMMITTEE.............................................................

60

ARTICLE 7

OPERATOR

RESPONSIBILITY............................................................

63

ARTICLE 8

AMENDMENT TO CHARTER OF

GMJV.......................................................

64

ARTICLE 9

PROCEDURE FOR DETERMINATION OF COMERCIALITY AND APPROVAL OF

DEVELOPMENT PLANS

.................................................................

65

ARTICLE 10

WORK PROGRAMS AND

BUDGETS..........................................................

68

ARTICLE 11

ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND EXPENSES, PRODUCTION

SHARING, AND RIGHT OF EXPORT

......................................................

69

ARTICLE 12

CRUDE OIL

VALUATION................................................................

72

ARTICLE 13

ANCILLARY RIGHTS OF THE CONTRACTOR AND

OPERATOR....................................

73

ARTICLE 14

ASSISTANCE PROVIDED BY THE

STATE...................................................

75

ARTICLE 15

MEASUREMENT, QUALITY AND VALUATION OF

PETROLEUM....................................

31

ARTICLE 16

NATURAL

GAS........................................................................

32

ARTICLE 17

TAX/FISCAL

REGIME..................................................................

35

ARTICLE 18

ACCOUNTING, FINANCIAL REPORTING AND

AUDIT..........................................

43

ARTICLE 19

CURRENCY, PAYMENTS AND EXCHANGE

CONTROL............................................

44

ARTICLE 20

IMPORT AND

EXPORT..................................................................

45

ARTICLE 21

EXPORT OF HYDROCARDONS, TRANSFER OF OWNERSHIP, AND REGULATIONS

FOR DISPOSAL

......................................................................

46

ARTICLE 22

OWNERSHIP OF

ASSETS................................................................

47

ARTICLE 23

INSURANCE..........................................................................

48

ARTICLE 24

PERSONNEL..........................................................................

49

ARTICLE 25

FORCE

MAJEURE......................................................................

49

ARTICLE 26

ASSIGNMENTS AND

GUARANTEES.........................................................

50

</TABLE>



<PAGE>



3



<TABLE>

<S>

<C>

ARTICLE 27



CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND

WARRANTIES

........................................................................

56

ARTICLE 28

NOTICES AND

CONFIDENTIALITY........................................................

60

ARTICLE 29

TERMINATION AND

BREACH.............................................................

61

ARTICLE 30

DISPUTE

RESOLUTION.................................................................

62

ARTICLE 31

TEXT...............................................................................

63

ARTICLE 32

APPROVAL AND EFFECTIVE

DATE........................................................

63

ANNEX A

CONTRACT

AREA......................................................................

107

ANNEX B

PREVIOUS

PRODUCTION................................................................

110

ANNEX C

ACCOUNTING

PROCEDURE...............................................................

70

ANNEX D

GMJV

LICENCE.......................................................................

129

ANNEX E

STATE AUTHORISATION FOR SAKNAVTOBI (GEORGIAN

OIL)..................................

129

</TABLE>



<PAGE>



4

PRODUCTION SHARING CONTRACT AND LICENSES



This Contract is made and entered into as of the 15 February 1996 by and between

(1) The State Department Saknavtobi (Georgian Oil) in its capacity as the duly

authorised representative of the State (as that term is defined in Article 1.68)

pursuant to the authority set out in Annex E, as the party of the first part;

(2) the State Department Saknavtobi (Georgian Oil) in its capacity as the state

owned oil department organised and existing as a legal entity under the laws of

Georgia particularly as it is defined by the Charter of Saknavtobi adopted by

the Council of Ministers of the Republic of Georgia, December 31, 1994 #908

(hereinafter referred to as "Georgian Oil"), as the party of the second part;

and, (3) as party of the third part, JKX (Ninotsminda) Limited ("JKX"), a

company organised and existing under the laws of Cyprus, (JKX, and its

successors and assignees, if any, will individually be referred to as

"Contractor Party" and collectively referred to as "Contractor"). The State,

Georgian Oil, and the Contractor may sometimes be referred to as "Party" and

collectively as the "Parties".

WITNESSETH:

WHEREAS, all Petroleum resources within the territory and under the internal

waters, territorial sea, and continental shelf of Georgia are owned by the

State;

WHEREAS, the State enters into this Contract wishing to promote the development

of the Contract Area and Georgian Oil and Contractor desire to join and assist

in the exploration, development and production of the potential resources within

the Contract Area;

WHEREAS, Contractor has the requisite technical, managerial and financial

capabilities and experience to carry out Petroleum Operations stipulated in this

Contract and desires to cooperate with the State and Georgian Oil for the



exploration and exploitation of Petroleum reserves within the Contract Area;

WHEREAS, in December 1994 there was granted to the GMJV, (a Georgian American

joint venture the founders of which are Makoil Inc. and Georgian Oil) a complex

licence in respect of the Contract Area, a copy of that licence being annexed

hereto as Annex D; and

WHEREAS the Parties have agreed that in order to promote the development of

hydrocarbon resources in Georgia and to promote international investment in

Georgia, Petroleum Operations should be carried out pursuant to the terms of

this Contract and the terms of the GMJV Licence should be deemed to be amended

to the extent that they are in any way inconsistent with the provisions of this

Contract.

WHEREAS JKX has produced and Georgian Oil has agreed to a work programme for

Petroleum Operations.

<PAGE>

5

NOW, THEREFORE, in consideration of the promises and the mutual covenants and

conditions herein contained, it is hereby agreed as follows:

ARTICLE 1

DEFINITIONS

The following words and terms used in this Contract shall unless otherwise

expressly specified in this Contract have the following respective meanings:

1.1



"Accounting Procedure" means the accounting procedure set out in Annex

"C" hereto.



1.2



An "Affiliated Company" or "Affiliate" means:

a) with respect to a Contractor Party a company, corporation,

partnership or other legal entity:

i)



in which a Contractor Party owns directly or indirectly more

than fifty percent (50%) of the shares, voting rights or

otherwise has the right to establish management policy; or



ii)



in which at least fifty percent (50%) of the shares or voting

rights are owned directly or indirectly by a company or other

legal entity, which owns directly or indirectly more than

fifty percent (50%) of the shares, voting rights or otherwise

has the right to establish management policy of a Contractor

Party;



b) with respect to the State and Georgian Oil, any legal entity

directly or indirectly controlled by the State or Georgian Oil,

respectively, or operating under their collective management. For the

purposes of this part of the definition, the term to "control"

(including the related terms "controlled" or "operates under collective

management") shall mean with respect to any entity, having the right to

carry out direct or indirect supervision of such entity or to define a

general scope of its activity based on holding the shares entitled to

vote, other form of ownership, or on any other grounds.

1.3



"Annex" or "Annexes" means each or all of the Annexes "A" through "E"

attached to this Contract and made a part hereof. In the event of a

conflict between the provisions of an Annex and a term in the main body

of this Contract, the provisions of the latter shall prevail.



1.4



"Appraisal" means all works carried out by Contractor to evaluate and

delineate the commercial character of a Discovery of Petroleum in the

Contract Area.



<PAGE>

6

1.5

"Appraisal Program" means a work program submitted by Contractor under

which Contractor will evaluate and delineate a Discovery of Petroleum

in the Contract Area.

1.6



"Associated Natural Gas" means all gaseous hydrocarbons produced in

association with Crude Oil, which Crude Oil itself can be commercially

produced and separated therefrom.



1.7



"Available Crude Oil" means Crude Oil produced and saved from the

Contract Area and not used in Petroleum Operations in accordance with

Article 11.3.



1.8



"Available Natural Gas" means Natural Gas produced and saved from the

Contract Area and not used in Petroleum Operations in accordance with

Article 11.3.



1.9



"Barrel" means a quantity consisting of forty-two (42) United States

gallons liquid measure, corrected to a temperature of sixty degrees (60

(degrees)) Fahrenheit with pressure at sea level.



1.10



"Budget" means the estimate of the expenditures, listed category by

category, relating to Petroleum Operations and contained in any Work

Program proposed by Contractor.



1.11



"Calendar Quarter" or "Quarter" is a period of three consecutive months

beginning on January 1st, April 1st, July 1st and October 1st of each

Calendar Year.



1.12



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

beginning on January 1st and ending on December 31st in the same year,

according to the Gregorian Calendar.



1.13



"Commercial Discovery" means a discovery of Petroleum that the

Contractor in its sole discretion in accordance with the provisions of

Article 9 commits itself to develop and produce under the terms of the

Contract.



1.14



"Commercial Production" means regular and continuous production of

Petroleum from a Development Area in such quantities (taking into

account any other relevant factors) as are worthy of commercial

development.



1.15



"Contract" or "PSC" means this Production Sharing Contract together

with all attached Annexes and any variation, extension or modification

hereto which may be agreed in writing by all the Parties.



1.16



"Contract Area" means the area specified in Article 3 hereof and

delineated in Annex A, as reduced or enlarged from time to time in

accordance with the provisions of this Contract.



1.17



"Contract Year" means a period of twelve (12) consecutive months within

the term of the Contract.



<PAGE>

7

1.18

"Contractor" means the Contractor Parties, their assignees and

successors, as provided herein.

1.19



"Coordination Committee" means the committee composed of

representatives of all Parties constituted in accordance with Article

6.



1.20



"Cost Recovery Petroleum" means Cost Recovery Crude Oil and Cost

Recovery Natural Gas.



1.21



"Cost Recovery Crude Oil" is defined as set forth in Article 11.5.



1.22



"Cost Recovery Natural Gas" is defined as set forth in Article 11.5



1.23



"Costs and Expenses" comprise the Exploration Expenditures, Development

Expenditures, Operation Expenses and Drilling Costs together with

Finance Costs whether directly or indirectly incurred by Contractor.



1.24



"Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds

of hydrocarbons whether in a solid, liquid or mixed state at the

wellhead or separator or which is obtained from Natural Gas through

condensation or extraction.



1.25



"Customs Duties" means all import (or export) tariffs and duties and

other mandatory payments as stipulated by applicable laws, regulations

or other legal measures of Georgia with respect to the import or export

of materials, equipment, goods and any other similar items.



1.26



"Development Area" means all or any part of the Contract Area specified

in an approved Development Plan containing a Commercial Discovery.



1.27



"Development Expenditures" shall mean all costs and expenses for

Development Operations with the exception of Operation Expenses and

Drilling Costs whether directly or indirectly incurred, including but

not limited to training, administration, service, Finance Costs and

related expenses.



1.28



"Development Plan" is the plan to be produced by Contractor in

accordance with Article 9.6. following a declaration that Commercial

Production may be established.



1.29



"Development" or "Development Operations" or "Development Work" means

and includes any activities or operations associated with work to

develop for production and subsequently to produce and render

marketable for commercial sale and shall include, but not be limited

to:

a)



<PAGE>



all the operations and activities under the Contract with

respect to the drilling of wells, other than Exploration

wells, the deepening, reworking, plugging back, completing and

equipping of such wells, together with the design,

construction and installation of such equipment, pipeline or

gathering lines, installations, production units and all other

systems relating to such wells and related operations in



8

connection with production and operation of such wells as may

be necessary in conformity with sound oil field practices in

the international Petroleum industry.



b)



all operations and activities relating to the servicing and

maintenance of pipelines, gathering lines, installations,

production units and all related activities for the production

and management of wells including the undertaking of

re-pressurising, recycling and other operations aimed at

intensified recovery, enhanced production and oil recovery

rate.



1.30



"Discovery" means a well that the Contractor determines has encountered

Petroleum which would justify Commercial Production.



1.31



"Dollar" or "U.S.$" means the currency of the United States of America.



1.32



"Double Tax Treaty" means any international treaty or convention for

the avoidance of double taxation of income and/or capital which is

applicable in Georgia;



1.33



"Drilling Costs" shall mean all expenditures whether directly or

indirectly incurred during Exploration and Development for well

drilling, completing and reworking operations including, but not

limited to, labour, geological design, engineering and other

Subcontractors (including all fees, tariffs and charges payable to any

such Subcontractors), material and equipment consumed or lost,

perforation, formation testing, cementing, well-logging and

transportation.



1.34



"Effective Date" means the date on which this Contract has been signed

by all Parties and the Contractor has given the notice required by

Article 32.3.



1.35



"Excess Associated Natural Gas" is defined as set forth in Article

16.1.b.



1.36



"Excess Crude" is defined as set forth in Article 11.15.



1.37



"Exploration" or "Exploration Operations" means operations conducted

under this Contract in connection with the exploration for previously

undiscovered Petroleum, or the evaluation of discovered reserves which

shall include geological, geophysical, aerial and (other survey)

activities and any interpretation of data relating thereto as may be

contained in Exploration Work Programs and Budgets, and the drilling of

such shot holes, core holes, stratigraphic tests, Exploratory Wells for

the discovery of Petroleum, Appraisal wells and other related

operations.



1.38



"Exploration Expenditures" shall mean all costs and expenses for

Exploration Operations other than Drilling Costs whether directly or

indirectly incurred including but not limited to training,

administration, service, Finance Costs and related expenses and

overhead and study costs.



<PAGE>

9

1.39

"Exploratory Well" means any well drilled with the objective of

confirming a structure or geologic trap in which Petroleum capable of

Commercial Production in significant quantities has not been previously

discovered.

1.40



"Field" means a Petroleum reservoir or group of reservoirs within a

common geological structure or feature. "Field" may be an "Oil Field"

or a "Natural Gas Field" as designated by Contractor.



1.41



"Finance Costs" or "Interest Costs" shall include all amounts of

interest, fees and charges paid in respect of any debt incurred in

carrying out the Petroleum Operations and any refinancing of such

debts, providing that in the case of Affiliate debt, it shall include

interest only to the extent that it does not exceed a rate which would

have been agreed upon between independent parties in similar

circumstances and such interest is not limited by which assets or

services are purchased by the loan principal.



1.42



"Force Majeure" is defined as set forth in Article 25.2.



1.43



"Foreign Employee" is defined as set forth in Article 17.21



1.44



"Foreign Subcontractors" means Subcontractors which are organised

outside of Georgia.



1.45



"Gas Sales Contract" is any contract to be entered into for the sale of

Non-associated Natural Gas in accordance with the provisions of Article

16.2.



1.46



"GMJV" means Georgia-Makoil Joint Venture.



1.47



"GMJV Licence" is the licence annexed hereto as Annex D, being the

"Complex Licence" issued by the Chairman of the specialized office for

Licensing and Informatics of "Saknavtobi" Department of the Republic of

Georgia to GMJV dated December 1994 together with all enclosures and

associated authorisations of Government.



1.48



"Joint Operating Agreement" or "JOA" means the agreement to be

concluded between the Contractor Parties, Georgian Oil and GBOC which

shall be supplementary to and consistent with the provisions of this

Contract and which shall regulate the terms under which Petroleum

Operations will be conducted.



1.49



"LIBOR" means the three (3) months U.S. Dollars London Interbank fixing

offer rate quoted daily in the London Financial Times.



1.50



"Marketing Team" is defined as set forth in Article 16.2.a.ii.



1.51



"Measurement Point" means the location specified in an approved

Development Plan where the Petroleum is metered and delivered to the

Parties.



1.52



"Month" or "Calendar Month" means a calendar month.



<PAGE>

10

1.53

"Natural Gas" means Non-associated Natural Gas and Associated Natural

Gas in their natural state.

1.54



"Natural Gas Field" means a field from which more than fifty (50)

percent of the estimated reserves on an energy equivalency basis are

Natural Gas at surface conditions.



1.55



"Non-associated Natural Gas" means all gaseous hydrocarbons produced

from gas wells, and includes wet gas, dry gas and residue gas remaining

after the extraction of liquid hydrocarbons from wet gas.



1.56



"Oil Field" means a field from which more than fifty (50) percent of

the estimated reserves comprise Crude Oil.



1.57



"Operation Expenses" shall mean those costs incurred in day-to-day

Petroleum Operations in or in relation to the Contract Area, whether

directly or indirectly incurred including but not limited to all costs,

expenses and expenditures associated with the Production, processing,

transportation, export and sale of Petroleum, training, administration,

service, Finance Costs, payments for abandonment and site restoration

in accordance with Article 9.8, insurance costs in accordance with

Article 23 and related expenses, all made after the commencement of

Commercial Production.



1.58



"Operator" shall (unless the Parties otherwise agree) be Georgian

British Oil Company (GBOC) (or with the consent of the Parties a

subsidiary of GBOC) which shall perform the obligations of an operator



in accordance with the provisions of this Contract and the JOA.

1.59



"Party" or "Parties" means the parties whose authorised representatives

have affixed their signatures hereto.



1.60



"Petroleum" means Crude Oil and Natural Gas.



1.61



"Petroleum Operations" means the Exploration Operations, the

Development Operations, Production Operations, and transportation,

export and other activities related thereto carried out pursuant to

this Contract and the JOA.



1.62



"Petroleum Operations Account" shall have the meaning given to it in

paragraph 4.1 of section I of the Accounting Procedure.



1.63



"Previous Production" means agreed production figures for the Contract

Area set out in Annex B.



1.64



"Production" or "Production Operations" means operations and all

related activities carried out for Petroleum production after the

approval of any Development Plan, including without limitation

extraction, injection, stimulation, treatment, transportation, storage,

lifting, and associated operations, but does not include any storage or

transportation beyond the Measurement Point.



<PAGE>

11

1.65

"Profit Natural Gas" is defined as set forth in Article 11.10.

1.66



"Profit Oil" is defined as set forth in Article 11.10.



1.67



"Profit Tax" is defined as set forth in Article 17.



1.68



"State" or "Government" means the Government of Georgia and all

political or other agencies or instrumentalities or subdivisions

thereof including but not limited to any local government or other

representative, agency or authority, which has the authority to govern,

legislate, regulate, levy and collect taxes or duties, grant licences,

permits, approve or otherwise impact (whether financially or otherwise)

directly or indirectly upon any of the Parties' rights, obligations or

activities under the Contract; the word "Governmental" shall be

construed accordingly.



1.69



"Study Area" is the part of the Contract Area which will be defined in

a Study Program.



1.70



"Study Program" shall mean the program to be produced and carried out

by the Contractor in accordance with Article 9 following the conclusion

that Commercial Production is feasible.



1.71



"Subcontractor" means any natural person or juridical entity contracted

directly or indirectly by or on behalf of Contractor to supply goods,

works or services related to this Contract.



1.72



"Tax Inspectorate" is defined as set forth in Article 17.18.



1.73



"Third Party" or "Third Parties" means one or more of a natural person

or juridical entity other than a Party hereto and any Affiliate of a

Party.



1.74



"Taxes" means all levies, duties, payments, fees, taxes or

contributions payable to or imposed by Governmental agencies,

Governmental subdivisions or republican, municipal or local authorities



within the Government of Georgia.

1.75



"VAT" means Georgian value added tax.



1.76



"Withhold Tax" is defined as set forth in Article 17.23.



1.77



"Work Program" and "Work Program and Budget" shall mean any work

program and work program and Budget to be submitted to the Coordination

Committee by the Contractor in accordance with the provisions of

Article 10 and which shall set out the proposed Petroleum Operations to

be carried out in the Contract Area together with the associated Budget

as the case may be.



<PAGE>

ARTICLE 2



12

SCOPE OF CONTRACT AND GENERAL PROVISIONS



2.1



By its approval of this Contract the State hereby ratifies the GMJV

Licence as amended by the terms of this Contract. The terms of the GMJV

Licence shall with effect from the Effective Date be merged with this

Contract and be deemed to be amended so that any provision which is

inconsistent with the provisions of this Contract or which otherwise

detracts or lessens the rights of the Contractor hereunder shall be

deemed to have been replaced with the applicable provision of this

Contract. Where there is any inconsistency between the terms of the

GMJV Licence or this Contract, then the provisions of this Contract

shall apply. The benefits, rights and obligations under the GMJV

Licence as amended by this Contract shall extend to Georgian Oil and

each Contractor Party. Without prejudice to the rights of Georgian Oil

and the Contractor to carry out Petroleum Operations in accordance with

this Contract GMJV's rights and interests under the GMJV Licence shall

be held by it for the benefit of Georgian Oil and the Contractor.



2.2



Subject to the terms and conditions of the Contract and with the

consent and concurrence of GMJV, the State hereby grants to Georgian

Oil and the Contractor Parties the exclusive rights to conduct

Petroleum Operations in the Contract Area during the term of this

Contract.



2.3



Georgian Oil and Contractor shall be responsible to the State for the

execution of such Petroleum Operations with GMJV acting as operator all

in accordance with the provisions of the Contract.



2.4



In performing Petroleum Operations, Contractor shall provide all

financial and technical requirements, unless otherwise provided in this

Contract, or agreed with Georgian Oil, and conduct all operations in

accordance with the standards generally accepted in the international

Petroleum industry. Contractor may borrow capital from Third Parties

and/or from Affiliated Companies for the financing required for the

investments necessary for Petroleum Operations. Interest Costs charged

for such loans, premiums, expenses (of whatever nature) and exchange

control gains and losses shall be chargeable as provided in the

Accounting Procedure, and recoupable as Cost Recovery Petroleum as

provided in Article 11. Contractor shall advise Georgian Oil of any

intention to raise capital from Third Parties and Georgian Oil consent

to such financing shall not be unreasonably withheld or delayed.



2.5



Contractor shall be compensated for its services, not by way of

reimbursement in cash of its expenditures under the Contract, but by

receipt of its share of Petroleum from the Contract Area to which it

may become entitled by way of recovery of Costs and Expenses from Cost

Recovery Petroleum under Article 11. If Petroleum produced from



Development Areas within the Contract Area developed by Contractor is

insufficient to reimburse Contractor for Costs and Expenses incurred by

Contractor, Contractor shall bear its own losses in respect of any

shortfall.



<PAGE>

13

2.6

This Contract together with the JOA to be executed pursuant hereto

defines the Parties' rights and obligations, governs their mutual

relations and establishes the rules and methods for the Exploration,

Development, Production, and sharing of Petroleum between them. The

entire interests, rights and obligations of each of the Parties under

this Contract shall be solely governed by the provisions of this

Contract and the JOA to be executed pursuant hereto. The Contractor and

Georgian Oil may as between themselves, agree in writing to amend any

provision of this Contract where to do so would, in the opinion of both

the Contractor and Georgian Oil improve the day to day operations

contemplated hereunder, but not so as to vary any fundamental provision

of this Contract.

2.7



During the period in which this Contract is in force, all Available

Crude Oil and Available Natural Gas resulting from Petroleum

Operations, will be shared between Georgian Oil and the Contractor in

accordance with the provisions of Article 11 of this Contract.



2.8



Georgian Oil and Contractor agree that the Operator shall be GBOC. That

appointment shall be effective from the Effective Date. The Operator

shall act as the designated non-profit agent of Georgian Oil and

Contractor for the conduct of Petroleum Operations in accordance with

this Contract and the JOA. As described in Article 17 of this Contract

the Operator shall be entitled to full and complete exemption from all

Taxes imposed prior to or after the Effective Date.



2.9



The State hereby appoints Georgian Oil, a state owned body, as its

designated representative to perform the obligations which it is

required to perform and to enjoy the benefits (including the right to

receive its share of Petroleum) which has been granted hereunder. The

Contractor shall be entitled to rely on the fact that Georgian Oil is

the representative of the State for the purposes of this Contract and

that the benefits given to Georgian Oil can be considered benefits

given to the State.

ARTICLE 3

CONTRACT AREA



3.1



The Contract Area is as set out by the geographic location and

coordinates described in Annex "A" attached hereto and delineated in

the map which forms part thereof. The total area of the Contract Area

may hereafter be reduced only in accordance with the provisions of this

Contract.



<PAGE>

14

3.2

Except as for all rights and authorisations necessary for the

implementation of the provisions of this Contract, no right is granted

in favour of the Contractor or Georgian Oil to the use or disposal of

any other natural or man-made resources or aquatic resources.

ARTICLE 4

CONTRACT TERM

4.1



The term of the Contract shall be deemed to have begun on the date of

the GMJV Licence and shall continue for a total of twenty-five (25)



consecutive Contract Years, unless the Contract is sooner terminated in

accordance with Article 29 of this Contract, or is extended in

accordance with Article 5, 16 or 25 of this Contract.

4.2



If in respect of any Development Area, Commercial Production remains

possible beyond the initial period of 25 consecutive Contract Years

specified in Article 4.1 or any extension provided under this Article

4.2, the Contractor, after giving notice to the State at least one (1)

year prior to the end of any such term shall automatically be entitled

to have an extension of the term of this Contract with respect to such

Development Area for an additional term of five (5) Contract Years, or

the producing life of the Development Area, whichever is lesser.

ARTICLE 5

RELINQUISHMENTS



5.1



Subject to Article 5.2, Contractor shall select and relinquish portions

of the Contract Area as follows:

a)



at least fifty percent (50%) of the original Contract Area,

not later than five (5) Contract Years after the date of the

GMJV Licence; and



b)



at least fifty percent (50%) of the Contract Area remaining

after the relinquishment of Clause 5.1(a) occurs not later

than ten (10) Contract Years after the date of the GMJV

Licence; and



c)



at least fifty percent (50%) of the Contract Area remaining

after the relinquishment of Clause 5.1(b) occurs not later

than fifteen (15) Contract Years after the date of the GMJV

Licence; and



<PAGE>

d)



15

at least fifty percent (50%) of the Contract Area remaining

after the relinquishment of Clause 5.1(c) occurs not later

than twenty (20) Contract Years after the date of the GMJV

Licence.



5.2



The Contractor shall not be required pursuant to Article 5.1 to

relinquish any portion of the original Contract Area containing a

Development Area.



5.3



Unless the Contract is earlier surrendered or terminated, the

Contractor shall furnish the State and Georgian Oil with a description

of the boundaries of the part of the Contract Area to be relinquished

not less than ninety (90) days in advance of the deadline for the

relinquishment prescribed in Article 5.1.



5.4



The area designated under Article 5.3 for relinquishment shall consist

as far as practicable of rectangular blocks bounded by lines running

due north and south and due east and west and shall not be less than

five (5) square kilometres. The area designated for relinquishment need

not consist of one contiguous area.



5.5



Contractor may at any time relinquish voluntarily all or any part of

the Contract Area. Article 5.4 shall apply to all voluntary

relinquishments. Any such voluntary relinquishment of less than all of

the Contract Area shall be credited toward any subsequent

relinquishment obligations hereunder.

ARTICLE 6

COORDINATION COMMITTEE



6.1



For the purpose of providing the overall supervision and direction of

and ensuring the performance of the Petroleum Operations, Georgian Oil

and Contractor shall establish a Coordination Committee within

forty-five (45) days of the Effective Date.



6.2



The Coordination Committee shall comprise a total of eight (8) members.

Georgian Oil (for itself and the State) shall appoint a total of four

(4) representatives and Contractor shall appoint four (4)

representatives to form the Coordination Committee. Georgian Oil and

Contractor shall each designate one of its representatives as its chief

representative. All the aforesaid representatives shall have the right

to attend and present their views at meetings of the Coordination

Committee. Each representative shall have the right to appoint an

alternate who shall be entitled to attend all meetings of the

Coordination Committee but who shall have no vote except in the absence

of the representative for whom he is the alternate. When a decision is

to be made on any proposal, the chief representative from each Party

shall be the spokesman on behalf of such Party.



<PAGE>

16

6.3

The first chairman of the Coordination Committee shall be the chief

representative designated by the Contractor (or his alternate), and the

first vice chairman shall be the chief representative designed by

Georgian Oil (or his alternate). The chairman and vice chairman shall

be appointed for a term of two (2) years. Following the end of each

such two (2) year term of appointment, the identity of the chairman and

the vice chairman shall rotate so that for the next two (2) year period

the previous chairman shall become vice chairman for the next two (2)

years and the vice chairman shall become chairman for the next two (2)

years. The chairman of the Coordination Committee shall preside over

meetings of the Coordination Committee and in the absence of the

chairman (or his alternate), the vice chairman shall preside. Such

Parties may designate a reasonable number of advisors, who may attend,

but shall not be entitled to vote at, Coordination Committee meetings.

6.4



A regular meeting of the Coordination Committee shall be held at least

once a Calendar Quarter. The secretary to be designated pursuant to

Article 6.9 shall be responsible for calling such regular meetings of

the Coordination Committee and shall do so at the request of the

chairman by sending a notice to the Parties. Other meetings, if

necessary, may be held at any time at the request of Georgian Oil or

Contractor. In each case the secretary shall give the Parties at least

30 days notice (or such shorter period as the Parties may agree) of the

proposed meeting date, the time and location of the meeting.



6.5



The Parties hereby empower the Coordination Committee to:

a)



review and examine any Work Program and Budget proposed by the

Contractor and any amendment thereof;



b)



determine the Commerciality of each proposed Development

Operation;



c)



review and adopt proposed Development Operations and Budgets;



d)



approve or confirm the following items of procurement and

expenditures:

i)



approve procurement of any item within the Budget

with a unit price exceeding One Hundred Thousand U.S.

$ (U.S.$ 100,000) or any single purchase order of

total monetary value exceeding Two Hundred and Fifty



Thousand U.S. $ (U.S.$250,000);



<PAGE>

e)



ii)



approve a lease of equipment, or an engineering

subcontract or a service contract within the Budget

worth more than Two Hundred and Fifty Thousand U.S. $

(U.S.$250,000) in total; and



iii)



confirm excess expenditures pursuant to Article 10.5

hereof and the expenditures pursuant to Article 10.6

hereof;



17

demarcate boundaries of a Development Area;



f)



review and approve the insurance program proposed by the

Contractor and emergency procedures on safety and

environmental protection;



g)



review and approve personnel policies, selection and training

programs for Operator. Without prejudice to the foregoing, it

is accepted that part of the personnel policy of Operator

shall be to give priority to former employees of Georgian Oil,

provided that the conduct of Petroleum Operations shall not be

affected;



h)



discuss, review, decide and approve other matters that have

been proposed by either Georgian Oil, Contractor or the

Operator;



i)



review and examine matters required to be submitted to

relevant authorities of the State;



j)



review and discuss the development work and technological

regimes proposed by Contractor and Georgian Oil; and



k)



appoint sub-committees to meet from time to time to review any

aspect of Petroleum Operations, which the Coordination

Committee thinks fit.



6.6



Decisions of the Coordination Committee shall be made by unanimous

decision of the representatives present and entitled to vote. Each

representative will have one vote. All decisions made unanimously shall

be deemed as formal decisions and shall be conclusive and equally

binding upon the Parties.



6.7



Georgian Oil and Contractor shall endeavour to reach agreement on all

matters presented to the Coordination Committee, however, if these

Parties fail to reach agreement on any matter during a meeting of the

Coordination Committee then following discussion and after the

Contractor has provided full reasons for its proposal the Contractor's

proposal shall prevail. In the event that on any matter the Parties are

unable to reach agreement and the Contractor is insisting that its

proposal shall prevail, if Georgian Oil is reasonably of the view that

the proposed action would result in serious depletion of a field or

reservoir resulting in either permanent damage to that field or

reservoir or materially reduced recovery of Petroleum over the life of

the field or reservoir then the matter will be referred to an

independent expert appointed by the Contractor and Georgian Oil whose

decision on the matter shall be final and binding. The costs of the

expert shall be met by the Parties equally and shall be recoverable as

Costs and Expenses.



6.8



A matter which requires urgent handling may be decided by the

Coordination Committee without convening a meeting, with the

Coordination Committee making decisions through telexes or the



circulation of documents.



<PAGE>

18

6.9

The Coordination Committee shall nominate a secretary, to record

minutes of the meetings of the Coordination Committee, and may

establish technical and other advisory sub-committees. The secretary

shall take a record of each proposal voted on and the results of such

vote at each meeting of the Coordination Committee. Each representative

of the Parties shall sign and be provided with a copy of such record at

the end of such meeting. The secretary shall provide each Party with a

copy of the minutes of each meeting of the Coordination Committee

within fifteen (15) days after the end of such meeting. Each Party

shall thereafter have a period of fifteen (15) days to give notice of

any objections to the minutes to the secretary. Failure to give notice

within the said fifteen (15) day period shall be deemed approval of

those minutes. In any event the record of proposals voted on to be

provided at the end of each meeting shall be conclusive and take

precedence over the minutes

6.10



All costs and expenses incurred with respect to the activities of the

Coordination Committee shall be paid or reimbursed by the Contractor

and charged to Operation Expenses in accordance with the Accounting

Procedure.



ARTICLE 7

OPERATOR RESPONSIBILITY

7.1



The Parties agree that GBOC shall act as the Operator for Petroleum

Operations within the Contract Area in accordance with approved Work

Programs and Budgets unless otherwise stipulated in this Article 7.



7.2



The Operator shall have the following obligations:

a)



To perform the Petroleum Operations reasonably, economically

and efficiently in accordance with directions received from

the Coordination Committee. It is recognised that the

Coordination Committee through the Operator will have

operating control of all Petroleum Operations, including the

right to authorise the appointment of the Operations Director;



b)



To assist the Contractor as requested in implementation of the

Work Programs and Budgets approved by the Coordination

Committee;



c)



To be responsible for domestic procurement of installations,

equipment and supplies and entering into subcontracts and

service contracts on behalf of Contractor with domestic

service providers and vendors related to the Petroleum

Operations, in accordance with approved Work Programs and

Budgets and instructions from Contractor;



<PAGE>

d)



e)



19

To prepare and submit for approval a personnel training

program and its annual budget and carry out the same as

approved by the Coordination Committee;

To establish and maintain complete and accurate accounting

records regarding its costs and expenditures for the Petroleum

Operations in accordance with the Accounting Procedure and



this Contract;

f)



To make necessary preparation for regular meetings of the

Coordination Committee, and to submit to the Coordination

Committee information related to the matters reviewed and

approved by the Coordination Committee;



g)



To assist Contractor and Georgian Oil as requested in the

provision of reports to the Coordination Committee on

Petroleum Operations conducted under this Contract.



8.1



Operator, Georgian Oil GMJV and Contractor, and their direct and

indirect shareholders, shall not be directly or indirectly liable to

persons or entities not Parties for any loss or damage arising out of,

occasioned by or associated with the performance of the Petroleum

Operations under this Contract. Responsibility for all activities

(including Petroleum activities) affecting the Contract Area prior to

the date of the GBOC Licence and the direct and indirect consequences

of such activities shall remain with the State and the Contractor shall

have no responsibility therefor. The State shall indemnify the

Contractor in respect of such prior activity to the extent that the

Contractor suffers any loss as a direct or indirect result thereof.



8.1



The Operator shall provide all Parties with copies of all relevant data

and reports pertaining to Petroleum Operations required by such

Parties.



8.1



The Parties agree to use their best endeavours to agree and execute a

Joint Operating Agreement which should be in place no later than 31

January 1996. The Joint Operating Agreement shall be based on good

international Petroleum industry practices and shall be wholly

consistent with and shall not detract from the provisions of this

Contract.

ARTICLE 8

AMENDMENT TO CHARTER OF GMJV



8.1



By their execution hereof Georgian Oil (as a founder of GMJV) hereby

confirm that upon this Contract being given full force of law in

Georgia in accordance with the provisions of Article 32, the Charter of

GMJV shall forthwith be amended to reflect the rights and obligations

of the Parties set out in this Contract. Furthermore the Parties

recognise GBOC's role as Operator in the Contract Area in accordance

with this Contract.



<PAGE>



20



ARTICLE 9

PROCEDURE FOR DETERMINATION OF COMMERCIALITY AND APPROVAL OF DEVELOPMENT PLANS

9.1



If, at any time Contractor concludes that Commercial Production (or

significant additional Commercial Production if Commercial Production

has previously been established) from the Contract Area is feasible, it

shall notify Georgian Oil within five (5) days of reaching such a

conclusion.



9.2



Within forty-five (45) days of receipt of such notice, Contractor shall

in the first instance present to the Coordination Committee for

approval a proposed Study Program which shall be deemed approved if no

written objections are raised by any member of the Coordination

Committee within thirty (30) days following receipt thereof. The

proposed Study Program shall specify in reasonable detail the appraisal

work including seismic, drilling of wells and studies to be carried out



and the estimated time frame within which the Contractor shall commence

and complete the program.

9.3



Thereafter the Contractor shall carry out the Study Program approved by

the Coordination Committee. Within ninety (90) days after completion of

such Study Program, the Contractor shall submit to the Coordination

Committee a comprehensive evaluation report on the Study Program. Such

evaluation report shall include, but not be limited to: geological

conditions, such as structural configuration; physical properties and

extent of reservoir rocks; pressure, volume and temperature analysis of

the reservoir fluid; fluid characteristics, including gravity of liquid

hydrocarbons, sulphur percentage, sediment and water percentage, and

product yield pattern; Natural Gas composition; production forecasts

(per well and per Field); and estimates of recoverable reserves.



9.4



Together with the submission of the evaluation report, or at any other

time, the Contractor shall submit to the Coordination Committee a

written declaration including one of the following statements:

a)



that the Commercial Production previously notified to Georgian

Oil pursuant to Article 9.1 is feasible;



b)



that such Commercial Production is not feasible (contrary to

the notice containing Contractor's initial expectations); or



c)



that Commercial Production will be conditional on the outcome

of further specified work that the Contractor commits to carry

out under a



<PAGE>



21

further Exploration or Study Program in specified areas within

or outside the relevant Study Area.



9.5



In the event the Contractor makes a declaration under Article 9.4(c)

above, Contractor shall be entitled to retain the relevant Study Area

pending the completion of the further work committed under that

Article, at which time the Contractor shall advise the Coordination

Committee of its conclusion as to whether or not there is in fact a new

Commercial Discovery and the provisions of Article 9.4(a) or (b) shall

be applied accordingly.



9.6



If the Contractor declares pursuant to Article 9.4(a) that Commercial

Production is feasible, the Contractor shall submit to the Coordination

Committee (a) a proposed Development Plan in respect of the relevant

Commercial Discovery (containing the matters specified in Article 9.7

and 9.8) and (b) a proposed designation of the Development Area, both

of which shall be subject to the Coordination Committee's approval.

Such approval will not be unreasonably withheld or delayed, provided

that each shall be deemed approved as submitted if no written

objections are presented thereto by any member of the Coordination

Committee within forty-five (45) days of receipt. Upon approval being

granted or deemed as provided under this Article 9.6, the Contractor,

with any requested assistance from the Operator, shall proceed promptly

and diligently to implement the Development Plan in accordance with

good international Petroleum industry practices, to install all

necessary facilities and to commence Commercial Production.



9.7



The Contractor's proposed Development Plan to be submitted pursuant to

Article 9.6 shall detail the Contractor's proposals for Development and

operation of the Development Area. It will detail any facilities and

infrastructure which may be required up to the Measurement Point,

either inside or outside of the Development Area. Any Development Plan

shall set forth production parameters, number and spacing of wells, the



facilities and infrastructure (including proposed locations) to be

installed for production, storage, transportation and loading of

Petroleum, an estimate of the overall cost of the Development, and

estimates of the time required to complete each phase of the

Development Plan, a production forecast and any other factor that would

affect the economic or technical feasibility of the proposed

Development.

9.8



Any Development Plan shall also include an abandonment and site

restoration program together with a funding procedure for such program.

Each abandonment plan shall describe removal and abandonment measures

deemed necessary following completion of Production from the relevant

Development Area together with an estimate of the costs thereof. The

abandonment plan shall provide for the removal of facilities and

equipment used in Petroleum Operations or their in place abandonment,

if appropriate, in the Development Area and the return of used areas to

a condition that reasonably permits the use of such areas for purposes

similar to those uses existing prior to the commencement of Petroleum

Operations hereunder. All expenditures incurred



<PAGE>

22

in abandonment and site restoration shall be treated as Costs and

Expenses and recoverable from Cost Recovery Petroleum in accordance

with Article 11 and the Accounting Procedure. All funds collected

pursuant to the funding procedure shall be dedicated to site

restoration and abandonment and will be placed in a special interest

bearing account by Contractor, which shall be held in the joint names

of the State and the Contractor or their nominees. Contractor's

responsibilities for environmental degradation, site restoration and

well abandonment obligations, and any other actual, contingent and

potential activity associated with the environmental status of the

Development Area shall be limited to the obligation to place the funds

agreed to be paid in accordance with the said funding procedure in the

approved account in accordance with generally accepted international

Petroleum industry practice. Any agreed deposits in approved accounts

shall be made on a quarterly basis in arrears commencing with the

Calendar Quarter after recovery of the relevant Development

Expenditures and Drilling Costs. All such payments deposited by

Contractor shall be treated as Costs and Expenses and recoverable as

Operation Expenses from Cost Recovery Petroleum in accordance with

Article 11 of this Contract. No Taxes shall be imposed on any amounts

paid into, received or earned by or held in the special interest

bearing account. The State shall be solely responsible for the

implementation of the abandonment plan.

9.9



Any significant changes to an approved Development Plan or proposals

related to extension of a Field or for enhanced recovery projects shall

be submitted to the Coordination Committee.



9.10



Subject to the terms of this Contract the Contractor shall carry out,

at its own expense and financial risk, all the necessary Petroleum

Operations to implement an approved Development Plan. However, if, the

Contractor is able to demonstrate to the reasonable satisfaction of the

Coordination Committee that exploitation turns out not to be

commercially profitable, the Contractor shall not be obligated to

continue Development or Production.



9.11



Should access to suitable infrastructure necessary for Development of

any Discovery or for export of Contractor's share of Petroleum from any

Discovery be unavailable or restricted as a result of the acts or

omissions of the State or Georgian Oil, Contractor may, at its option,

declare its obligations under this Contract to be suspended under the

terms of Article 25 (Force Majeure) until such time as the condition



has been remedied. Where there is a perceived need recognised by the

State, Georgian Oil and the Contractor to improve the economic

effectiveness of the Petroleum Operations by constructing and operating

certain common facilities with other organisations (including for

example roads, pipelines, compression and pumping stations and

communication lines) the Parties shall use their best efforts to reach

agreement between themselves and other appropriate enterprises as to

the construction and operation of such facilities with all costs,

tariffs and investments made by the Contractor to be recoverable as

Operation Expenses in accordance with Article 11 of the Contract and

Accounting Procedure.



<PAGE>



23

ARTICLE 10

WORK PROGRAMS AND BUDGETS



10.1



Contractor shall be responsible for the procurement of installations,

equipment and supplies and entering into contracts for the purchase of

goods and services with Foreign Subcontractors and others arising out

of Petroleum Operations, all in accordance with approved Work Programs

and Budgets. Operator shall assist the Contractor when requested in

respect of the matters set out in the previous sentence, and shall

implement domestic procurement operations as provided in Clause 7.2(c)

in accordance with approved Work Programs and Budgets.



10.2



Within ninety (90) days after the Effective Date, Contractor shall

submit to the Coordination Committee for its approval a Work Program

and the corresponding Budget for the next succeeding Calendar Year.



10.3



Before the 15th October of each Calendar Year, the Contractor shall

prepare and submit to the Coordination Committee for its review a

proposed annual Work Program and Budget for the next Calendar Year. If

the Coordination Committee requests any modifications in an annual Work

Program and/or Budget, the Contractor shall promptly make such

modifications to the Work Program and/or Budget and resubmit the

modified Work Program and Budget to the Coordination Committee. The

Coordination Committee shall approve each Work Program and Budget

within forty five (45) days after receipt of same. If the Coordination

Committee fails to notify the Contractor of its approval of the Work

Program and Budget within said forty five (45) days after its receipt,

the annual Work Program and Budget proposed by the Contractor together

with any modifications timely requested by the Coordination Committee,

shall be deemed to have been approved by the Coordination Committee.



10.4



In connection with the review and approval of the annual Work Program

and Budget, the Contractor and Operator shall submit to the

Coordination Committee such supporting data as may be requested by the

Coordination Committee.



10.5



The Contractor may, in

expenditures in excess

the approved Budget in

that the objectives in

changed:

a)



<PAGE>



accordance with the following provisions, incur

of the approved Budget or expenditures outside

carrying out the approved Work Program, provided

the approved Work Program are not substantially



In carrying out an approved Budget, the Contractor may, if

necessary, incur excess expenditures of no more than ten

percent (10%) of the approved Budget in any specified

budgetary category. The Contractor



24



20.3



The sphere of activity of the joint venture



"Georgia MAKOIL", a joint venture between "Georgian Oil" and Company "MAKOIL"

is being established with the aim of carrying out profitable long term

entrepreneurial business in the oil and gas industry within Georgia for the

benefit of the joint venture and the people of Georgia. The joint venture will

maximise the use of the basic production assets and the working capital of the

Founders for the fulfilment of its business program. The joint venture's sphere

of activity will be principally as follows:

1.



To act as an operating enterprise for the projects and business

activities jointly involving "Georgian Oil" and the Company "MAKOIL".



2.



To increase oil and gas production in the Republic of Georgia by

exploration, development, production and operation of oil and gas

fields on the territory of Georgia.



3.



Initial activity will be held on the space identified by Ninotsminda

and West Rustavi deposits, and Manavi research territory. At all times

the methods and technology will be designed to protect the environment.



4.



The oil and gas related activities of transportation, refining,

processing and the sale, export and import of oil and gas products will

be developed.



5.



To develop, within Georgia, expertise in modern oil and gas exploration

and production technology and to develop the work force of the joint

venture by special training.



6.



The Republic of Georgia is currently importing large quantities of gas

from Russia and Turkmenistan. Georgia MAKOIL will have the option of

drilling for gas in their concession areas in order to reduce the

dependency on foreign imported natural gas. If gas in commercial

quantities is found, it will be purchased from Georgia MAKOIL at

current competitive prices.

<PAGE>

25

The joint venture "Georgia MAKOIL"

20.0



An application on receiving the mineral usage license on the East

Georgia Ninotsminda and West Rustavi oil deposits and Manavi research

territory.



Organisation:

The joint venture "Georgia MAKOIL"

Board of Directors:

"Georgian Oil"

Revaz Tevzadze

"MAKOIL"

Eugene Kozlowski

<PAGE>

26

The list of the joint venture "Georgia MAKOIL" members:

1.



Eugene Kozlowski (Attached)



2.



Gregg S. Kozlowski (Attached)



3.



David B. Lapoint (Attached)



4.



Ivan Lobzanidze



Ivan Lobzanidze was born in 1948. He graduated from the Georgian Technical

University with speciality of drilling engineer. He has great experience in

exploration of oil and gas deposits and in oil production. He has been working

in the Department since 1970. Currently he is the Deputy Chairman of

"Saknavtobi" Department.

<PAGE>



27

ENCLOSURE N21



The title:



Concessions in payment on mineral usage



Number of pages:



2



Number of tables:



0



Number of schemes:



0



<PAGE>



28

The Cabinet of Ministers of the Republic of Georgia

DECREE N208

April 12, 1994

Tbilisi

About Concessions in the Mineral Usage Tax



The Cabinet of Ministers of the Republic of Georgia states, that in accordance

with the temporary regulation "About the Mineral Usage Tax" confirmed by Decree

N752 of the Cabinet of Ministers of the Republic of Georgia out of October 20,

1993, the limited amount of the oil and gas production tax is determined by 5-10

percent, and of geological study -- 2-4 percent. The said tax belongs to oil and

gas prime cost, i.e. financing and accordingly volume of private source oil and

gas exploration-research works on the Georgian territory will be adequately

reduced, as 65% of prime cost of oil and gas produced in Georgia makes pay-roll

tax for geological-research works.

For the purposes of rapid development of oil and gas industry in the Republic of

Georgia, which is one of the main pre-conditions for stablisation of the

Economy, it is important to extend widely oil and gas exploration operations,

that needs attraction of foreign investments to Georgian oil industry.

Considering the importance of the above issue, the Cabinet of Ministers of the

Republic of Georgia resolves:

Release the state specialised enterprises of Department "Georgian Oil", also

joint ventures founded by foreign investments on the territory of the Republic

of Georgia from the tax on oil and gas production, and related

geological-research tax/mineral usage tax/for five years from the date of

license issuing.

The Prime Minister

of the Republic of Georgia

<PAGE>



O. Patsatsia



29

shall report quarterly the aggregate amount of all such excess

expenditures to the Coordination Committee for confirmation.



b)



For the efficient performance of Petroleum Operations, the

Contractor may, without approval, undertake certain individual

projects which are not included in the Work Program and

Budget, for a maximum expenditure of Two Hundred Fifty

Thousand U.S.$ (U.S.$250,000), but shall, within ten (10) days

after such expenditures are incurred, report to the

Coordination Committee for confirmation.



c)



Excess expenditures under this Article 10.5 shall not exceed

five percent (5%) of the approved or modified total annual

Budget for the Calendar Year. If the aforesaid excess is

expected to be in excess of said five percent (5%) of the

total annual Budget, the Contractor shall present its reasons

therefor to the Coordination Committee and obtain its approval

prior to incurring such expenditures.



10.6



In case of emergency, the Contractor may incur emergency expenditures

for the amount actually needed but shall report such expenditures to

the Coordination Committee as soon as they are made. The said emergency

expenditures shall not be subject to Article 10.5 above.



10.7



The Parties agree that the approval of a proposed Work Program and

Budget will not be unreasonably withheld and shall be approved if the

proposed Work Program is consistent with generally accepted

international Petroleum practices.



10.8



Petroleum Operations will only be performed in accordance with the

approved or modified annual Work Program and Budget.



ARTICLE 11

ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND EXPENSES, PRODUCTION SHARING,

AND RIGHT OF EXPORT

11.1



Contractor shall provide or procure the provision of all funds required

to conduct Petroleum Operations under this Contract, except as

otherwise provided in this Contract, and Contractor shall be entitled

to recover its Costs and Expenses from Petroleum produced from the

Contract Area as provided below.



11.2



Costs and Expenses directly or indirectly incurred by JKX and its

Affiliated Companies prior to the Effective Date pursuant to the

provisions of the GMJV Licence shall be deemed to be Costs and Expenses

for the purposes of this Contract and shall be deemed to be incurred on

the Effective Date and shall be



<PAGE>

30

recoverable from Cost Recovery Petroleum in accordance with the

provisions of this Contract.

11.3



Contractor and Operator shall have the right to use free of charge

Petroleum produced from the Contract Area to the extent required for

Petroleum Operations under the Contract. The amount of Petroleum which

Contractor and Operator shall be entitled to use for Petroleum

Operations shall not exceed the amount which would be expected to be

used in accordance with international Petroleum industry practice. For

the avoidance of doubt, the use of such Petroleum shall only be for the

benefit of Petroleum Operations and not the personal gain of any Party.



11.4



Available Crude Oil and Available Natural Gas in excess of Previous

Production, shall be measured at the applicable Measurement Point and

allocated as set forth hereinafter. Available Crude Oil and Available

Natural Gas not in excess of Previous Production shall be for the

account of Georgian Oil and Georgian Oil shall be entitled to lift such

Available Crude Oil and Available Natural Gas at the Measurement Point

in priority to the lifting of Profit Petroleum and Cost Recovery

Petroleum by the Parties.



11.5



Contractor and Georgian Oil shall be entitled to recover all Costs and

Expenses incurred in respect of Petroleum Operations from a maximum of



fifty percent (50%) per Calendar Year of all Available Crude Oil and

Available Natural Gas from the Contract Area (hereinafter referred to

as "Cost Recovery Crude Oil" and "Cost Recovery Natural Gas", as the

case may warrant). Recovery of Costs and Expenses shall be in a manner

consistent with the Accounting Procedure and Article 11.6.

11.6



Costs and Expenses shall be recoverable from Cost Recovery Petroleum on

a first in, first out basis (i.e. Costs and Expenses incurred will be

recovered according to the date they were incurred, earliest first).

Recovery of Costs and Expenses will commence as soon as Cost Recovery

Petroleum is available.



11.7



To the extent that in a Calendar Year outstanding recoverable Costs and

Expenses related to the Contract Area exceed the value of all Cost

Recovery Crude Oil or Cost Recovery Natural Gas from the Contract Area

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

recovery in the next succeeding Calendar Years until fully recovered,

but in no case after termination of the Contract.



11.8



Recovery of Costs and Expenses shall be achieved by transferring to a

Party at the Measurement Point title to quantities of Cost Recovery

Petroleum of equivalent value (determined in accordance with Article

12) to the Costs and Expenses to be recovered in accordance with this

Article 11.



11.9



To the extent that the value of Cost Recovery Petroleum received by a

Party from the Contract Area during a Calendar Quarter is greater or

lesser than the



<PAGE>

31

Party was entitled to receive for that Calendar Quarter, an appropriate

adjustment shall be made in accordance with the Accounting Procedure.

11.10



Following recovery of Costs and Expenses from Cost Recovery Petroleum

in accordance with the provisions of this Article 11, the remaining

Petroleum including any portion of Cost Recovery Petroleum not required

for recovery of Costs and Expenses (hereinafter referred to as "Profit

Oil" or "Profit Natural Gas") shall be allocated between Georgian Oil

and the Contractor in the following proportions, over each Calendar

Year:

a)



Profit Oil



Georgian Oil's Share

70%



Contractor Share

30%



b)



Profit Natural Gas - shall be shared on the same basis as

stated in (a) above after converting the Natural Gas to

barrels of Crude Oil on an energy equivalency basis.



11.11



Contractor shall prepare and provide Georgian Oil not less than ninety

(90) days prior to the beginning of each Calendar Quarter a written

forecast setting out the total quantity of Petroleum that Contractor

estimates can be produced and saved hereunder during each of the next

four (4) Calendar Quarters in accordance with good Petroleum industry

practices and the Work Program established in accordance with Article

10.



11.12



Crude Oil shall be measured at the Measurement Point for purposes of

the Contract and delivered to Georgian Oil and each Contractor Party

who as owners shall take in kind, assume risk of loss and separately

dispose of their respective entitlements of Cost Recovery Oil and

Profit Oil. All Cost Recovery Natural Gas and Profit Natural Gas shall

be sold on a jointly committed basis in accordance with Article 16 of

this Contract.



11.13



For the avoidance of any doubt, title to their relevant shares of

Petroleum shall pass from the State to Georgian Oil and each Contractor

Party as appropriate at the Measurement Point. GBOC and GMJV have no

title to any Petroleum.



11.14



Georgian Oil and Contractor shall agree on procedures for taking

volumes of Crude Oil corresponding to their respective entitlements on

a regular basis and in a manner that is appropriate having regard to

the respective destinations and uses of the Crude Oil, all in

accordance with the provisions of this Contract. If necessary Georgian

Oil and Contractor will enter into a lifting agreement setting out the

agreed procedures for taking volumes of Crude Oil, and such agreement

shall comply with the principles of good international Petroleum

industry practice.



11.15



In the event that in any Calendar Year Contractor's Cost Recovery Oil

plus its Profit Oil exceeds fifty percent (50%) of the total Cost

Recovery Oil plus Profit Oil, a volume of Crude Oil equivalent to that

excess ("Excess Crude") shall be offered for sale to the State from

Contractor's next available share of Crude Oil.



<PAGE>

32

The State shall thereafter have the right for the next ten (10) days to

elect to purchase all or a portion of the Excess Crude and take

delivery, within twenty (20) days of the date of Contractor's offer at

a price for the Crude Oil equal to the world market price for similar

Crude Oil minus a discount of ten percent (10%). Purchases shall be

made in U.S.$ and the world market price shall be calculated as set

forth in Article 12. Payment shall be made on delivery at the

Measurement Point.

11.16



Details of all Costs and Expenses approved by the Contractor and

Georgian Oil will be provided to the State on a quarterly basis.

ARTICLE 12

CRUDE OIL VALUATION



12.1



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

Petroleum shall reflect the prevailing international market price for

Crude Oil from time to time in effect. For the purpose of determining

the value of the Cost Recovery Petroleum taken and disposed of by the

Parties and/or their assignees under this Contract during each Calendar

Quarter, Georgian Oil and Contractor shall, prior to the date of

Commercial Production, agree upon the basket of Crude Oils freely

traded in international markets and referred to in subparagraph a)

below and the value of the Cost Recovery Petroleum shall be adjusted to

reflect the weighted average daily f.o.b. prices for term contract

sales from Petroleum producing countries in international markets for

the same Calendar Quarter of such basket of crude oils, it being

understood that the following principles will apply:

a)



The weighted average of the basket shall be such that the

average gravity of the basket and the average gravity of the

Crude Oil produced under this Contract are equal; and



b)



The prices for individual referenced Crude Oil markers used

within the basket shall be based upon the numerical average of

a daily report of the actual price for each referenced Crude

Oil marker as published in agreed internationally recognised

publications; and



c)



<PAGE>

d)



Adjustment provisions will be incorporated into the basket

formula to take account of transportation costs involved in

Crude Oil produced under this Contract arriving at a

designated sales point (where the sales point is not the

Measurement Point) and to take account of gravity variation

beyond a pre-agreed range; and



33

Unless agreed otherwise, the last calculated weighted average

basket price shall serve as the provisional price for a

Calendar Quarter until a new price is determined.



12.2



In the event that Georgian Oil and Contractor are unable to agree upon

the basket of crude's envisaged in Article 12.1 above, or the

principles relating thereto, then either Georgian Oil or Contractor may

refer the question for a final, non-revisable determination by an

independent expert designated by the UK Institute of Petroleum. Pending

such determination, the price shall be as determined in Article 12.1d)

above.



12.3



Natural Gas shall be valued at the actual revenues received less

transportation, storage, treatment, processing, marketing,

distribution, liquefaction and all other associated costs incurred by

Contractor beyond the Measurement Point in supplying Natural Gas to

customers beyond the Measurement Point.

ARTICLE 13

ANCILLARY RIGHTS OF THE CONTRACTOR AND OPERATOR



13.1



In addition to the rights to carry out Petroleum Operations within the

Contract Area the State and Georgian Oil shall provide or otherwise

procure access to Contractor to all existing facilities and

infrastructure in the Contract Area owned by or otherwise under the

control of the State or Georgian Oil for the purpose of carrying out

its Petroleum Operations during the term of the Contract. Such access

shall be on terms as regards access and tariffs no less favourable than

those offered to other persons or entities.



13.2



Provided that Georgian Oil and the State are provided with copies of

the following data the Contractor shall have the right to use,

reproduce, reprocess and export all existing geoscience, engineering,

environmental and geodetic data (including magnetic tapes and films)

maps, surveys, reports, and studies it deems necessary to carry out

Petroleum Operations hereunder including, but not limited to: magnetic

surveys, seismic surveys, well logs and analysis, core analysis, well

files, geologic and geophysical maps and reports, reservoir studies,

reserve calculations, accurate geodetic coordinates for the location of

all wells and seismic lines and all other pertinent data relative to

the Contract Area. In the event that any data was to be sold to a Third

Party by either Georgian Oil or the contractor the proceeds would be

shared according to the share of the Profit Oil in accordance with

Article 11.



13.3



The Contractor shall have the right within the Contract Area to conduct

all geoscience, engineering, environmental and geodetic studies it

deems necessary to carry out Petroleum Operations hereunder.



<PAGE>

34

Said studies may include, but are not limited to: seismic surveys,



magnetic surveys, global positioning surveys, aerial photography, and

the collection of soil/water/oil/rock samples for scientific and

environmental studies. Contractor shall be granted access to and/or

permission to fly subject to obtaining appropriate consents (which will

not be unreasonably withheld or delayed) over the Contract Area to

conduct said studies. Contractor shall have the right to import

equipment and supplies necessary to conduct said studies as well as the

right to export data, film and samples to laboratories outside the

State to conduct such studies.

13.4



Subject to (i) prior approval by the Coordination Committee; and (ii)

prior consultation with any necessary local administration or State

body and relevant landowners, the Contractor and/or Operator shall have

the right to clear the land, to dig, pierce, drill, construct, erect,

locate, supply, operate, manage and maintain pits, tanks, wells,

trenches, excavations, dams, canals, water pipes, factories,

reservoirs, basins, maritime storage facilities and such, primary

distillation units, separating units for first oil extraction, sulphur

factories and other Petroleum producing installations, as well as

pipelines, pumping stations, generator units, power plants, high

voltage lines, telephone, telegraph, radio and other means of

communication (including satellite communication systems), plants,

warehouses, offices, shelters, personnel housing, hospitals, schools,

premises, ports, docks, harbours, dikes, jetties, dredges, breakwaters,

underwater piers and other installations, ships, vehicles, railroads,

road, bridges, ferry-boats, airlines, airports and other means of

transportation, garages, hangers, workshops, foundries, maintenance and

repair shops and all the auxiliary services which are necessary or

useful to Petroleum Operations or related to them and, more generally,

everything that is or could become necessary or accessory to carrying

out the Petroleum Operations.



13.5



The agents, employees and personnel of both Contractor and Operator,

their nominees or Subcontractors, may enter or leave the Contract Area

and have free access, within the scope of their functions, to all

installations put in place by the Contractor or Operator or otherwise

utilised in Petroleum Operations.



13.6



Subject to prior consultation with any appropriate local State bodies

the Contractor shall have the right to utilise the upper soil, mature

timber, clay, sand, lime, gypsum and stones other than precious stones,

and any other similar substances, necessary for the performance of

Petroleum Operations. The Contractor may utilise the water necessary

for Petroleum Operations, on condition that reasonable efforts are

taken to minimise potentially adverse effects on irrigation and

navigation, and that land, houses and the watering places are not

adversely affected. All such operations shall be carried out in

accordance with international Petroleum practices.



13.7



The Contractor shall have the right to use existing pipeline and

terminal facilities belonging to or under the control of the State or

Georgian Oil. The State and Georgian Oil shall assist in making these

facilities available to the Contractor on terms with regard to access

and tariffs that are no less



<PAGE>

35

favourable than those available to others including Georgian Oil and

any other state enterprise. Priority shall be given in the use of such

pipelines and facilities to Petroleum produced within Georgia.

13.8



It is recognised by the Parties that in order to maximise the benefit

of Petroleum Operations to the State, Georgian Oil and the Contractor,

it is in the interests of the State to promote cooperation among



Georgian and foreign enterprises carrying on Petroleum Operations in

Georgia to share infrastructure in such a manner as to ensure efficient

operation among themselves. The State and Georgian Oil hereby agree to

secure access for the Contractor to any new or modernised pipelines or

other infrastructure passing through Georgia which may be constructed

or upgraded during the term of the Contract on terms with regard to

access and tariffs as are no less favourable than those available to

others including Georgia Oil and any other State body. These provisions

shall apply to any new or upgraded pipeline through Georgia which may

be constructed or modernised by or on behalf of the consortium

responsible for the development of the Azerbaijan Sector of the Caspian

Sea ("AIOC") whether or not in conjunction with the State and/or

Georgian Oil, and in any agreement with AIOC or any entity connected

therewith the State and/or Georgian Oil shall secure these benefits for

the Contractor and Georgian Oil. The State and Georgian Oil will take

all necessary steps to ensure that the Contractor is supplied with all

necessary information (including copies of contracts ,invoices and

accounts) to determine that the Contractor is being granted terms which

are no less favourable than those available to others, including

Georgian Oil.

ARTICLE 14

ASSISTANCE PROVIDED BY THE STATE

14.1



To enable the Contractor to properly carry out the Petroleum

Operations, the State shall assist through State bodies the Contractor

and Georgian Oil upon request to:

a)



provide the approvals or permits needed to conduct Petroleum

Operations and to carry on associated business activities and

to open bank accounts (for both local and foreign currency) in

Georgia;



b)



arrange for Foreign Exchange to be converted in accordance

with the principles set out in Article 19.7 of this Contract;



c)



use office space, office supplies, transportation and

communication facilities and make arrangements for

accommodations as required;



d)



assist with any custom formalities;



<PAGE>

e)



36

provide entry and exit visas and work permits for employees

and their family members of Operator, Contractor, Contractor

Parties, their Affiliates and Foreign Subcontractors, who are

not citizens of Georgia, who come to Georgia for the

implementation of the Contract and to provide assistance for

their transportation, travel and medical facilities whilst in

Georgia;



f)



provide necessary permissions to send abroad documents, data

and samples for analysis or processing during the Petroleum

Operations;



g)



contact and instruct appropriate departments and ministries of

the State and any other bodies controlled by the State to do

all things necessary to expedite Petroleum Operations;



h)



provide permits, approvals, and land rights requested by

Contractor and/or Operator for the construction of bases,

facilities and installations for use in conducting Petroleum



Operations; and

i)



provide to the Contractor data and samples concerning the

Contract Area other than those produced as a result of

Petroleum Operations hereunder.

ARTICLE 15

MEASUREMENT, QUALITY AND VALUATION OF PETROLEUM



15.1



All Petroleum produced, saved and not used in the Petroleum Operations

in accordance with Article 11.3 shall be measured at the Measurement

Point approved in the Development Plan.



15.2



The Measurement Point shall be at the end of the facilities for which

the cost is included as a Cost and Expense which is recoverable from

Cost Recovery Petroleum under the Contract. The Measurement Point shall

be determined in accordance with the provisions set out in Article 9.



15.3



All Petroleum shall be measured in accordance with standards generally

acceptable in the international Petroleum industry. All measurement

equipment shall be installed, maintained and operated by Operator.

Contractor and Georgian Oil shall be entitled periodically to inspect

the measuring equipment installed and all charts and other measurement

or test data at all reasonable times. The accuracy of measuring

equipment shall be verified by tests at regular intervals and upon

request by either Georgian Oil or the Contractor, using means and

methods generally accepted in the international Petroleum industry.



<PAGE>

37

15.4

Should a meter malfunction occur, Operator shall immediately have the

meter repaired, adjusted and corrected and following such repairs,

adjustment or correction shall have it tested or calibrated to

establish its accuracy. Upon the discovery of metering error, Operator

shall have the meter tested immediately and shall take the necessary

steps to correct any error that may be discovered.

15.5



In the event a measuring error is discovered, Contractor shall use all

reasonable efforts to determine the correct production figures for the

period during which there was a measuring error and correct previously

used readings. Contractor shall submit to the Coordination Committee a

report on the corrections carried out. In determining the correction,

Contractor shall use, where required, the information from other

measurements made inside or outside the Development Area. If it proves

impossible to determine when the measuring error first occurred, the

commencement of the error shall be deemed to be the point in time

halfway between the date of the last previous test and the date on

which the existence of the measuring error was first discovered.



15.6



All measurements for all purposes in this Contract shall be adjusted to

standard conditions of pressure at sea level and temperature at sixty

degrees Fahrenheit (60 (degrees)F).



ARTICLE 16

NATURAL GAS

16.1



Associated Natural Gas

a)



Associated Natural Gas produced within the Contract Area shall

be used primarily for purposes related to the Production



Operations and production enhancement including, without

limitation, oil treating, gas injection, gas lifting and power

generation.

b)



Based on the principle of full utilisation of the Associated

Natural Gas and with no impediment to normal production of the

Crude Oil, any Development Plan shall include a plan of

utilisation of Associated Natural Gas. If there is any excess

Associated Natural Gas remaining in any Oil Field after

utilisation pursuant to Article 16.1.a) above (hereafter

referred to as "Excess Associated Natural Gas"), the

Contractor shall carry out a feasibility study regarding the

commercial utilisation of such Excess Associated Natural Gas.

i)



<PAGE>



If Georgian Oil and Contractor agree that Excess

Associated Natural Gas has no commercial value, then

such Natural Gas



38

shall be disposed of by the Operator through

reinjection, venting, flaring or otherwise, provided

that there is no impediment to normal production of

the Crude Oil.



c)



ii)



If Georgian Oil and Contractor agree that Excess

Associated Natural Gas has commercial value, they

will endeavour to enter into gas sales agreement(s)

and/or other commercial and/or technical arrangements

with Third Parties required to develop such Natural

Gas. Investments in the facilities necessary for

production, transportation and delivery of Excess

Associated Natural Gas shall be made by the

Contractor. The construction of facilities for such

Production and utilisation of the Excess Associated

Natural Gas shall be carried out at the same time as

the Development Operations, or at any time as may be

agreed to by the Parties.



iii)



If either Georgian Oil or Contractor considers that

Excess Associated Natural Gas has commercial value

while the other considers that Excess Associated

Natural Gas has no commercial value, the one who

considers Excess Associated Natural Gas to have

commercial value may utilise such Excess Associated

Natural Gas, at its own cost and expense and without

impeding the Production of Crude Oil and without

affecting the shares of Crude Oil and Natural Gas

otherwise to be allocated under the other provisions

of this Contract, but if such Excess Associated

Natural Gas is not so utilised at any time or from

time to time, then such Excess Associated Natural Gas

shall be disposed of by the Operator, provided that

there is no impediment to normal Production of the

Crude Oil.



The price of Associated Natural Gas produced from the Contract

Area shall be determined by Georgian Oil and Contractor based

on general pricing principles taking into consideration such

factors as sales prices of internationally transported gas

delivered in Western Europe, quality and quantity of the

Associated Natural Gas (including the equivalent substitute

energy value) and the economics of Development. Unless

otherwise agreed, Georgian Oil and Contractor shall



participate in all gas sales agreements entered into for the

sale of Associated Natural Gas produced from the Contract Area

in proportion to their Article 11 allocation rights. Gas sales

prices shall be denominated in U.S.$.

d)



Investments made in conjunction with the utilisation of both

Associated Natural Gas and Excess Associated Natural Gas,

together with investments incurred after approval of a

Development Plan in carrying out feasibility studies on the

utilisation of Excess Associated Natural Gas, shall be charged

to Operation Expenses.



<PAGE>

39

16.2

Non-associated Natural Gas

a)



When any Non-associated Natural

Contract Area, Georgian Oil and

program regarding the Appraisal

marketing of the Non-associated

and international markets. This

following principles:



Gas is discovered within the

Contractor shall implement a

and possible development and

Natural Gas in the domestic

program shall include the



i)



After Non-associated Natural Gas has been discovered

within the Contract Area, the Contractor shall

present to the Coordination Committee, a report,

including, without limitation, an initial estimate of

the boundaries of the Non-associated Natural Gas

reservoir and a range of recoverable reserves.



ii)



The decision period for commitment by Contractor to

an Appraisal Program shall be as soon as is practical

in all the circumstances but shall not be longer than

thirty-six (36) months from the submission of the

discovery report. During this decision period, the

Coordination Committee will form a Marketing Team

whose goal will be to conduct preliminary market

studies and analyse the potential markets for the

Non-associated Natural Gas. During this decision

period, Contractor will report to the Coordination

Committee at regular intervals on the progress and

results of the technical evaluation of moving forward

with an Appraisal Program. Within the said decision

period, Contractor will make its election whether or

not to commit to an Appraisal Program for the

Non-associated Natural Gas.



iii)



If the Contractor commits to an Appraisal Program for

the Non-associated Natural Gas reservoir, delineation

and review of the potential of the Non-associated

Natural Gas reservoir will continue for a period not

longer than six (6) years from the submission of the

discovery report. During the review and Appraisal

periods, Contractor shall maintain all rights and

interests in the relevant portion of the Contract

Area.



iv)



The expenses incurred by the Contractor in carrying

out the said review, evaluation and Appraisal Program

and the expenses incurred by the Marketing Team

representatives in conducting the preliminary market

studies and analysing the markets for the

Non-associated Natural Gas shall be charged to

Operation Expenses and are recoverable from Cost

Recovery Petroleum.



<PAGE>

b)



40

Following the completion of the Appraisal Program and review

of the potential of the discovery, Contractor shall submit an

appraisal report to the Coordination Committee. If the

Coordination Committee decides that the Discovery is

commercial, the Parties shall agree on a Development Plan. The

Parties shall also endeavour to finalise Gas Sales Contract(s)

and other agreements necessary for the commercialisation of

such Non-associated Natural Gas.



c)



The price of the Non-associated Natural Gas produced from the

Contract Area shall be determined based on general pricing

principles, taking into consideration such factors as

representative sales prices of internationally transported

volumes delivered to distributors and end users in Western

Europe, quality and quantity of the Natural Gas (including the

equivalent substitute energy) and the economics of the

Development of such Natural Gas. Unless otherwise agreed,

Georgian Oil and Contractor shall participate in all Gas Sales

Contracts entered into for the sale of Non-associated Natural

Gas produced from the Contract Area in proportion to their

Article 11 allocation rights. Sales contract prices shall be

denominated in U.S.$.



d)



The production period of any Gas Field within the Contract

Area shall be a period equal to the greater of the term of the

Gas Sales Contract(s) or other commercial Natural Gas

agreement for such Gas Field and twenty-five (25) consecutive

years beginning on the date of commencement of Commercial

Production in such Gas Field. If such period exceeds the

maximum term of the Contract, the term of the Contract so far

as it relates to such Gas Field shall extend until the end of

such production period. Georgian Oil and Contractor shall

endeavour to conclude Gas Sales Contract(s) and implement a

Development Plan for each Gas Field to deplete such Field

within its production period, subject always to the

application of good international Petroleum industry

development and operating practices.



16.3



Contractor may participate in the installation and operation of the

pipeline(s) required to transport Natural Gas produced from the

Contract Area to the market for such Natural Gas and share in any

revenues generated from the use of said pipeline(s) by others. If

Contractor participates in the installation and operation of such

pipeline(s), the installation and operation of such pipeline(s) shall

be included in a Development Plan and Petroleum Operations under this

Contract. Any such investment shall be recoverable from Cost Recovery

Petroleum.



16.4



If the State, any state-owned company or other entity, or Georgian Oil

provides Natural Gas transportation services to Contractor, then the

tariffs charged to Contractor for such services shall be

non-discriminatory, reasonably based on the investment necessary to

provide the transportation services and in no event will exceed charges

made to other entities including Georgian Oil and other State bodies.

The State and Georgian Oil will ensure that such



<PAGE>

41

transportation services will be provided in a time frame that will not



delay field development.

ARTICLE 17

TAX/FISCAL REGIME

17.1



This Article shall apply to each Contractor Party individually.



17.2



Each Contractor Party, Foreign Subcontractor, GMJV, Foreign Employee

and Operator shall be entitled to full and complete exemption from all

Taxes prior to or after the Effective Date of this Contract except as

otherwise provided for in this Contract.



17.3



It is acknowledged that Georgia may enter into Double Tax treaties

which may have effect to give relief from Taxes to, but not limited to,

Contractor, Contractor Parties, Foreign Subcontractors and Foreign

Employees.



17.4



Each Contractor Party shall be subject to the Law of Georgia on

Taxation of Enterprises, dated 21 December 1993 as enacted and in

effect on the date of execution of this Contract, and as amended by the

provisions of this Contract (the "Profit Tax"). Each Contractor Party

having its head office or management in Georgia will be subject to the

Profit Tax. Each Contractor Party not having its head office or

management in Georgia but carrying out Petroleum Operations in the

Contract Area will be subject to the Profit Tax.



17.5



Each Contractor Party shall be subject to the Profit Tax at a rate

fixed for the duration of the Contract of ten percent (10%), for a

Calendar Year on the taxable base defined in Article 17.8.



17.6



Georgian Oil (or its successors or assignees) shall assume, pay and

discharge, in the name and on behalf of each Contractor Party, that

Contractor Party's Profit Tax liability for a Calendar Year calculated

in accordance with this Article 17 out of Georgian Oil's seventy

percent (70%) share of Profit Oil and Profit Natural Gas for that

Calendar Year. The Georgian Oil Profit Oil and Profit Natural Gas share

as determined by Article 11 of this Contract will include an amount

equal in value to all of the Contractor Parties' Profit Tax

liabilities.



17.7



The obligation to assume, pay and discharge each Contractor Party's

payment of Profit Tax (and only this tax) set out above by Georgian Oil

in accordance with the provisions of Article 17.6 shall fulfil the

entire tax liability of each Contractor Party. Except for the Profit

Tax obligation described in this Article 17 the Contractor and the

requirement to charge VAT on local sales (each Contractor Party) GMJV

and Operator shall not be subject to any other Taxes, fees, bonuses,

duties, levies, funds or similar types of payments of any nature

imposed prior to the Effective Date, currently or in the future by the

State or



<PAGE>

42

any other Governmental entity or subdivision of the State including but

not limited to Mineral Usage Tax, Enterprise Property Tax, VAT, Stamp

Duty, Profit Repatriation Tax, Export Duty, Customs Duty, Freight Tax,

Dividend Tax, Land Tax, natural resource levies, levies on special

usage of subsurface resources, extraction based levies, land rental

fees, charges and levies reimbursing the State or any other

Governmental entity or subdivision of the State for the cost of

geological prospecting work incurred by the State, fees for licences to

conduct cartographic, geological or geophysical surveys, any tariff or

similar fee on the transportation and export of Petroleum, any fee or



payment related to the assignment of all or a portion of Contractor's

or a Contractor Party's interest under this Contract.

17.8



The calculation of the taxable base (balance profit/(loss)) for each

Contractor Party for a Calendar Year shall be as follows:

a)



The taxable base (balance profit/(loss))for each Contractor

Party shall be determined as the total of each such Contractor

Party's sales revenues from Cost Recovery Petroleum, Profit

Oil and Profit Natural Gas acquired by that Contractor Party

pursuant to Article 11 of this Contract reduced by, (i) the

Contractor Party's sales revenues from Cost Recovery Petroleum

and (ii) the Contractor Party's share of costs and the

Contractor Party's own costs incurred during a Calendar Year

in respect of Petroleum Operations which are not included in

Costs and Expenses determining Cost Recovery Petroleum in

Article 11 of this Contract and (iii) any loss calculated in

accordance with Article 17.9 of this Contract.



b)



Sales revenues from Cost Recovery Petroleum shall be defined

as the value of the volumes of Cost Recovery Petroleum, taken

and disposed of by the Contractor Party and/or their assignees

under this Contract during a Calendar Year and determined by

applying the principles of valuation set out in Article 12 of

this Contract. Sales revenues from Profit Oil and Profit

Natural Gas shall be defined as the value of the volumes of

Profit Oil and Profit Natural Gas taken and disposed of by the

Contractor Party and/or their assignees under this Contract

during a Calendar Year.

Profit Oil volumes, other than Excess Crude sold to the State,

and Profit Natural Gas volumes sold to Third Parties will be

valued at the actual price received at the Measurement Point

where actually sold at the Measurement Point. Where Profit Oil

volumes are not sold at the Measurement Point, they shall be

valued at the actual price received at the sales point less

transportation and other associated costs incurred by the

Contractor Party in transporting such Profit Oil from the

Measurement Point to the actual sales point. The value of

sales of Profit Oil and Profit Natural Gas to any Affiliate or

sales involving barter will be determined by applying the

principles of valuation as set out in Article 12 of this

Contract.



<PAGE>



43

Sales of Excess Crude by a Contractor Party to the State in

accordance with Article 11.15 of this Contract will be valued

at the world market price for similar Crude Oil minus a

discount of ten percent (10%).



c)



For the purposes of this Article 17 and specifically for the

purposes of calculating the taxable base of a Contractor Party

in accordance with this Article 17.8 and Article 17.9, costs

and expenses incurred directly or indirectly by a Contractor

Party and its Affiliated Companies prior to the Effective Date

of this Contract shall be deemed to have been incurred on the

Effective Date of this Contract.



d)



For the purposes of calculating the taxable base of a

Contractor Party in accordance with this Article 17.8 and

Article 17.9, sales revenues related to Petroleum Operations

and costs incurred in respect of Petroleum Operations shall be

determined in U.S.$. Sales revenues in currency other than the



U.S.$ and costs incurred in currency other than the U.S.$

shall be translated into U.S.$ in accordance with the

principles set out in Article 19.11 of this Contract.

17.9



If in calculating the taxable base of a Contractor Party the total sum

of deductions, represented by sales revenues from Cost Recovery

Petroleum and costs incurred in respect of Petroleum Operations which

are not included in Costs and Expenses in determining Cost Recovery

Petroleum in Article 11 of this Contract, exceed sales revenues from

Cost Recovery Petroleum, Profit Oil and Profit Natural Gas in any

Calendar Year, the resulting loss (balance loss) may be carried forward

by a Contractor Party to the following Calendar Year and to subsequent

Calendar Years, one at a time in chronological order, and shall be

deductible in full and without restriction in computing such Contractor

Party's taxable base in such Calendar Year(s) until such time as the

loss is wholly offset against such Contractor Party's taxable base.



17.10



Each Contractor Party shall maintain its tax books and records

exclusively in U.S$ although a local currency equivalent (with

conversion in accordance with the provisions of Article 19) shall

be prepared for information purposes only. The calculation of the

taxable base for each Contractor Party in accordance with Article

of this Contract will be exclusively in U.S.$ and the calculation

the payment of the Profit Tax enumerated in this Article 17 shall

U.S.$.



17.11



also

17.8

and

be in



If a Contractor Party is a party to more than one production sharing

contract (consortium) situated within Georgia and/or the Georgian

continental shelf, for the purposes of calculating the Contractor

Party's taxable base in accordance with Article 17.8 of this Contract

the production sharing contracts in which the Contractor Party has a

share may at the election of the Contractor Party be treated as if the

production sharing contracts were one production sharing contract

resulting in the Contractor Party's share of sales revenues and



<PAGE>

44

deductions attributable to the production sharing contracts being

consolidated for Profit Tax purposes.

The Profit Tax return for each Contractor Party shall be prepared and submitted

as follows:

a.



Each Contractor Party shall prepare a Profit Tax return in

U.S.$ for each Calendar Year and submit it to Georgian Oil by

15 February following the Calendar Year, so that Georgian Oil

can submit a Contractor Party's Profit Tax return to the Tax

Inspectorate by 15 March following the Calendar Year.



b.



No other records or documentation shall be required to be

submitted to the Tax Inspectorate at the time the Profit Tax

return is submitted to the Tax Inspectorate or thereafter.

Such records and documentation are to be made available to the

Tax Inspectorate only during an audit by the Tax Inspectorate

in accordance with Article 17.19 of this Contract



c.



The Profit Tax return for each Contractor Party for each

Calendar Year shall set out in U.S.$ the calculation of the

taxable base as described in Article 17.8 and the amount of

the Profit Tax calculated on that taxable base.



d.



The Profit Tax return shall be prepared based on Contractor

books and accounts of Petroleum Operations as described in

Article 18 of this Contract which Contractor is required to



maintain in U.S.$ in accordance with the Accounting Procedure

attached hereto as Annex C. No books and records in addition

to those specified by this Contract shall be required to be

maintained by Contractor for any reason including but not

limited to the calculation of Profit Tax and taxable base

required by this Article 17.

e.



Only one (1) Profit Tax return shall be required to be

prepared and submitted to the Tax Inspectorate for each

Contractor Party for a Calendar Year. Only one (1) Profit Tax

payment shall be required in respect of each Contractor

Party's Profit Tax liability for a Calendar Year. No Profit

Tax return or similar declaration and no Profit Tax payment

whether estimated or actual shall be required in respect of a

Calendar Quarter.



17.13



Proper official assessments of a Contractor Party's Profit Tax

liability for each Calendar Year, and proper official receipts shall be

issued by the proper tax authorities and shall state the date and

amount and other particulars customary in Georgia for such receipts and

the currency in which the Profit Tax was paid.



17.14



Georgian Oil shall furnish to each Contractor Party the proper official

assessments and proper official receipts that evidence official payment

by



<PAGE>

45

Georgian Oil of that Contractor Party's Profit Tax liability for a

Calendar Year by 15 April following the Calendar Year.

17.15



Georgian Oil shall not credit, directly or indirectly, Contractor

Parties' Profit Tax payments against Georgian Oil's tax or any other

payments to the Government or the treasury of Georgia required from

Georgian Oil. However, Georgian Oil may deduct the payments of

Contractor Parties Profit Tax for a Calendar Year in calculating

Georgian Oil's tax liability for that Calendar Year.



17.16



Georgian Oil shall assume, pay and discharge any penalties, interest,

fines or similar levies for late payment of a Contractor Party's Profit

Tax liability in respect of any Calendar Year.



17.17



The filing of the Profit Tax return and the payment of Profit Tax for a

Calendar Year will be considered the final settlement of all Profit Tax

liabilities for a Contractor Party for that Calendar Year upon the date

thirty-six (36) months from the date the Profit Tax return for such

Calendar Year was filed.



17.18



The State will notify each Contractor Party within one (1) month of the

Effective Date of this Contract of the tax inspectorate office ("the

Tax Inspectorate") which is to be located in Tbilisi and be responsible

for and administer the implementation of the provisions of this

Contract including but not limited to the filing of a Contractor

Party's Profit Tax return for each Calendar Year, the issuing of

official assessments and receipts evidencing the payment of each

Contractor Party's Profit Tax liability, any audit in respect of any

Calendar Year of a Contractor Party's Profit Tax return and any other

payment, liability or procedures in respect of any other Taxes.



17.19



The Contractor agrees and concurs that the tax Inspectorate shall have

the following rights of audit in respect of a Contractor Party's Profit

Tax return and that the Contractor will cooperate with the Tax

Inspectorate in this regard:



a)



The Tax Inspectorate shall have the authority to conduct an audit of

each Contractor Party's Profit Tax return for each Calendar Year.



b)



In conducting such an audit the Tax Inspectorate shall only be entitled

to examine the Contractor books and accounts of Petroleum Operations

which the Contractor is required to maintain as described in Article 18

of this Contract in U.S.$ in accordance with the Accounting Procedure

attached hereto as Annex C except in circumstances where the Tax

Inspectorate has reasonable grounds to suspect fraud or non disclosure

of required information.



c)



The Tax Inspectorate shall be bound by the documentation requirements

specified in the Accounting Procedure and shall not be entitled to

request from any Party or the Operator any documentation in addition to

that documentation



<PAGE>

46

to support the calculation of the taxable base which is required for

each Contractor Party for each Calendar Year under this Article 17

except in circumstances where the Tax Inspectorate has reasonable

grounds to suspect fraud or non disclosure of required information.

d)



Costs and Expenses for the purposes of determining Cost Recovery

Petroleum are defined in Article 11 of this Contract. The Tax

Inspectorate shall be bound by the provisions of Article 11 of this

Contract and shall have no right to challenge the Costs and Expenses

which a Contractor Party is entitled to recover from Petroleum.



e)



Upon completing such an audit, the Tax Inspectorate shall discuss any

proposed adjustments with the Contractor Party and, where appropriate,

issue a notice of additional Profit Tax due or a notice of refund. If

the Contractor Party and the Tax Inspectorate are unable to agree upon

the amount of Profit Tax underpaid or overpaid, the issue shall be

resolved in accordance with the dispute resolution procedures contained

in Article 30 of this Contract.



17.20



If as a result of an audit by the Tax Inspectorate a final

determination is made either that an underpayment or overpayment of

Profit Tax has occurred in respect of a Calendar Year, such

underpayment or overpayment will be subject to interest at a rate of

LIBOR plus four (4) percent calculated from 15 March in the Calendar

Year the Profit Tax return was filed until the date of payment or

refund of the Profit Tax.



17.21



Employees of the Contractor, Contractor Parties, their Affiliates and

Subcontractors, and those employees assigned by Contractor to Operator

who are not citizens of Georgia ("Foreign Employees") shall be liable

to Georgian personal income tax imposed by the State in accordance with

the law on the provisions of any applicable Double Tax Treaty. A

Foreign Employee will continue to be subject to the provisions of any

applicable Double Tax Treaty.



17.22



Foreign Employees who perform work in Georgia and their employers that

would otherwise be covered by and subject to social insurance, pension

fund contributions and similar payments under the social security

system of Georgia will be exempt from those payments.



17.23



The only Taxes, duties, fees or other charges to be levied by the State

or by any other Governmental entity on a Foreign Subcontractor in

connection with Petroleum Operations pursuant to this Contract shall be

a tax to be withheld by any person or other legal entity making

payments to a Foreign Subcontractor in the currency in which the

payment is made (the "Withhold Tax"). The Withhold Tax shall be

calculated and will apply as follows:



a)



The Withhold Tax will be calculated at a fixed rate of twenty

(20) percent, on the taxable profit of a Foreign Subcontractor

defined in this



<PAGE>



47

Article 17.23. The taxable profit of a Foreign Subcontractor

will be deemed to be equal to twenty (20) percent of any

payments received by a Foreign Subcontractor in respect of

work and/or services undertaken in Georgia in connection with

Petroleum Operations pursuant to this Contract resulting in a

total tax of four (4) percent to be withheld from such

payments.



b)



Any person or other legal entity making payments to a Foreign

Subcontractor must pay the Withhold Tax to the Tax

Inspectorate within thirty (30) days from the date of payment

of the Foreign Subcontractor. The Tax Inspectorate shall issue

the person or other legal entity making the payment with

proper official receipts in the name of the Foreign

Subcontractor within fifteen (15) days of the payment of the

Withhold Tax that evidence the payment of the Withhold Tax

stating the date, the amount, the currency in which it was

paid and other particulars customary for such receipts.



c)



In the event that such Withhold Tax is paid late the person

responsible for paying the Withhold Tax to the Tax

Inspectorate shall be subject to interest at a rate of LIBOR

plus four (4) percent calculated from the latest date that the

Withhold Tax should have been paid to the Tax Inspectorate. No

fines, penalties or similar levies will be payable in respect

of any late payment.



d)



A Foreign Subcontractor will have no requirement to file a tax

return or any other similar declaration, the payment of the

Withhold Tax will satisfy all such requirements and

obligations.



e)



A Foreign Subcontractor will continue to be subject to the

provisions of any applicable Double Tax Treaty.



17.24

a)



VAT shall be imposed as follows:

Goods, works and services supplied directly or indirectly to

or by a Contractor Party or its Affiliates, Operator or a

Foreign Subcontractor for the purpose of Petroleum Operations

shall be exempt from VAT with credit (zero per cent rate).,

save that the customer shall charge VAT ( at the then current

rate but not exceeding twenty, (20) per cent ) on Petroleum

sold locally within Georgia which is not intended for export

in circumstances in which the purchaser is a Georgian national

or Georgian entity ( "Local Sales" ). Contractor shall be

entitled to a refund of VAT within five business days of the

submission of its monthly VAT declarations to the Tax

Inspectorate equal to the US$ equivalent of VAT charged on

Local Sales. For the purposes of these declarations the refund

due to the Contractor will be calculated using the VAT charged

and/or paid on a monthly basis. If a full VAT refund is not

paid within five days as specified above, Contractor shall be

entitled to



<PAGE>



48

recover the relevant amount as Costs and Expenses in

accordance with the provisions of Article 11.



b)



All imports including but not limited to goods, equipment,

works, services, loans and other forms of financing acquired

by a Contractor Party or its Affiliates, Operator, their

Subcontractors or their agents for the purpose of Petroleum

Operations shall be exempt from VAT with credit (zero per cent

rate).



c)



Import and re-export of goods for personal use by Foreign

Employees and family members will be subject to VAT at a rate

of zero per cent (0%).



d)



Exports of Petroleum by each Contractor Party or its agents

shall be exempt from VAT with credit (zero per cent rate).



e)



Excess Crude sold by a Contractor Party to the State in

accordance with the provisions of Article 11.15 of this

Contract shall be exempt from VAT with credit (zero percent

rate).



f)



All re-exports by a Contractor Party or its Affiliates,

Operator, Subcontractors or their agents of goods, works and

services supplied for the purposes of Petroleum Operations

including but not limited to re-export of goods temporarily

imported into Georgia for the purposes of Petroleum Operations

shall be exempt from VAT with credit (zero per cent rate).



g)



Any goods, works and services supplied to or by and any

imports of goods, works and services acquired directly or

indirectly by a Contractor Party and its Affiliated Companies,

Operator, Foreign Subcontractors or their agents for the

purpose of Petroleum Operations prior to the Effective Date of

this Contract shall be deemed for the purposes of this Article

to be supplied or acquired on the Effective Date of this

Contract.



h)



The Tax Inspectorate shall provide each Contractor Party and

its Affiliates, Operator, Foreign Subcontractors and their

agents with certificates confirming the exemptions and/or VAT

zero percent (0%) rate provided in this Contract within twenty

(20) days of the Contractor Party requesting such a

certificate.



17.25



Each Contractor Party and its Affiliates and Operator shall have no

liability or responsibility for any Taxes which its Subcontractors or

their agents do not pay or for any other failure of such Subcontractors

or their agents to comply with the laws of Georgia.



<PAGE>



49

ARTICLE 18

ACCOUNTING, FINANCIAL REPORTING AND AUDIT



18.1



Contractor shall maintain books and accounts of Petroleum Operations in

accordance with the Accounting Procedure attached hereto as Annex C.

These shall be maintained in U.S.$ in accordance with generally

accepted international Petroleum industry accounting principles. All

books and accounts which are made available to Georgian Oil in

accordance with the provisions of the Accounting Procedure shall be

prepared both in the Georgian and English languages.



18.2



The Accounting Procedure specifies the procedure to be used to verify

and establish promptly and finally Contractor's Costs and Expenses

under Article 11 of this Contract.



18.3



Sales revenues, expenditures, financial results, tax liabilities, and

loss carry-forwards of each Contractor Party shall be determined in

accordance with the rules, rights, and obligations set forth in this

Contract in so far as such sales revenues, expenditures, financial

results, tax liabilities, and loss carry-forwards are related to

Petroleum Operations under this Contract.



18.4



To the extent that Georgian Oil incurs Costs and Expenses which are

recoverable from Cost Recovery Petroleum in accordance with Article 11,

Georgian Oil shall maintain separate books and accounts. These books

and accounts shall be maintained in U.S.$, in the Georgian language and

the English language and shall be in accordance with generally accepted

international Petroleum industry accounting principles. Prior to

Georgian Oil commencing to incur Costs and Expenses an accounting

procedure which establishes the method for accounting for Georgian

Oil's participation in the funding of Petroleum Operations shall be

agreed and approved by Contractor. The Contractor shall have the right

to audit the books and accounts maintained by Georgian Oil.



ARTICLE 19

CURRENCY, PAYMENTS AND EXCHANGE CONTROL

19.1



Contractor and each Contractor Party, and their Affiliates,

Subcontractors and Operator shall have the right to open, maintain, and

operate Foreign Exchange



<PAGE>

50

bank accounts both in and outside of Georgia and local currency bank

accounts inside Georgia.

19.2



Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to transfer all funds received in

or converted to Foreign Exchange in Georgia to bank accounts outside

Georgia without payment of any Taxes, Governmental fee, duty or other

such impost for the right to effect such transfer of funds.



19.3



Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to hold, receive and retain outside

Georgia and freely use all funds received and derived directly or

indirectly from Petroleum Operations by them outside Georgia without

any obligation to repatriate or return the funds to Georgia, including

but not limited to all payments received from export sales of

Contractor Parties' share of Petroleum and any sales proceeds from an

assignment of their interest in this Contract.



19.4



Contractor and each Contractor Party, and their Affiliates, Foreign

Subcontractors and Operator shall be exempt from all legally required

or mandatory conversions of Foreign Exchange into local or other

currency. Notwithstanding the provisions of this Article 19.4 the

Contractor and each Contractor Party and Operator will pay citizens of

Georgia and Georgian Subcontractors engaged by them in Petroleum

Operations in local currency for so long as this is a requirement of

the law of Georgia.



19.5



Contractor and each Contractor Party, and their Affiliates, Foreign

Subcontractors and Operator have the right to import into Georgia funds

required for Petroleum Operations under this Contract in Foreign



Exchange.

19.6



Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to pay outside of Georgia for

goods, works and services of whatever nature in connection with the

conduct of Petroleum Operations under this Contract without having

first to transfer to Georgia the funds for such payments.



19.7



Whenever such a need arises Contractor and each Contractor Party and

their Affiliates, Foreign Subcontractors and Operator shall be entitled

to purchase local currency with Foreign Exchange and covert local

currency into Foreign Exchange at the most favourable exchange rate

legally available and in any event at an exchange rate which shall be

no less beneficial than that granted to other foreign investors by the

National Bank of Georgia, without deductions or fees other than usual

and customary banking charges.



19.8



Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to pay outside Georgia principal

and interest on loans used for funding Petroleum Operations without

having to first transfer to Georgia the funds for such payment.



<PAGE>

51

19.9

Contractor and each Contractor Party and their Affiliates, Foreign

Subcontractors and Operator shall have the right to pay, wages,

salaries, allowances and benefits of their foreign personnel working in

Georgia in Foreign Exchange partly or wholly outside Georgia.

19.10



Contractor and each Contractor Party, and their Affiliates shall have

the right to pay their Foreign Subcontractors working on Petroleum

Operations in Georgia in Foreign Exchange partly or wholly outside

Georgia.



19.11



Conversions of currency shall be recorded at the rate actually

experienced in that conversion. Expenditures and sales revenues in

currency other than the U.S.$ shall be translated to U.S.$ at the

official rates as posted by the National Bank of Georgia at the close

of business on the first business day of the current month until such

times as the relevant exchange rates being the arithmetic average of

the buying and selling rates at the close of business on the first

business day of then current month are published by "The Wall Street

Journal", or if not published by "The Wall Street Journal", then by the

"Financial Times" of London.

ARTICLE 20

IMPORT AND EXPORT



20.1



Contractor, each Contractor Party and Affiliates and their agents and

Subcontractors and Operator shall have the right to import and

re-export from Georgia free of any Taxes and restrictions including but

not limited to VAT and Customs Duties in their own name materials,

equipment, machinery and tools, vehicles, spare parts, foodstuffs,

goods and supplies necessary in the Contractor's opinion for the proper

conduct and achievement of Petroleum Operations including but not

limited to Exploration, exploitation, Appraisal, Development,

Production, transportation, storage and marketing.



20.2



Contractor, each Contractor Party and Affiliates, their agents and

Subcontractors shall have the right to sell any materials or equipment

or goods which were used in Petroleum Operations without paying Customs

Duties provided that such items are no longer needed for Petroleum

Operations and the costs of such items have not been and are not



intended to be included as Costs and Expenses recoverable from Cost

Recovery Petroleum.

20.3



Contractor, each Contractor Party, their customers and their carriers

shall have the right to freely export, free of all Taxes including but

not limited to Customs Duties and at any time, the share of Petroleum

to which the Contractor and each Contractor Party is entitled in

accordance with the provisions of this Contract.



<PAGE>

52

20.4

Petroleum to which the Contractor Parties are entitled to in accordance

with the provisions of this Contract shall not be subject to any

requirements imposed currently or in the future by the State or any

other Governmental entity or subdivision of the State as to export

quotas or export licences or any other similar requirements. The

provisions of this Article 20.4 shall not apply to Excess Crude which

the State elects to purchase in accordance with Article 11.15 of this

Contract.

20.5



All copies of original records and data and representative portions of

all samples or information prepared or obtained by the Contractor

Parties and Affiliates and their Subcontractors with regard to

activities under this Contract which is exported for use thereof by the

Contractor Parties including but not limited to processing, analysing

or studying shall be exempt from any requirements imposed currently or

in the future by the State or any other Governmental entity or

subdivision of the State as to export licences, any restrictions on

export and Customs Duties, Taxes or other export charges with respect

to such data and information.



20.6



The Contractor Parties shall be exempt from any obligatory registration

existing currently or in the future in Georgia as exporters of

Petroleum.



20.7



Foreign Employees and family members of Contractor and its Affiliates,

its agents and Foreign Subcontractors, shall have the right to import

into and re-export from Georgia, free of Taxes, Customs Duties and

restrictions at any time, all foodstuff, furniture, clothing, household

appliances, vehicles, spare parts and all personal effects for personal

use by the Foreign Employees and family members assigned to work in, or

travel to, Georgia.

ARTICLE 21

EXPORT OF HYDROCARBONS, TRANSFER OF

OWNERSHIP, AND REGULATIONS FOR DISPOSAL



21.1



The Contractor, Contractor Parties, any purchaser from such parties and

their respective carriers shall, for the duration of this Contract,

have the unrestricted right to export from any export point selected by

the Contractor for such purpose, the share of Petroleum to which the

Contractor is entitled under this Contract provided that access to such

export point is not restricted generally on the grounds of safety or

national security. Access to export points shall be given to the above

parties on a non discriminatory basis and at rates no less favourable

than those granted to others by the State or Georgian Oil.



21.2



The transfer of title to each Contractor Party and Georgian Oil of its

share of Petroleum shall be effective upon the lifting of that share by

such Party at the Measurement Point or, at the Parties' option, at some

other point.



<PAGE>

53

21.3

The Contractor and Georgian Oil shall each be entitled to designate (at

their own cost) an employee, independent company or consultant who

shall check the liftings of Petroleum from the Measurement Point or at

such other point as may be designated in accordance with Article 21.2.

21.4



If one of the Parties is unable to lift its share of Petroleum in due

time, with the result that Petroleum Operations may be interfered with

or in any way disrupted, then after giving such notice as is practical

in the circumstances any other Party may dispose of it, and

subsequently give back to such Party an equivalent amount of Petroleum

(taking into account any costs incurred).

ARTICLE 22

OWNERSHIP OF ASSETS



22.1



Ownership of any asset, whether fixed or moveable, acquired by or on

behalf of Contractor in connection with Petroleum Operations hereunder

shall vest in Georgian Oil without consideration when both the costs of

such asset have been recovered by Contractor under this Contract and

either the Contract has come to an end or, if earlier, when the asset

is no longer required for Petroleum Operations by the Contractor. The

Contractor shall enjoy continued free, exclusive and unrestricted use

of all assets at no cost or loss of benefit to the Contractor until the

termination of this Contract or if earlier until they are no longer

required for Petroleum Operations. The Contractor shall bear the

custody and maintenance of such assets and all risks of accidental loss

or damage thereto, until ownership transfers to Georgian Oil, provided

however that all costs necessary to operate, maintain and repair such

assets and to replace or repair any damage or loss shall be recoverable

as Operation Expenses from Cost Recovery Petroleum in accordance with

the provisions of Article 11.



22.2



Whenever Contractor relinquishes any part of the Contract Area, all

moveable property located within the portion of the Contract Area so

relinquished may be removed to any part of the Contract Area that has

been retained for use in Petroleum Operations.



22.3



The provisions of Article 22.1 and 22.2 shall not apply to materials or

other property that are rented or leased to Contractor, its Affiliates

or Operator or which belong to employees of Contractor, its Affiliates

or Operator.



<PAGE>



54

ARTICLE 23

INSURANCE



23.1



Contractor shall obtain and maintain such types and amounts of

insurance for the Petroleum Operations as are reasonable and such that

they comply with accepted international Petroleum industry practice and

standards.



23.2



The insurance which may be obtained may cover :

a)



destruction and damage to any property held for use during

Petroleum Operations and classified as fixed capital and/or

leased or rented property and/or interests in pipelines

operated by the Contractor;



b)



destruction of Crude Oil in storage;



c)



liability to Third Parties;



d)



liability for pollution and expenses for cleaning up in the

course of Drilling and Production Operations;



e)



expenses for wild well control;



f)



liability incurred by the Contractor in hiring land drilling

rigs, vessels and aircraft serving the Petroleum Operations;

and



g)



losses and expenses incurred during the transportation and

storage in transit of goods shipped from areas outside the

Contract Area.



23.3



In any insurance contracts, the amount for which the Contractor itself

is liable (the "deductible amount") shall be reasonably determined

between the Contractor and the insurer and such deductible amount shall

in the event of any insurance claim be considered as Costs and Expenses

of Petroleum Operations recoverable from Cost Recovery Petroleum.



23.4



It is understood that, in order to meet their insurance obligations,

insurance providers used by Contractor may conclude reinsurance and

co-insurance agreements with any other insurance enterprises and

organisations.



<PAGE>



55

ARTICLE 24

PERSONNEL



24.1



Contractor shall be entitled to bring foreign personnel into Georgia in

connection with the performance of Petroleum Operations. The entry into

Georgia of such personnel is hereby authorised, and the State shall

issue at the Contractor's request the required documents, such as entry

and exit visas, work permits and residence cards. At Contractor's

request, the State shall facilitate all immigration formalities at the

points of exit and entry into Georgia for the employees and family

members of the Contractor, its Affiliates, Subcontractors, Operator,

agents and brokers. The Contractor (or Operator on its behalf) shall

contact the appropriate offices of the State to secure the necessary

documents, and to satisfy the required formalities.



24.2



The employees working within the scope of Petroleum Operations shall be

placed under the authority of the Contractor, its Affiliates, its

Subcontractors, agents or brokers or the Operator each of which shall

act individually in their capacity as employers. The works, hours,

wages, and all other conditions relating to their employment shall be

determined by the relevant employer of such employees. In relation to

employees who are citizens of Georgia their employment shall be in

accordance with Georgian law. To the extent that any expatriate

personnel are engaged under a contract subject to Georgian law, that

contract shall comply with the provisions of Georgian law. The

Contractor, its Affiliates, its Subcontractors, agents or brokers

however, shall enjoy full freedom in the selection and assignment of

their employees.

ARTICLE 25

FORCE MAJEURE



25.1



If as a result of Force Majeure, Contractor is rendered unable, wholly

or in part, to carry out its obligations under this Contract, other

than the obligation to pay any amounts due, then the obligations of



Contractor, so far as and to the extent that the obligations are

affected by such Force Majeure, shall be suspended during the

continuance of any inability so caused, but for no longer period.

Contractor shall notify the Parties of the Force Majeure situation

within seven (7) days of becoming aware of the circumstances relied

upon and shall keep Georgian Oil informed of all significant

developments. Such notice shall give reasonably full particulars of the

said Force Majeure, and also estimate the period of time which

Contractor will probably require to remedy the Force Majeure.

Contractor shall use all reasonable diligence to remove or



<PAGE>

56

overcome the Force Majeure situation as quickly as possible in an

economic manner. The period of any such non performance or delay,

together with such period as may be necessary for the restoration of

any damage done during such delay, shall be added to the time given in

this Contract for the performance of any obligation dependent thereon

(and the continuation of any right granted) and to the term of this

Contract.

25.2



For the purposes of this Contract, "Force Majeure" shall mean a

circumstance which is irresistible or beyond the reasonable control of

Contractor, any act of the State, or Georgian Oil or any other

hindrance of Contractor's performance not due to its fault or

negligence.

ARTICLE 26

ASSIGNMENTS AND GUARANTEES



26.1



No assignment, mortgage or charge or other encumbrance shall be made by

a Party of its rights obligations and interests arising under this

Contract other than in accordance with the provisions of this Article

26. Any purported assignment made in breach of the provisions of this

Article 26 shall be null and void. In relation to Georgian Oil (or any

successor of Georgian Oil as the designated representative of the

State) any transfer (whether directly or indirectly ) of any equity or

control with the result or effect that Georgian Oil or any successor to

the rights and interests of Georgian Oil ceases to be wholly owned or

controlled by the State shall be deemed to be an assignment under this

Contract which must comply with the provisions hereof.



26.2



Save in the case of any assignment made pursuant to the provisions of

Articles 26.4, 26.5 and 26.6 the following shall apply. Any Party

wishing to assign all or part of its rights and interests hereunder or

in any circumstances where there is deemed to be an assignment, the

Party wishing to make the assignment shall first give written notice to

the other Parties specifying the proposed terms and conditions of the

assignment. Following receipt of those terms and conditions, for a

period of thirty (30) days each Party shall have the preferential right

to match the terms and conditions of the proposed assignment or deemed

assignment. This right may be exercised by any Party giving written

notice of its intention to match the relevant terms and conditions (the

"Acceptance") and thereafter the relevant Parties shall negotiate all

necessary documentation in good faith. If within a further period of

ninety (90) days from receipt of the Acceptance the relevant parties

have not reached final agreement the Party seeking to assign may within

a further period of thirty (30) days complete an assignment to a Third

Party on the same terms and conditions. For the avoidance of doubt any

assignment to a Third Party shall be subject to the assigning Party and

the Third Party complying with the provisions of this Article 26.



<PAGE>

57

26.3

A Contractor Party may assign all or part of its rights, obligations

and interests arising from this Contract to a Third Party or another

Contractor Party provided that any such Third Party:

a)



has the technical and financial ability to perform the

obligations to be assumed by it under the Contract; and



b)



as to the interest assigned to it, accepts and assumes all of

the terms and conditions of the Contract.

Any such assignment shall be subject to the prior written consent of

the State (which may be represented by Georgian Oil for so long as the

state has nay interest in Georgian Oil) which consent shall not be

unreasonably withheld or delayed. If within thirty (30) days following

notification of an intended assignment accompanied by a copy of the

deed of assignment and related documentation the State has not given

its decision such assignment shall be deemed to have been approved by

the State. It is agreed that JKX may transfer part of its rights and

obligations under this Contract to Makoil Inc. (or any Affiliate of

that company) without the need to receive the prior consent of the

State or the need to comply with the provisions of Article 26.2. The

Contractor will notify Georgian Oil prior to any such transfer taking

place.



26.4



A Contractor Party may assign all or part of its rights, obligations

and interests arising from this Contract to an Affiliate without the

prior consent of the State of Georgian Oil provided that any such

Affiliate:



a)



has the technical and financial ability to perform the

obligations to be assumed by it under the Contract; and



b)



as to the interest assigned to it, accepts and assumes all of

the terms and conditions of the Contract.

JKX shall give notice to Georgian Oil prior to any assignment under

this Article 26.4.



26.5



Each reference in this Contract to the Contractor shall be treated as

including each assignee to which an assignment has been made by the

Contractor pursuant to this Article 26. Each reference in this Contract

to Georgian Oil shall be treated as including each assignee to which an

assignment has been made by Georgian Oil pursuant to this Article 26

provided the Contractor has the prior consent of Georgian Oil (not to

be unreasonably withheld) the Contractor and its assignees shall not be

restricted in any way and shall not be required to obtain consent for

any pledge or assignment of their respective interests in this Contract

or any Petroleum Operations undertaken pursuant hereto to any bank,

lender or other person providing financing in connection with this

Contract or such Petroleum Operations and if such bank, lender or other

person shall foreclose upon such interest pledged or assigned,



<PAGE>

58

such bank, lender or person shall become entitled to the rights of an

assignee hereunder.

26.6



Georgian Oil may assign all or part of its rights, obligations and

interests arising from this Contract (including all or part of its

right to lift a share of Profit Oil) to a wholly owned Affiliate with

the prior consent of the Contractor provided that any such Affiliate:



a)



has the technical and financial ability to perform the

obligations to be assumed by it under the Contract; and



b)



as to the interest assigned to it, accepts and assumes all of

the terms and conditions of the Contract.

Georgian Oil shall give prior notice to the Contractor prior to any

assignment under this Article 26.6.



26.7



Georgian Oil may assign all or part of its rights, obligations and

interests arising from this Contract (including all or part of its

right to lift its share of Profit Oil) to a Third Party provided that

any such Third Party:



a)



has the technical and financial ability to perform the

obligations to be assumed by it under the Contract; and



b)



as to the interest assigned to it, accepts and assumes all of

the terms and conditions of the Contract;



c)



agrees in writing to the funding and financing obligations set

out in this Article 26.

Any such assignment shall be subject to the prior written consent of

the Contractor which consent shall not be unreasonably withheld or

delayed. Any consent may be given subject to the conditions and further

documentation appearing below. If within thirty (30) days following

notification of an intended assignment accompanied by a copy of the

deed of assignment and related documentation the Contractor has not

given its decision such assignment shall be deemed to have been

approved by the Contractor.

In the event that the proposed assignee is not a company or entity

wholly owned by the State (as determined by the Contractor acting

properly and reasonably) then any assignment shall be subject to that

assignee assuming its proportionate future share of financing Petroleum

Operations as if it was a Contractor Party and paying to the existing

Contractor Parties its proportionate share of Costs and Expenses which

have not been recovered from Cost Recovery Petroleum as at the date of

the proposed assignment in each case as if it was a Contractor Party.

The consent of the Contractor shall be subject to the proposed assignee

executing a deed of adherence in terms satisfactory to the Contractor

agreeing to be bound by the terms of the Contract as amended



<PAGE>

59

by the terms of this Article 26 including an agreement to meet its

funding obligations hereunder. For the avoidance of doubt the

proportionate future share of financing Petroleum Operations and the

proportionate share of unrecovered Costs and Expenses to be met by any

assignee shall include (1) both an amount equal to the proposed

participating interest of the assignee in this Contract and (2) a

proportionate share of any part of the State's (or Georgian Oil's)

carried interest being met by the Contractor.

26.8



In the event that a Third Party which is not an entity wholly owned by

the State (as determined by the Contractor acting properly and

reasonably) acquires a direct or indirect equity interest in Georgian

Oil (or any holding or subsidiary company of Georgian Oil or any other

entity holding all or any of the State's interest hereunder) giving

that Third Party a direct or indirect interest in the rights hereunder

then Georgian Oil (or any such holding or subsidiary company of



Georgian Oil or other entity holding all or any of the State's interest

hereunder) will assume its proportionate future share of funding

obligations as if it was a Contractor Party and shall pay to the

existing Contractor Parties its proportionate share of Costs and

Expenses which have not been recovered from Cost Recovery Petroleum as

at the date on which the Third Party acquires the direct or indirect

interest in the rights hereunder. Before the State and/or Georgian Oil

allows any Third Party to acquire a direct or indirect interest in

Georgian Oil (or any holding company or subsidiary company of Georgian

Oil or any entity holding all or any of the State's interest hereunder)

the prior written consent of the Contractor will be required, such

consent not to be unreasonably withheld or delayed. The consent of the

Contractor may be given subject to Georgian Oil (or any holding or

subsidiary company of Georgian Oil or any other entity holding all or

part of the interests of the State hereunder) or such Third Party

acquiring the interest executing a deed of adherence in terms

satisfactory to the Contractor agreeing to be bound by the terms of the

Contract as amended by the terms of this Article 26 including an

agreement to meet its funding obligations hereunder. For the avoidance

of doubt the proportionate future share of financing Petroleum

Operations and unrecovered Costs and Expenses to be met by Georgian Oil

(or any holding or subsidiary company of Georgian Oil or any other

entity holding all or any of the interests of the State) or such Third

Party shall include both an amount representing the direct or indirect

interest of the Third Party as if the direct or indirect interest

acquired by the Third Party was treated as the participating interest

of a Contractor Party and a proportionate share of any part of the

State's (or Georgian Oil's) carried interest being met by the

Contractor.

26.9



The provisions of Article 26.8 will not apply to the transfer of a

direct or indirect equity interest in Georgian Oil of up to 25% of the

total equity to the employees or former employees of Georgian Oil

should any such transfer be made as part of a privatisation programme.



26.10



In the event of there being any proposed assignment in accordance with

the terms of this Article 26 then to the extent of the interest

assigned the assignor



<PAGE>

60

shall be released from all further obligations and liabilities arising

under the Contract after the effective date of the assignment. The

assignee shall thereafter be liable for the obligations arising from

such interest in the Contract except to the extent provided in the

Contract.

26.11



No Taxes, fees or other charges shall be payable to the State or to

Georgian Oil as a consequence of or prior to any assignment.



26.12



To the extent that either Georgian Oil or any Third Party is obliged to

pay its proportionate share of funding future Petroleum Operations and

unrecovered Costs and Expenses the proportionate share of the

Contractor (and any other party then responsible for funding Petroleum

Operations) shall be reduced proportionally so that should the State at

any time cease to have any interest in Georgian Oil (or any successor

to Georgian Oil as the State's representative) or any participating

interest in this Contract, the Contractor shall only be obliged to fund

thirty percent (30%) of Petroleum Operations (or such other figure as

represents its then participating interest hereunder).



ARTICLE 27

CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND WARRANTIES



27.1



In the course of performing the Petroleum Operations, the Operator and

the Parties shall be subject to all applicable laws, decrees, rules and

regulations of the State to the extent that such laws and regulations

are not inconsistent with or detract from, lessen or otherwise

interfere with the provisions of this Contract.



27.2



The State agrees and commits to Contractor, for the duration of this

Contract, to maintain the stability of the legal, tax, financial,

mining, customs and economic conditions of this Contract.



27.3



The Parties agree to cooperate in every possible way in order to

achieve the objectives of this Contract. The State and its subdivisions

shall facilitate the exercise of Contractor's activities by granting it

all decrees, permits, resolutions, licenses and access rights and

making available to it all appropriate existing facilities and services

under the direct or indirect control of the State or Georgian Oil so

that the Parties may derive the greatest benefit from Petroleum

Operations for their own benefit and for the benefit of Georgia.



27.4



If at any time after this Contract has been signed there is a change in

the applicable laws, regulations or other provisions effective within

Georgia which



<PAGE>

61

to a material degree adversely affect the economic position of the

Contractor or any Contractor Party hereunder, the terms and conditions

of this Contract shall be altered so as to restore the Contractor to

the same overall economic position as that which the Contractor would

have been in had this Contract been given full force and effect without

amendment as is stipulated in accordance with Article 27.5

27.5



To the extent that the Contractor's overall economic position is not

restored through mutually agreed changes to the terms and conditions of

this Contract the State shall fully indemnify the Contractor against

such economic effects through payment of financial compensation or

other means acceptable to the Contractor.



27.6



If the Contractor believes that its economic position has been

adversely affected as provided in Articles 27.4 and 27.5 it may give

notice to the State and to Georgian Oil describing how its position has

been so affected and the Parties shall thereafter promptly meet with a

view to reaching agreement on the remedial action to be taken. If

matters have not been resolved within 90 days the matter may be

referred to arbitration by any Party in accordance with the provisions

of Article 30.



27.7



The State hereby represents and warrants to the Contractor as follows:



a)



The State has taken the appropriate steps necessary to authorise

Georgian Oil to execute this Contract on behalf of the State and has

the power to do so;



b)



The signatory to this Contract on behalf of Georgian Oil (in each of

its capacities hereunder) is duly authorised to bind Georgian Oil;



c)



Georgian Oil has been legally vested by the State with the necessary

power to authorise Petroleum Operations in the Contract Area and to

compensate the Contractor by allocating to it a share of the Petroleum

produced, in accordance with the terms of this contract.



d)



The conduct of Petroleum Operations by Georgian Oil and each Contractor

Party as a consortium is recognised in accordance with the laws of



Georgia.

e)



Upon completion of the matters and procedures set out in Article 32

there is no other entity or authority whose approval or authorisation

is required to permit the Contractor to enjoy and enforce its rights

hereunder.



<PAGE>



62

ARTICLE 28

NOTICES AND CONFIDENTIALITY



28.1



Except as otherwise specifically provided, all notices authorised or

required between the Parties by any of the provisions of this Contract,

shall be in writing in Georgian and English and delivered in person or

by registered mail or by courier service or by any electronic means of

transmitting written communications which provides confirmation of

complete transmission, and addressed to such Parties as designated

below. The originating notice given under any provision of this

Contract shall be deemed delivered only when received by the Party to

whom such notice is directed, and the time for such Party to deliver

any notice in response to such originating notice shall run from the

date the originating notice is received. The second or any responsive

notice shall be deemed delivered when received. "Received" for purposes

of this Article with respect to written notice delivered pursuant to

this Contract shall be actual delivery of the notice to the address of

the Party to be notified specified in accordance with this Article.

Each Party shall have the right to change its address at any time

and/or designate that copies of all such notices be directed to another

person at another address, by giving written notice thereof to all

other Parties. The addresses for service of notices on each of the

parties is as follows:JKX



Attention: Company Secretary

Fax :44-1483-242406

The State and Georgian Oil



Attention: General director

Fax:873-682-340-878

28.2



Subject to the provisions of the Contract, the Parties agree that all

information and data acquired or obtained by any Party in respect of

Petroleum Operations shall be considered confidential and shall be kept

confidential and not be disclosed during the term of the Contract to

any person or entity not a Party to this Contract, except:



a)



To an Affiliate, provided such Affiliate maintains confidentiality as

provided herein;



b)



To a governmental agency or other entity when required by the Contract;



<PAGE>

63

c)

To the extent such data and information is required to be furnished in

compliance with any applicable laws or regulations, or pursuant to any



legal proceedings or because of any order of any court binding upon a

Party;

d)



To prospective or actual contractors, consultants and attorneys

employed by any Party where disclosure of such data or information is

essential to such contractor's, consultant's or attorney's work;



e)



To a bona fide prospective transferee of a Party's participating

interest (including an entity with whom a Party or its Affiliates are

conducting bona fide negotiations directed toward a merger,

consolidation or the sale of a majority of its or an Affiliate's

shares);



f)



To a bank or other financial institution to the extent appropriate to a

Party arranging for funding;



g)



To the extent such data and information must be disclosed pursuant to

any rules or requirements of any government or stock exchange having

jurisdiction over such Party, or its Affiliates;



h)



To its respective employees for the purposes of Petroleum Operations,

subject to each Party taking customary precautions to ensure such data

and information is kept confidential;



i)



To the extent that any data or information which, through no fault of a

Party, becomes a part of the public domain.



28.3



Disclosure as pursuant to Article 28.2 (d), (e), and (f) shall not be

made unless prior to such disclosure the disclosing Party has obtained

a written undertaking from the recipient party to keep the data and

information strictly confidential for at least three (3) years and not

to use or disclose the data and information except for the express

purpose for which disclosure is to be made.



ARTICLE 29

TERMINATION AND BREACH

29.1



At any time, if in the opinion of Contractor acting reasonably and

properly, circumstances do not warrant continuation of the Petroleum

Operations, Contractor may, by giving written notice to that effect to

Georgian Oil, relinquish its rights and be relieved of its obligations

pursuant to this Contract, except such rights and obligations as

related to the period prior to such relinquishment. Neither this

Contract nor any of the rights granted hereunder nor the GMJV Licence

may be terminated as a result of any act or omission of GMJV save in

the case where GMJV or GBOC has carried out an act or



<PAGE>

64

omitted to do something at the specific request of the Contractor and

GMJV or GBOC has previously advised the Contractor prior to carrying

out the act or omitting to do something that to carry out that act or

to omit to do the relevant thing may result in this Contract being

terminated.

29.2



Without prejudice to the provisions stipulated in Article 29.1 above,

this Contract may only be terminated by the State in its entirety by

giving ninety (90) days advance written notice thereof to all Parties,

when and only if a material breach of Contract is alleged to have been

committed by Contractor and, provided that conclusive evidence thereof



has been found by prior arbitration as stipulated in Article 30. For

the purposes of this Article, a material breach means a fundamental

breach which, if not cured, is tantamount to the frustration of the

entire Contract either as a result of the unequivocal refusal to

perform contractual obligations or as a result of conduct which has

destroyed the commercial purpose of this Contract.

29.3



If any Work Programme agreed after the Effective Date (including the

Work Programme annexed hereto) has not been implemented within agreed

time scales for reasons other than Force Majeure or delay or other

factors caused directly or indirectly by the State, Georgian Oil or

GBOC then such circumstances may constitute a material breach of

Contract which if determined as such in accordance with the provisions

of Article 29.2 and Article 30 may give grounds for termination of the

Contract.

ARTICLE 30

DISPUTE RESOLUTION



30.1



The Parties hereby consent to submit to the International Centre for

Settlement of Investment Disputes any dispute in relation to or arising

out of this Contract for settlement by arbitration pursuant to the

Convention on the Settlement of Investment Disputes between States and

Nationals of Other States.



30.2



The Parties agree that, for the purposes of Article 25(1) of the

Convention, any dispute in relation to or arising out of this Contract

is a legal dispute arising directly out of any investment.



30.3



For the purposes of Article 25(2)(b) of the Convention, it is agreed

that, although JKX is a national of Cyprus, it is controlled by a

national of the United Kingdom and shall be treated as a national of

that state for the purposes of the Convention.



30.4



A Party need not exhaust administrative or judicial remedies prior to

commencement of arbitrage proceedings.



30.5



Any arbitrage tribunal constituted pursuant to this Contract shall

apply the provisions of this Contract as supplemented and interpreted

by general principles of the laws of Georgia and England as are in

force on the Effective Date.



<PAGE>



65

ARTICLE 31

TEXT



31.1



This Contract shall be executed in three (3) originals in the Georgian

language and three (3) originals in the English language each of which

shall have equal legal force and effect; provided however that in the

case of dispute, conflict or arbitration the English version shall

(after the Georgian version has been reviewed and its provisions

discussed in good faith) be used as the authentic version to determine

the rights and obligations of the Parties which shall be determined by

reference solely to the English version of this Contract.



ARTICLE 32

APPROVAL AND EFFECTIVE DATE

32.1



This Contract shall enter into force and effect in its entirety on the



Effective Date. The provisions of this Article 32 shall be effective as

at the date of execution of this Contract by all the Parties hereto and

shall bind the Parties with effect from that date.

32.2



Following adoption of any Georgian law on Production Sharing, this

Contract will be amended to comply with the provisions of that law

provided that the economic and fiscal position of the Contractor under

this Contract shall not be adversely affected.



32.3



The State shall notify the Contractor within 5 days of the steps

necessary to give this Contract full force of law in accordance with

this Article 32 being satisfied. The Contractor shall thereafter have a

period of thirty (30) days within which to notify the State whether or

not it considers the conditions set out herein to have been satisfied..

If the Contractor has not notified the State that it considers the

conditions satisfied by 31 December 1996 then the Contractor may (but

shall not be obliged to) by written notice to the State terminate this

Contract.



<PAGE>

66

32.4

The State hereby guarantees to each Contractor Party and their

assignees for the duration of this Contract:

a)



all rights granted or to be granted under this Contract by or on behalf

of the State;



b)



all benefits granted or to be granted under this Contract by or on

behalf of the State;



c)



to maintain the economic position of each Contractor Party. That

economic position shall be maintained by indemnity in cash or otherwise

in a way satisfactory to the Contractor;



d)



that all provisions of the Georgian language version of the Contract

accurately convey the same meaning as all the provisions of the English

language version of the Contract;



e)



the stability of the legal, fiscal and economic terms of the Contract

so far as they directly or indirectly affect the Contractor;



f)



that the privatisation, insolvency, liquidation, reorganisation or any

other change in the structure or legal existence of Georgian Oil shall

not affect the obligations or guarantees of the State hereunder.



This Contract is executed this ______________ day of ________________ 1996 _____

in three (3) versions in the Georgian language and three (3) in the English

language.

FOR THE STATE

BY GEORGIAN OIL IN

ITS CAPACITY AS THE STATE

REPRESENTATIVE



FOR

JKX (NINOTSMINDA) LIMITED



By: /s/ Revaz Tevzadze

___________________________

Revaz Tevzadze



By: /s/ David Robson

___________________________

David Robson



FOR

GEORGIAN OIL



By: /s/ Revaz Tevzadze

___________________________

Revaz Tevzadze



<PAGE>



67

Annex A

Contract Area



<PAGE>



68

ENCLOSURE N2



The title:



Plans, geological profiles and structure maps of the oil

deposits on Ninotsminda, West Rustavi and Manavi license

territories.



Number of pages:



1



Number of tables:



0



Number of schemes: 7

Page 1

1.

Schematic map of the location of joint venture " Georgia MAKOIL"

license area on the territory of the Republic of Georgia. Sc. 1:200 000

Page 2

2.

Geological map and well location scheme of Ninotsminda and Manavi area.

Sc. 1:25 000

Page 3

3.

Structural map of Ninotsminda and Manavi area Middle Eocene Top. Sc.

1:50 000

Page 4

4.

Scheme of the well location on Rustavi area. Sc. 1:25 000

<PAGE>

69

Page 5

5.



Structural map of Rustavi area Middle Eocene Top. Sc. 1:25 000

Page 6



6.



Geological profiles of Ninotsminda and Manavi areas. Sc. 1.25 000

Page 7



7.



Geological profiles of Rustavi area. Sc. 1:25 000

ENCLOSURE N 1



The title:



The space borders and point co-ordinates of the East Georgia,

Ninotsminda, Manavi and West Rustavi license territories.



Number of pages:



1



Number of tables:



0



Number of schemes: 0

The license area is located

located on the territory of

is located on the territory

is located on the territory



in Sararejo and Gardabani Regions. Ninotsminda is

the villages Ninotsminda and Giorgitsminda. Manavi

of villages Manavi and Tokhliauri. The West Rustavi

of the farming area of village Krtsanisi.



Below are given the geographic co-ordinates of the area.

Ninotsminda - Manavi

<TABLE>

<S>

<C>

<C>

Point 1

latitude

41 44'08"N.L.

co-ordinates

longitude

45 14'00"E.L.

Point 2

latitude

41 45'27"N.L.

co-ordinates

longitude

45 23'24"E.L.

Point 3

latitude

41 44'45"N.L.

co-ordinates

longitude

45 29'53"E.L.

Point 4

latitude

41 33'43"N.L.

co-ordinates

longitude

44 58'36"E.L.

Point 5

latitude

41 36'04"N.L.

co-ordinates

longitude

44 56'35"E.L.

Point 6

latitude

41 46'26"N.L.

co-ordinates

longitude

45 20'17"E.L.

Point 7

latitude

41 46'00"N.L.

co-ordinates

longitude

45 13'50"E.L.

</TABLE>

<PAGE>

70

Then in the direction of point 1. The Ninotsminda-Manavi space makes 72.7sq.km.

West Rustavi

<TABLE>

<S>

Point 1

co-ordinates

Point 2

co-ordinates

Point 3

co-ordinates

Point 4

co-ordinates

Point 5

co-ordinates

</TABLE>



<C>

latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude



41

41

41

44

41

44

41

44

41

44



<C>

36'12"N.L.

49'34"E.L.

35'08"N.L.

49'15"E.L.

33'41"N.L.

58'30"E.L.

33'43"N.L.

58'36"E.L.

36'04"N.L.

56'35"E.L.



Then in the direction of point 1. The space of West Rustavi deposits is

35.7sq.km.

ANNEX B

PREVIOUS PRODUCTION

Total Determined Production is 137.35 tons per day. This shall decline at 10%

per year.

The total amount of Determined Production will be transferred to Georgian Oil

after all wells to be transferred have commenced production provided that this

takes place within 6 months of the transfer.

The Determined Production will be phased on a well by well basis for a period of

6 months. Georgian Oil and Contractor shall appoint experts to estimate

Determined Production for each well upon transfer.



Oil in excess of actually Determined Production will be shared in accordance

with article 11.

<PAGE>



71

ANNEX C

ACCOUNTING PROCEDURE

SECTION I

GENERAL PROVISIONS



1.



PURPOSE

The accounting procedures included in this Accounting Procedure

establish a framework of accounting principles as generally accepted

within the international Petroleum industry. The purpose of this

Accounting Procedure is to establish a fair and equitable method for

accounting for Petroleum Operations under the Contract.

The purpose of this Accounting Procedure is not to define Costs and

Expenses for the purposes of determining Cost Recovery Petroleum or to

define what costs will be deductible in the calculation of Profit Tax.

Costs and Expenses are defined in Article 11 of the Contract.

Calculation procedure for the taxable base and Profit Tax is set forth

in Article 17 of the Contract.



2.



DEFINITIONS

For the purpose of this Accounting Procedure the following terms shall

have the following meanings:

"Accounting Procedure" shall mean the accounting principles, practices

and procedures set forth in this Annex C.

"Accepted Accounting Practices" shall mean accounting principles,

practices and procedures generally accepted and recognised in the

international Petroleum industry.

"Cash Accounting Basis" shall mean the basis of accounting which

records the effect of transactions and events on financial conditions

and income when they are settled in cash.

"Material and Equipment" means property, including without limitation

all exploration, appraisal and development facilities together with

supplies and equipment, acquired and held for use in Petroleum

Operations.

"Controllable Material" means all materials, equipment physical assets,

consumables and other stocks and inventory acquired and held for use in

Petroleum Operations. A list of types of such Controllable Material

shall be furnished to Georgian Oil upon request.



The words and phrases defined in the Contract but not defined above

shall have the same meaning in this Accounting Procedure as is given to

them in the Contract.

<PAGE>

72

3.

AUDITS

Georgian Oil shall have the right to inspect and audit Contractor's

books, accounts and records relating to Petroleum Operations under the

Contract for the purpose of verifying that the Costs and Expenses

charged to the Petroleum Operations Account comply with the terms and

conditions of the Contract and this Accounting Procedure. Such books,



accounts and records shall be available in Georgia at all reasonable

times for inspection subject to thirty (30) days notice by duly

authorised representatives of Georgian Oil, including outside

independent auditors. Audits shall be conducted in such a manner as not

to interfere unduly with ongoing operations. All costs associated with

the audit will be the sole responsibility of Georgian Oil. Georgian Oil

shall have a period of twelve (12) months after the end of each

Calendar Year in which to audit and verify costs and expenses, volumes

and value of Petroleum and arithmetic calculations. Any exception by

Georgian Oil shall be communicated to the Contractor with each disputed

charge specified, with supporting rationale, within thirty (30) days

after the completion of the particular audit. If the Contractor and

Georgian Oil are unable to agree on any item or adjustment, the issue

will be resolved in accordance with the dispute resolution procedures

contained in Article 30 of the Contract. All accounts of Petroleum

Operations for any Calendar Year shall conclusively be presumed to be

true and correct twelve (12) months following the end of any such

Calendar Year, unless, within the said twelve (12) month period

Georgian Oil expresses any exception thereto in writing to the

Contractor.

4.



CONTRACTOR'S BOOKS



4.1



The Contractor shall maintain in English in U.S.$ and on a Cash

Accounting Basis books and accounts for Petroleum Operations. Such

books and accounts shall be kept in accordance with Accepted Accounting

Practices and the provisions of the Contract and this Accounting

Procedure ("Petroleum Operations Account"). The documentation required

to support such books and accounts shall be the documentation as

specified in this Accounting Procedure. If no documentation is

specified then the documentation required shall be the documentation

reasonably acceptable and recognised in the international Petroleum

industry.



4.2



All U.S.$ expenditures shall be charged in the amount expended.

Expenditures incurred in currencies other than U.S.$ shall be

translated into U.S.$ as per Article 19.11 of the Contract. A record

shall be kept of the exchange rates used in translating expenditures

incurred in currencies other than U.S.$. Any gain or loss resulting

from the exchange of currencies required for Petroleum Operations and

any fees or other banking charges levied in connection with such

exchange of currencies or any gain or loss resulting from translation

of expenditures and sales revenues in accordance with the provisions of

Article 19.11 shall be included in Costs and Expenses and recoverable

from Cost Recovery Petroleum and credited or charged to the Petroleum

Operations Account.



4.3



shall maintain books and accounts relating to Petroleum

for four (4) years following the end of the Calendar Year to

relate.



Contractor

Operations

which they

<PAGE>

73

5.

PRECEDENCE



OF DOCUMENTS



In the event of any inconsistency or conflict between the provisions of

this Accounting Procedure and the provisions of the Contract treating

the same subject differently, the provisions of the Contract shall

prevail.

6.



REVISION OF ACCOUNTING PROCEDURE

This Accounting Procedure may be revised from time to time by mutual

written agreement Georgian Oil and Contractor.



7.



ARBITRATION PROCEDURES



Any dispute in relation to or arising out of this Accounting Procedure

shall, unless settled by agreement among the Parties be submitted to

arbitration in accordance with Article 30 of the Contract.

8.



OPERATOR



To the extent that Operator is to incur Costs and Expenses on behalf of

Contractor, Contractor will advance Operator funds necessary to settle

such liabilities. Operator shall provide Contractor a projection of

cash expenditures no later than the tenth (10th) day of the month for

funding requirements for the following month. Contractor may then

advance funds to Operator no later than the last business day of the

month preceding the month the funds are being advanced for. Such cash

advances will be deducted from actual expenditures for the month with

any over or short position carried forward to the next month.

<PAGE>

74

SECTION II

COSTS, EXPENSES AND EXPENDITURES

DIRECT CHARGES

The Contractor shall charge the Petroleum Operations Account for all

costs and expenses whether directly or indirectly incurred necessary to

conduct Petroleum Operations under this Contract. For the purposes of

this Accounting Procedure costs and expenses incurred directly or

indirectly by a Contractor Party and its Affiliated Companies prior to

the Effective Date of this Contract shall be deemed to be incurred on

the Effective Date of this Contract. Chargeable costs and expenses

shall include, but not be limited to:

2.1



LICENSES, PERMITS

All costs, if any, attributable to the acquisition, maintenance,

renewal or relinquishment of licenses, permits, contractual and/or

surface rights acquired for Petroleum Operations and any bonuses paid

in accordance with the Contract when paid by Contractor.

Documentation requirements: Copy of contract or payment request

documentation indicating purpose of payment, amount of payment and

recipient of payments.



2.2



SALARIES, WAGES AND RELATED COSTS



2.2.1



Gross salaries and wages in respect of employees of Contractor and its

Affiliates who are in Georgia directly engaged in Petroleum Operations

whether temporarily or permanently assigned.

Documentation requirements: Copy of timesheet indicating project or

area worked during time period.



2.2.2



Gross salaries and wages in respect of employees of Contractor and its

Affiliates outside of Georgia directly engaged in Petroleum Operations

whether temporarily or permanently assigned, and not otherwise covered

in Section 2.7.2.

Documentation Requirements: Copy of timesheet indicating project or

area worked during time period.



2.2.3



Salaries and wages, including everything constituting the employees'

total compensation. To the extent not included in salaries and wages,

the Petroleum Operations Account shall also be charged with the cost to

Contractor and its Affiliates of payroll taxes, holiday, vacation,

sickness, disability benefits, living and housing allowances, travel

time, bonuses, and other similar allowances in accordance with

Contractor and its Affiliates usual practice, as well as costs to



Contractor and its Affiliates for employee benefits, including but not

limited to employee group life insurance, group medical insurance,

<PAGE>

75

hospitalisation, retirement, and other benefit plans of a like nature

applicable to labour costs of Contractor and its Affiliates.

Documentation Requirements: Copy of records indicating Contractor or

its Affiliates payment to or on behalf of employee. These records will

be made available only during the conduct of an audit in accordance

with the provisions of paragraph 3 of Section I of this Accounting

Procedure.

2.2.4



Expenditures or contributions made pursuant to assessments imposed by

the State or any Governmental authority which are applicable to the

Contractor and its Affiliates costs of salaries and wages under

paragraph 2.2 of this section II of this Accounting Procedure including

but not limited to payroll taxes and social insurance contributions.

Documentation Requirements: Copy of records indicating Contractor or

its Affiliates payment to the State or Governmental authority on behalf

of employee.



2.2.5



Expenses ((including related travel costs) which are considered

reasonable in accordance with Contractor's and its Affiliates usual

practice)of those employees whose salaries and wages are chargeable to

the Petroleum Operations Account under paragraphs 2.2.1 and 2.2.2 of

this Section II and for which expenses the employees are reimbursed

under the usual practice of Contractor and its Affiliates.

Documentation Requirements: Copy of expense reimbursement request

documents.



2.2.6



Gross salaries and wages, pensions, benefits and other related costs

(together with attributable office costs) of those employees of the

Contractor and its Affiliates not solely engaged in the conduct of

Petroleum Operations shall be apportioned to the Petroleum Operations

and the Contractor's other activities based on the percentage time

worked on the Petroleum Operations or other activities multiplied by

the total cost of the employee for the time period.

Documentation Requirements: Copy of timesheet indicating project or

area worked during period.



2.3



EMPLOYEE RELOCATION COSTS



2.3.1



Except as provided in Section 2.3.3, Contractor or its Affiliates cost

of employees' relocation to or from the Contract Area vicinity or

location where the employees will reside or work, whether permanently

or temporarily assigned to the Petroleum Operations. If such employee

works on other activities of the Contractor in addition to Petroleum

Operations, such relocation costs shall be charged to the other

activities based on the percentage time expected to be worked on other

activities multiplied by the employee relocation costs.



Documentation Requirements: Copy of expense payment requests to or on

behalf of employee.

<PAGE>

76

2.3.2

Such relocation costs shall include transportation of employees and

their family, personal and household effects of the employee and their

family, transit expenses, and all other related costs in accordance

with Contractor and its Affiliates usual practice.

Documentation Requirements: Copy of payment requests to or on behalf of

employee.



2.3.3



Relocation costs from the vicinity of the Contract Area to another

location classified as a foreign location by Contractor shall not be

chargeable to the Petroleum Operations Account unless such foreign

location is the point of origin of the employee.

Documentation Requirements: Copy of payment requests to or on behalf of

employee.



2.4



OFFICES, CAMPS AND MISCELLANEOUS FACILITIES

All costs of maintaining any offices, sub-offices, camps warehouses,

housing, and other facilities of the Contractor and/or Affiliates

directly serving the Petroleum Operations either within Georgia or

elsewhere. If such facilities serve operations in addition to the

Petroleum Operations the costs shall be allocated to the properties

served on an equitable basis approved by the Parties.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment and date goods and/or services were received.



2.5



MATERIAL AND EQUIPMENT

Cost, net of any discounts taken by contract, of Material and Equipment

purchased or furnished by Contractor whether directly or indirectly.

Such costs shall include, but are not limited to, export brokers' fees,

taxes, transportation charges, loading, unloading fees, export and

import duties and licence fees associated with the procurement of

Material and Equipment and in-transit losses, if any, not covered by

insurance. So far as it is reasonably practical and consistent with

efficient and economical operation, such Material and Equipment shall

be purchased for, and the cost thereof charged to the Petroleum

Operations Account.



Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment and date goods and/or services were received.

<PAGE>

77

2.6

EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF CONTRACTOR AND AFFILIATES

Charges for exclusively owned equipment, facilities and utilities of

Contractor and its Affiliates at costs or rates not to exceed the

average cost or rates of non-affiliated Third Parties then prevailing

for Contractor for like equipment, facilities, and utilities for use.

Exclusively owned equipment leased to the Petroleum Operations lost or

damaged beyond repair may be charged at replacement cost plus

transportation costs to deliver like equipment to the location where

the like equipment will be used.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment and date goods and/or services were received. Additionally,

documentation as to how the average commercial cost or rates were

determined are required.

2.7



SERVICES



2.7.1



The cost of services provided by Third Parties, Contractor and

Affiliates of Contractor other than those services covered by Section

2.7.2. Such charges for services by Contractor and Contractor's

Affiliates shall not exceed those currently prevailing if performed by

Third Parties, considering quality and availability of services.



Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payments,

recipient of payment and date services were performed.

2.7.2



The cost of services performed by Contractor and Contractor's

Affiliates technical and professional staffs not located within

Georgia.

Documentation Requirements: Copy of timesheet indicating project or

area worked during period.



The charges for such services shall not exceed those currently

prevailing if performed by Third Parties, considering the quality and

availability of such services.

<PAGE>

78

Examples of such services include, but are not limited to, the

following:

Geologic studies and interpretation

Seismic data processing

Well log analysis, correlation and interpretation

Laboratory services

Well site geology

Project engineering

Source rock analysis

Petrophysical analysis

Geochemical analysis

Drilling supervision

Development evaluation

Accounting and professional services

Other data processing

Costs shall include salaries and wages of such technical and

professional personnel, lost time, governmental assessments, employee

benefits, and expenses which are considered reasonable in accordance

with Contractor and its Affiliates usual practice. Costs shall also

include all support costs necessary for such technical and professional

personnel to perform such services, such as, but not limited to, rent,

utilities, administration, support staff, drafting, telephone and other

communications expenses, computer support, supplies, and depreciation.

2.8



INSURANCE

Premiums paid for insurance required by law or the Contract to be

carried for the benefit of the Petroleum Operations. If the insurance

is for the benefit of operations in addition to the Petroleum

Operations the premiums paid shall be allocated to the operations

covered on an equitable basis.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment and period of coverage.



2.9



DAMAGES AND LOSSES TO PROPERTY



2.9.1



All costs or expenditures necessary to replace or repair any damages,

losses incurred by fire, flood, storm, theft, accident, or any other

cause. Operator shall maintain written documentation of damages or

losses.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment.



2.9.2



Expenditures incurred in the settlement of all losses, claims, damages,

judgements, and other expenses for the account of Petroleum Operations.

<PAGE>

79

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payment, recipient

of payment.

2.10



LITIGATION AND LEGAL EXPENSES

The costs and expenses of litigation and legal services necessary for

the protection of the Petroleum Operations under this Contract as

follows:



2.10.1



Legal Services necessary or expedient for the protection of the

Petroleum Operations, and all costs and expenses of litigation,

arbitration or other alternative dispute resolution procedure,

including but not limited to lawyers' fees and expenses, court costs,

cost of investigation of procuring evidence, together with all

judgements obtained against the Parties or any of them arising from the

Petroleum Operations.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payments,

recipient of payment and date services were performed.



2.10.2



If the Parties hereunder shall so agree, actions or claims affecting

the Petroleum Operations hereunder may be handled by the legal staff of

a Contractor Party or its Affiliates; and a charge commensurate with

the similar costs of providing and furnishing such services rendered

may be made, but no such charges shall be made until the service and

the charge has been approved by the Parties.

Documentation Requirements: Copy of timesheet indicating project or

area worked during period.



2.11



TAXES AND DUTIES

All State or Governmental Taxes, duties, assessments and charges, of

every kind and nature (except for the Profit Tax determined in

accordance with the provisions of Article 17 of the Contract), assessed

or levied upon or in connection with the Petroleum Operations. If

Contractor or an Affiliate is subject to income or withholding tax as a

result of services performed for Petroleum Operations under the

Contract, its charges for such services may be increased by the amount

of such taxes incurred.



Documentation Requirements: Copy of records indicating Contractor's

payment to governmental authority, purpose of payment, amount of

payment and recipient of payment.

<PAGE>

80

2.12

FINANCE COSTS

All Finance Costs.

Documentation Requirements: Copy of loan document, amount of principal

and interest paid, any arrangement or other fees and lending

institution.

2.13



SALE AND SALVAGE OF MATERIALS PREVIOUSLY CHARGED TO PETROLEUM

OPERATIONS

Proceeds from the sale or salvage of Material and Equipment previously



charged to Petroleum Operations will be credited to the Petroleum

Operations less any expenses associated with the disposition of the

Material and Equipment. Material and Equipment transferred to

Contractor or an Affiliate will be credited to the Petroleum Operations

at fair market value.

Documentation Requirements: Copy of sales agreement indicating amount

recovered, parties to agreement, date of sale of Material and Equipment

and a description.

2.14



ABANDONMENT AND SITE RESTORATION

Any costs and expenditures in relation to abandonment and site

restoration and any payments in accordance with the funding procedure

described in Article 9.8 of the Contract and Section VII of this

Accounting Procedure shall be charged to the Petroleum Operations

Account.

Documentation Requirements: Copy of invoice, payment request document

indicating purpose of payment, amount of payment, recipient of payment,

if applicable copy of any schedule indicating funding requirements for

abandonment and site restoration.



2.15



ENERGY EXPENSES

All costs of fuel, electricity, heat, water or other energy used for

Petroleum Operations.



Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payments,

recipient of payment.

<PAGE>

81

2.16

COMMUNICATION CHARGES

The costs of acquiring, leasing, installing, operating, repairing and

maintaining communications systems.

Documentation Requirements: Copy of invoice, payment request document

or contract indicating purpose of payment, amount of payments,

recipient of payment.

2.17



COORDINATION COMMITTEE

All costs and expenditures incurred with respect to the activities of

the Coordination Committee pursuant to Article 6 of the Contract.

Documentation Requirements: Copy of invoice, payment request document

indicating purpose of payment, amount of payments, recipient of

payments.



2.18



CREDITS

The Contractor will credit to the Petroleum Operations Account the net

proceeds of the following transactions:



2.18.1



The net proceeds of any successful insurance claim in connection with

Petroleum Operations where the claim is with respect to operations or

assets which were insured and where the insurance premiums with respect

thereto have been charged to the Petroleum Operations Account.



2.18.2



The net proceeds of any successful claim in connection with Petroleum

Operations where the costs and expenditures relating to the subject of

the claim have been charged to the Petroleum Operations Account.



2.19



OTHER EXPENDITURES



Any other costs and expenditures incurred by Contractor and its

Affiliates for the necessary and proper conduct of the Petroleum

Operations in accordance with approved Work Program and Budget and not

covered in this Section II or in Section III, of this Accounting

Procedure.

Documentation Requirements: Documentation reasonably acceptable and

recognised in the international Petroleum industry to support those

costs or expenditures.

<PAGE>

82

SECTION III

INDIRECT CHARGES

3.1



PURPOSE



Contractor shall charge an administration overhead to the Petroleum

Operations Account for the cost of indirect services and related office

costs of Contractor and its Affiliates not otherwise provided in this

Accounting Procedure. For the purposes of this Accounting Procedure

costs and expenses incurred directly or indirectly by a Contractor

Party and its Affiliated Companies prior to the Effective Date of this

Contract shall be deemed to be incurred on the Effective Date of this

Contract. Indirect costs chargeable under this Section III represent

the cost of general administration and support services provided by the

Contractor and its Affiliates outside of Georgia for the indirect

benefit of Petroleum Operations. Such support will include the services

and related office costs of personnel performing administrative, legal,

treasury, tax and employee relations, provision of expertise and other

non-technical functions which can not be specifically identified or

attributed to particular projects. No cost or expenditure included

under Section II of this Accounting Procedure shall be included or

duplicated under this Section III.

<PAGE>

83

3.2

AMOUNT

The charge under Section 3.1 will be charged at rates on total annual

expenditures attributable to Petroleum Operations as follows:

ANNUAL EXPENDITURES

U.S$ 0 to U.S.$10,000,000 of expenditures per Calendar Year = 5%

Excess above U.S.$10,000,000 of expenditures per Calendar Year =3%

3.3



CHANGES

The indirect charges provided for in this Section III may be amended

periodically by mutual agreement between Georgian Oil and Contractor

if, in practice, these charges are found to be insufficient or

excessive.

SECTION IV

INVENTORIES



4.1



PERIODIC INVENTORIES, NOTICE AND REPRESENTATION

At reasonable intervals as agreed with Georgian Oil, inventories shall

be taken by Contractor of all Controllable Material, which shall



include materials and physical assets. Written notice of intention to

take inventory shall be given by Contractor to Georgian Oil; at least

thirty (30) days before any inventory is to begin so that Georgian Oil

may be represented when any inventory is taken. Failure of Georgian Oil

to be represented at an inventory shall bind Georgian Oil to accept the

inventory taken by Contractor who shall in that event furnish Georgian

Oil with a copy thereof.

4.2



RECONCILIATION AND ADJUSTMENT OF INVENTORIES



Reconciliation of inventory shall be made by Contractor and Georgian

Oil and a list of overages and shortages shall be jointly determined by

Contractor and Georgian Oil, and the inventory accordingly adjusted by

Contractor.

<PAGE>

84

SECTION V

FINANCIAL REPORTS

5.1



ACCOUNTS OF PETROLEUM OPERATIONS

Contractor shall submit to Georgian Oil by March 15 following each

Calendar Year accounts for that Calendar Year of the Petroleum

Operations prepared in accordance with this Accounting Procedure.



5.2



STATEMENT FOR RECOVERY OF COSTS AND OF COST RECOVERY PETROLEUM

The Contractor shall, render to Georgian Oil as promptly as practical

but not later than forty five (45) days after the end of the last

Calendar Quarter in which the date of commencement of Commercial

Production first occurs, and not later than forty five (45) days after

the end of each succeeding Calendar Quarter a Calendar Quarter Cost

Recovery report and Calendar Quarter Profit Petroleum division report

showing:

(i)



Recoverable Costs and Expenses carried forward from the

previous Calendar Quarter, if any;



(ii)



Recoverable Costs and Expenses incurred during the Calendar

Quarter;



(iii)



Total recoverable Costs and Expenses for the Calendar Quarter

(sum of (i) plus (ii));



(iv)



Volume and value of Cost Recovery Petroleum taken and

separately disposed of by Contractor for the Calendar Quarter;



(v)



Amount of Costs and Expenses actually recovered for the

Calendar Quarter;



(vi)



Amount of recoverable Costs and Expenses to be carried forward

into the succeeding Calendar Quarters if any;



(vii)



Excess, if any, of the value of Cost Recovery Petroleum taken

and separately disposed of by Contractor over recoverable

Costs and Expenses for the Calendar Quarter;



(viii)



The value and volume of Petroleum produced, used in Petroleum

Operations, available for lifting and actually lifted by

Parties during the Calendar Quarter; and



(ix)



Profit Petroleum allocated to each Contractor Party and

Georgian Oil during the Calendar Quarter.



<PAGE>



85



5.3



PAYMENTS

If such statement shows an amount due to Georgian Oil, payment of that

amount shall be made in U.S.$ by Contractor to Georgian Oil with the

rendition of such statement.

SECTION VI

CONTROL AND MAJOR ACCOUNTS



6.1



COST RECOVERY CONTROL ACCOUNT

Contractor will establish a cost recovery control account and an

offsetting Contract account to control therein the amount of cost

remaining to be recovered, if any, and the amount of cost recovered.



6.2



MAJOR ACCOUNTS

For the purpose of classifying costs, expenses and expenditures for

cost recovery, costs, expenses and expenditures shall be recorded in

major accounts including but not limited to the following:

(a)



Exploration Expenditures



(b)



Development Expenditures, other than Operation Expenses



(c)



Operation Expenses



Any other necessary sub-accounts shall be used. All Costs and Expenses,

regardless of classification, shall be recovered as per Article 11 of

the Contract.

<PAGE>

86

SECTION VII

ABANDONMENT AND SITE RESTORATION

The Development Plan shall also include an abandonment and site

restoration program together with a funding procedure for such program.

All funds collected pursuant to the funding procedure shall be

indicated to site restoration and abandonment and will be placed in a

special interest bearing account by Contractor which shall be held in

the joint names of the State and the Contractor or their respective

nominees, or its designee. Contractor's responsibilities for

environmental degradation, site restoration and well abandonment

obligations, and any other actual contingent and potential activity

associated with the environmental status of the Development Area shall

be limited to the obligation to place the necessary funds in the

approved account. All expenditures incurred in abandonment and site

restoration including but not limited to all payments deposited by

Contractor in the special interest bearing account shall be treated as

Costs and Expenses in accordance with Article 11 and Article 9.8 of the

Contract and chargeable to the Petroleum Operations Account.

<PAGE>

87

ANNEX D

THE GMJV LICENCE

<PAGE>

88

Approved by

The Chairman of Department "Georgian Oil"

R Tevzadze

1994

COMPLEX LICENSE



1.



Series 34 47



2.



Number 5



3.



License type N



4.



Issued: to the joint venture "Georgia-MAKOIL" of the Department

"Georgian Oil", Republic of Georgia and private corporation "MAKOIL

Inc.", USA.



5.



Address: The Republic of Georgia, Tbilisi, Kostava Str.N 65.



6.



Bank Requisites:



7.



Basic activity: exploration and research of oil and gas deposits,

production, transportation and oil marketing on the international

market.



8.



Aim of activity: The license is issued to "Georgia MAKOIL" for

increasing oil production on the territories of Ninotsminda, Manavi and

West Rustavi, by means of introducing new drilling and producing

technologies.



9.



The license area is located on the territory of Sagarejo and Gardabani

Regions.



10.



The borders and coordinates of the license area are given in Enclosure

N1.



11.



Plans, geological profiles and structural maps are given in Enclosure

N2.



12.



The territory to be used is determined by Department "Georgian Oil"

after outlining oil and gas deposits on the initiative of "Georgia

MAKOIL".



13.



The two stage duration of the license of the joint venture "Georgia

MAKOIL" is determined by a 25 (twenty five) year term. The purpose of

the first three year (3 year) stage is to carry out research on the

production capacity of the license territory and the agreement sides to

make necessary changes and corrections to the Charter. The second stage

is considered for the following 22 (twenty two) years. If any of the

first three (3) wells drilled by the joint venture proves to be oil

producing, then the joint venture has the right to drill such a number

of wells within the license area, that it considers necessary.



14.



If in none of the first three drilled wells is found oil, the joint

venture ceases its activity and it is liquidated according to the

established norm.



15.



The license entitles the joint venture "Georgia MAKOIL" to carry out

geological and geophysical researches, exploration, appraisal and

exploitation drilling, oil and gas production, transportation, primary

processing and export.



16.



The Enclosures are consisting part of this license:



000070546, MPO 436.



N1



Space borders and coordinates of Ninotsminda, West Rustavi

deposits and Manavi Territory.



N2



Plans, geological profiles and structural maps of the license

area.



N3



The right to use the territory connected with mineral usage.



N4



The condition of the explored reserves by 01.01.94.



N5



Feasibility Study of the exploration research and development

works on the license area.



N6



The payment of the license duty.



N7



Terms of mineral usage tax.



N8



The amount and agreed share distribution in time period of the

expected produced oil on the license territory.



N9



The Agreement on confidentiality of the new geological and

other information, received during the mineral usage.



<PAGE>

N10



89

The obligatory terms on mineral and environmental protection

conclusion from the Ministry of Environmental Protection.



N11



Work Safety conclusion from the Department of Technical

Supervision in the Republican Economy.



N12



The report of the Department "Georgian Oil" scientific

technical committee session.



N13



Terms of continuation and termination of the license validity.



N14



The obligation of the joint venture "Georgia-MAKOIL".



N15



Control of the license terms on mineral usage.



N16



Report of the License Commission session.



N17



Normative technical documentation of oil.



N18



Expert conclusion



Nl9



Terms of the joint venture accounting to the Budget of the

Republic of Georgia.



N20



The list of additional documents, presented by the joint

venture "Georgia MAKOIL".



N21



On Concessions in Mineral Usage Issues.



N22



On leased equipment



N23



On additional normative acts of legislation.



The Authorised Representative of the

Specialized Office for Licensing and

Informatics of Department "Georgian Oil"



I. Tavdumadze

- ----------------------<PAGE>

90

ENCLOSURE N1



The Authorized Representative of

the Joint Venture "Georgia

MAKOIL



Eugene Kozlowski

----------------



The title: The space borders and point coordinates of the East Georgia

Ninotsminda, Manavi and West Rustavi license territories.

Number of pages: 1

Number of Tables: 0



Number of Schemes: 0

The license area is located

located on the territory of

is located on the territory

is located on the territory



in Sagarejo and Gardabani Regions. Ninotsminda is

the villages Ninotsminda and Giorgitsminda. Manavi

of villages Manavi and Tokhliauri. The West Rustavi

of the farming area of village Krtsanisi.



Below are given the geographic coordinates of the area:

Ninotsminda - Manavi

Point 1

Co-ordinates

Point 2

Co-ordinates

Point 3

Co-ordinates

Point 4

Co-ordinates

Point 5

Co-ordinates

Point 6

Co-ordinates

Point 7

Co-ordinates



latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude

latitude

longitude



41

45

41

45

41

45

41

44

41

44

41

45

41

45



44'08" N.L.

14'00" E.L.

45'27"N.L.

23'24" E.L.

44'45"N.L.

29'53" E.L.

33'43"N.L.

58'36" E.L.

36'04" N.L.

56'35" E.L.

46'26" N.L.

20'17" E.L.

46'00" N.L.

13'50"E.L.



Then in the direction of point 1. The Ninotsminda - Manavi space makes 72.7

sq.km.

West Rustavi

Point 1



latitude



41 36'12" N.L.



coordinates



longitude



44 49'34" E.L.



Point 2



latitude



41 35'08" N.L.



coordinates



longitude



44 49'15" E.L.



Point 3



latitude



41 33'41 " N.L.



coordinates



longitude



44 58'30" E.L.



Point 4



latitude



41 33'43"N.L.



coordinates



longitude



44 58'36"E.L.



Point 5



latitude



41 36'04" N.L.



coordinates



longitude



44 56'35" E.L.



Then in the direction of point 1. The space of West Rustavi deposit is 35.7

sq.km.

<PAGE>

91

ENCLOSURE N2

The title: Plans, geological profiles and structure maps of the oil deposits on

Ninotsminda, West Rustavi and Manavi license territories.

Number of Pages: 1

Number of Tables: 0

Number of Schemes: 7

Page 1



1. Schematic map of the location of joint venture "Georgia MAKOIL" license area

on the territory of the Republic of Georgia. Sc. 1:200 000

Page 2

2. Geological map and well location scheme of Ninotsminda and Manavi area. Sc.

1:25 000

Page 3

3. Structural map of Ninotsminda and Manavi area Middle Eocene Top.Sc. 1:50 000.

Page 4

4. Scheme of the well location on Rustavi area. Sc. 1 :25 000

Page 5

5. Structural map of Rustavi area Middle Eocene Top. Sc. 1:25 000.

Page 6

6. Geological profiles of Ninotsminda and Manavi areas. Sc. 1:25 000

Page 7

6. Geological profiles of Rustavi area. Sc. 1:25 000

ENCLOSURE N3

The title: The question of the license area land territory.

Number of Pages: 1

Number of Tables: 0

Number of Schemes: 0

On Ninotsminda and Rustavi oil deposits the mining territory will be

outlined after space lining the oil deposits. This is why, before

passing the Law on Land Issues, the activity on oil deposits and

exploration territory must be determined in accordance with the current

Land Legislation, by creating corresponding agreement in each separate

case.

<PAGE>

92

ENCLOSURE N4

The title: The condition of the oil reserves, explored on the East Georgia

Ninotsminda and West Rustavi territories by 01.01 94.

Number of Pages: 1

Number of Tables: 1

Number of Schemes: 0

Ninotsminda

C category reserves 23,283/6,333 thousand tons.

Recoverable

a) Oil area space thousand sq.m 1 200

b) Oil bearing capacity average m 319

c) Open porosity 0 012

d) Oil content 0.8



e) Oil recovery factor 0 2772

f) Re-counting factor 0.071

Oil characteristics

a) Density gr./sq.cm - 0.823

b) Viscosity in formation condition m pasc - 0.415

c) Sulphur content % - 0.24

d) Paraffin content % - 4.89

e) Resin and asphaltene content % - 8.69

f) Temperature in formation condition C (degree) - 95

West Rustavi

C category reserves 7.480.9 thousand tons Recoverable 2,221.9

a) Oil area space thousand sq.m 8 880

b) Oil bearing capacity total effective m 159/159

c) open porosity - 0:01

d) Oil content - 0.8

e) Oil recovery factor % - 0.3

f) Re-counting factor - 0.05

Oil characteristics

a) Density gr./sq.sm - 0 845

b) Viscosity in formation condition m pasc - 0.49

c) Sulphur content % - 0.14

d) Paraffin content % - 3.0

e) Resin and asphaltene content % - 11.08

f) Temperature in formation condition C - 93

<PAGE>

93

ENCLOSURE N5

The title: Joint venture "Georgia MAKOIL": Feasibility Study of exploration

research and development operations on the East Georgia ` Ninotsminda, West

Rustavi and Manavi license territories.

Number of Pages: 9

Number of Tables: 1

Number of Schemes: 1

Geological - Technological Study

1.



GEOLOGICAL APPRAISAL OF THE EAST GEORGIA NINOTSMINDA, WEST RUSTAVI

DEPOSITS AND MANAVI RESEARCH TERRITORY.



For the purpose of increasing oil production on Ninotsminda and Rustavi

deposits and for the purpose of increasing the oil flowing of the

formations, in the Department "Georgian Oil" was solved to use the

method of horizontal drilling. The mentioned reservoirs are located

within the oil region near Tbilisi.

Ninotsminda and Manavi are the separate domes of the eastern part of

Samgori anticline zone. Rustavi is an indefinite structure, located

South from Samgori structure.

Because of the difficult geological conditions for drilling and

development, it was resolved, that this problem will be solved by

participation of foreign f~nns.

This observation is a short geological evaluation of the mentioned

region, and it is based on published and unpublished data and on the

discussions, held in November of 1990 during the visit of the

representatives of the Ministry.

2.



GEOLOGICAL LOCATION

The deposit to be discussed is located in the Eastern part of Georgia,

20 - 30 km to the East from the capital of Georgia, Tbilisi. Georgia is

located in the Caucasian Mountains, that was formed at the same time as

the Alps. The Caucasian region consists of two parallel north - west

and south - east directed mountain ridges that are separated by Mtkvari

- Kolkheti depression. Georgia inhabits the above depression and slopes

of the surrounding folding zones.

Stratigraphically, the Tbilisi region mainly consists of formations,

that belong to the Alpine Orogenese (it is located in the IX block of

the Georgian regional division and includes the formations from the

Upper Cretaceous to the Quarterly period).



- -



Quarterly - 100m, conglomerates



- -



Miocene - 2 500 - 3 500m, conglomerate, sandstone, clay.



- -



Oligocene - 1 000 - 1 500m, clay, sandstone.



- -



Upper Eocene - 1 500m, terrigenic flysch



- -



Middle Eocene - 800m igneous formations



- -



Low Eocene - 1 800b - 2 200m flysch, sandstone, clay



- -



Palaeocene - 100 - 500m limestone, calcareous clay, marl



- Upper Cretaceous - 1 000m limestone, calcareous clay, igneous formations

<PAGE>

94

Tbilisi surrounding region oil deposits are located within the Georgian

between mountain depression, that is the part of the South Caspian oil

- gas region. The between mountain depression is bordered by Dzirula

massive. It is faced by under-thrusting, that separates it from Greater

Caucuses in the North and from the folding zones of the Lesser Caucuses

in the South.

Achara-Trialeti folding zone is located in the north-west part of the

Lesser Caucasus. A number of folding are singled out here, the axis of

which is sinking from the West to the East. Separate anticline domes

are developed on the folding zone depression within the between

mountain depression. In the Paleogene formations they contain oil and

gas industrial accumulations. In this section the folding are usually

asymmetric, mostly on the sliding south wing.



3.



CHARACTERISTICS OF THE RESERVOIR

The main reservoirs of the deposits in the region of our interest are

made of igneous formations. These layers were set on the underwater

field of an igneous island. Such formations are observed on Japanese

and Indonesian islands. The formations of this type do not have well

developed porosity and oil existence in such reservoirs is determined

by technological disorders in the fractures. The formations of the

mentioned reservoir are partially similar to the volcanic formations of

Nevada Trap Spring Field reservoir.



4.



DESCRIPTION OF THE DEPOSIT

Data on some deposits of the folding system is given in table N1.

Samgori, Patardzenli, Ninotsminda and Manavi are separate anticlines of

the same folding zone. Ninotsminda was considered a part of Samgori

Patardzeuli deposit, but some seismic and industrial materials show,

that this is a separate fold. Manavi is an anticline of the maintained

folding zone, which is located in the barest East and it has not been

developed.

Rustavi is located in the South of Samgori Patardzeuli anticline zone

and similar to the Samgori Patardzeuli, Middle Eocene igneous

formations are productive here.

Though Samgori-Patardzeuli deposit is not included in the proposed

licensed territory, the geological and industrial characteristics are

known better, but it is assumed, that this deposit is analogous with

the proposed one.



5.



SURFACE CONDITIONS

The relief is mountainous. It is higher in the north-east. It is

covered by deep ravines and is used for irrigation.



Three structural levels of the region are characterized as oil and gas

bearing. Close to the surface is observed small oil accumulation in the

Upper Eocene, the following is the main oil deposit in the middle

Eocene, deeper is the gas accumulation in the Low Eocene.

<PAGE>

95

6.

CHARACTERISATION OF THE RESERVOIR

The main reservoir is the Middle Eocene igneous formations, that are

characterized by fracture reservoirs. Reservoir characteristics include

definite variety, in the depth and in the width. According to the

industrial geophysical information their separation is quite

complicated. The industrial materials of the deposit show, that

effective porosity and permeability is basically connected with

fractures. Surface observations show, that the fracturing is controlled

in the partition of the anticlines.

7.



INDUSTRIAL DATA

Besides the Middle Eocene reservoir, on Ninotsminda territory north

wing in the Upper Eocene sandstone is opened an oil deposit in well

N59. Oil showing is observed in wells N1, 35 36 on Samgori-Ninotsminda

structure.



7.1



The primarily discovered wells were completed in 1974. The production

made 2 200 bbl oil. From the discovery was produced 96 mln Bbl. The

wells of as high as of low rate are met on the deposit. The deposit

regime is water resisting. The water rate is low, but along with the

decrease of oil rate it increases obviously. It is assumed, that there

is strong of water-resistance, but the technique, used before did not



include pressure maintaining operations. As the oil deposit regime is

water resisting, Ninotsminda unproductive wells started producing oil

later.

7.2



Reserves with the primary appraisal - 580 mln bbl, 50% to be produced

290 mln bbl, note: 35% to be produced 203 mln bbl. This evaluation,

made in Grozno Oil Scientific Research Institute was not accepted by

"Georgian Oil". In "Georgian Oil" they consider 30-45 mln bbl is left

in the deposit.

<PAGE>

96

7.3

NINOTSMINDA

Surface conditions: steep forestry hills in the east, less steep in the

west.

Production: The deposit is not completely developed. From the well N4

is produced 470 thousand bbl oil without water from 9250-9380 feet, for

two years. Despite the fact that Ninotsminda borders Samgori deposit,

it is a separated industrial unit. Existence of a fault with

insignificant migration is assumed between

Samgori-Patardzeuli-Ninotsminda.

Reserves: Confirmation of Ninotsminda reserves evaluation has not been

made. According to the "Saknavtobi" figures, oil reserves for producing

by 1992, C category reach 6 333 thousand tons. The figure given for

Samgori cannot be spread on Ninotsminda deposit. Ninotsminda area is

being under the early stage of development. Deposit sizes, especially

eastern part of the anticline have not been researched at all. The

Upper Eocene oil deposit of the North wing is not researched either.

7.4



MANAVI

In the East of Ninotsminda area several wells are drilled, they are

several miles away from the wells, functioning on this territory. The

wells are not drilled to the project depth, but oil bearing of the

Middle Eocene formations is assumed. On Ninotsminda territory

productive Paleogene formations are located under the thrusting. It is

not excluded, that Manavi territory has analogous structure. The

seismic study of this region is very poor and structural composition

needs to be cleared out. The wells are intended to be drilled on Manavi

Crest, or the latter might be a farest depression of Ninotsminda

folding. At the very least, the perspective of Manavi territory is

doubtful. This was to be solved by well N10, that was being drilled,

but this problem was not solved, as it is temporarily conserved because

of the electricity shortage.



7.5



RUSTAVI

This deposit is located in the South from the folding zone of Teleti

deposit and is separated from it by a underthrusting type faulting.

Despite this, reservoir and production features are more similar to the

Teleti deposit (table 1). Rustavi is being under observation. The

structure can be determined on the basis of seismic materials of the

Trust "Saknavtobgeopizika". The quality of the materials is good.

Potential of development: The development possibilities of Ninotsminda

deposit are good. Separate parts of this region can be qualified as

researched and undeveloped. We do not have information on the

undeveloped reserves, but the reserves of Manavi region and Ninotsminda

undeveloped part are about 30% more than of Samgori complex central and

west parts. In case of equivalence of other geological parameters,

Ninotsminda Manavi must have at least 75 mln bbl oil reserves, as the

borders of the production region are not defined yet and this figure

might increase. Rustavi deposit is studied more completely than

Ninotsminda Manavi, But the potentiality of this deposit is not known



yet. Enter of a strong water flow might not be correct either. The

energy of the layer can be transferred to reservoir fluid, because of

the rock flexibility, that is similar to the condition of Nevada Trap

Spring Field volcanic reservoir. Weaker water flows mean that sudden

increase of the water

<PAGE>

97

profile rather belongs to the erosive deepening along the fracture,

than to water cones. In case of dividing the reservoir into permeable

and unpermeable sections, horizontal drilling will be required, for the

purpose to obtain the undeveloped parts of the deposit. As the

structure is covered by fracture system of priority orientation, by

this method can be increased not only the production from the wells but

the oil outflow on the whole deposit. For determining the potential of

the deposit, it is necessary to carry out detailed analysis of the

reservoir and of the drilling technique.

7.6



RESEARCH CAPACITIES

As the research region is outlined, the research possibilities are

limited. But still there exist definite possibilities on Ninotsminda

and Manavi areas. Seismic conditions in Samgori region basically are

good, but on Ninotsminda territory, where the structure is complicated

because of a fault of under-thrusting character, data are getting

worse. It is possible, that the sizes of Ninotsminda and Manavi folding

are not determined completely, or there exist bordering unidentified

secondary folding.



7.7



HORIZONTAL DRILLING

Development of Ninotsminda-Manavi region by the method of horizontal

drilling is too early, if this is not caused by complex relief. On

well-developed Rustavi area there might be sections where this method

of exploitation can be used. The existing data shows that in the Middle

Eocene profile some facies can be presented by comparably better

permeable layers. It might become possible to drill with vertical

drilling derrick through oil-bearing layers and to determine the

purpose of horizontal drilling from there. The direction of horizontal

drilling must be defined by the analysis of the region fracture

orientation.



7.8



TRANSFER OF THE PRODUCTION

The wells on Ninotsminda and West Rustavi deposits will be connected to

the existing oil-storing points. Oil from Ninotsminda oil-storing point

will be transferred through the oil pipeline to Samgori oil-storing

station. On the basis of a further agreement, the parties can sell oil

to oil factory, at oil international price. As for West Rustavi

deposit, at the beginning the oil will be transferred from here to

Samgori oil-storing station by container trucks.



8.

8.1



DESIGNING OF THE DEPOSIT EXPLORATION AND DEVELOPMENT PROJECT

Execution of deposit exploration and development operations is

considered on two stages. The purpose of the first three year stage is

to research the producing capacity of deposits on the license territory

and to drill two(2) horizontal and one(l) vertical wells. If oil is not

found in any of the first three(3) wells, the joint venture ceases its

activity and will be liquidated according to the established rule.



The second 22(twenty two) year stage of exploration and development

operations is considered in that case, if any of the first three(3)

wells, drilled

<PAGE>

98

by the joint venture proves to be oil producing. Then the joint venture



has the right to drill such a number of wells within the license area,

that it considers necessary. In case of getting positive results while

drilling, there is planned a work program on the license area, that

will enable "Georgia MAKOIL" to start oil production in advance. This

will, in its turn, provide the inflow of income, after they will begin

widening of the activity region on Manavi field, where the location of

collectors is deeper and less studied and finally, widescale research

operations will commence.

The plan on the works execution and accounting is given in table 2,

that is designed annually for the first five years. The key issues of

the table are the following. Each line of the table represents a

definite stage of the plan, and each type of the operation depends on

the positive results of the previous stage. The expenses, given in the

table, along with the drilling expenses, include geological-geophysical

research and other unconsidered expenses.

Both deposits have the capacity to increase annual production

effectively. So the operations will be carried out simultaneously.

According to the 1995 year plan, it is intended to open a deposit on

Manavi area and later in 1996-1998 to carry out exploration, evaluation

and development operations of the new deposit.

THE ECONOMY OF THE PROJECT

8.2



NINOTSMINDA AND WEST RUSTAVI OIL DEPOSITS

The primary processing of the industrial materials, repairing and

deepening of the wells and drilling of new wells are determined in

details, considering the drilling rig supplier on the world market.

Seismic research works, which might be quite expensive in case of

complex relief, especially on Manavi territory, are considered as well.

Despite this, the seismic research will give the possibility to find

prospective drilling area quickly, where the operations will begin.



The parameters for the positive execution of the project are:

-



The amount of oil on each deposit is not less, than 2.2 mln.t.



-



The maximum productivity of each well is not less, than 50 t

per day.



-



The total amount of the investment for the first five years

must not exceed $15 mln USA.



-



The maximal number of exploitation wells, together on the both

deposits - 16, the number of exploration wells - 7.



<PAGE>

99

9.

TECHNIQUE AND TECHNOLOGY OF DRILLING OPERATIONS EXECUTION

9.1



CONSTRUCTION AND TECHNOLOGY OF THE WELLS

The purpose of the joint venture "Georgia MAKOIL" is to increase oil

production in the Republic of Georgia in the possible short period of

time. It is planned to renovate several wells on Ninotsminda and West

Rustavi deposits, that are temporarily under conservation for different

reasons. These wells will have constructions, corresponding with

western technologies. Study of exploitation areas of some wells is

expected, if this is allowed technically and geologically. At the same

time, new exploitation wells will be drilled, in which, along with the

horizontal drilling method other western advanced technology will be

used, in order to provide optimal oil production.



9.2



CIRCULATION SYSTEM



The circulation system will serve the following:



9.3



-



Cleaning of the well bore during the drilling process;



-



Maintaining the pressure of the layer;



-



Maintaining integrity of the well bore;



-



Lubricating of the drilling bit;



-



Keeping the oil and gas layer structure from destruction.



DRILLING OPERATIONS AND LAYOUT OF THE CASING

For underground repairing of the wells "Georgia MAKOIL" will use the

mobile equipment of "Georgian Oil", besides, it will bring from abroad

such equipment, which will ensure running of the heaviest casing and

arrange wellhead according to the accepted standards and norms, with

the double safety factor. This casing will stand against the strength,

that is caused by mining and layer pressures in the maximally long

periods of time. Vertical, directional and horizontal wells will be

drilled.



9.4



TECHNOLOGY OF THE WELL COMPLETION

"Greorgia MAKOIL" plans to drill the wells, in which exploitation of

one or several formations simultaneously will be possible. In case if

along with the Middle Eocene formations the oil will be discovered in

the Upper Eocene formations, in the process of the well completion will

be used special liquids, wire-line perforators on the tubing, on each

well will be fixed a protection reflex valve, that will work

continuously.



9.5



SAFETY OF THE DRILLING OPERATIONS



While carrying out the operations on the wells, the basic purpose is to

ensure safety of the well personnel and regional people, in case of an

emergency situation. This safety will be provided by planning the

double safety factor, while designing the well project. The periodical

control of the equipment and regulations of the technical control are

considered.

<PAGE>

100

9.6

THE WORKING PERSONNEL

The working personnel of the joint venture will be formed basically by

the citizens of the Republic of Georgia The joint venture will

guarantee to improve the qualification of the Georgian personnel up to

the western technologies level, which will enable them to carry out any

kind of operation without the assistance of western experts. The

questions of employing and releasing, payment, concessions and

insurance, work safety, etc., are resolved in accordance with the

Legislation of the Republic of Georgia and are determined in the work

agreement.

9.7 PROTECTION OF HEALTH OF THE PERSONNEL AND WORK SAFETY

The main principle of the activity of joint venture "Georgia MAKOIL" is

the safety of all kinds of operations, the basis of which are the

international requirements on the safety conditions. It intends the

creation of the higher norms for personnel training with the help of

special programs. Healthy condition of each employee is a significant

objective of the joint venture activity. For the purpose of maintaining

good health of the personnel will be held general medical examination.

Later the examination will be made regularly once a year.



10.



PERSONNEL SAFETY ENSURANCE AND ENVIRONMENTAL PROTECTION



10.1

Joint venture "Georgia MAKOIL" has developed two main guidelines, which

will govern their conduct of business. First: Safety and welfare of the

personnel has the primary importance. Environmental protection is the

second significant principle of the "Georgia MAKOIL" activity and it is

considered as important, as safety of the people.

10.2



IDENTIFICATION OF HAZARDS AND RISKS

All oil field operations have the inherent potential for the occurrence

of unplanned (accidental) events. The severity of accidents range from

minor inconvenience, with no injury nor capital/financial losses, to

a catastrophic event with potential loss of life, irreversible damage

to the environment, and millions of dollars in capital/financial

losses. The primary tool for "Georgia MAKOIL" safety management program

is the identification of potential hazards that an operation is exposed

to, joint venture determines the amount of risk each hazard possess. As

the element of risk, associated with each individual hazard increases,

the safety management system creates more comprehensive safety

procedures to minimize the potential for unplanned events.



10.3



SAFETY MEASURES



Safety management is achieved by a systematic approach that addresses

Prevention, Information and Training.

<PAGE>

101

10.4 COMPLIANCE OF SAFETY MEASURES

An important element for executing the safety program is the accorded

work of the personnel. They should be taught the discipline mechanism,

rules of safety measures. Meetings on the safety issues must be held

regularly, on which the methods of the further operation execution and

all the aspects of health and environmental protection will be

discussed. Detailed control of the executed operations will be held

after each conducted work. Each employee will get acquainted with his

own safety responsibilities. Besides, engineering of safety technique

will be considered, and it will ensure training of the personnel and

fulfillment of the safety measures.

10.5 CONTINUOUS MONITORING SYSTEM

"Georgia MAKOIL" will institute Continuous monitoring System that

allows an ongoing check of the effectiveness of its safety management

system. Each work group, or crew will have one person, that will be

responsible for the crew's safe working and will be the first person in

the monitor process. He will be trained to enable him to perform safety

related duties effectively. For the safety of the crew will be also

responsible an inspector, that represents the next level of the

monitoring system. Part of the daily work report for all operations

will be dedicated to the safety aspects of the work program. This is a

prime element of safety management and it provides for daily monitoring

of safety operations. The Safety Officer will have overall

responsibility for safety in operations. He will review operations on a

daily basis to asses the safety of all work. This complex of measures

is successfully used in different regions of the world. It enables to

carry out oil production and other related operations with high level

of productivity, economically and safely.

The keystone of any safety system is prevention. By eliminating hazards

or minimizing the degree of risk an operation may possess the potential

for accident is greatly reduced. A vital element of accident prevention



is the supply of information to the individuals that are performing

operations. When personnel are informed about the procedures,

equipment, and expected results of an operation, they have a greatly

improved understanding of which aspects of their work program may

present hazards. Training of personnel in safe working procedures,

workplace awareness are a proven element of accident prevention.

Employees are trained to use all safety equipment needed for their

positions as well as fire fighting, lifesaving and medical first aid

treatment techniques.

<PAGE>

102

10.6 PERIODIC MONITORING SYSTEM

Joint venture "Georgia MAKOIL" intends to utilize various methods that

are available for monitoring the safety management system on a regular

basis. A weekly safety audit will be conducted on all aspects of

company operations. All sub-contractor will be instructed to submit

weekly safety reports to "Georgia MAKOIL". The enterprise will review

employee records on a regular basis to identify areas of operations and

individuals that have higher accident frequency rates.

10.7



EMERGENCY SYSTEMS AND FACILITIES

Modem technology has developed several types of safety devices that are

able to rapidly stop or isolate various functions of drilling and

producing operations, thereby increasing safety. The most important is

the emergency drilling rig shut off, which can completely stop all

engines of a drilling rig in a matter of seconds. The exploitation well

protective valve is important as well. Such valve will automatically

shut the well and keep the surface equipment from damages. For ensuring

safety "Georgia MAKOIL" intends to bring and install other equipment

that will strengthen the quality of safety. The joint venture will have

first aid station, fire equipment station, emergency breathing

apparatus, etc.



11.



ENVIRONMENTAL PROTECTION



11.1. BASELINE SURVEY

A baseline survey will be conducted on all fields that "Georgia MAKOIL"

will operate on before operations commence. The purpose of these

surveys is to determine and record the current status of pollution,

contamination and environmental awareness. A photographic library is a

component of the survey.

11.2



IDENTIFICATION OF ENVIRONMENTAL HAZARDS AND RISKS



An important part of any of "Georgia MAKOIL" operational planning is an

Environmental Impact Assessment (EIA). EIA includes the analysis of

possible activity and determination of sensitive areas of the

environment. The amount of risk is then quantified for each hazard that

has been identified.

<PAGE>

103

11.3 ENVIRONMENTAL PROTECTION MEASURES

"Georgia MAKOIL" plans an integral program of environmental protection

activities, including:

-



Materials management to prevent adverse inter-reaction with

the environment;



-



Waste avoidance or recycling where possible;



-



International standards training for the company personnel;



-



Emergency response facilities to limit environmental damage.



<PAGE>



Authorization permits for any activities that may cause

pollution.

104

CONTINUOUS MANAGING SYSTEM



A schedule of repeat environmental auditing will be generated in the planning

stage of operations. In "Georgia MAKOIL" authority staff will be a deputy who

will be responsible for observation of the effects of the operations on the

environment and for conducting the auditing measures.

The joint venture intends to have a laboratory supplied with monitoring systems,

equipment and inspection staff. Besides, they will install the equipment that

will minimise the risk of environmental pollution.

A project with detailed description of all measures, that provide maximal

environmental protection will be prepared just before commence of drilling,

development and exploitation operations. These projects will go through the

corresponding expertise in the Ministry for Environmental Protection of the

Republic of Georgia.

<PAGE>

105

ENCLOSURE N6

The payment of the license duty for the joint venture "Georgia MAKOIL"

Number of pages:

1

Number of tables: 0

Number of schemes: 0

6.1 The amount of the license duty is determined by 2 000 (two thousand) USA

dollars.

ENCLOSURE N7

Terms of payment on mineral usage for joint venture "Georgia MAKOIL"

Number of pages:

1

Number of tables: 0

Number of schemes: 0

Note: Resolution N 752 of the Cabinet of Ministers of the Republic of

Georgia, out of 20.10.93.

7.1 The following payment norms are applied for mineral usage:

a) For conducting oil and gas deposit research-exploration works in the

amount of 2% (two percent) of the annual accounting.

b) For detailed exploration of oil and gas deposits in the amount of 4%

(four percent) of the annual accounting.

c) For producing crude oil and gas in the amount of 10% (ten percent)

of the produced production on Ninotsminda and Manavi areas, and 5%

(five percent) on Rustavi area

The payment of the mineral usage tax is commenced from the date of

issuing the license on mineral usage and is effective throughout the

duration of the license. Land usage tax is determined as a part of oil

production price.

7.2 Rule of calculation and payment of the tax

a) "Georgia MAKOIL" presents to the State Payment Inspection a document



in an established form about the estimated (divided by quarters)

payment, not later than within 5 days from getting license on the

operations determined in paragraphs /a/ and /b/. The payment is

transferred to the budget on a monthly basis, not later than the 15th

day of the month that follows the month of estimation in the amount of

1/3 of the quarterly payment.

b) Estimation of the payment on produced oil, determined in paragraph

/c/ is made on a monthly basis, not later than the 15th day of the

month that follows the month of estimation. The payment can be paid by

the part of the produced oil. The payment sum presented by the

calculation is subject to transfer to the budget within 5 days.

<PAGE>

106

Transfer of the payment to the budget is made in accordance with the

Law "On Budget System and Rights" of the Republic of Georgia and with

other Legislation acts.

Besides the Tax on Mineral usage, the company pays the taxes

established by the Legislation of the Republic of Georgia.

ENCLOSURE N8

The title:



The assumed amount and agreed share distribution in time

period of the oil produced by joint venture "Georgia MAKOIL"

on Ninotsminda, West Rustavi and Manavi license territories



Number of pages:



3



Number of tables:



5



Number of schemes: 0

8.1 The assumed amount of produced oil is given in table N3.

Table N3

Assumed annual oil production in bbl.

<TABLE>

<CAPTION>

SPACE

5TH YEAR

- -----------<S>

<C>

Rustavi

1 277 500

Ninotsmind

2 518 500

Manavi

547 500

Total

4 343 500

</TABLE>



1ST YEAR

--------



2ND YEAR

--------



<C>

<C>



3RD YEAR



4TH YEAR



-------<C>



-------<C>



9 000



474 500



839 500



1 095 000



63 000



1 058 500



1 606 000



1 971 000



-



182 500



182 500



365 000



72 000



1 715 500



2 628 000



3 431 000



During the first 5 years the total production will be 12 190 000 bbl.

8.2 SHARE DISTRIBUTION OF THE PRODUCED OIL IN TIME PERIOD, TO DEPARTMENT

"GEORGIAN OIL":

In Tables 4, 4a and 5 is shown the average daily amount of oil from each

deposit, that might be produced on the research territory from the wells in



their current condition. This oil will be considered as "determined production"

of oil. "Determined oil" belongs to "Georgian Oil" and will be sold in

accordance with the agreement between "Georgian Oil" and the joint venture along

with the regular business operations.

NINOTSMINDA (The Upper Eocene) Table N4

<TABLE>

<CAPTION>

YEARS

PRODUCTION IN TONS

----------------<S>

<C>

1990

1991

1992

</TABLE>



DAILY OIL PRODUCTION IN TONS



ANNUAL OIL



----------------------------



----------------



<C>

5.71

7.13

2.1



1 749 5

2 601.2

384.6



Average daily production 5.61

<PAGE>

107

<TABLE>

<CAPTION>

NINOTSMINDA (The Middle Eocene) Table N4a

YEARS

PRODUCTION IN TONS

---------------<S>

<C>

1990

1991

1992

</TABLE>



DAILY OIL PRODUCTION IN TONS



ANNUAL OIL



----------------------------



-----------------



<C>

113.3

153.1

124



41 746.6

56 159.4

43 218.7



Average daily production 130 tons. Decline of the production is 50% per year.

WEST RUSTAVI Table N 5

<TABLE>

<CAPTION>

YEARS

PRODUCTIONS IN TONS

-----------------<S>

<C>

1990

1991

1992

</TABLE>



DAILY OIL PRODUCTION IN TONS



ANNUAL OIL



----------------------------



----------------



<C>

2.05

2.1

1.07



652.8

792.5

341



Average daily production 1.74 tons.

8.3



Total amount of Determined Production is 137.35 tons per day. Note:

Initial Determined Production to be agreed by well testing (at least 1

week of constant flow) - The Initial Determined Production will be

subject to an annual decline commensurate with any decline observed on

the field in future)



8.4



MAKOIL and/or its assignees and Georgian Oil shall be entitled to

recover ("Cost Recovery") all petroleum operation expenditures,

including all capital and operating expenses, overhead costs,

abandonment costs and similar within the license area. Up to the half



of the gross annual production within the license areas, whatever

remains after providing Georgian Oil with daily "Determined

Production", will be used to recover these expenses (hereinafter

referred to as Cost Recovery Oil").

Since Makoil and/or its assignees will provide one hundred percent

(100%) of the funding with Georgian Oil providing services wherever

possible, Makoil and/or its assignees will have priority in lifting

Cost Recovery Oil.

8.5

8.6



Georgian Oil and Makoil and/or its assignees both have the right to

audit each other's records related to recoverable costs.

Such oil is hereinafter referred to as "Cost Recovery Oil".

Such costs and expenses will be recovered from Cost Recovery Oil in the

following manner:

a)



Exploration expenditures



b)



Development expenditures



c)



Drilling costs



d)



To the extent that in any calendar year costs, expenses and

expenditures recoverable per paragraphs a) b) and c) preceding

exceed the value of Cost Recovery Oil for such calendar year,

the excess be carried forward for recovery in the next

succeeding calendar year or years, but in no case after the

termination of the license term.



e)



For the purpose of determining costs, expenses and

expenditures for their recovery the following terms shall

apply:



<PAGE>

108

i)

"Exploration Expenditures" shall mean all costs and expenses for

exploration operations other than Drilling Costs, but including

training and related expenses, and overhead and study costs, also all

taxes that are included in cost recovery under Georgian Law.

ii)



"Development Expenditures" shall mean costs and expenses for

development of all deposits, with the exception of Operating Expenses

and Drilling Costs, also all taxes that are included in cost recovery

under Georgian Law.



iii)



"Operating Expenses" shall mean all costs, expenses expenditures

associated with the production and primary processing of oil, including

training and related expenses, also all taxes that are included in cost

recovery under Georgian Law.



iv.)



Drilling Costs" shall mean expenditures incurred during Exploration and

Development for well drilling and completing operations including, but

not limited to labour, geophysical works, engineering-technical and

other contractors, expenses on various materials, perforation, formation

development, cementing, well-logging and transportation, also all taxes

that are included in cost recovery under Georgian Law.



8.7 SHARING OF OIL PRODUCED

Georgian Oil and Makoil and/or its assignees will share and be entitled

to use separately the oil remaining after deducting Cost Recovery Oil

and Georgian Oil's share of the Determined Production from gross annual

production (hereinafter referred to as "Profit Oil")



Profit Oil will be shared between Department Georgian Oil and Makoil

and/or its assignees in the following manner:

Georgian Oil share



Makoil and/or its assignees share



70% (seventy percent)



30% (thirty percent)



All taxes applied to Makoil share in accordance with the Georgian

legislation will be paid from this share.

<PAGE>

109

8.8

GAS PRODUCTION

If commercial production of gas commences on the license area, the

founders will jointly discuss all economic options for its usage and

will resolve together the best one for Georgian Oil and Makoil and/or

its assignees.

All costs and expenses related to gas production will be recovered in

accordance with the cost recovery rule provided in this Enclosure #8.

8.9



Oil selling prices are determined in accordance with the international

world price for similar crude oil. Oil blend is determined as "Brent

blend" or Libyan crude oil.



8.10



The amount of oil Makoil and/or its assignees export abroad should not

exceed 50% (fifty percent) of the produced oil. If Makoil and/or its

assignees share from Cost Recovery Oil and Profit Oil exceeds 50%

(fifty percent) of produced oil then the Republic of Georgia has right

to purchase the exceed oil on the world market price minus a discount

of 10%.



8.11



Georgian Oil is entitled to purchase 50% (fifty percent) Cost Recovery

Oil from the Joint Venture and all oil that Makoil and/or its assignees

will sell in Georgia The pricing for oil purchased by Georgian Oil is

determined by the world market price minus a discount of 10%; needs to

be conditional on Georgian Oil being able to give the price, if not

Makoil has right to export oil.



8.12



Georgian Oil transfers to the Joint Venture the right of using the

wells located on the license area.



8.13



Oil storing facilities and oil pipe-lines remain in Georgian Oil's

discretion and they can be transferred to the Joint Venture under

rental terms on the basis of an additional agreement.

Georgian Oil agrees to contribute cost of wells and other

facilities,equipment and buildings to the Charter Capital of the Joint

Venture as a share of Georgian Oil.

DISTRIBUTION OF THE JOINT VENTURE INCOME



Note: The Charter of the Georgian-American joint venture "Georgia MAKOIL".

The income got by the joint venture from selling the produced oil and

from any other sources is divided in the following manner:

13.1



Firstly, such income is used to pay to the buyers of the third party,

that provides the joint venture with goods and services, in order to

pay salaries to the joint venture staff, work force and managers, to

purchase insurance guarantees for the joint venture, to pay other trade

obligations for the third persons and to pay other operation expenses

of the joint venture. As far as possible, the joint venture will pay

all such costs and obligations in currency of the Republic of Georgia

or in foreign currency, if it does not gain economic privilege by



paying in hard currency.

<PAGE>

110

13.2

For the purpose of increasing the interest of the participating sides

and stabilizing the income, they are entitled to take out of the

country hard currency sums equivalent to their contribution to the

Charter Fund without any State, customs, tariff, income and other

(including Royalty tax) taxes. "MAKOIL" is granted the priority right

on the primary transfer of the mentioned sum. Concerning the interests

of the joint venture, the terms of transferring might be reconsidered

by the Board of Directors, but by no means should it exceed their (each

separately) contribution to the Charter Fund. During and after the

process of transferring of this sum, taxation of the profit is subject

to all the terms determined by the Law. Besides, the profit in the

enterprise funds, remained after paying taxes and sums determined for

spending by decision of the Board of Directors, is divided between the

parties proportionally to their share contribution to the Charter Fund

(50%-50%).Transfer of sums by "MAKOIL" must be conducted according to

the following scheme:

a) Ten percent (10%) of the Gross income of the joint venture by the

first year of the effectiveness of the license.

b) Fifteen percent (15%) of the Gross income of the joint venture by

the second year of the effectiveness of the license.

c) Twenty percent (20%) of the Gross income of the joint venture by the

third year of the effectiveness of the license.

d) Twenty five percent (25%) of the Gross income of the joint venture

by the forth year of the effectiveness of the license.

e) Thirty percent(30%) of the Gross income of the joint venture by the

fifth year of the effectiveness of the license.

Such payment is estimated for "MAKOIL" at least once in a calendar

year, or more frequently if the majority of the Board of Directors

agrees.

13.3



The profit received from business activity of the joint venture, after

deduction of depreciation costs, is used for founding joint venture and

accounting to the State Budget.

ENCLOSURE N9



The title:



The Agreement on confidentiality of new geological and other

information,received during mineral usage.



Number of pages:



1



Number of tables:



0



Number of schemes: 0



Note: Article 5 of the Charter of the joint venture "Georgia MAKOIL".

At the request of the joint venture, all the parties participating in

the Agreement must provide the joint venture with all geological and

geophysical information, production and other corresponding

information, that might be possessed the participants of and that might

be needed for exploration, preparation and exploitation activities on

the research territory. At the request of any party, the joint venture



provides them with new or additional

<PAGE>

111

geological, geophysical, exploitation or other information about the

Agreement the research territory, received or acquired by it. But, if

any of the parties or the joint venture considers that the received

information must be discussed from commercial or competitive point of

view as confidential, then the received information must be considered

confidential. The party, that gets such information from the other

party must not make it known, share with others or publish, until the

party, which received the information notifies in writing, that the

information is not confidential any more. In connection with newly

received or acquired confidential information, that is sent to any

party by the joint venture, must be added the following:

1.



Such information is considered confidential within 1 (one) year from

receiving it and cannot be in any form, totally or partially announced

by any party or its representatives without a preliminary notification

in writing from the joint venture. None of the parties or their

representatives can use the information in any activity other than the

joint venture operations. Each party agrees, that the confidential

information will be transferred only to its representatives, who need

it for the assistance and development of the joint venture, and are

informed about the confidentiality of this information, and who agreed

in the writing form to preserve its confidentiality. All the

participants of the Agreement agree to provide the joint venture in the

possible shortest time with the information about the personality of

each representative, who can be trusted and shared the confidential

information.



2.



In case, when any Agreement participant party or the person, with who

this party shares the confidential information according to this

Agreement, is obliged under the Law to make known any confidential

information, this party has to notify the joint venture immediately

about this, in order to enable the latter to take protective and other

legal measures. In case, when such protective and other measures were

not taken, the party, that possesses the confidential information,

provides its part required only by the Law and will try its best to get

the confidence on the treatment of such information.



ENCLOSURE N 10

The title:



Conclusion from the Ministry of Environmental Protection

ENCLOSURE N 11



The title:

<PAGE>



Conclusion from the Department of Technical Supervision in

the Republican Economy

112

ENCLOSURE N12



The title:



The Minutes of the Scientific-Technical Committee Session of

Department :Georgian Oil



Number of pages:



2



Number of tables:



0



Number of schemes: 0



THE MINUTES

OF THE SCIENTIFIC-TECHNICAL COMMITTEE SESSION OF DEPARTMENT "GEORGIAN OIL"

The session was attended by:

The Chairman of the Scientific-Technical Committee - G. Beraia

The members of the Scientific-Technical Committee: M. Bakhia, D. Papava, V.

Sakvarelidze, M. Oniashvili, O. Jashi, G. Apaidze, G. Lobzhanidze A.

Bortsvadze, G. Antadze, V. Chkhobadze, G. Chachanidze, I. Tavdumadze

S. Gudushauri.

Invited guest: Eugene S. Kozlowski, Representative of the joint venture "Georgia

MAKOIL".

The speakers: Eugene S. Kozlowski, S. Gudushauri.

At the session was admitted, that the joint venture "Georgia MAKOIL"

was founded on the basis of Department "Georgian Oil" and USA private

Corporation "MAKOIL Inc." (it is registered in accordance with the

legislation of the Republic of Georgia).

The mentioned joint venture requests permission on mineral usage on the

East Georgia oil deposits of Ninotsminda, West Rustavi and Manavi

research territories, for geological research and oil production. This

license area is located in Sagarejo and Gardabani regions, on the

villages Ninotsminda, Giorgitsminda, Manavi, Tokhliauri and Krtsanisi

farming territories.

The joint venture is financed by the USA side, with the Georgian side

providing geological materials and various services. The joint venture

presented the program on geological and geophysical research,

exploration and exploitation drilling, deposit development and oil

production on the license area.

It is stated in the program to drill 23 wells during 5 years of the

first stage of activity, 8 wells out of these on Ninotsminda, 8 - on

Rustavi, and 7 - on Manavi areas; to develop new prospective areas in

the old wells, to establish new drilling and producing technologies, to

increase the oil production to 12 190 000 bbl for 5 years. The measures

determined in the program ensure the complete and scientific study of

the land, environmental protection and work safety.

The Session listened to: The conclusion on the issues, presented by the

joint venture "Georgia MAKOIL", made by the expert S. Gudushauri.

<PAGE>

113

The Session concluded:

1. To issue to the joint venture "Georgia MAKOIL" a complex license on

mineral usage on the East Georgia Ninotsminda and West Rustavi oil

deposits and Manavi research area on a 25 year term.

2. The share distribution of the produced oil to be carried out in

accordance with Article 13 of the Charter of the joint venture.

3. The license to be prepared in accordance with the Resolutions N146,

out of February 18, 1993 and N752, out of October 20, 1993 of the

Cabinet of Ministers of the Republic of Georgia and other Legislation

Statements of the Republic of Georgia.

The Chairman G. Beraia

The Secretary G. Lobzhani-dze

<PAGE>

114

ENCLOSURE N13



The title:



The terms of continuation and termination of the license

validity The program of returning the territory



Number of pages:



4



Number of tables:



0



Number of schemes: 0

Note:Decree N 146, out of February 18, 1993 of the Cabinet of ministers

of the Republic of Georgia, Articles 7.1, 7.4.

The license on geological study, drilling and development works, oil

and gas deposit exploitation on Ninotsminda and West Rustavi oil

deposits and Manavi research territory is issued to the joint venture

"Georgia MAKOIL" on a 25 year term. The term of the license duration is

determined from the date of its registration.

Note: Decree N146, out of February 18, 1993, Article 7.3.

In case of the deposit exploitation for more than 20 years, the term of

the license duration can be extended on the initiative of "Georgia

MAKOIL". In case of expiration of the license duration in terms of

exploitation the deposit, explored by the joint venture for less than

20 (twenty) years, the joint venture is granted the right of priority

claim on continuation of the license validity.

The right on mineral usage is terminated:

Note: Decree N 146, out of February 18, 1993, Article 15.1

a) After expiration of the term, determined by the license

b) In case of "Georgia MAKOIL"'s refusal on mineral usage.

c)



In case of occurring such conditions stated in the license, that

will later exclude further execution of the rights granted for

mineral usage.



Note: Decree N146, out of February 18, 1993, Article 15.2

The right on mineral usage can be terminated, suspended or limited prior to the

determined term, in the following cases:

a) if the lives or the health of the persons working or living within

the area of activity,connected with mineral usage are threatened

directly;

b) if the mineral user violates the essential terms, determined in the

license;

c) if the mineral user regularly violates the rules on mineral usage

and preservation, also on environmental protection, established by the

current Legislation, standards, regulations,norms, including the

enterprise conservation regulation.

d) in case of emergency situation /disaster, military action, etc.

e) if the user does not start mineral using in accordance with terms

and requirements of the program determined in the license;

f) if the joint venture is liquidated.

<PAGE>

115

The termination, suspension or limitation of the right on mineral usage

before the established term according to the paragraphs above, is



conducted by the Specialized Office of Licensing and Information of

Department "Georgian Oil", or the Ministry of Environmental Protection

of the Republic of Georgia, or by the Department for Technical

Supervision in the Republican Economy in each certain case, considering

the terms of license.

ARTICLE 15.3

If the joint venture disagrees with the decision on termination,

suspension or limitation of the mineral usage right, it can apply with

a claim to the Court, or to the upper authorities according to the

administrative regulation.

Note: Decree N146, out of February 18, 1993, Article 15.4

15.4



In case determined by subparagraph 15.2/a/, mineral usage must be

terminated immediately after making decision and the mineral user must

be sent a written notification.



15.5



In case determined by subparagraphs 15.2./b,c,e/, the decision about

termination of the mineral usage right for the mineral user can be made

after three months from violation the nobles by him and after notifying

in writing about not taking measures to liquidate these violations.



15.6



In case determined by subparagraph 15.2 /d/, mineral usage can be

terminated from the moment of occurring conditions, determined in this

paragraph.



15.7



On the initiative of "Georgia MAKOIL", termination of mineral usage

right before the established term can be conducted not later than 6

months from informing by it the Department in writing. The refusal on

the activities does not set it free of charge of presenting accounting

on the executed works, conclusions, generalizations, recommendations.



15.8



In case of terminating mineral usage right before the established term,

liquidation or conservation of the enterprise is conducted in

accordance with the regulations determined by the current Legislation.

The expenses of enterprise liquidation or conservation are for the

joint venture to cover, if mineral usage is terminated as a fault of

the joint venture for the reasons stated in subparagraphs 15.2/a/and

15.2/b/, or on the initiative of the joint venture.



15.9



The expenses of enterprise liquidation and conservation will be covered

by the State, if mineral usage is terminated for the reasons stated in

subparagraph 15.2/a/ with the joint venture being innocent, also for

the terms stated in subparagraph 15.2./d/.



15.10



If the conditions and terms causing suspension and limitation of

mineral usage right are liquidated, this right can be regained

completely, besides, the period during which usage was suspended will

not be included in the entire duration of the license mineral validity.



15.11



In case of long term conservation of the enterprise, or violation of

conservation terms, that might cause the damage of oil deposit, the

Specialized Office for Licensing and information of Department

"Georgian Oil" is entitled to cancel the issued license and pass it to

a new owner in accordance with the established regulation of the

statement.

<PAGE>

116

15.12

The activities determined in the license should not interfere with

other economic activities which are carried out on the license area.

THE TERMS OF ANNOUNCING THE LICENSE INEFFECTIVE

Note: Decree Nl46, out of February 18, 1993, Article 17



17.1



Agreement on the license issuing will be considered ineffective in the

following cases:

a) If "Georgia MAKOIL" refuses to pay the payment, connected with

license issuing;

b) Violation of the Antimonopoly Legislation requirements of the

Republic of Georgia;

c) Establishment of the agreement facts for the purpose of liberalizing

the license terms between the authorities participating in issuing

mineral usage license and the persons interested in purchasing the

license, and for the purpose of reducing taxes.

d) Granting "Georgia MAKOIL" illegal concessions.



e) Existence of the other basis, determined by the Legislation of the

Republic of Georgia The disputes in cases of canceling the agreement

will be discussed by the Court or Arbitration.

<PAGE>

117

ENCLOSURE N14

The title:



The obligations of the joint venture "Georgia MAKOIL"



Number of pages:



2



Number of tables:



0



Number of schemes: 0

Note:

16.1



Decree N146, out of February 18, 1993, Article 16.1,16.2.



The owner of the license is entitled:

a) To use the mineral area within established space for the purposes

determined by the license for geological study of the land, for

carrying out research-exploration works and producing oil, condensate

and gas.

b) To use the results of his activity according to his consideration,

including part of the produced oil, that as determined by the license

terms goes into his possession. To include executors in the works

connected with mineral usage on rental basis. To address the license

issuing Bodies about reconsidering the terms, if the existing reality

is completely different from the situation of the license issuing

period.



16.2



The owner of the license is obliged:

a) To accord the program on the work execution with the Specialized

Office for Licensing and Informatics of Department "Georgian Oil". The

Office is entitled while forming the work program to demand from the

license owner to carry out the additional works, that are connected

with execution of the mineral usage works (carry out radioactive,

stratigraphic, hydro geological, temperature, geophysical research).

b) To observe mineral usage demands of the Republic of Georgia, the

standards of working technology, connected with mineral usage,

according to the established form.



c) To follow the demands of technical projects on work conducting, to

ensure safety of the personnel and population while carrying out land

usage operations; To preserve established standards /norms,

regulations/ on mineral, atmosphere, land, forest, water and other

environmental protection.

d) To put in good shape land territories and other environmental areas,

damaged while carrying out mineral usage works, to ensure their

usefulness for exploitation. To participate in execution of the Social

and Ecological Program in the region of activity.

e) To ensure preservation of the geological and other kind of

documentation, got in the process of geological research of the land.

f) To pay mineral usage and other obligatory taxes in a timely and

correct manner.

g) The owner of the license is obliged to accord any evasion from the

work execution "Georgian Oil". To present annual report about its

activity, which

<PAGE>

118

will include information about the results of the conducted

research-exploration works, about new geological and geophysical data

on the produced oil and on oil and gas reserves remained under the

land, also other information established by the license.

h) The owner of the license has no right on the surface of the land

space stated in the license and on other natural resources, unless it

is determined by the work program. The usage of such resources is

regulated by the Laws and Normative Acts.

i) The owner of the license is obliged to present information about

opened natural resources (radioactive pressures, temperature anomalies,

thermal waters), storage of injurious materials and about discovery of

archaeological areas to the Specialized Office for Licensing and

Informatics of Department "Georgian Oil". It is not permitted to give

this information to juridical and physical persons without the approval

of Department "Georgian Oil".

The joint venture "Georgian MAKOIL" will consider the possibility to

use the scientific -technical potential of "Georgian Oil " and

Scientific Center in carrying out production and project works.

ENCLOSURE N15

The title:



Control of the license terms on mineral usage



Number of pages:



1



Number of tables:



0



Number of schemes: 0

Note: Resolution N146, out of February l8, 1993, Article l8

18.1



The control on mineral usage terms determined in the license is carried

out by the Specialized Office of Licensing and Informatics of the

Department, the Department for Technical Supervision in the Republican

Economy and the Ministry of the Environmental Protection, which are

acting within their competence, in accordance with the regulations

approved by the Cabinet of Ministers of the Republic of Georgia.



18.2



The owner of the License is obliged to present documentation to the

controlling Bodies, provide explanation on the issues under the

competence of the controlling Bodies, ensure monitoring terms.



18.3



The controlling Bodies notify in writing the land owner and the

Specialized Office for Licensing and Informatics of the Department

"Georgian Oil" about the results of audit, evaluation of the mineral

usage terms by the land owner, which includes evaluations concerning

mineral usage obligatory payments and current standards /norms, rules/,

and in case of considering it necessary, they suspend enterprise's

activity and propose to cancel the license on mineral usage.



18.4



The Specialized Office for Licensing and Informatics of the Department

regularly audits separate areas of the joint venture and its entire

activity twice a year. "Georgia MAKOIL" is obliged to provide the

representative of the Specialized Office for Licensing and Informatics

of Department "Georgian Oil" with transportation mean in the period of

auditing.

<PAGE>

119

ENCLOSURE N16

The title:



Issuing of a license on mineral usage to the joint venture

Georgia MAKOIL"



Number of pages:



1



Number of tables:



0



Number of schemes: 0

Report of the License Commission Session 7.06.94

The session was attended by:

1. Beraia Giorgi - Chief Engineer of the Department, Chairman of the Commission

2. Lobzhanidze Ivane - Vice Chairman of the Department in Foreign Economy

affairs

3. Papava Dito - Chief Geologist of the Department, member of the

Commission

4. Oniashvili Mamia - Vice Chairman of the Department in Capital Construction

affairs, member of the Commission.

5. Sakvarelidze Vakhtang - Vice chairman of the Department in Economy affairs,

member of the Commission

6. Mkhatvari Amiran - Chief Mine-surveyor of the department, member of the

Commission

7. Tavdumadze Irakli - Head of the Specialised Office for Licensing and

Informatics of the Department, Secretary of the Commission

<PAGE>

120

Agenda:

Issuing of a license on carrying out geological research, exploration

works and increasing oil production on the East Georgia Ninotsminda and

West Rustavi oil deposits and Manavi research territory.

The license was discussed

Text enclosure

Graphic enclosure

The license is worked out considering the Statement on "Regulation of

Mineral Usage Licensing" and other Legislation Statements.

The Commission approves and agrees with the validity and terms of



issuing license on mineral usage on East Georgia Ninotsminda and West Rustavi

oil deposits and Manavi research territory.

Signature:



<PAGE>



G.

I.

D.

M.

V.

A.

I.



Beraia

Lobzhanidze

Papava

Oniashvili

Sakvarelidze

Mkhatvari

Tavdumadze



121

ENCLOSURE N17



The title:



Normative-technical documentation of oil



Number of pages:



1



Number of tables:



0



Number of schemes: 0

The normative-technical documentation of the supplied oil with its

physical-chemical characteristics must correspond the figures given in the

table:

<TABLE>

<CAPTION>

THE CHARACTERISTICS

-------------------



NORM

----



<S>

<C>

1.

Water contents (%) not more than



1.0



2.



Chloride salts contents (ml.gr/Lt) not more

than



3.



Mechanical mixture contents (%) not more than



0.05



Steam saturation pressure in the deliver

point in oil temperature conditions not more than

</TABLE>

<PAGE>

122

ENCLOSURE N 18



66 650

/500/



4.



1 800



EXPERT CONCLUSION

Number of pages:



2



Number of tables:



0



Number of schemes: 0

Expert conclusion on the materials on the East Georgia Ninotsminda,

West Rustavi oil deposits and Manavi research territory license areas,

presented by "Georgia MAKOIL"

The joint venture "Georgia MAKOIL" presented the data, noting: the

location of the enterprise activity, its operating relations with the

industrial and financial partners, the information on technical and

technological capacities and intellectual level of the enterprise.

The license area is located on Gardabani and Sagarejo regions

territories. It consists of 108,4 sq. km. Two oil deposits are open

here: Ninotsminda and West Rustavi oil deposits are connected with the



Middle Eocene formations, and the assumed gas deposits are connected

with the Lower Eocene and Paleocene-Crateceous formations.

For the last three years the average daily-oil rate of Ninotsminda

deposit ranges from 113 to 153 tons per day, average 130 tons daily. On

West Rustavi deposit the average daily oil rate ranges from 1.07 to

2.05 tons per day, average 1.74 tons daily.

The joint venture is planning to carry out geological and geo-physical

studies, drilling and development work complex, and to increase oil

production on each deposit.

Study of the geological structure of the land, discovery and appraisal

of new oil and gas deposits, study of their location and formation

conformity will be held with the use of geological and geo-physical

methods.

For exploration and exploitation drilling, the joint venture intends to

introduce western advanced technique and technology, namely horizontal

drilling, perforation of the casing with tubing, etc.

The oil production is determined to increase effectively: from 72

000bbl in 1994 to 4 343 500bbl by 1998. For this purpose the existing

production equipment will be renewed, the well net will be extended,

the working methods, technical capacity and training of the personnel

will provide safe working conditions for the population and work force,

also protection of atmosphere, land, forest, water and other

environment.

<PAGE>

123

During the first 5 years it is planned to drill 23 new wells: eight on Ninotsminda territory, eight - on West Rustavi territory, and seven

- on Manavi field. Recultivation of the location will be held after

drilling. Share distribution of the produced oil is profitable for the

Republic of Georgia. 50% of the produced oil will serve the Republic,

and the remained 50% is under the possession of "MAKOIL".

So the information presented by the joint venture "Georgia MAKOIL" is

enough for issuing a 25 year term license on geological research of the

license territory and carrying out production operations from the

deposits, that meets the demands of the Statement "On Relation of

Licensing Mineral Usage" of the resolution N146 of the Cabinet

Ministers of the Republic of Georgia, out of February 18, 1993.

The expert

Chief Geologist of the Research Drilling

Management Office of Department

"Georgian Oil"

S. Gudushauri

<PAGE>



124

ENCLOSURE N 19



Title:



The Terms on Accounting to the Budget of the Republic of

Georgia by the Joint Venture "Georgia MAKOIL"



Number of pages:



2



Number of tables:



0



Number of schemes: 0

According to the taxation legislation, in force at the moment of

issuing the license, "Georgia MAKOIL" should pay to the Budget of the

Republic of Georgia the following taxes:

1) According to the paragraph 6 of Law N368-1 issued by the Republic of



Georgia in 21.12.1993, the Profit tax is determined in the amount of

twenty per cent (20%). The tax is reduced by 10 % for industrial and

constructing enterprises. According to the paragraph 2 of Article 7,

all recently founded enterprises are free from Profit tax during one

year from the moment of their State registration and during the

following 2 years the tax is cut by fifty per cent (50%). According to

Article 2, foreign persons pay the Income tax from dividends,

interests, from income got by their participation in the enterprises

founded by foreign investments, from copy rights, license usage, rent

and other kinds of income, the source of which is on the territory of

the Republic of Georgia, and the amount of this tax is determined by

10%.

2) According to the Law on VAT issued by the Republic of Georgia in

24.12.1993 the amount of the tax is fourteen per cent (14%).

3) According to the enclosure of Law N 377-1 on excises issued by the

Republic of Georgia in 4.12.1993 the amount of excises is changed

according to the types of excised goods.

4) The terms on payment by "Georgia MAKOIL" for usage of natural

resources, in this case for mineral usage is stipulated in enclosure N

7 of the existing license documents.

5) Customs tax for imported goods is two per cent (2%) and eight

percent (8%) for exported goods.

6) The tax on environmental influence is 10 kupons per 1 L. petrol.

7) The Parliament of the Republic of Georgia has not passed the Law on

land tax yet. It will refer to the Company as soon as it is passed.

8)According to Article 3 of the law N 379-1 S of the Republic of

Georgia out of 24.12.93, the tax on enterprise property is one per cent

(1%).

9) According to the law N376-lS of the Republic of Georgia, out of

24.12.93, the tax on physical person's income applies to the income in

the form of money and in the natural form, got during the calendar

year.

10) In accordance with the temporary Regulation on "The State Excise",

approved by the Resolution N286 of the Cabinet of Ministers of the

Republic of Georgia, out of 7.03.92, the payers of the state excise tax

are juridical and physical persons, in the interests of who the special

certified offices transfer documentation and carry out juridical

activities.

<PAGE>

125

11) In accordance with the Law N381-1S "On the Physical Person's

Property Tax", out of December 24, 1993, the payers of the tax on

property are physical persons

12) In accordance with Resolution N 454 of the Cabinet of Ministers of

the Republic of Georgia out of 10.06.93, all the enterprises

functioning on the territory of the Republic of Georgia must sell 20%

of their hard currency income to the State Currency Fund, 2% - to the

currency funds of the local Bodies, 10% to the National Bank.

<PAGE>

126

ENCLOSURE N20

The title:



Necessary Additional Information Presented by joint venture:

"Georgian MAKOIL"



Number of pages:



4



Number of tables:



0



Number of schemes: 0

An application on receiving the mineral usage license on the East

Georgia Ninotsminda and West Rustavi oil deposits and Manavi research

territory.

Topic: Necessary additional information

Number of pages:

Number of tables:



0



1. Name and address of the applicant



Joint venture "Georgia

MAKOIL",, Tbilisi, Kostava

str. N65



2. Bank requisites



Tbilisi, Commercial Bank

"Iberiabank" account N



3. Main activity



Exploration, research and

development of oil and

gas deposits



4. Expected annual expenses:

income from financial activity,

expenses, profit. Possible for 1994,

1995, 1996 years



Annual

1994 1995 1996 -



5. Financial sources:

. a) Private capital

. b) Imported capital, or share holders'

contribution to the joint venture Capital



expenses:

$2 600 thousand

$4 400 thousand

$2 600 thousand



Charter Fund 10(ten)

million dollars

The sum necessary for the

development of the joint

venture will be provided

by the Company "MAKOIL",

in an established terms



a) Main capital /source/



"MAKOIL"



b) Stockpiled product



None



c) Current account



Charter Fund



d) Hard currency account



Charter Fund



e) Payment with debtors



None



f) Losses



None



g) Charter capital



10 (ten) thousand dollars



h) Actual capital in fund



None



i) Depreciation of main capital



None



j) Credits and other loan sources



None



Director:



Book keeper:

<PAGE>

127

20.3 The sphere of activity of the joint venture

"Georgia MAKOIL", a joint venture between "Georgian Oil" and Company "MAKOIL"is

being established with the aim of carrying out profitable long term

entrepreneurial business in the oil and gas industry within Georgia for the

benefit of the joint venture and the people of Georgia. The joint venture will

maximize the use of the basic production assets and the working capital of the

Founders for the fulfillment of its business program. The joint venture's sphere

of activity will be principally as follows:

1. To act as an operating enterprise for the projects and business

activities jointly involving "Georgian Oil" and the Company "MAKOIL".

2. To increase oil and gas production in the Republic of Georgia by

exploration, development, production and operation of oil and gas

fields on the territory of Georgia.

3. Initial activity will be held on the space identified by Ninotsminda

and West Rustavi deposits, and Manavi research territory. At all times

the methods and technology will be designed to protect the environment.

4. The oil and gas related activities of transportation, refining,

processing and the sale, export and import of oil and gas products will

be developed.

5. To develop, within Georgia, expertise in modern oil and gas

exploration and production technology and to develop the work force of

the joint venture by special training.

6. The Republic of Georgia is currently importing large quantities of

gas from Russia and Turkministan. Georgia MAKOIL will have the option

of drilling for gas in their concession areas in order to reduce the

dependency on foreign imported natural gas. If gas in commercial

quantities is found, it will be purchased from Georgia MAKOIL at

current competitive prices.

<PAGE>

128

The joint venture "Georgia MAKOIL"

20.0



An application on receiving the mineral usage license on the East

Georgia Ninotsminda and West Rustavi oil deposits and Manavi research

territory.



Organization:

The joint venture "Georgia MAKOIL"

Board of Directors:

"Georgian Oil" Revaz Tevzadze.

"MAKOIL"

Eugene Kozlowski.

The list of the joint venture "Georgia MAKOIL" members:

1. Eugene Kozlowski (Attached)

2. Gregg S. Kozlowski (Attached)

3. David B. Lapoint (Attached)

4. Ivan Lobzanidze

Ivan Lobzanidze was born in 1948. He graduated from the Georgian

Technical University with speciality of drilling engineer. He has great



experience in exploration of oil and gas deposits and in oil

production. He has been working in the Department since 1970. Currently

he is the Deputy Chairman of "Saknavtobi" Department.



ENCLOSURE N 21

The title: Concessions in payment on mineral usage

Number of

Number of

Number of

<PAGE>

129

The



pages:

2

tables: 0

schemes: 0

Cabinet of Ministers of the Republic of Georgia

DECREE N208

April 12, 1994

Tbilisi



About Concessions in the Mineral Usage Tax

The Cabinet of Ministers of the Republic of Georgia states, that in accordance

with the temporary regulation "About the Mineral Usage Tax" confirmed by Decree

N752 of the Cabinet of Ministers of the Republic of Georgia out of October 20,

1993, the limited amount of the oil and gas production tax is determined by 5-10

percent, and of geological study - 2-4 percent. The said tax belongs to oil and

gas prime cost, i.e. financing and accordingly volume of private source oil and

gas exploration-research works on the Georgian territory will be adequately

reduced, as 65% of prime cost of oil and gas produced in Georgia makes pay-roll

tax for geological-research works.

For the purposes of rapid development of oil and gas industry in the Republic of

Georgia, which is one of the main pre-conditions for stabilization of the

Economy, it is important to extend widely oil and gas exploration operations,

that needs attraction of foreign investments to Georgian oil industry.

Considering the importance of the above issue, the Cabinet of ministers of the

Republic of Georgia resolves:

Release the state specialized enterprises of Department "Georgian Oil", also

joint ventures founded by foreign investments on the territory of the Republic

of Georgia from the tax on oil and gas production, and related

geological-research tax /mineral usage tax/ for five years from the date of

license issuing.

The Prime Minster

of the Republic of Georgia

<PAGE>

130



O. Patsatsia

ENCLOSURE N 22



The title:



On Leased Equipment



Number of pages:



1



Number of tables:



0



Number of schemes: 0

Capital expenses of the joint venture.

It includes: leased foreign equipment; seismic equipment, brought for

carrying out seismic measures; drilling equipment; oil production and

refining equipment, materials for these equipment, which are brought

temporarily, and after operations are carried out, they will be sent

out of the Republic free from customs tax.



ENCLOSURE N 23

The title:



On Additional Normative Acts of Legislation



Number of pages:



1



Number of tables:



0



Number of schemes: 0

If the Republic of Georgia after the date of effectiveness of the

license passes new normative acts of legislation, which creates

difficult economic and financial situation for the joint venture,

"Georgian Oil and " MAKOIL" will take all possible measures to minimize

the economic damage and to protect profitability of the joint venture,

in order to ensure the commercial results determined in the license.

Except, if the normative acts refer to safety equipment and to

environmental protection demands.

<PAGE>

131

THE MINUTES

of the Meeting of a Joint Venture "Georgia MAKOIL"

of Department "Georgian Oil" and a USA Firm "MAKOIL"

May 15, 1992, Tbilisi

The meeting was attended by:

From side of Department "Georgian Oil" - R. Tevzadze, President of the joint

venture "Georgia MAKOIL", I. Papava, I. Lobzhanidze,

N. Tevzadze,

From side of USA firm "MAKOIL" - G. Mchedlishvili, A. Chichinadze- Eugene

Kozlowski, Vice President of "Georgia

MAKOIL", Gregory Kozlowski

Agenda:

1. Election of the General Director;

2. Approval of the staff schedule of administration;

3. The assumed work program (for 3 years).

1. In his speech R. Tevzadze, President of :Georgia MAKOIL" stated,

that the joint venture "Georgia MAKOIL" is registered on February 21,

1993, by the Ministry of Finances of the republic of Georgia. In

accordance with the current Legislation, the joint venture must be

registered in the local Administrative Bodies, this is why it is

important to elect the General Director of the Company, who will carry

out all the formalities for the secondary registration of the joint

venture. R. Tevzadze suggested to elect Mr. I. Lobzhanidze as the

General Director of the Company. He characterized Mr. Lobzhanidze as

an honest person, who has a 20 year working experience in oil

industry.

The Meeting resolved:

1. To elect temporarily I. Lobzhanidze as the General Director of the joint

venture "Georgia MAKOIL".

2. E. Kozlowski, Vice President of the joint Venture "Georgia MAKOIL"

gave a speech, concerning the staff schedule of administration. He

said, that after getting the license, it is necessary to form

Administration, which will include 8 persons:



General Director

General Director

Book-keeper

Administrative Manager

Interpreter

Secretary

Driver

Guard

The Meeting resolved:

<PAGE>

132

I. Lobzhanidze, General Director to find appropriate candidates for the above

administrative personnel.

3. E. Kozlivski gave information on the work program (for the first 3 years).

R. Tevzadze mentioned, that it is necessary to present this work

program to the Cabinet of Ministers of the Republic of Georgia.

The meeting approved the presented program. The graphic of the work

execution is attached to the Minutes.

President

Vice President

Board of Director



R. Tevzadze

E. Kozlowski

Gr. Kozlowski

N. Tevzadze

A. Chichinadze



<PAGE>



133



<PAGE>



134



ANNEX E

PROTOCOL OF MEETING

On concession and Production Sharing Principles

for the purposes of attracting additional

investment to the Georgian oil industry

15 February 1996

between

D. Zubitashvili, President of fuel and energy corporation of Georgia,

R. Tevzadze, Chief of department "Georgian Oil"

and

D.Robson, President of JKX Oil & Gas

1.For the rapid development of the Georgian economy it is most important that

Georgia can be self sufficient in its energy requirements. Georgia wishes to

attract further investment by western oil companies in the Georgian oil industry

including additional investment by the JKX Oil & Gas Group. It is recognized

that one of the main conditions of such investment is the introduction of

production sharing legislation which is widely used throughout the international

oil industry.

2 JKX and Georgian Oil have already presented a draft Production Sharing

Contract to the relevant governmental Ministries in Georgia. In a Presidential

Decree N78, dated 4 February 1996, Georgian Ministry of Justice, fuel and energy

corporation of Georgia and department "Georgian Oil" were instructed to prepare

production sharing legislation within 3 months. Georgian Oil was also authorized

to enter into Production Sharing Contracts with JKX before the proposed

production sharing legislation is introduced provided that the production

sharing contracts are amended to comply with the Georgian production sharing

legislation after it is passed.

3.JKX is prepared immediately to continue its investment programme even though

the production sharing legislation may not be in force for some months. In order

to protect the economic and fiscal position of JKX before and after the passing



of the Georgian production sharing legislation or any other legislation by the

Georgian Parliament, it is hereby agreed, that the stability of the fiscal and

economical terms of the JKX/Georgian Oil production sharing contract affecting

JKX shall be guaranteed and protected so far as they are directly or indirectly

affected by Georgian legislation, rules or regulations.

President of fuel and energy corporation of Georgia



D. Zubitashvili



Chief of department "Georgian Oil"



R. Tevzadze



President of JKX Oil & Gas



D. Robson



</TEXT>

</DOCUMENT>

<DOCUMENT>

<TYPE>EX-23.(1)

<SEQUENCE>4

<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP.

<TEXT>

<PAGE>



1

EXHIBIT 23(1)

[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]

CONSENT OF INDEPENDENT ACCOUNTANTS



We consent to the inclusion in this Registration Statement of CanArgo

Energy Corporation on Form S-1, of our report which includes a paragraph

regarding the ability of CanArgo Energy Corporation to continue as a going

concern, dated March 5, 1999 (except for Note 20, as to which the date is March

29, 1999) on our audit of the consolidated financial statements of CanArgo

Energy Corporation as of December 31, 1998 and 1997, and for the years ended

December 31, 1998, 1997 and August 31, 1996 and the four-month period ended

December 31, 1996. We also consent to the reference to our firm under the

caption "Experts."



/s/ PricewaterhouseCoopers LLP

Houston, Texas

June 2, 1999

</TEXT>

</DOCUMENT>

</SEC-DOCUMENT>

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