NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

EXPLORATION AND PRODUCTION

CONCESSION CONTRACT



BETWEEN



THE GOVERNMENT

OF THE REPUBLIC OF MOZAMBIQUE



AND



ANADARKO MOZAMBIQUE AREA 1 LIMITADA



AND



EMPRESA NACIONAL DE HIDROCARBONETOS, E.P.



FOR



AREA 1 "OFFSHORE" OF THE ROVUMA BLOCK

REPUBLIC OF MOZAMBIQUE



I



I

I

I

I

I

I

I

I

I

I

I

I

I

I

1

I

I

I

I

I



Table of Contents

Subject



Page



Parties



1



Preamble



2



1



EPC Documents



3



2



Definitions



4



3



EPC Rights and their Duration



8



4



Work Commitment during Exploration Period



12



5



Conduct of Petroleum Operations



18



6



Commercial Discovery and Development



20



7



Relinquishment of Areas



22



8



Records and Reports



23



9



Cost Recovery and Production Entitlement



25



10



Valuation of Petroleum



32



11



Fiscal Terms and Other Charges



36



12



Production Bonuses



46



13



Lifting Arrangements



47



14



Conservation of Petroleum and Prevention of Loss



48



15



Decommissioning



49



16



Insurance



52



17



Natural Gas



55



18



Employment and Training



58



19



Indemnification and Liability



60



20



Title



61



Article



ii



Article



Subject



Page



21



Rights of Inspection



62



22



Accounting and Audits



63



23



Confidentiality



64



24



Assignment



66



25



Force Majeure



68



26



Foreign Exchange Control



70



27



Nature and Extent of the Rights of the Concessionaire



73



28



Protection of the Environment



80



29



Surrender and Cancellation



83



30



Consultation, Arbitration and Independent Expert



88



31



Applicable Law



92



32



Language



93



33



Joint Operating Agreement



94



34



Future Agreements



95



35



Notices



96



Annexes



Annex "A" Description of the EPC Area

Annex "B" Map of the EPC Area

Annex "C" Accounting and Financial Procedure

Annex "D" Form of Bank Guarantee

Annex "E" Form of Parent Company Guarantee

Annex "F" Joint Operating Agreement



Parties



This Exploration and Production Concession Contract ("EPC") is made subject to

applicable law on the 20th day of December, 2006 by:



(a)



THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE, hereinafter

referred to as "the Government" and herein represented by the Minister for

Mineral Resources; and



(b)



ANADARKO MOZAMBIQUE AREA 1 LIMITADA, a corporation

established under the laws of Mozambique



and duly registered in



Mozambique, hereinafter referred to as "ANADARKO" and herein

represented by the appointed representative, and



(c)



EMPRESA NACIONAL DE HIDROCARBONETOS, E.P., a company

established in accordance with the laws of the Republic of Mozambique,

hereinafter referred to as "ENH", herein represented by its Chairman.



ANADARKO and ENH shall hereinafter be referred to as the

"Concessionaire". The Concessionaire and the Government shall hereinafter

collectively be referred to as the "Parties."



Preamble



WHEREAS, applicable petroleum law provides that all Petroleum resources in the

soil and the subsoil of the land territory, in the seabed of internal waters and the

territorial sea, in the exclusive economic zone and on the continental shelf, are the

property of the Republic of Mozambique;



WHEREAS, pursuant to applicable petroleum law, the Government has the authority

to ensure the implementation of the policy for Petroleum Operations and has for the

purpose of this EPC appointed the Ministry of Mineral Resources, hereinafter referred

to as "MIREM", to carry out certain functions for and on behalf of the Government as

hereinafter specified;



WHEREAS, the Government desires to award to ANADARKO and ENH the right to

undertake Petroleum Exploration, Development and Production in certain areas

subject to the jurisdiction of the Republic of Mozambique;



WHEREAS, the Concessionaire is willing, on certain terms and conditions stipulated

to undertake Petroleum Exploration, Development and Production in the EPC Area

and has for such purpose technical competence and adequate financial resources;



WHEREAS, the applicable petroleum law provides that Petroleum Exploration,

Development and Production shall be carried out under a concession;



NOW THEREFORE it has been concluded as follows:



2



Article 1

EPC Documents



The EPC consists of this EPC main document and the following Annexes, which

form an integral part hereof:



Annex "A" Description of the EPC Area

Annex "B"



Map of the EPC Area



Annex "C" Accounting and Financial Procedure

Annex "D"



Form of Bank Guarantee



Annex "E" Form of Parent Company Guarantee

Annex "F" Joint Operating Agreement



Subject to the conclusion of the EPC, the Concessionaire shall submit a signed joint

operating agreement as stipulated in Annex F, for which Government approval is a

condition under this EPC.



In the event of conflict between the provisions of the EPC main document and its

Annexes, the EPC main document shall prevail.



3



Article 2

Definitions



Definitions stipulated in applicable Mozambican Petroleum law, currently Law no.

3/2001 of 21 February and Decree No. 24/2004 of 20 August apply to this EPC unless

otherwise defined. Words and phrases used in this EPC including its Annexes shall

have the following meanings:



"Affiliated Company" means, in relation to any Person constituting the

Concessionaire, any parent company which directly or indirectly controls such Person

or any company which is directly controlled by such Person or any company which is

controlled, directly or indirectly, by any such parent company.

For the purpose of the foregoing definition:

(a)



a company is directly controlled by another company or companies



holding shares or other equity ownership carrying in the aggregate more than

fifty percent (50%) of the voting rights exercisable at general meetings; and



(b)



a particular company is indirectly controlled by a company or



companies ("parent company or companies") if a series of companies can be

specified, beginning with the parent company or companies and ending with

the particular company, so related that each company of the series, except the

parent company or companies, is directly controlled by one or more of the

companies earlier in the series.



"Attributable Expenditure" means an expenditure incurred by the Concessionaire on

Exploration Operations but excluding any expenditure incurred by the Concessionaire

in conducting any Appraisal Programme or drilling any Appraisal Well.



"Commercial Assessment Period" applies to a Discovery Area and means the period

commencing at the time when the appraisal report regarding the Appraisal

Programme relating to the Discovery of Non-Associated Natural Gas has been

submitted by the Concessionaire.



4



"Commercial Production" means production of Petroleum and delivery of the same

at the Delivery Point under a programme of production and sale as provided for in a

Development Plan as amended from time to time.



"Cost Petroleum" means the portion of Petroleum Produced available to the

Concessionaires to cover the costs and expenses incurred in carrying out the

Petroleum Operations as stipulated in this EPC.



"Decommissioning Fund" means the fund established to cover the costs of

decommissioning operations.



"Delivery Point" means in the case of Natural Gas the inlet flange of the transmission

pipeline, and in the case of Crude Oil the inlet flange of the lifting tankship or, in

either case, such other point as may be agreed by MIREM and the Concessionaire.



"Effective Date" means the first day of the month following the date on which this

EPC has been signed by the Government and the Concessionaire, the conditions in

Article 3.2 have been met, and the ruling of the Administrative Tribunal has been

obtained.



"EPC Area" means offshore Area 1 as described in Annex A and depicted in Annex

B. The applicable petroleum law and its provisions on the date of signature of this

EPC regulating Petroleum Operations using the term "Contract Area" shall be applied

mutatis mutandis unless otherwise defined.



"Evaluation Period" means the period, following a notice by the Concessionaire that

it has made a Discovery, within which the Concessionaire is required to inform

MIREM whether such Discovery is of potential commercial interest.



"Expatriate Personnel" means any employee of any Person constituting the

Concessionaire, of an Affiliated Company of any such Person or of any

Subcontractor, provided such employee is not a citizen of the Republic of

Mozambique and whose contract of employment provides for the payment or the

reimbursement of the cost of his passage to and from the Republic of Mozambique.

5



"Exploration Operations" means operations conducted hereunder for or in

connection with Exploration for Petroleum in the EPC Area and includes operations

conducted to carry out an Appraisal Programme or to drill any Appraisal Well.



"Exploration Period" means any relevant period of Exploration set out in this EPC.



"Exploration Well" means any well, the purpose of which at the time of the

commencement of drilling is to explore for an accumulation of Petroleum, which

accumulation was at that time unproven by drilling.



"MIREM" means the Ministry of Mineral Resources or any other person or entity

appointed to administer and regulate Petroleum Operations for and on behalf of the

Government under the EPC whose identity has been notified in writing to the

Concessionaire.



"Participating Interest" means the percentage interest portion, as further described in

Article 3.2, of each party constituting the Concessionaire in the rights, privileges,

duties and obligations derived from this EPC.



"Person" means any natural person or any corporation, association, partnership, joint

venture or entity which is considered a legal entity under the law of Mozambique or

the laws of the country pursuant to which such corporation, association, partnership,

joint venture or entity is governed.



"Petroleum Produced" means Petroleum which has been extracted from a reservoir,

initially separated and processed into Crude Oil, condensate or Natural Gas delivered

to the Delivery Point appropriate for onwards transportation in bulk or through a

pipeline. The same applies to "Crude Oil Produced", Condensate Produced" and

"Natural Gas Produced" as the case may be.



"Profit Petroleum" means that portion of Disposable Petroleum, in excess of Cost

Petroleum, which is allocated to the Parties under the terms of the EPC.



6



"Subcontractor" means any Person retained by the Concessionaire to carry out any

part of the Petroleum Operations.



"State Participating Interest" means the share of the Participating Interest owned by

an entity holding such share on behalf of the Government.



"Wellhead" means the inlet flange of the first valve after the wellhead production

manifold.



7



Article 3

EPC Rights and their Duration



3.1



This EPC :

(a)



is a concession awarded pursuant to Petroleum Law No. 3/2001 of 21

February, which authorises the conduct of certain



Petroleum



Exploration, Development and Production activities in an area as

defined herein;

(b)



confers on the Concessionaire, subject to applicable law and the terms

and conditions set forth in this EPC, the exclusive right to conduct

Petroleum Operations in order to produce Petroleum from resources

originating from one or more Petroleum Deposits within the limits of

the EPC Area;



(c)



save where access to an existing Oil Pipeline or Gas Pipeline System is

available on reasonable commercial terms, confers a non- exclusive

right subject to applicable law to construct and operate an Oil Pipeline

or Gas Pipeline System for the purpose of transporting Petroleum

Produced from Petroleum Deposits under this EPC.



3.2



(a)



Prior to this EPC reaching the Effective Date this EPC has to be

approved by the Council of Ministers, the appurtenant agreements to

this EPC have to be signed by the Concessionaire, and the ruling of

the Administrative Tribunal has to be obtained.



b)



On the Effective Date the respective Participating Interests of

ANADARKO is eighty-five percent (85%) and of ENH is fifteen

percent (15%) respectively.



3.3



The rights and obligations of the Concessionaire shall commence on the

Effective Date and shall subsist:

(a)



during the Exploration Period; and



8



(b)



subject to terms and conditions as hereinafter provided, during the

Development and Production Period;



provided that obligations of the Concessionaire which have accrued hereunder

before the end of any relevant Exploration Period or an applicable

Development and Production Period shall, notwithstanding that this EPC has

otherwise been cancelled subject to applicable law or the terms and conditions

of this EPC, continue to be binding on the Concessionaire for the period

provided by applicable law and for the purpose of any claim in respect thereof,

the provisions of Article 30 shall continue to apply.



3.4



The initial Exploration Period shall commence on the Effective Date. Unless

the EPC is terminated earlier in accordance with its terms, it shall continue for

a period of sixty (60) months.



3.5



If the Concessionaire desires to extend the Exploration Period the

Concessionaire shall submit a notice to MIREM to that effect. Such notice has

to be submitted not later than thirty (30) days before the initial Exploration



1



Period expiry or any subsequent Exploration Period would otherwise expire.

Provided the Concessionaire has fulfilled, or is deemed to have fulfilled, its

obligations under the initial Exploration Period, the Concessionaire is

entitled:



1



I

I



(a)



at the end of the initial Exploration Period, to a second Exploration

Period of thirty-six (36) months; and



(b)



to the rights referred to in Article 3.6; and



(c)



to such additional time that may be necessary to give effect to Article

25.4 on Force Majeure.



3.6



Extensions shall be granted in the following situations:



9



1

(a)



Where pursuant to Article 6 the Concessionaire has notified MIREM

that it has made a Discovery, the Exploration Period shall not, in

respect of the Discovery Area to which that Discovery relates

terminate before the end of the Evaluation Period;



(b)



Where before the end of the Evaluation Period the Concessionaire has

pursuant to Article 6 notified MIREM that a Discovery is of potential

commercial interest, the Exploration Period shall not in respect of the

Discovery Area to which that Discovery relates terminate before

approval of the Development Plan;



(c)



Where pursuant to Article 17.3 the Commercial Assessment Period has

commenced in respect of a Discovery of Natural Gas, the Exploration

Period shall not, in respect of the Discovery Area to which that

Discovery relates, terminate so long as that Commercial Assessment

Period continues;



1

I



I



(d)



Where the work program of the Concessionaire due to reasons beyond

the reasonable control of the Concessionaire has been delayed due to

the inability to secure appropriate equipment necessary to conduct

Petroleum Operations (including but not limited to drill ships, drill

barges and seismic vessels) the Concessionaire shall notify MIREM

and when required for the Concessionaire to complete the obligatory

Exploration work commitment submit a properly reasoned request for

such extension that may be necessary to allow the completion of such

Exploration work program. The competent authority shall without

undue delay consider and respond to such request and if not granted

give grounds for refusing to grant the extension.



3.7



Where the Concessionaire has not prior to expiry of the final Exploration

Period given to MIREM a Declaration of Commerciality by notice, the

Concessionaire shall at the end of that Period have no further rights or

obligations in the EPC Area or under this EPC except as specifically provided

herein.

10



3.8



Where, during a relevant Exploration Period the Concessionaire has given to

MIREM a Declaration of Commerciality by notice, the Concessionaire shall,

in respect of the Development and Production Area to which any such notice

relates, continue at the end of the Exploration Period to have rights and

obligations hereunder for so long as the Development and Production Period

for that Development and Production Area subsists.



1



3.9



A "Development and Production Period" shall commence with respect to each

Development and Production Area on the date on which the Development

Plan for that Development and Production Area has been approved in



1



accordance with applicable law, and notice to that effect has been given to the

Concessionaire and, unless this EPC is sooner terminated in accordance with

its terms and applicable law, shall, in respect of the Development and

Production Area to which the said notice relates, continue to subsist for an

Development and Production Period of thirty (30) years and for such

additional periods that may be necessary to give effect to Article 25.4.



1

1



I

I



11



Article 4

Work Commitment during Exploration Period



4.1



The Concessionaire shall, in the discharge of its obligations to carry out

Exploration Operations, carry out the work stipulated in this EPC unless

otherwise provided or pay to the Government not less than the sums set forth

below in this Article. When the Concessionaire is more than one Person the

Exploration work commitments stipulated in this Article shall be performed

collectively by the Concessionaire.



4.2



During the initial Exploration Period of sixty (60) months, the Concessionaire

shall conduct the following Exploration work commitment:

(a)



Re-process one thousand (1,000 km) kilometres of existing 2D

offshore seismic data;



(b)



Re-interpret five thousand one hundred fifty (5,150 km) kilometres of

existing 2D offshore seismic data;



(c)



Acquire a minimum of one thousand (1,000 km) kilometres of 2D

seismic data;



(d)



Acquire a minimum of three thousand (3,000 km2) square kilometres

of 3D seismic data; and



(e)



Drill seven (7) Exploration Wells as follows:

(i)



a minimum of three (3) Exploration Wells in onshore areas or

in areas where water depths are less than two hundred (200)

meters, drilled to a minimum depth of two thousand five

hundred (2500) meters true vertical depth or to depth sufficient

to penetrate the top of the Eocene or older stratigraphic section

or its stratigraphic equivalent, whichever is lesser.



12



(ii)



a minimum of four (4) Exploration Wells in areas where water

depths are greater than two hundred (200) meters, drilled to a

minimum depth of three thousand (3,000) meters true vertical

depth below the sediment water interface or to a depth

sufficient to penetrate the top of the Eocene or older

stratigraphic section or its stratigraphic equivalent, whichever is

lesser.



(iii)



as new seismic data and well information are acquired the

Concessionaire shall have the right to shift remaining

Exploration Well commitments between the onshore, shallow

water, and deepwater areas described in clauses (i) and (ii)

above.



In case of non-performance of any part of the Exploration work commitment

described in this Article, save for exemptions listed in this Article, and in the

manner provided by this Article, the maximum amount of any guarantee to be

provided or the maximum amount to be paid by the Concessionaire to

Government (hereinafter referred to as "Minimum Expenditure") for this

period shall be United States dollars two hundred sixty-eight million (US$

268,000,000).



4.3



If a second Exploration Period is effected as provided in Article 3.5, then,

during the second Exploration Period of thirty-six (36) months, the

Concessionaire shall conduct the following Exploration work commitment:



(a)



Acquire a minimum of two thousand (2,000 km2) square kilometers of

3D seismic data, and



(b)



Drill four (4) Exploration Wells as follows, at the sole discretion of the

Concessionaire:

(i)



in onshore areas or in areas where water depths are less than

two hundred (200) meters, drilled to a minimum depth of two

thousand five hundred (2500) meters true vertical depth or to



13



1

depth sufficient to penetrate the top of the Eocene or older

stratigraphic section or its stratigraphic equivalent, whichever is

lesser.



(ii)



in areas where water depths are greater than two hundred (200)

meters, drilled to a minimum depth of three thousand (3,000)

meters true vertical depth below the sediment water interface or

to a depth sufficient to penetrate the top of the Miocene

stratigraphic section or its stratigraphic equivalent, whichever is

lesser.



In case of non-performance of any part of the Exploration work commitment

described in this Article save for exemptions listed in this Article and in the

manner provided by this Article, the maximum amount of any guarantee to be

provided or the maximum amount to be paid by the Concessionaire to the

Government, the Minimum Expenditure, for this extension period shall be

United States dollars one hundred ninety-seven million (US$ 197,000,000).



4.4



Should any well forming part of the Exploration work commitment provided

for in Articles 4.2 and 4.3 be abandoned, for any reason other than a reason

specified in Article 4.5 below, before reaching the defined objectives of such

well, the Concessionaire shall drill a substitute well. In this event the relevant

Exploration Period shall be extended by a reasonable period of time as

MIREM may agree to allow the drilling and evaluation of the substitute well.



4.5



Unless otherwise approved by MIREM, any well which forms part of the

Exploration work commitment provided for in Articles 4.2 and 4.3 shall be

drilled to such depth as set forth in those Articles, unless before reaching the

required depth:



(a)



further drilling would in the reasonable opinion of the Concessionaire

present an obvious danger, due to such events as, but not limited to, the

presence of abnormal pressure or excessive losses of drilling mud;



14



(b)



impenetrable formations are encountered;



(c)



Petroleum bearing formations are encountered which require

protecting, thereby preventing planned depths from being reached; or



(d)



4.6



MIREM agrees to terminate the drilling operation.



In circumstances in which Concessionaire is permitted pursuant to Article 4.5

to drill any well to a lesser depth than required pursuant to Articles 4.2 or 4.3,

Concessionaire shall be deemed to have satisfied all the Concessionaire's

obligations in respect of that well.



4.7



During the drilling of Exploration Wells hereunder, the Concessionaire shall,

in accordance with applicable law, keep MIREM informed of the progress of

each well and shall:



(a)



as soon as reasonably possible, consult with MIREM regarding any

proposed well testing programme;



(b)



test potentially commercially viable horizons, in the opinion of the

Concessionaire and after consultation with MIREM, within the EPC

Area indicated by wireline logging or by other means of formation

evaluation; and



(c)



promptly undertake a technical evaluation of the said test results and of

all other relevant subsurface data and submit the same to MIREM as

soon as it has been completed.



4.8



The Minimum Expenditure obligations set forth in Articles 4.2 and 4.3 shall

not in respect of any period be satisfied unless the total Attributable

Expenditure for that period equals or exceeds the amount of the Minimum

Expenditure for that period; provided, however, that if, at the end of any

Exploration Period, the work commitment for that period has been completed

15



to the reasonable satisfaction of MIREM, the expenditure incurred by the

Concessionaire during that period shall be deemed to equal or exceed the

applicable Minimum Expenditure for that period specified in Articles 4.2 or

4.3 .



4.9



(a)



Minimum Expenditure guarantee



Without prejudice to the joint and several liability of the Persons constituting

the Concessionaire, each of the Persons constituting the Concessionaire shall

by no later than thirty (30) days after the Effective Date, and where this EPC

has been extended pursuant to Article 3.5, on the first day of such extension

period, provide, in substantially the form shown in Annex "D", an

unconditional and irrevocable bank guarantee in respect of its Participating

Interest share and the relevant portion of Carry of the Minimum Expenditure

for the initial Exploration Period or, as the case may be, the Minimum

Expenditure obligations for the second Exploration Period, as the same may

have been reduced by the provisions of Article 4.10. For the purpose of this

Article 4.9(a), where a Person constituting the Concessionaire has undertaken

to fund payments in respect of Minimum Expenditure which would otherwise

have been payable by another Person constituting the Concessionaire, the

share of Minimum Expenditure of that Person constituting the Concessionaire

giving that undertaking will be deemed to include the share of Minimum

Expenditure for which such other Person constituting the Concessionaire

would have been liable if no such undertaking had been given.



4.9



(b)



Parent Company guarantee



Without prejudice to the joint and several liability of the Persons constituting

the Concessionaire, the Operator shall by no later than thirty (30) days after

the approval of the Development Plan provide, in substantially the form shown

in Annex "E", an unconditional and irrevocable parent company guarantee

from an entity acceptable to MIREM in respect of all its obligations under this

EPC beyond the scope of the Minimum Expenditure guarantee.



16



4.10 The amount of any bank guarantee given pursuant to Article 4.9(a) shall be

reduced by the Concessionaire in discharge of its obligations under Articles

4.2 and 4.3 at the end of each calendar quarter as follows:



(i)



during the initial Exploration Period:





United States dollars five million (US$ 5.000,000) at completion of

Article 4.2 (a), (b) and (c);







United States dollars thirty-five million (US$ 35,000,000) at

completion of Article 4.2 (d);







United States dollars fifteen million (US$ 15.000.000) at the

completion of each Well drilled pursuant to Article 4.2 (e) (i);







United States dollars forty-three million (US$ 43,000,000) at

completion of each Well drilled pursuant to Article 4.2 (e) (ii);



(ii)



during the second Exploration Period:





United States dollars twenty-five million (US$ 25,000,000) at

completion of Article 4.3 (a);







United States dollars fifteen million (US$ 15,000.000) at the

completion of each Well drilled pursuant to Article 4.3 (b) (i);







United States dollars forty-three million (US$ 43,000,000) at

completion of each Well drilled pursuant to Article 4.3 (b) (ii).



4.11 If, at the end of the initial Exploration Period or at the end of the second

Exploration Period, the Attributable Expenditure incurred by the

Concessionaire during that period does not and is not, pursuant to Article 4.2

4.3 and 4.8, deemed to equal or exceed the Minimum Expenditure for that

period, MIREM shall notify the Concessionaire and shall, unless the full

amount of the shortfall has been met by the Concessionaire within thirty (30)

days of such notification, have the right to call on said guarantee for the

payment thereunder to MIREM of the full amount of the shortfall.



4.12 In the event where the number of Exploration Wells drilled by the

Concessionaire and/or the amount of seismic data acquired during any



17



I

I



1

Exploration Period exceed the number of wells and/or the amount of seismic

data provided for in the work commitment for that period, as specified in

Articles 4.2 and 4.3, the number of additional Exploration Wells drilled and/or

the amount of seismic data acquired by the Concessionaire during such

Exploration Period may be carried forward and treated as work undertaken in

discharge of the Concessionaire's commitment to drill Exploration Wells

and/or seismic data acquired during the succeeding period; provided, however,



1



if by reason of the provisions of this Article the work commitment of the

Concessionaire for any period as specified in Articles 4.2 and 4.3 has been

fully discharged by the Concessionaire before that period commences, the

Concessionaire, after consultation with MIREM, shall adopt a work



I



commitment for the period in question so as to ensure the continuity of

Petroleum Operations in, or in connection with, the EPC Area during that

period.



4.13 Otherwise than as provided in such Articles, nothing in Articles 4.11 or 4.12

shall be read or construed as extinguishing, postponing or modifying any

commitment of the Concessionaire to carry out seismic surveys or to drill

Exploration Wells pursuant to this Article.



4.14 Neither the Appraisal Wells nor seismic surveys carried out pursuant to an

Appraisal Programme drawn up pursuant to Article 6.2 nor the expenditure

incurred by the Concessionaire in carrying out such Appraisal Programme

shall be treated as discharging in whole or in part the Minimum Expenditure

obligations set out in Articles 4.2 and 4.3.



4.15 Within sixty (60) days of the Effective Date and thereafter, for so long as an

Exploration Period subsists and at least ninety (90) days prior to the end of

each calendar year or at such other times as may be approved in advance by

MIREM, the Concessionaire shall prepare in reasonable detail and submit to

MIREM an Exploration work programme and budget for the remaining

portion of the calendar year or, for the subsequent calendar year, and a

proposed structure for the Concessionaire's organisation for the conduct of

Exploration Operations in the EPC Area.

18



I



I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

1



4.16 The Exploration work programme and budget prepared by the Concessionaire

shall be consistent with obligations under this Article and shall set forth the

Exploration Operations which the Concessionaire proposes to carry out during

the remaining portion of the calendar year or, in the case of the programme

and budget for subsequent years, during the following calendar year. The

Concessionaire shall consider any recommendations made by MIREM in

respect thereof and after making such revisions thereto as the Concessionaire

considers appropriate submit the Exploration work programme and budget to

MIREM for information.



4.17 The Concessionaire may at any time amend the Exploration work programme

and budget submitted in accordance with Article 4.15, provided that the

amended Exploration work programme and budget are:



(a)



prepared in reasonable detail and submitted to MIREM, whose

recommendations in respect thereof shall be considered by the

Concessionaire; and



(b)



consistent with the Concessionaire's obligations under this Article;

and



(c)



submitted to MIREM for information once the Concessionaire has

made such revisions as it deems appropriate after consideration of any

recommendations made by MIREM.



19



Article 5

Conduct of Petroleum Operations



5.1



1

1



The Concessionaire shall carry out Petroleum Operations in the EPC Area:

(a)



diligently and with due regard to Good Oil Field Practices;



(b)



subject to all applicable law, specifically the Petroleum Law and the

Regulations for Petroleum Operations;



(c)



1

1

1

1



I



I



in accordance with environmental and safety standards generally

accepted in the international petroleum industry and applicable from

time to time in similar circumstances; and



(d)



in respect of any Development and Production Area in compliance

with the Development Plan for that Development and Production Area.



5.2



Where the Concessionaire is more than one Person any obligation of the

Concessionaire hereunder shall be a joint and several obligation of the Persons

who constitute the Concessionaire, save for the following each of which shall

be a several obligation of each of those Persons:



(a)



the obligation to pay Corporate Income Tax or any other tax assessed

and levied on profit or net income;



(b)



the obligation to observe stipulations relating to confidentiality set out

in Article 23, save in respect of their application to anything done or to

be done by the Operator in his capacity as such; and



(c)



the obligation to observe stipulations relating to foreign exchange set

out or referred to in Article 26, save in respect of their application to

anything done or to be done by the Operator in his capacity as such.



20



I



I

I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I

I



5.3



ANADARKO shall be the Operator. No change of the Operator may take

effect unless it has been approved in writing by MIREM.



5.4



Throughout the period of this EPC the Concessionaire or, where more than

one Person constitutes the Concessionaire, the Operator shall ensure that it has

a general manager or another appointed representative who shall reside in the

Republic of Mozambique or such other country as may be mutually agreed by

all Parties. The Concessionaire or, as the case may be, the Operator shall

appoint the general manager or other representative and shall notify MIREM

of the identity of the individual so appointed within one hundred and twenty

(120) days after the Effective Date. If for any reason the individual so

appointed ceases to be general manager, the Concessionaire or, as the case

may be, the Operator shall as soon as practicable appoint a replacement

acceptable to MIREM and shall notify MIREM of the identity of the

replacement.



21



Article 6

Commercial Discovery and Development



6.1



Where, in the course of the Petroleum Operations, a Discovery of Petroleum is

made in the EPC Area, the Concessionaire shall as soon as reasonably possible

by notice inform MIREM whether or not, in its opinion, the said Discovery is

of potential commercial interest.



6.2



For a Discovery of potential commercial interest the Concessionaire shall

promptly prepare an Appraisal Programme and, after consultation with

MIREM, carry out such Appraisal Programme and submit a report of the

appraisal activities to MIREM within six (6) months after the completion of

such Appraisal Programme.



6.3



The Concessionaire shall submit for Government consideration and approval a

Development Plan for a proposed Development and Production Area for the

Discovery, so as to include such a Development and Production Area in a

single area, so far as the boundaries of the EPC Area permit, the entire area of

the Petroleum reservoir or reservoirs in respect of which a Declaration of

Commerciality has been given. MIREM shall consider without undue delay

the proposed Development Plan submitted by the Concessionaire. If MIREM

is unable to complete consultation with concerned relevant authorities within

twelve (12) months from receipt of the proposed Development Plan submitted

by the Concessionarire for approval, then MIREM shall notify the

Concessionaire and shall when possible indicate when it is expected that the

consultation process shall be completed.



6.4



If Commercial Production of a Discovery has not commenced within a period

of ten (10) years for Crude Oil and fifteen (15) for non-Associated Natural

Gas, or such longer period as may be specified in an approved Development

Plan, from the date on which the Development Plan is approved, then the

rights and obligations of the Concessionaire over the Development and

Production Area to which the Discovery relates shall be extinguished as



22



I

I



1

though the said area had been surrendered pursuant to Article 29. Such period

may be extended:



(a)



by any period that may be necessary to commence Commercial

Production where the Concessionaire commenced promptly to



1



implement the Development Plan as soon as the Development Plan

was approved and has continued to diligently implement the

Development Plan but at the end of the ten (10) year period or such

longer period as is specified in the approved Development Plan, has

not yet commenced Commercial Production; or



1

(b)



by the period of time that the commencement of Commercial

Production has been delayed for lack of any approval or permit

required to be obtained from the Government or any agency thereof

after the implementation of the Development Plan has begun and prior

to the commencement of Commercial Production and such delay is not



1



attributable to actions or omissions which are within the reasonable

control of the Concessionaire; or



(c)



by any period that may be necessary to give effect to Article 25.4.



23



1

I

I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I

1

I

I



Article 7

Relinquishment of Areas



7.1



Where, pursuant to a request by the Concessionaire under Articles 3.5 (a), the

Exploration Period is extended at the end of the initial Exploration Period, the

Concessionaire shall relinquish its rights:



(a)



at the commencement of the second Exploration Period of thirty-six

(36) months in respect of a portion of the EPC Area so that the area

retained, excluding what is already included in a Development and

Production Area or in a Discovery Area, does not exceed ninety per

cent (90%) of the EPC Area on the Effective Date;



(b)



at the end of the second Exploration Period in respect of the remainder

of the EPC Area other than any Development and Production Areas or

any area in respect of which the Exploration Period has been further

extended pursuant to Articles 3.5 (b) and (c).



7.2



For the purpose of this Article, a Discovery Area shall not include any area

which relates to a Discovery in respect of which:



(a)



the Concessionaire has notified MIREM that the Discovery is not

considered to be of potential commercial interest, is not commercial or

is no longer considered to be commercial;



(b)



a Development and Production Area has previously been delineated.



24



Article 8

Records and Reports



8.1



The Concessionaire shall prepare and, at all times while this EPC is in force,

maintain accurate and up-to-date records of its operations in the EPC Area.

The Concessionaire shall also furnish MIREM with such available

information, data and reports relating to the Petroleum Operations, as well as

assessments and interpretations relating to the Petroleum Operations all of

which as MIREM may reasonably require.



8.2



Well logs, maps, magnetic tapes, core and cutting samples and other

geological and geophysical information obtained by the Concessionaire in the

course of carrying out the Petroleum Operations shall be submitted to MIREM

and, save as provided in Article 8.3 or authorised pursuant to Article 23, may

not be published, reproduced or otherwise dealt with without the consent of

MIREM.



8.3



The Concessionaire may retain for its own use copies of material constituting

Documentation, with the approval of MIREM, and retain for its own use

original material constituting Documentation; provided that samples

equivalent in size and quality or, where such material is capable of

reproduction, copies have been supplied to MIREM. The Concessionaire may

freely export for processing or laboratory examination or analysis samples or

other original materials constituting Documentation; provided that samples

equivalent in size and quality or, where such material is capable of

reproduction, copies of equivalent quality have first been delivered to

MIREM.



8.4



The Concessionaire shall keep MIREM currently advised of all major

developments taking place during the course of the Petroleum Operations and

without prejudice to the generality of the foregoing the Concessionaire shall:



(a)



within forty-five (45) days after the end of each calendar quarter

prepare and deliver a progress report to MIREM which shall contain a

25



I



I

I

I

I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

1



narrative report of activities hereunder during such quarter with plans

and maps showing the places where the work described was done; and



(b)



within four (4) months after the end of each calendar year prepare and

deliver to MIREM an annual report which shall consolidate and where

necessary revise and amplify the quarterly progress reports furnished

in respect of that calendar year.



26



Article 9

Cost Recovery and Production Entitlement



9.1



The Concessionaire shall bear and pay all costs incurred in carrying out the

Petroleum Operations in which the Concessionaire participates, and the

Concessionaire shall recover such costs permitted by the provisions of this

EPC including Annex "C" of this EPC (hereinafter "Recoverable Costs"), and

shall be remunerated exclusively by means of an entitlement to quantities of

Petroleum to which the Concessionaire is entitled as herein provided.



9.2



The provisions related to cost recovery and profit entitlement set out in this

Article shall apply to Petroleum with effect that the Government and the

Concessionaire shall have title in undivided participating entitlement to the

Petroleum available for sale in any given period. Unless otherwise instructed

by the Government the sale of such Petroleum shall take place on a joint

dedicated basis by the Concessionaire and the Concessionaire will hold those

entitlements in undivided proportions equal to the proportions in which during

that period each Party was entitled to Disposable Petroleum. Such instructions

shall not affect volumes of Petroleum subject to contract. Accordingly, the

proceeds from the sale on a joint dedicated basis of Petroleum in any given

period shall be divided between the Government and the Concessionaire in the

proportions in which they had title in undivided entitlements to the Petroleum

sold.



9.3



From the total quantity of Petroleum Produced, the Concessionaire may take a

portion thereof necessary to discharge the Concessionaire's obligation for the

Petroleum Production Tax. The balance of Petroleum remaining after the

aforesaid portion has been set aside is hereinafter referred to as "Disposable

Petroleum".



9.4



(a)



For purposes of the R-factor calculation, Disposable Petroleum and

Cost Petroleum shall be calculated in respect of the whole of the EPC

Area.



27



(b)



Insofar as permitted by applicable law and this EPC, all costs incurred

by the Concessionaire in relation to Petroleum Operations shall be

recovered from Disposable Petroleum, as available at the Delivery

Point.



1



(c)



In addition, and in the event the Government and/or the Concessionaire

elect to take Profit Petroleum in kind, the Concessionaire shall, for

accounting and reporting purposes, record Cost Petroleum separately:



1



(I)



in respect of each Development and Production Area, and



(ii)



in the form of liquids and gas, on a pro-rata basis relative to the

volumes of Petroleum Produced.



Condensate shall be taken in liquids or gas on the basis of its character at the



1

1

1

1



I

I



Delivery Point.



9.5



For each calendar year, all Recoverable Costs incurred by the Concessionaire

in relation to Petroleum Operations in the EPC Area shall be limited to

sixtyfive percent (65 %) of Disposable Petroleum.



9.6



The Cost Petroleum for any quarter calculated in the manner aforesaid shall be

increased by:



(a)



the amount of any contributions made by the Concessionaire into the

Decommissioning Fund during such quarter; and



(b)



the costs incurred by the Concessionaire during such quarter to

implement an approved Decommissioning Plan prepared pursuant to

applicable law and the provisions of Article 15 save to the extent that

such costs have been funded by withdrawals from the

Decommissioning Fund; and



(c)



provided that in no event shall the Cost Petroleum exceed the

Disposable Petroleum.



28



9.7



Costs, to the extent permitted by the provisions of Annex "C" of this EPC,

shall subject to Article 9.9, be recovered from Cost Petroleum:



(a)



in respect of the amount of Development and Production Capital

Expenditures stipulated in Annex "C" of this EPC incurred during each

year, by the recovery of such amount at a maximum yearly rate of

twenty-five percent (25%) on a linear depreciation basis, beginning in

the year in which such amount is incurred or in the calendar year in

which Commercial Production commences, whichever year is later;



(b)



in respect of costs attributable to Exploration as stipulated in Annex

"C" of this EPC (hereinafter referred to as "Exploration Costs"), by the

recovery of the full amount in the year in which they were incurred or

in the year in which Commercial Production commences, whichever

year is later; and



(c)



in respect of operating costs attributable to Petroleum Operations

stipulated as Operating Costs in Annex "C" to this EPC (hereinafter

referred to as "Operating Costs") (including any contributions into the

Decommissioning Fund pursuant to applicable law, the provisions of

Article 15 and including any costs incurred by the Concessionaire to

implement an approved Decommissioning Plan prepared pursuant to

the provisions of applicable law save to the extent, in either case, that

such costs have been funded by withdrawals from the

Decommissioning Fund), by the recovery of the full amount in the year

in which they were incurred.



9.8



To the extent that Recoverable Costs in any year exceed the value of Cost

Petroleum available in that year, the unrecovered excess shall be carried

forward for recovery in succeeding years.



29



9.9



The quantity of Cost Petroleum to which the Concessionaire is entitled in any

year shall be established on the basis of the value of the Petroleum Produced

during such year, determined in accordance with Article 10.



1

1



9.10 Profit Petroleum shall be shared between the Government and the

Concessionaire according to a scale varying with the value of the R-Factor,

where:



(a)



R-Factor = (Cumulative Cash Inflows) ❑

(Cumulative Capital Expenditures) n



1

(b)



Cumulative Cash Inflows n =

Cumulative Cash Inflows (n-I)

+ Concessionaire portion of Profit Petroleum n



1



+ Concessionaire's Cost Petroleum n

- Operating Costs n

- Computed Corporate Income Tax n

(c)



Cumulative Capital Expenditures n =

Cumulative Capital Expenditures (n-1

+ Exploration Costs n

+ Development and Production Capital Expenditures n



Where:

n is the current year; and (n-1) is the previous year;

Concessionaire's Cost Petroleum is the amount of Recoverable Costs

actually recovered;



Computed corporate income tax is the Concessionaire's corporate

income tax obligation computed according to applicable tax law and

Article 11.



For the purpose of calculating the R-Factor, the first year (n=1) shall be the

year during which the Effective Date occurs. Any Capital Expenditures

incurred prior to the Effective Date shall not be deemed for the purpose of the

30



R-Factor calculation to have been incurred during the year of the Effective

Date.



The R-Factor shall be calculated on the last day of each calendar year and the

applicable ratio shall determine the sharing of Profit Petroleum throughout the



1



following calendar year.



The scale for Profit Petroleum is as follows:



R-Factor



1



/

Less than one

Equal to or greater than one and less than

,.

two

Equal to or greater than two and less than

three

Equal to or greater than three and less

than four

Equal to or greater than four

9.11



(a)



Government's

Portion

10 %

20 %



Concessionaire's

Portion

90 %

80 %



30 %



70 %



50 %



50 %



60 %



40 %



If there is a breach of the warranty set out in Article 11.6 or in the

event that after the Effective Date there is a change in applicable law

the laws of the Republic of Mozambique of the kind referred to in

Article 11 and as a result the Parties meet to agree on changes to be

made to this EPC, then during the period starting when the change in

the law comes into effect and ending when an agreement between the

Parties is reached pursuant to Article 11, the portion of Profit

Petroleum to which the Concessionaire and the Government would

otherwise be entitled shall be adjusted so that the net revenues to be

received by the Concessionaire from Petroleum Operations are the

same as they would have been if no change in the law had taken place.



(b)



Where the Parties have reached agreement on the changes to be made

to this EPC pursuant to Article 11, this EPC will be deemed to stand

amended to the extent necessary to give effect to that agreement in

accordance with its terms.



31



9.12 Concessionaire's Cost Petroleum and Profit Petroleum calculations shall be

done for each calendar year on a cumulative basis. To the extent that actual

quantities and expenses are not known, provisional estimates based on the

approved work programme and operating and capital budgets shall be used.

Until such time as the value of Petroleum attributable to a year is determined,

the calculations will be based on the value of such Petroleum during the

preceding year and in the absence of such value, on the value agreed to

between MIREM and the Concessionaire. Adjustments shall be made during

the succeeding year based on actual Petroleum quantities, prices and expenses

in relation to such year.



9.13 Any Person constituting the Concessionaire, excluding ENH or a Permitted

Assignee, shall pay all costs properly incurred under this EPC in relation to the

State Participating Interest (herein referred to as "Carry") subject to the

following conditions:



a)



In the event of a third party other than an entity holding a State

Participating Interest or a Permitted Assignee has acquired a

Participating Interest in the EPC from any Person constituting the

Concessionaire, such third party shall be obliged to take over a

proportionate share of the Carry.



b)



A State Participating Interest totally or partially transferred to a nonPermitted Assignee may only become effective provided all

outstanding amounts relating to the transferred interest and not yet

reimbursed to the Concessionaire subject to Carry have been paid by

the non-Permitted Assignee to Concessionaire proportionally to their

respective Participating Interests. The share of any future Carry, to be

paid by each Concessionaire subject to Carry, shall be calculated

according to the new composition of the Concessionaire subject to

Carry.



32



c)



The Carry shall be limited to all costs incurred by the Concessionaire

in discharging its obligations under this EPC, up to and including the

date upon which the first Development Plan has been approved.



d)



The Carry shall be used exclusively to pay for costs properly incurred

under this EPC in relation to the State Participating Interest. Save for

in respect of a transfer to a Permitted Assignee, ENH may not assign



1

1

1

1

1



directly or indirectly the benefits derived under the Carry. Any transfer

of a Participating Interest subject to the Carry requires the prior written

approval of MIREM. The term "Permitted Assignee" means for the

purpose of this Article the Government or a Mozambican Person

wholly owned and controlled by the Government.



e)



From the date of commencement of Commercial Production, ENH and

any entity designated by the Government to manage the State

Participation Interest portion shall reimburse in full the Carry in cash

or in kind to the Persons (other than ENH or a Permitted Assignee)

constituting the Concessionaire. Such reimbursement shall be

calculated as and taken from the Cost Petroleum of said Person having

benefited from the Carry. All Carry amounts owed up to approval of

the first Development Plan shall be subject to payment of interest in

United States dollars, compounded quarterly, calculated at the LIBOR

rate (as defined in and determined in accordance with Article 28.7)

plus one (1) percentage point, from the date such costs are incurred by

the Persons (other than ENH or a Permitted Assignee) constituting a

Concessionaire until reimbursed in full.



33



Article 10



1



Valuation of Petroleum



10.1 The value of Petroleum referred to in Articles 9 and 11 shall, to the extent

such Petroleum consists of Crude Oil, be determined at the end of each



1

1



calendar month commencing with the calendar month in which Commercial

Production of Crude Oil begins. To the extent such Petroleum consists of

Natural Gas it shall be determined at the end of each calendar month

commencing with the calendar month in which commercial delivery at the

Delivery Point begins.



10.2 A value for each separate export grade of Crude Oil will be:



(a)



in the case of sales to non-Affiliated Companies, the weighted average

price per barrel at the Delivery Point of each separate export grade of

Crude Oil being the prices FOB within the meaning defined in

Incoterms 2000, at which such Crude Oil has been sold by the

Concessionaire during that calendar month; or



(b)



If the Concessionaire sells the Crude Oil to a third party on terms

different from FOB (as per Incoterms 2000), then for the purpose of

this EPC, a calculated net-back FOB price shall be applied. The netback FOB price shall be established by deducting from the price

agreed the actual and direct costs incurred by the Concessionaire in



1



fulfilling the obligations under their sales contract additional to those

obligations included under a FOB contract.



(c)



in the case of sales to Affiliated Companies, such price as agreed

between MIREM and the Concessionaire on the basis of adding the

following two factors together:



(i)



the weighted average calendar month FOB price for Brent

rated Crude Oil, or such other appropriate marker Crude Oil for

the production in question for the period in question. The

34



I



I

I

I

I

I

1

I

I

I

I

I

1

I

I

1

I

I

I

I

I



weighted average will be based on the days in each calendar

month when a closing price is reported in Platts Oilgram price

report. Days such as weekends and holidays with no price

reports will be ignored;



(ii)



a premium or discount to the price of the Brent rated Crude

Oil, or such other appropriate marker Crude Oil for the

production in question to be determined by reference to the

quality of the Crude Oil produced from the EPC Area and the

cost of moving such Crude Oil to the market.



10.3 In any case in which MIREM and the Concessionaire are unable to agree a

price under Article 10.2 (c), in order to determine the premium or discount

referred to therein the following procedures shall be undertaken:



(a)



MIREM and the Concessionaire shall submit to each other their

assessments of the premium or discount together with an explanation

of the key factors taken into consideration in assessing the premium or

discount;



(b)



if the premium or discount submitted by each of MIREM and the

Concessionaire are within ten United States Cents (10 US 0) per barrel

of each other the average will be taken for the purposes of setting the

final value of the Crude Oil;



(c)



if the premium or discount submitted by each of MIREM and the

Concessionaire differ by more than ten United States Cents (10 US 0)

per barrel each will resubmit a revised premium or discount to the

other on the third (3rd) Business Day after the first exchange of

information;



(d)



if the premium or discount submitted by each of MIREM and the

Concessionaire on the second exchange of information are within ten



35



United States Cents (10 US 0) per barrel of each other the average will

be taken for the purposes of setting the final value of Crude Oil;



1

1



(e)



information differ by more than ten United States Cents (10 US 0) per

barrel the matter shall, in accordance with Article 30.6, be referred for

determination by a sole expert who shall establish a price based on the

criteria set out in Article 10.2(c) but always within the range

established by the Parties under Article 10.3(d).



10.4 The value calculated for Natural Gas Produced from reservoirs within the EPC

Area shall be:



(a)



in the case of sales to non-Affiliated Companies, the weighted average

price per Gigajoule of commercial specification Natural Gas at the

Delivery Point at which such Natural Gas has been delivered by the

Concessionaire during that calendar month, shall be the weighted

average price per Gigajoule of all other commercial specification

Natural Gas delivered during the same calendar month from reservoirs

subject to the jurisdiction of the Republic of Mozambique and the



1

1



I



if the premium or discount submitted on the second exchange of



weighted average of posted or publicly available prices for alternative

fuels to Natural Gas for large scale industrial consumers including

power generators in the market where such has been delivered to

ultimate customers;



(b)



in the case of sales to Affiliated Companies, such price as stipulated in

sub-paragraph a) above for sales to non-Affiliated Companies or such

price agreed between MIREM and the Concessionaire.



10.5. In the event that the Government enters into a commercial Gas and/or Crude

Oil Sales Agreement with the Concessionaire for the purchase by the

Government of Crude Oil and/or Natural Gas from the Concessionaire, such

sales shall be at a price no higher than the price of Crude Oil and/or Natural



36



Gas sold to Affiliated Companies from the EPC Area as determined in terms

of this Article 10.



11



1



I

I



37



Article 11

Fiscal Terms and Other Charges



11.1 The Concessionaire and its Subcontractors shall, save to the extent they are

exempt therefrom, be subject to all applicable law which impose taxes, duties,

levies, charges, fees or contributions.



11.2 During the term of this EPC, the Concessionaire and its Subcontractors are

entitled to the rights of Tax and Customs Incentives in terms of Law No.

3/2001, of 21 February as defined in the Code of Fiscal Benefits (CFB),

approved by Decree No. 16/2002, of 27 June. The Concessionaire and its

Subcontractors shall be exempt from the payment of following taxes, duties,

imposts, and other charges:



(a)



Customs duties with regard to the importation of goods destined to be

used in Petroleum Operations, vehicles and other imported supplies,

but excluding light vehicles for transport of passengers in accordance

with article 44 paragraph a) of the CFB;



(b)



duties and other customs and fiscal charges on goods temporarily

imported for use in Petroleum Operations, including but not limited to

drilling rigs, seismic vessels, machinery, equipment, aircraft and boats

in accordance with article 44 paragraph b) of the CFB;



(c)



Customs duties on the exportation of the goods referred to in the

preceding paragraphs once the goods no longer are needed for the

Petroleum Operations in accordance with article 44 paragraph c) of the

CFB;



(d)



Customs duties and custom charges with regard to the exportation of

Petroleum Produced in the Republic of Mozambique in accordance

with article 44 paragraph d) of the CFB; and



38



(e)



The imports and exports referred to in the preceding paragraphs shall

also benefit from an exemption from the Value Added Tax (VAT) as

provided in the VAT Code approved by Decree No. 51/98, of 29

September in accordance with article 44 paragraph e) of the CFB.



11.3 The Expatriate Personnel of the Concessionaire and its Subcontractors shall be

exempt under this EPC from:



(a)



Any and all taxes on or related to the income of non resident Expatriate

Personnel of the Concessionaire or its Subcontractors or any other tax

of a similar nature imposed on the work earnings of such Expatriate

Personnel;



(b)



Customs duties and other levies payable on the importation of personal

and household effects of Expatriate Personnel and their dependants

imported into the Republic of Mozambique, provided that those

Customs duties shall become payable on such items upon their sale in

the Republic of Mozambique to a person who is not exempt from such

duties. The Expatriate Personnel shall have the right to export from

the Republic of Mozambique free of any Customs duties and levies the

aforesaid personal and household effects imported by them, within the

conditions stipulated in the Customs tariff.



11.4 For the purpose of this EPC, the listed imposts ("Listed Imposts") are:



(a)



The Corporate Income Tax (IRPC) which shall be levied in accordance

with Decree No. 21/2002, of 30 July, as the same may be amended

from time to time but always subject to Articles 11.9 and 9.11, and

shall be payable by the Concessionaire or, where the Concessionaire is

more than one Person, payable by each of the entities constituting the

Concessionaire who shall be separately assessed and charged. The

following provisions shall apply to IRPC levied in respect of income

derived from Petroleum Operations hereunder:



39



I

1

I

I

1

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

1



(i)



For any investment made in a continuous manner and in

relation to a deposit or field where an investment is commenced

prior to the end of the year 2010 to commence production at a

future date, a twenty-five percent (25%) reduction in the rate of

Corporate Income Tax (IRPC) on the net income from any such

field shall apply for a period of eight (8) years starting from the

year of first production. After the expiration of the first eight

(8) years calculated from the first year of Commercial

Production from any such deposit or field and for other fields

which first commence production during and after the year

2010, the IRPC shall be levied on the net income derived from

Petroleum Operations from such fields in the EPC Area at the

rate of thirty-two percent (32%) or the rate then in effect

pursuant to applicable law, whichever is less.



(ii)



In determining the net income of the Concessionaire for the

purposes of calculating IRPC in any fiscal year, or if the

Concessionaire is more than one Person, the net income of any

Person constituting the Concessionaire, depreciation shall be

applied as follows:



(aa)



Depreciation shall be deducted at the rates indicated

below, beginning in the year in which the expenditure is

incurred or Commercial Production commences,

whichever year is the later:



-



in respect of expenditure on Exploration Operations,

including the drilling of Exploration and Appraisal

Wells, at one hundred percent (100%);



-



in respect of capital expenditure on Development

and Production Operations at the annual rate of

twenty-five percent (25%) of such expenditure on a

linear depreciation basis;

40



11

I

I

I

1

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I



in respect of operating expenditure, at one hundred

percent (100%).

(bb) The Concessionaire or, if the Concessionaire is more

than one Person, any Person constituting the

Concessionaire, may in any year elect to defer

depreciation wholly or partly. In exercising the election

to defer, the Concessionaire, or if the Concessionaire is

more than one Person, any Person constituting the

Concessionaire, shall notify the competent entity in the

Ministry of Finance not later than end of February after

the end of the year in question, of its intention to defer

depreciation. In such notice, the Concessionaire, or if

the Concessionaire is more than one Person, any Person

constituting the Concessionaire, shall specify:



the rate at which it intends to depreciate expenditure

on Exploration Operations or operating expenditures

during the year in question, such rate not being in

excess of one hundred percent (100%); and



- the rate at which it intends to depreciate capital

expenditure on Development and Production

Operations during the year in question, such rate not

being in excess of twenty-five percent (25%).



The rate notified by the Concessionaire or, if the

Concessionaire is more than one Person, any Person

constituting the Concessionaire shall only apply to the year

specified in the notice. Depreciation in future years shall be

made at the rate set in Article 11.4(a)(ii)(aa) unless a further

written notice under this Article is submitted.



41



1I



I

I

I

1

1

1

I

I

I

I

I

I

I

I

I

I

I

I

1



(iii)



Deferred depreciation, being the difference between the

allowed rate and the rate notified by the Concessionaire, or if

the Concessionaire is more than one Person, any Person

constituting the Concessionaire, as the rate it intends to use

during the year in question, may be taken as a deduction against

net income in any future year. The Concessionaire, or if the

Concessionaire is more than one Person, any Person

constituting the Concessionaire, shall notify the competent

entity in the Ministry of Finance in writing not later than the

end of February after the end of the year in question of its

intent to take such deferred depreciation during such year.



(iv)



Expenditure for professional training of Mozambican workers,

shall, up to a maximum amount of five percent (5%) of taxable

income, be deductible from net income for the purposes of

calculating IRPC in accordance with article 18 paragraph 1 of

the CFB, during the first five (5) years from the date of

commencement of production; provided, however, that, when

the professional training is for the use of technologically

advanced equipment, the allowable income tax deduction for

the purposes of calculating the IRPC shall be a maximum

amount of ten percent (10%) of taxable income in accordance

with article 18 paragraph 2 of the CFB.



(v)



The Concessionaire shall be exempt from stamp duties for

incorporation activities and for any alterations to the social

capital and the articles of association for a period of five (5)

years from start of operations in accordance with article 20 of

the CFB.



(vi)



The Concessionaire shall benefit from a reduction of fifty

percent (50%) on real property transfer tax (SISA) on the

acquisition of real estate, provided this was acquired in the first



42



three (3) years from the date of authorisation of the investment,

or start of operations in accordance with article 21 of the CFB.



(vii) For the purpose of calculating liability for IRPC , a loss

incurred by the Concessionaire in any year may be carried

forward for up to six (6) years after the year in which such loss

is incurred.



(b)



Customs duties and other levies and taxes not otherwise exempted

under this Article 11;



(c)



Levies, charges, fees or contributions which are non discriminatory

and are levied in return for the provision of specific identifiable

services or goods by the Republic of Mozambique or use of facilities

owned by the Republic of Mozambique or any state company, such as

without limitation, water, electricity, port usage and similar services or

goods;



(d)



Taxes, duties, levies, charges, fees or contributions provided they are

imposed under laws of general application, do not discriminate or have

the effect of discriminating against the Concessionaire and are of a

minor nature. For the purpose of this Article a tax, duty, levy, charge,

fee or contribution shall not be treated as being of a minor nature if

either alone or in combination with any other tax duty, levy, charge,

fee or contribution not falling under Articles 11.5(a), (b), or(c), it

would result in a charge in excess of United States dollars two hundred

and fifty thousand (US$250,000) in any one (1) year or United States

dollars five hundred thousand (US$500,000) in any continuous period

of five (5) years;



(e)



Non resident foreign Subcontractors of the Concessionaire conducting

activities in connection with Petroleum Operations pursuant to this

EPC shall be subject to a withholding tax at the single flat rate of ten

percent (10%) of the gross amount of the payments of its invoices in

43



respect of the work or services it performed for the Concessionaire.

The Concessionaire responsible to make payments of such invoices

shall calculate the amount of income tax due as Subcontractor IRPC

on this basis, and shall withhold such income tax from the payments

made to the foreign Subcontractor and pay such withheld income tax to

the competent entity of the Ministry responsible for tax collection in

fiscal area of the Concessionaire on behalf of the foreign Subcontractor

in accordance with the periods established by the law; and



(f)



No taxes shall be imposed or withheld with respect to payments to any

non resident foreign Subcontractor other than as provided under

Article 11.4 e).



11.5 (a)



In accordance with the Petroleum Law and Decree No. 19/2004, of 2

June, the Concessionaire shall deliver to the Government in kind as

Petroleum Production Tax:

(i)



in respect of Natural Gas produced from deposits in the EPC

Area onshore, a quantity of five percent (5%) of the Natural

Gas; in respect of Crude Oil produced from deposits in the EPC

Area located onshore, a quantity of eight percent (8%) of the

Crude Oil;



(ii)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth less than one hundred (100) metres, a

quantity of four percent (4%) of the Natural Gas, and in

respect of Crude Oil produced from deposits in the EPC Area

in water depth less than one hundred (100) metres, a quantity of

seven percent (7%) of the Crude Oil ;



(iii)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth equal to or in excess of one hundred (100)

metres and less than five hundred (500) metres, a quantity of

three percent (3%) of the Natural Gas, and in respect of Crude



44



11

1



1



I

I



Oil produced from depositis in the EPC Area in water depth

equal to or in excess of one hundred (100) metres and less than

five hundred (500) metres , a quantity of five percent (5%) of

the Crude Oil;



(iv)



in respect of Natural Gas produced from deposits in the EPC

Area in water depth equal to or in excess of five hundred (500)

metres, a quantity of two percent (2%) of the Natural Gas, and

in respect of Crude Oil produced from deposits in the EPC

Area at a water depth equal to or in excess of five hundred

(500) metres , a quantity of three percent (3%) of the Crude

Oil;



provided always that the rate of Petroleum Production Tax for a

Petroleum Deposit shall be a composite rate for Natural Gas and a

separate composite rate for Crude Oil where such Petroleum Deposit in

the EPC Area does not lie entirely within one of the water depth

categories established by Articles 11.5(a)(i) to (iv) above, such

composite rates being established pro rata with the amount of

Petroleum in place estimated to be in each of the relevant water depth

categories, and being established at the time of the approval of the

appropriate Development Plan and not subject to change thereafter;

provided that if a Development Plan is amended, then this amended

Development Plan may include a revised composite rate for Natural

Gas and revised composite rate for Crude Oil for such Petroleum

Deposits in the EPC Area and such revised composite rates shall apply

from the beginning of the year following the date the amended

Development Plan is approved. In the case of a revision to the

composite rates as provided aforesaid, in no circumstances shall any

retroactive adjustments be made to the amount of the Petroleum

Production Tax calculated prior to the time of the approval of the

amended Development Plan.



45



I

I

I

1

I

I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I



(b)



The Concessionaire shall, pursuant to Article 13 of the Regulations

relating to Petroleum Production Tax, attached to Decree No. 19/2004,

of 2 June, or subsequent applicable legislation deliver to the competent

entity in the Ministry of Finance and MIREM, not later than the 20th

(twentieth) day of each calendar month and with respect to the

previous month, as measured at the Delivery Point, a statement of:



(i)



the quantity of Crude Oil and the quantity of Natural Gas

produced in that calendar month;



(ii)



the quantities of Crude Oil and the quantities of Natural Gas

sold in that calendar month;



(iii)



the quantities of Crude Oil held in storage at the beginning and

the end of the calendar month;



(iv)



the quantity of Crude Oil and the quantity of Natural Gas

inevitably lost;



(v)



the quantity of Crude Oil and the quantity of Natural Gas

flared, escaped, re-injected or used in Petroleum Operations;



(vi)



the quantity of Crude Oil and the quantity of Natural Gas on

which Petroleum Production Tax is due;



the quantity of Petroleum Production Tax deliverable for that

calendar month and the particulars of the calculation thereof;

and



(viii) any other information relevant for the calculation of Petroleum

Production Tax for Crude Oil and for Natural Gas.



(c)



The Government may, in lieu of the Petroleum Production Tax

deliverable in kind referred to in this Article 11.5, by one hundred and

46



eighty (180) days notice require the Concessionaire to pay to the

Government each month fully or partly in cash the relevant percentage

of the value, ascertained in accordance with the provisions of Article

11, of the Crude Oil and the Natural Gas which has been produced

from the EPC Area in that month.



(d)



The Petroleum Production Tax for a given calendar month in respect of

Crude Oil and in respect of Natural Gas and the respective payments in

cash are deliverable or payable before the end of the following

calendar month.



(e)



Payment in cash of the percentage specified in the relevant notice

given under Article 11.5(c) shall continue until the Government

delivers a further written notice as provided in Article 11.5(c)

providing revised instructions to the Concessionaire.



11.6 The Government warrants that in respect of Petroleum Operations or income

derived from Petroleum Operations, on the Effective Date there were no taxes,

duties, levies, charges, fees or contributions other than the Listed Imposts and

the taxes in respect of which the Concessionaire and its Subcontractors are

exempt under Articles 11.2 and 11.3.



11.7 In the exercise of its rights and benefits regarding the exemption from

Customs duties on import and export stipulated under this Article, the

Concessionaire shall comply with the applicable procedures and formalities

duly imposed by applicable law.



11.8 Nothing in the provisions set out in this Article 11 shall be read or construed

as imposing any limitation or constraint on the scope, or due and proper

enforcement, of applicable Mozambican law of general application which does

not discriminate, or have the effect of discriminating, against the

Concessionaire, and provides in the interest of safety, health, welfare or the

protection of the environment for the regulation of any category of property or

activity carried on in Mozambique; provided, however, that the Government

~tiV

47



will at all times during the life of the Petroleum Operations ensure in

accordance with Article 28, that measures taken in the interest of safety,

health, welfare or the protection of the environment are in accordance with

standards generally accepted from time to time in the international petroleum

industry and are not unreasonable.



11.9 In the event that, after the Effective Date, any other tax is introduced in the

Republic of Mozambique which is not of the type set out in Article 11 and, as

a result, there is an adverse effect of a material nature on the economic value

derived from the Petroleum Operations by the Concessionaire, the Parties will,

as soon as possible thereafter, meet to agree on changes to this EPC which will

ensure that the Concessionaire obtains from the Petroleum Operations,

following such changes, the same economic benefits as it would have obtained

if the change in the law had not been effected.



48



1



Article 12

Production Bonuses



The Concessionaire shall pay the following production bonuses to the Government,

which shall not be a recoverable cost for the purposes of Annex "C" of this EPC:

Production Bonuses

payable in United

States dollars



At the Commencement of Initial Commercial



US$ 5,000,000.00



Production



When production from the EPC Area first reaches



US$ 10,000,000.00



20,000 BOE per day average for a calendar

month



When production from the EPC Area first reaches



US$ 20,000,000.00



each further tranche of 50,000 BOE per day

average for a calendar month



For the purpose of this Article:

(i)



"Commencement of Initial Commercial Production" means the date on

which Commercial Production has been sustained for a period of thirty

(30) consecutive days from the EPC Area; and



(ii)



"BOE" means the equivalent number of Barrels of Crude Oil resulting

when Natural Gas is converted to Crude Oil on the basis of one (1)

Barrel of Crude Oil for each six thousand (6,000) standard cubic feet

of Natural Gas.



49



Article 13

Lifting Arrangements



13.1 (a)



The Concessionaire shall, subject to provisions of this EPC regulating

the production and sale of Petroleum, be entitled to lift and export

freely its entitlement to Petroleum Produced under this EPC.



(b)



Each Party shall take its entitlement to Petroleum consistent with Good

Oilfield Practices at an approximately regular rate throughout each

calendar year.



(c)



Not later than ninety (90) days prior to the date scheduled for the

commencement of Commercial Production, the Parties shall establish

offtake procedures covering the scheduling, storage and lifting of

Petroleum and such other matters as the Parties shall agree. Such

procedures shall be consistent with Good Oil Field Practices.



13.2 Notwithstanding Article 9.2 or instructions given in accordance with Article

9.2, the Government may by six (6) months notice given to the Concessionaire

or Operator require the Concessionaire or Operator to sell on behalf of the

Government during the succeeding calendar year unless otherwise instructed

the whole or any portion of the volume of Petroleum Production Tax taken in

kind and when applicable Profit Petroleum not previously committed to

which the Government is entitled pursuant to this EPC during said succeeding

year. The quantity of such Profit Petroleum, which the Government desires to

sell shall be specified in said notice. The Concessionaire or Operator shall sell

that quantity of Petroleum on the open market at the best price reasonably

obtainable and remit the proceeds of the sale directly and forthwith to the

Government.



The Concessionaire or Operator shall not charge the



Government any fee for the selling of the Petroleum of the Government.



50



Article 14

Conservation of Petroleum and Prevention of Loss



14.1 The Concessionaire shall, before carrying out any drilling, prepare and submit

for review by MIREM a well programme including a contingency plan

designed to achieve rapid and effective emergency response in the event of a

blow-out or fire, escape, waste or loss of Petroleum or damage to Petroleum

bearing strata.



14.2 In the event of a blow-out or fire, escape, waste or loss of Petroleum or

damage to Petroleum bearing strata, the Concessionaire shall notify MIREM

within twenty-four (24) hours of becoming aware of such occurrence,

promptly implement the relevant contingency plan and as soon as practicable

thereafter submit a full report thereon to MIREM.



14.3 Without prejudice to the obligations of the Concessionaire under Article 29, in

the case of relinquishment or surrender by the Concessionaire or termination

of the rights of the Concessionaire pursuant to this EPC, the Concessionaire

shall within ninety (90) days from the date of such relinquishment, surrender

or termination, in respect of the whole of the EPC Area or, as the case may be,

any part of the EPC Area which has been relinquished or surrendered:



(a)



plug or close off, in a manner consistent with Good Oil Field Practices,

all wells drilled as part of the Petroleum Operations unless otherwise

agreed between MIREM and the Concessionaire.



(b)



take all action necessary, in accordance with Good Oil Field Practices,

to prevent hazards to human life or to the property of others or the

environment resulting from conditions in the EPC Area or, as the case

may be, any part thereof caused by Petroleum Operations, being

conditions which were or ought with reasonable diligence to have been

evident at the time of relinquishment, surrender or termination.



51



I



I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I



Article 15

Decommissioning



15.1 If in the reasonable expectation of the Concessionaire, the Concessionaire will

cease to produce Petroleum under this EPC from the EPC Area, the EPC

expires, is cancelled or surrendered pursuant to the proceedure stipulated in

this EPC and applicable law the Concessionaire shall submit to MIREM for

approval a Decommissioning Plan. The Decommissioning Plan shall be

prepared in accordance with applicable law and shall include but not be

limited to:

(a)



particulars, separately set out in respect of each Development and

Production Area, of measures to be taken, to effect decommissioning

including but not limited to:

(i)



decommissioning of equipment and installations for each

Development and Production Area;



(ii)



timely removal of equipment and installations not required for

ongoing Petroleum Operations in any other Development and

Production Area; and



(iii)



any other steps that may reasonably be required in order to

prevent hazard to human life, or to the property of others or to

the environment.



(b)



estimates of the time required to complete operations under the plan;



(c)



a budget for operations under the plan, including particulars of the

costs of decommissioning equipment and installations;



(d)



a schedule of breakdowns from the Decommissioning Fund in order to

meet the costs of implementing the plan; and



52



(e)



such environmental, engineering and feasibility studies as may be

necessary to support the proposed plan.



15.2 The Decommissioning Plan shall be prepared in compliance with applicable

law and the provisions of Article 28 and shall ensure that decommissioning is

conducted in a manner which will give effect to standards generally

recognised as applicable in the international petroleum industry and the

Concessionaire's standards for decommissioning.



15.3 In the event that the Concessionaire does not submit a Decommissioning Plan

to MIREM within the time allowed, MIREM may serve upon the

Concessionaire a notice requiring the Concessionaire to submit to MIREM,

within a period of ninety (90) days from date on which the notice was served,

a Decommissioning Plan. If within that period no Decommissioning Plan is

submitted, MIREM may commission consultants of international standing to

prepare a Decommissioning Plan.



15.4 A Decommissioning Plan prepared by a consultant in accordance with

applicable law and this Article shall be implemented by the Concessionaire in

accordance with its terms as though it were an obligation of the

Concessionaire set forth in Article 28. The cost of commissioning engineering

consultants to prepare a consultant's plan shall be payable by the

Concessionaire to the Government.



15.5 In the event that the Concessionaire considers that production from a

Development and Production Area will cease before a Decommissioning Plan

has been prepared, decommissioning measures for that Development and

Production Area will be prepared by the Concessionaire in accordance with

the requirement for decommissioning set out in Articles 15.3 and 15.4, and

where those measures have been approved by MIREM will take effect as an

amendment to the Development Plan for that Development and Production

Area.



53



15.6 Not later than at the commencement of Petroleum production from within the

EPC Area, the Concessionaire shall establish in a bank of its choice an interest

bearing United States dollar account or such other currency account to be

mutually agreed by the Parties to be denominated as the Decommissioning

Fund into which the Concessionaire shall set aside from time to time funds to

be able to cover the decommissioning costs calculated in accordance with this

EPC to meet the estimated costs of implementing an approved



1



Decommissioning Plan. At the time of establishment of the account for the

Decommissioning Fund the Concessionaire shall deposit United States dollars

fifty thousand (US$ 50,000) or equivalent if an alternative currency is agreed.



1

1



I



I



15.7 The calculation and payments of estimated future decommissioning costs into

the Decommissioning Fund shall be governed as follows:



a) The estimates of: (i) the initial recoverable reserves and the projected

production schedule and (ii) total decommissioning costs for the

Concessionaire proposed decommissioning solution as well as reasonable

alternative decommissioning solutions, shall be prepared by the

Concessionaire in United States dollars or in such other currency determined

by applicable law and submitted for Government approval. The Government

shall select from the proposals submitted by the Concessionaire a preliminary

decommissioning solution to form the basis for the calculation of

decommissioning costs to be covered by the Decommissioning Fund created

for the purpose of covering such decommissioning costs. Adequate provisions

for successive revisions of such estimates shall, when required herein, required

by applicable law or deemed necessary by the Concessionaire due to

substantial changes in fact also be included in any updated Decommissioning

Plan.



b) In any calendar year in which the Concessionaire did not submit to the

Government a revised Decommissioning Plan or the total estimated

decommissioning cost, Concessionaire shall update the value of the latest total

estimated decommissioning cost preliminary approved by the Government in

order to account for the United States dollar (or when applicable any other

54



/4,



relevant currency) escalation of such approved estimated decommissioning

costs in the period between the calendar year in which such costs were

estimated and the then current calendar year. For this purpose, and for each

calendar year, the applicable annual United States dollar escalation index shall

be based on the Producers Price Index for the Drilling of Oil and Gas Wells as

published by the United States Bureau of Labor Statistics. The annual index to

be used in year "n" shall be determined by difference between the annual

index relating to the year in which the latest approved estimate is determined

and the same annual index relating such year "n". In the event the United

States Bureau of Labor Statistics ceases, for any reason whatsoever, to publish

the Producers Price Index for the Drilling of Oil and Gas Wells or when an

alternative currency is selected, the Parties shall determine either an

alternative independent internationally recognised source, or an alternative

representative index.



15.8 The Concessionaire will not withdraw money from the Decommissioning

Fund save for the purpose of meeting the costs of implementing an approved

Decommissioning Plan and all statements relating to the Decommissioning

Fund provided by the bank from time to time shall be copied to MIREM.



15.9 Payments into the Decommissioning Fund shall be cost recoverable in

accordance with provisions applicable to this EPC.



15.10 Costs incurred by the Concessionaire to implement an approved

Decommissioning Plan shall be cost recoverable in accordance with

provisions in that regard set out in Article 9 and for the purpose of IRPC shall

be treated as an operating expense save where, in either case, such costs have

been funded by withdrawals from the Decommissioning Fund.



15.11 Any funds remaining which have been cost recovered in the Decommissioning

Fund after the approved Decommissioning Plan has been completed shall be

treated as Profit Petroleum and the remaining balance shall be shared in

accordance with the provision of Article 9.10.



55



15.12 In the event that at the time of implementing any Decommissioning Plan there

are insufficient funds available in the Decommissioning Fund to fund the

operations of that plan, the shortfall shall be met in full by the Concessionaire.



56



Article 16

Insurance



16.1 The Concessionaire shall effect and maintain, in respect of Petroleum Operations,

unless otherwise agreed between the Parties, all insurance required by applicable

Mozambican law and, in the event that the insurance is procured from a

jurisdiction other than the Republic of Mozambique, applicable law of such other

jurisdiction and such other insurance as MIREM and the Concessionaire may

agree from time to time. Such insurance shall at least include insurance against

the following risks:

(a)



loss or damage to all Installations and equipment which are owned or used

by the Concessionaire in the Petroleum Operations;



(b)



pollution caused in the course of the Petroleum Operations by the

Concessionaire for which the Concessionaire may be held responsible;



(c)



property loss or damage or bodily injury suffered by any third party in the

course of the Petroleum Operations by the Concessionaire for which the

Concessionaire may be liable to indemnify the Government;



(d)



the cost of removing wrecks and cleaning up operations following an

accident in the course of the Petroleum Operations by the Concessionaire;

and



(e)



the Concessionaire's and/or the Operator's liability for its employees

engaged in the Petroleum Operations.



16.2 In relation to Development and Production Operations, the Concessionaire shall

submit to MIREM a programme for the provision of an "All Risks" insurance

which may, inter alia, cover physical damage to the facilities under construction

and installation as well as legal liabilities arising out of the Development and

Production Operations.



57



16.3 Any insurance required to be effected by the Concessionaire pursuant to the

provision of Articles 16.1 and 16.2 may, at the Concessionaire's discretion and

subject to the approval of MIREM, be provided by one or more of the following

options:

(a)



non-insurance wherein the Concessionaire itself carries the risks and no

premia are charged; provided, however, that in the case of any losses or

damages resulting from a risk where the Concessionaire has elected to noninsure, such losses or damages shall not be recoverable costs for the

purpose of Annex "C"of this EPC;



(b)



insurance through an insurance company wholly owned by the Operator or

the Concessionaire in which case the premia charged shall be at prevailing

international insurance market rates;



(c)



the Concessionaire utilising for the benefit of Petroleum Operations

insurance which is placed as part of a global coverage in which case the

premia charged shall be at the rates obtained for such global coverage; or



(d)



subject to Article 19, insurance through the international insurance markets

at prevailing rates, provided that:



(i)



an insurance company wholly owned by the Operator or a

Concessionaire may participate in any internationally placed

insurance or reinsurance; and



(ii)



the Concessionaire shall have the option to tender and effect all

appropriate reinsurance for any insurance placed through insurance

companies registered in the Republic of Mozambique.



16.4 Unless otherwise approved by MIREM, the Concessionaire shall competitively

tender all renewable insurances placed into the international markets at least once

every three (3) years.



58



16.5 The Concessionaire shall require its Subcontractors to carry equivalent insurance

of the type and in such amount as is required by law and is customary in the

international petroleum industry in accordance with Good Oil Field Practices.



,\J



59



)0/



Article 17

Natural Gas



17.1 The Concessionaire shall have the right to use Natural Gas extracted from

reservoirs within the EPC Area for the Petroleum Operations in the EPC Area

including but not limited to power generation, pressure maintenance and recycling

operations.



17.2 The terms and conditions relating to the use and production of Associated Natural

Gas shall be as follows:



(a)



In the event the Concessionaire elects to process and sell Associated

Natural Gas, the Concessionaire shall notify MIREM and, for the purposes

of cost recovery and entitlement of production, such Natural Gas shall be

treated by the Parties in the same way as other Natural Gas.



(b)



In the event the Concessionaire elects not to process and sell Associated

Natural Gas not used for purposes stipulated in Article 17.1 or paragraph

(c) below, the Government may offtake without any payment to the

Concessionaire but at the Government's sole risk and cost, such Natural

Gas at the gas/oil separator; provided that such offtake does not materially

disrupt or delay the conduct of the Petroleum Operations.



(c)



The Concessionaire may re-inject any Associated Natural Gas which is not

taken by Government pursuant to paragraph (b) above, used for Petroleum

Operations, processed and sold by the Concessionaire, or taken by

Government in accordance with paragraph (b) above, and the costs of such

disposal shall be recoverable to the extent that such re-injection is included

in the Development Plan.



17.3 The terms and conditions relating to the Appraisal Program and the commercial

assessment of the production and sale of non-Associated Natural Gas shall be as

follows:



60



(a)



On completion of an Appraisal Programme relating to a Discovery of nonAssociated Natural Gas made by the Concessionaire and the submission of

an appraisal report thereon, the "Commercial Assessment Period" shall, if

the Concessionaire so requests, commence and shall continue in respect of

any Discovery Area for a period of five (5) years, exercisable at the sole

option of the Concessionaire. An extension shall be granted upon

application by the Concessionaire to the Government, for a second period

of up to three (3) years. An appraisal report submitted under this Article

shall include the estimated recoverable reserves, projects delivery rate and

pressure, quality specifications and other technical and economic factors

relevant to the determination of a market for available Natural Gas. The

Concessionaire may, at any time during the Commercial Assessment

Period, inform the MIREM by notice that the Petroleum reservoir located

in any Discovery of non-Associated Natural Gas made by the

Concessionaire in respect of which an appraisal report has been submitted,

is commercial.



(b)



If the Concessionaire does not request a Commercial Assessment Period

pursuant to paragraph (a) above within one hundred eighty (180) days

from the date on which the appraisal report was submitted, the

Concessionaire shall inform the MIREM by notice whether any Discovery

of non-Associated Natural Gas made by the Concessionaire in respect of

which an appraisal report has been submitted, is commercial.



Where the Concessionaire pursuant to this Article gives notice that any Discovery

of non-Associated Natural Gas made by the Concessionaire is commercial, that

notice shall, for the purpose of this EPC, be a notice of Commercial Discovery.

17.4 The Commercial Assessment Period shall end on the first to occur of:

(a)



the date following that on which Concessionaire gives a Notice of

Commercial Discovery under Article 17.3;



(b)



the date that the Concessionaire voluntarily surrenders the Discovery Area

to which the Commercial Assessment Period relates; or

61



(c)



expiry of the period to which Concessionaire is entitled to under Article

17.3.



17.5 The Concessionaire shall be deemed to have relinquished all rights to the

Discovery of non-Associated Natural Gas if it has not given a notice of

Commercial Discovery under Article 17.3 by the end of the Commercial

Assessment Period or on earlier relinquishment of that portion of the EPC Area.

17.6 The Concessionaire shall be responsible for investigating market opportunities and

seek to develop a market for non-Associated Natural Gas produced from any

Development and Production Area and shall sell such non-Associated Natural Gas

on a joint dedicated basis on terms common to all the Persons constituting the

Concessionaire. Every contract for the sale of such non-Associated Natural Gas

made by the Concessionaire under this Article shall be subject to approval by the

MIREM. In applying for such approval the Concessionaire shall demonstrate to

the MIREM that the prices and other terms of sale of such Natural Gas represents

the market value obtainable for such Natural Gas, taking into consideration a fair

market cost for transporting the Natural Gas from the Delivery Point to the

purchaser and having regard to the alternative uses and markets that can be

developed for such Natural Gas.



17.7 With its application for approval of any gas sales contract, pursuant to Article

17.6, the Concessionaire may apply in respect of any Development and Production

Area from which non-Associated Natural Gas will be produced for sale under that

gas sales contract, for an extension of the Development and Production Period and

where such extension is necessary to facilitate the sale of gas under any such

contract MIREM will grant the same.



62



Article 18

Employment and Training



18.1 Subject to the Government's security review of any individual entering

Mozambique and the procedures and formalities of the applicable Mocambican

law relating to immigration the Government shall provide the necessary permits or

other approvals required for the employment and admission into the Republic of

Mozambique of Expatriate Personnel employed by the Concessionaire or its

Subcontractors for the purpose of this EPC.



18.2 In the conduct of the Petroleum Operations, the Concessionaire shall endeavour to

employ citizens of the Republic of Mozambique having appropriate qualifications

to the extent possible at all levels of its organisation, as Sub-Contractors or

employed by Sub-Contractors. In this connection, the Concessionaire shall, in

consultation with MIREM, propose and carry out an effective training and

employment programme for its Mozambican employees in each phase and level of

operations, taking account of the requirements of safety and the need to maintain

reasonable standards of efficiency in the conduct of the Petroleum Operations.

Such employees may be trained in the Republic of Mozambique or abroad as

required by the training programmes prepared by the Concessionaire.



18.3 The Concessionaire shall co-operate with MIREM in giving a mutually agreed

number of Government employees the opportunity to participate in training

activities provided by the Concessionaire or any of its Affiliated Companies for

their employees, specifically for Government employees.



18.4 In order for MIREM to monitor the fulfillment of the employment and training

obligations contained in this Article, the Concessionaire shall annually submit its

recruitment and training programmes to MIREM.



18.5 The Concessionaire shall pay two million United States dollars (US$ 2,000,000)

per year for institutional support to the Government during the term of this EPC.

This amount may be used as institutional support to the entities involved in

promotion and administration of Petroleum Operations. Such initial payment shall

63



be made to the Government within thirty (30) days from the Effective Date, and

each such subsequent payment shall be made to the Government within thirty (30)

days following each anniversary of the Effective Date.



18.6 During the Exploration Period and the Development and Production Period, the

Concessionaire shall pay to the Government one million United States dollars

(US$ 1,000,000) per year, to be spent on training support programmes within the

Government. The Concessionaire and the Government may mutually agree to

training activities to be funded by Concessionaire. In such instances the agreed

amount of funding shall be used as a credit against the following year's training

obligation. The first payment shall be made on the first anniversary of the

Effective Date of this EPC and subsequent payment shall be made on the

subsequent anniversaries thereof.



18.7 The Concessionaire shall pay to the Government one million United States dollars

(US$ 1,000,000) per year during the term of this EPC, for social support projects

for the citizens of the Republic of Mozambique in areas where Petroleum

Operations take place. The Concessionaire may recommend social programs to

be funded by the Concessionaire and if agreed by the Government the agreed

amount of funding shall be considered as a credit against the following year's

social support obligation. The first payment shall be made on the first anniversary

of the Effective Date of this EPC and each subsequent payment shall be made on

the subsequent anniversaries thereof



18.8 The Concessionaire shall include as part of the Development Plan proposals for

the activities required to satisfy the obligations contained in Article 18.3 during

the Development and Production Period.



18.9 The sums expended by the Concessionaire to satisfy the obligations contained in

this Article shall be recoverable costs for the purpose of Annex "C"of this EPC.



64



I1I



I



Article 19

Indemnification and Liability



19.1 The Concessionaire shall indemnify and hold the Government harmless from and

against any and all claims instituted against the Government by third parties in

respect of injury, loss or damage caused by the Concessionaire in the conduct of

the Petroleum Operations in which the Concessionaire participates, provided that

the claims are duly qualified by the third party or the Government. In no case shall

the Concessionaire's liability under this Article include punitive damages.



19.2 The Government shall indemnify and hold the Concessionaire, its Subcontractors

and any of its Affiliated Companies harmless from and against any and all claims

instituted against the Concessionaire, its Subcontractors and/or any of its

Affiliated Companies by third parties in respect of injury, loss or damage caused

by the acts or omissions of the Government in its commercial capacity.



19.3 Except as provided for in Article 19.8 no Party hereto shall settle or compromise

any claim for which another Party is responsible hereunder without the prior

written consent of such other Party, and in the event that it does so, the indemnity

aforesaid shall not have effect in relation to the claim so settled or compromised.



19.4 Notwithstanding anything to the contrary in this EPC, the Concessionaire, its

Subcontractors and any of its Affiliated Companies carrying out Petroleum

Operations on behalf of the Concessionaire shall not be liable to the Government

and the Government shall not be liable to the Concessionaire, for consequential

loss or damage including but not limited to inability to produce Petroleum, loss of

production, loss of profit or punitive damages.



19.5 Subject to Article 19.4, in carrying out Petroleum Operations under this EPC the

Concessionaire shall be liable for any injury, loss or damage suffered by the

Government and caused by the Concessionaire or by any Affiliated Company or

Subcontractor carrying out Petroleum Operations on behalf of the Concessionaire

if such injury, loss or damage is the result of the Concessionaire's, the Affiliated



65



I

I

I

I

I

I

I

I

I

I

I

I

I

1

I

I

I

I

I

I

1



Company's or the Subcontractor's failure to meet the standards required by this

EPC.



19.6 Any claim pursued by any third parties which would entitle any of the Parties

(together the "Indemnified Party") of this EPC to be indemnified by any of the

other Parties of this EPC (together the "Indemnifying Party") shall be promply

communicated by notice to the Indemnifying Party so that the Indemnifying Party

may promptly intervene in the claim and pursue its defence. Such notice shall

include a description of the third party claim and shall be accompanied by copies

of all relevant papers received by the Indemnified Party and its counsel with

respect to such third party claim. The Indemnified Party shall cooperate with the

Indemnifying Party and its counsel in contesting such third party claim. If the

Indemnified Party fails promptly to communicate by notice as provided above and

thereby causes the Indemnifying Party not to be able to properly pursue its

defence, shall lose its rights to the indemnification under this Article.



19.7 If within thirty (30) days of receipt of such claim notice, the Indemnifying Party

notifies the Indemnified Party that it elects to assume the defense of such claim,

then the Indemnifying Party shall have the right to defend, at its cost and expense,

such claim by all appropriate proceedings including any compromise or settlement

thereof, so long as any settlement agreement does not provide for or result in any

continuing liability or obligation on the Indemnified Party in respect of such third

party claim.



19.8



If the Indemnifying Party fails timely to elect to assume the defense of such

claim, then the Indemnified Party shall have the right to defend at the sole cost

and expense of the Indemnifying Party the third party claim by all appropriate

proceedings including any compromise or settlement thereof.



66



Article 20

Title



20.1 Title to the Concessionaire's entitlement of Petroleum Produced under this EPC

shall pass to the Concessionaire at the Wellhead. Thereafter the Government and

the Concessionaire shall own the Petroleum jointly, and in undivided shares, until

each takes individual title to and delivery of its entitlement of Petroleum at the

Delivery Point.



20.2 The Concessionaire shall finance the cost of all facilities and equipment to be used

in Petroleum Operations. Subject to applicable law and this Article the

Concessionaire shall have the right to use such facilities and equipment for

Petroleum Operations during the term of this EPC and any extensions thereof until

the EPC expires, is surrendered or cancelled, in which case the title to said

facilities and equipment at the option of the Government and without additional

compensation may by transferred to the Government.



20.3 Concessionaire shall be the owner of facilities and necessary appurtenant

equipment for the purpose and use in Petroleum Operations under this EPC unless

otherwise approved by the Government. The provisions of Article 20.2 above with

respect to the title of property passing to the Government shall not apply to

equipment approved by the Government as belonging to third parties. Moveable

facilities and equipment owned by foreign third parties may be freely exported

from the Republic of Mozambique in accordance with the terms of the applicable

agreement.

20.4 Third parties may subject to terms and conditions stipulated by applicable

petroleum law have the right to the use of available spare capacity of facilities and

necessary appurtenant equipment on terms and conditions to be agreed between

the parties and acceptable to the Government. Such terms and conditions shall

include a tariff that shall represent the payment for the Concessionaire's cost of

additional investments required for facilitating such third party use as well as

operational costs and a profit element reflecting the risk taken by the owner of the

facilities. The tariff for third party use of facilities and appurtenant equipment

67



shall be subject to approval by the Government. When the parties can not agree to

access or a reasonable tariff for third party use, the matter may, be settled by: (a)

an independent commission of three (3) members acting as experts selected in

accordance with Articles 30.3(i), 30.5 and 30.6; (b) arbitration; or, (c) the

competent judicial authorities.



20.5 Third party use of facilities and necessary appurtenant equipment shall only take

place when such third party use is not materially negatively affecting

Concessionaire Petroleum Operations and is feasible from a technical,

environmental and safety point of view.



68



Article 21

Rights of Inspection



MIREM shall have the right at its own cost, save for transport and accommodation to be

provided by the Concessionaire, to post duly appointed representatives on site on a

permanent basis at metering stations, provided that the number of such appointed

representatives shall be as many as may be mutually agreed by MIREM and the

Concessionaire and such representatives shall not interfere with any Petroleum

Operations.



69



I



I

I

I

I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I

1



Article 22

Accounting and Audits



22.1 The Concessionaire shall be responsible for maintaining accounting records of all

costs, expenses and credits of the Petroleum Operations in accordance with the

provisions of Annex "C" of this EPC. The said accounting records shall be kept in

the Republic of Mozambique.



22.2 MIREM shall have the right to audit and inspect the Concessionaire's accounting

records in accordance with the provisions of Annex "C".



70



Article 23

Confidentiality



23.1 This EPC, the Documentation and other records, reports analyses, compilations,

data, studies and other materials (in whatever form maintained, whether

documentary, computer storage or otherwise) are confidential (hereinafter referred

to as "Confidential Information") and except as authorised by applicable law or

this Article shall not be disclosed to any third party without the prior written

consent of all the Parties hereto, which consent shall not be unreasonably

withheld.



23.2 Nothing in this Article shall prevent the disclosure of Documentation, excluding

the Concessionaire's interpretations and assessments, to a third party by the

Government:



(a)



if it relates to an area which is no longer part of the EPC Area; or



(b)



with the written consent of the Concessionaire, which shall not be

unreasonably withheld if, in the judgment of the Government, the

Documentation might have significance for the assessment of prospectivity

in an adjoining area over which the Government is offering Exploration

rights.



23.3 Restrictions on disclosure imposed by this Article shall not apply to a disclosure

made reasonably:



(a)



if it is required for the purpose of any arbitration or legal proceedings or

claim relating to this EPC or to the Petroleum Operations;



(b)



to a Subcontractor, or consultant in connection with the conduct of

Petroleum Operations;



(c)



by the Concessionaire or Operator to a third party where such disclosure is

essential to the safe conduct of Petroleum Operations;

71



(d)



to an Affiliated Company;



(e)



by the Concessionaire to a third party for the purpose of entering into a

contract for data exchange with another entity operating in Mozambique

where all data exchanged relates to Petroleum Operations within

Mozambique;



by any Person constituting the Concessionaire to a bona fide intending

assignee of an interest under this EPC or an interest in any Person

constituting the Concessionaire;



(g)



to a third party in connection with and for the purpose of the sale or

proposed sale of Petroleum from the EPC Area;



(h)



to a third party in connection with the financing or proposed financing of

Petroleum Operations;



(i)



which is required by any applicable law or by the rules or regulations of

any recognised stock exchange on which shares of the disclosing Party or

any of its Affiliated Companies are listed; or



(j)



if, and to the extent that, it is already public knowledge without improper

disclosure hereto.



Any Confidential Information disclosed pursuant to paragraphs (b), (d), (e), (f) or

(h) of this Article 23.3 shall be disclosed on terms that ensure that such

Confidential Information is treated as confidential by the recipient.



23.4 None of the Persons constituting the Concessionaire shall be required to disclose

any of its proprietary technology or that of their Affiliated Companies or

proprietary technology of a third party licensed to the Persons constituting the

Concessionaire or the Operator.



72



Article 24

Assignment



24.1 Subject to Article 9.13 and this Article the Concessionaire, and where the

Concessionaire is more than one Person every Person who constitutes the

Concessionaire, may assign to another Person its rights and obligations

hereunder or an undivided proportionate part thereof. The same applies to

other direct and indirect transfers of interest or participation in the EPC,

including, inter alia, assignment of shareholdings or any legal instrument

which provides or may provide decisive control over a Person constituting the

Concessionaire or its Participating Interest in this EPC. Save as provided in

Article 24.2, an assignment shall require the prior written consent of the

Minister of of Mineral Resources.



24.2 No consent shall be required by the Minister of Mineral Resources in case of

an assignor who is not in material breach of any of the terms and conditions

hereof in respect of an assignment:



(a)



as a result of an Assignment Notice served on a Defaulting Participant

under this EPC; or



(b) if required to give effect to the default procedures under a joint operating

agreement concluded in relation to the Petroleum Operations.



24.3 Each assignment made pursuant to this Article shall be effected by an

instrument in writing to be executed by the assignee on terms whereby such

assignee accepts and agrees to become a Person constituting the

Concessionaire and to be bound by the terms and conditions of this EPC

including all appurtenant documents required by an administrative decision or

applicable law and free of any transfer charge or fees.



73



24.4 No unitisation pursuant to this EPC or applicable law or any adjustment to the

portion of the unitised Discovery allocated to the EPC Area shall be

considered to be an assignment under this Article.



74



Article 25

Force Majeure



25.1 The non-performance or delay in performance, wholly or in part, by the

Government or the Concessionaire of any obligation under this EPC

excepting an obligation to make payments hereunder, shall be excused if, and

to the extent that, such non-performance or delay is caused by Force Majeure.



25.2 For the purpose of this EPC, the term "Force Majeure" means any cause or

event beyond the reasonable control of, and not brought about at the instance

of, the Party claiming to be affected by such event, and which has caused the

non-performance or delay in performance. Without limitation to the generality

of the foregoing, events of Force Majeure shall include natural phenomena or

calamities including but not limited to, epidemics, earthquakes, storms,

lightning, floods, fires, blowouts, wars declared or undeclared, transboundary

hostilities, blockades, civil unrest or disturbances, labour disturbances, strikes,

quarantine restrictions and unlawful acts of government.



25.3 The Party claiming suspension of its obligations under this EPC on account of

Force Majeure shall:



(a)



promptly notify the other Parties of the occurrence thereof;



(b)



take all actions that are reasonable and legal actions to remove the

cause of Force Majeure but nothing herein shall require the

Concessionaire, subject to applicable law, to resolve any labour dispute

except on terms satisfactory to the Concessionaire; and



(c)



upon removal or termination thereof, promptly notify the other Parties

and take all reasonable action for the resumption of the performance of

its obligations under this EPC as soon as possible after the removal or

termination of Force Majeure.



75



25.4 Where under this EPC the Concessionaire is required or has the right to do

any act or to carry out any programme within a specified period or the rights

of the Concessionaire hereunder are to subsist for a specified period the

specified period shall be extended so as to take reasonable account of any

period during which by reason of Force Majeure the Concessionaire has been

unable to carry out the programme necessary to exercise a right, carry out its

obligations or enjoy its rights hereunder.



25.5 Where a Force Majeure situation continues for more than fifteen (15)

consecutive days, the Parties shall meet forthwith in order to review the

situation and to agree on the measures to be taken for the removal of the cause

of Force Majeure and for the resumption in accordance with the provisions of

this EPC of the performance of the obligations hereunder.



76



I

I

I

I

I

1

I

1

I

I

I

1

I

I

I

I

I

I

I

I

I



Article 26

Foreign Exchange Control



26.1 The Concessionaire shall at all times comply with the procedures and formalities

relating to dealings in foreign exchange which may be in force in the Republic of

Mozambique from time to time and the Government undertakes to ensure that

those procedures and formalities will not in any way diminish the rights accorded

to the Concessionaire under clauses 26.2 to 26.8.



26.2 The Concessionaire shall have the right but not the obligation:



(a)



to open and keep one or more accounts denominated in Mozambican

currency with any bank in the Republic of Mozambique authorised by

Banco de Mocambique for this purpose and to dispose freely of the sums

deposited therein without restriction.



Such accounts may be credited only with:



(i)



the proceeds of the conversion into Mozambican currency pursuant

to Article 26.2(c) of United States dollar funds deposited in the

accounts referred to in Article 26.2(b);



(ii)



the unused balance of any sum drawn from such account; and



(iii)



amounts received in Mozambican currency in respect of funds

related to Petroleum Operations including sale of Petroleum or of

any rental, refund or other credit received by the Concessionaire

which apply to any charge made to the accounts under this EPC.



(b)



to open and keep one or more accounts denominated in United States

dollars, with any bank in the Republic of Mozambique authorised by

Banco de Mocambique for this purpose, to freely import and deposit into

such account funds required for the conduct of Petroleum Operations and

to freely dispose of the sums deposited therein without restriction,

77



f -7

//



provided always that such accounts are credited only with sums deposited

in United States dollars;



(c)



to purchase Mozambican currency from banks in the Republic of

Mozambique, exchange houses, other financial institutions or elsewhere,

authorised by Banco de Mocambique for this purpose.



26.3 (a)



The Concessionaire and the Operator acting on behalf of the

Concessionaire shall have the right to open and keep up to four (4)

accounts (as well to open and keep further accounts outside the Republic

of Mozambique with the prior consent of the Banco de Mocambique) with

any bank outside the Republic of Mozambique, in any foreign currency,

and freely dispose of the sums deposited therein without restriction, with

funds related to Petroleum Operations. Such accounts, however, shall not

be credited with the proceeds of the sale of Mozambican currency without

the prior consent of the Banco de Mocambique except for funds generated

by the sale within the Republic of Mozambique of Petroleum, or of assets

held in respect of Petroleum Operations, which may be credited to the

aforesaid accounts without the need for prior consent.



(b) Save in respect of funds needed by the Concessionaire to discharge its

obligations under this EPC to the Government, which payments may be

made out of proceeds deposited in such offshore accounts, the

Concessionaire shall have the right to retain abroad all proceeds and

payments under this EPC received in said bank accounts, and to dispose

freely of the same without any obligation to convert the whole or any part

of such proceeds and payments to Mozambican currency or to otherwise

repatriate the same or any part thereof to the Republic of Mozambique;

provided, however, that subject to applicable law, the estimated amount of

tax due in respect of the Concesssionare's share of Profit Petroleum shall

be remitted to an account in the Republic of Mozambique within forty-five

(45) days, and all amounts to which the Government is entitled shall be

remitted to the Republic of Mozambique within thirty (30) days.



78



(c) All payments to the Government and to ENH shall be made in United

States dollars, unless the Parties have agreed otherwise, to two accounts

domiciled in the Republic of Mozambique, the first to be indicated by the

Government and the other by ENH.



(d) The Concessionaire shall be obliged to report periodically on the operation

of the accounts referred to in clause 26.3(a), above. Specifically, the

concessionaire shall copy the Government on monthly bank statements

received. The Government shall be entitled to audit such accounts.

Amounts spent on any such audits shall be cost recoverable. The

Concessionaire shall wave banking confidentiality as to the Government in

respect of such accounts in order to facilitate any such audits.



26.4 Subject to withholding tax due, any non-resident Subcontractor and any of the

Expatriate Personnel of the Concessionaire, the Operator or of any Subcontractors,

shall be entitled to receive in any currency other than Mozambican currency the

whole or any part of his compensation outside the Republic of Mozambique. All

payments to resident subcontractors shall be made exclusively in Mozambique.



26.5 This foreign exchange regime shall not apply to ENH or its legal successor, in the

event that same is a Mozambican Person, as a Person constituting Concessionaire

under this EPC, which shall be subject to the regime set forth in applicable law.



26.6 Subject to clause 26.3(b), above, the Concessionaire may receive, remit and retain

abroad and freely dispose of all or any part of the proceeds realised from the sale

of its share of Petroleum, including the portion of Crude Oil for the recovery of

costs and the Profit Petroleum to which it is entitled.



26.7 Subject to withholding tax due, the Concessionaire shall have the right freely to

declare and pay dividends to their shareholders and to remit the same to a place

outside Mozambique under the terms of applicable law.



26.8 The Government and the Concessionaire shall develop procedures under which

amounts demonstrably expended under this EPC that are cost recoverable, as well

79



I



I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I

I

I

I



as such further amounts demonstrably expended as may be classifiable as capital

expense under applicable law, shall be entitled to capital registration

notwithstanding the account from which the corresponding payments were made.



80



Article 27

Nature and Extent of the Rights of the Concessionaire



27.1 Subject to any right that the Government may have under the laws of

Mozambique for imperative reasons in the national interest to acquire Petroleum

to which the Concessionaire holds title, and the right of the Government to collect

Petroleum Production Tax in kind pursuant to Article 11.6(d), the Concessionaire

may, by export or otherwise, freely sell or otherwise dispose of its entitlement to

Petroleum as provided for in this EPC.



27.2 The rights granted under this EPC to the Concessionaire and its Subcontractors

shall include the right of use and enjoyment of the land and maritime areas

encompassed in the EPC Area, for the purpose of conducting Petroleum

Operations. For that purpose Concessionaire and its Subcontractors may construct

and operate such works, facilities, platforms, structures and pipelines as may be

necessary. Such rights to be exercised by the Concessionaire provided, however,

that the lawful occupier of any land in the EPC Area shall retain any rights he may

have to graze stock upon or cultivate the surface of the land, except to the extent

that such grazing or cultivation interferes with Petroleum Operations in any such

area. Further, for the purpose of conducting Petroleum Operations, Concessionaire

and its Subcontractors may conduct and operate works, facilities, platforms,

structures and pipelines necessary in the EPC Area. Such rights to be exercised by

the Concessionaire, provided, however, that Persons shall retain rights they may

have to fishing or aquaculture, except to the extent such activities interfere with

Petroleum Operations in such area.



27.3 The right of the Concessionaire to use the land, maritime area or sea bed shall

continue to apply to acreage initially included within the EPC Area but

subsequently relinquished in accordance with the terms of this EPC where such

use is reasonably necessary for purposes of conducting Petroleum Operations in

the EPC Area then remaining under this EPC.



27.4 For the purposes of carrying out Petroleum Operations, the Concessionaire and

any Subcontractors shall have at all times access to and from the EPC Area and to

81



any other area in the Republic of Mozambique where the Concessionaire has

acquired or constructed facilities, subject to Articles 27.8(f) and (g).



27.5 The rights of the Concessionaire under Articles 27.2, 27.3, 27.4, 27.6, and 27.7

shall be exercised reasonably so as to affect as little as possible the interests of any

lawful occupier of land in the EPC Area.



27.6 Where in the course of conducting Petroleum Operations in the EPC Area the

Concessionaire causes disturbance to the rights of the lawful occupier of any land

or causes damage to his growing crops, trees, buildings, stock or works the

Concessionaire shall pay to the lawful occupier such compensation in respect of

any such disturbance or damage as Concessionaire may be adjudged liable to pay

by final, non-appealable order or judgement of a court or arbitral body under

Mozambican jurisdiction.



27.7 Where in the course of conducting Petroleum Operations in the EPC Area the

Concessionaire causes disturbance to the rights of a Person having their fishing

fields or grounds occupied, aquaculture activities limited, fishing or aquaculture

equipment moved to less favourable locations from a maritime resource

management or commercial point of view, as well as having their equipment,

catch or harvest polluted or damaged the Concessionaire shall pay to the Person

affected such compensation in respect of any such demonstrable disturbance or

damage as Concessionaire may be adjudged liable to pay by final, non-appealable

order or judgement of a court of or arbitral body under Mozambican jurisdiction..



27.8 For the purposes described in this Article the following rights are granted to the

Concessionaire subject to and in accordance with the provisions of the work

programme related thereto and applicable law:



(a)



to drill for and have the free use of water and impound surface waters and

to establish systems for the supply of water for the Petroleum Operations

and for consumption by its employees and its Subcontractors;



82



(b)



with the consent of, and subject to such terms and conditions agreed with,

any Person having the right to dispose of such minerals, to carry away and

use for Petroleum Operations in Mozambique, materials such as gravel,

sand, lime, gypsum, stone and clay; provided that if the Person having the

right to dispose of the same is the Government or an agency of

Government; then Concessionaire shall have the use of such minerals for

Petroleum Operations as provided for by applicaable law;



(c)



to erect, set up, maintain and operate engines, machinery, pipelines,

gathering lines, umbilicals, storage tanks, compressor stations, pumping

stations, houses, buildings and all other constructions, installations, works,

platforms, facilities and other fixtures which are required in furtherance of

its Petroleum Operations;



(d)



to erect, set up, maintain and operate all communication and transportation

systems and facilities but shall not, save for temporary purposes, do so

unless drawings of and locations for their sites have been submitted to and

approved by the Government, under reasonable conditions of installation

and operation of such systems and facilities;



(e)



to erect, maintain and operate harbour and terminal facilities for use

exclusively in Petroleum Operations, together with the necessary means of

communication and transport between such facilities and any part of the

EPC Area; provided that the consent of the Government to the location of

such works shall first be obtained;



with respect to lands located outside of the EPC Area, to have the right of

way over land not in the beneficial occupation of any Person and in the

case of land in the beneficial occupation of the Government or any state

company, agency or instrumentality of the Government to have right of

way on such reasonable terms and conditions as the Government and the

Concessionaire may agree; and



83



1

(g)



with respect to lands located outside of the EPC Area, to have, otherwise

than aforesaid, the use of land necessarily required for the conduct of

Petroleum Operations with the agreement of the Person holding a right

affected, including the lawful occupier of land or, in the case of

unoccupied land or land occupied by the Government or any state

company, agency or instrumentality of the Government on such reasonable

terms and conditions as the Government shall specify, provided that if the

Concessionaire is unable to reach agreement with the Person so affected

on the terms and conditions for the use of any such right including land the

Concessionaire shall immediately notify the Government. If the use of the

rights by the Concessionaire is to be of a temporary nature, not exceeding

one (1) year, the Government shall authorise such temporary use upon

deposit by the Concessionaire with the Government of a sum by way of

compensation to such Person holding the right for loss of use and damage

to its interest. If the use is to be for a period longer than one (1) year, the

Government shall authorise the use by the Concessionaire of the right in

question upon deposit by the Concessionaire with the Government of such

sum by way of compensation and shall direct appropriate proceedings to

grant the Concessionaire the right to use and legally utilize the right under

applicable law from time to time in force as if the Petroleum Operations

were in all respects a work of public utility.



27.9 The Concessionaire shall be subject to the procedures and formalities required by

applicable law for the exercise of the rights set forth in this Article.



1



1



I

I



27.10 (a)



In the event that the Government exercises any right it may have under the

applicable laws of Mozambique to acquire for imperative reasons in the

national interest Petroleum belonging to the Concessionaire the

Government shall give not less than forty five (45) days notice of the

exercise of such right and of the volumes it wishes to acquire, and the

Concessionaire shall supply the volumes so notified from the Petroleum to

which the Concessionaire is entitled under this EPC at the Delivery Point

or such point that may be agreed or such point within Mozambican

jurisdiction designated by the Government. Additional cost incurred by

84



Concessionaire in order to deliver such Petroleum at any other point than

the Delivery Point with facilities and equipment in place shall be

reimbursed to the Concessoinaire by the Government and the cost of any

new facilities and equipment to be used for such delivery shall be paid by

the Government.



(b)



The Government shall pay the Concessionaire the full market value of the

Petroleum so acquired determined in accordance with Article 10.

Payment for the Petroleum so acquired in any calendar month shall be

made in United States dollars within thirty (30) days after the end of that

calendar month. The Concessionaire may receive, remit and retain abroad

and freely dispose of all or any part of the sums so paid.



(c)



The Government shall not exercise its right to acquire Petroleum

belonging to the Concessionaire:



(i)



in respect of any month unless during that month the Government

is taking Petroleum Production Tax entirely in kind pursuant to

Article 11.5;



(ii)



unless it is also exercising the same right rateably among all

producers of Petroleum within the Republic of Mozambique (to the

extent practicable taking into account the geographical location of

the production in relation to the geographical location of the

requirements).



27.11 The Government undertakes that so long as this EPC subsists:



(a)



The Government, its political subdivisions, agencies and instrumentalities,

to the extent that they have or may acquire the power to do so, will not

expropriate, nationalise or intervene in the assets, rights, interests or any

other property of any kind of the Concessionaire held for the purpose of

Petroleum Operations including the rights held by the Concessionaire

hereunder.

85



1



1

Without prejudice to the rights of the Government acting through MIREM

to regulate Petroleum Operations in the Republic of Mozambique, for the

purpose of this undertaking, the Government shall be deemed to have

intervened in the property or assets of the Concessionaire if (otherwise

than pursuant to a judgment or in exercise of its rights as a mortgage

creditor, or in accordance with the law of insolvency, liquidation or



1



creditor's rights) it assumes power of management over such property or

assets or exercises effective control of such property or assets.



(b)



In the event of a breach of Article 27.11(a), nothing in the provisions of

Article 19.5 shall be read or construed as preventing consideration of the

projected flow of profits (if any) from Petroleum Operations hereunder for

the purpose of determining the value of property or assets expropriated,

nationalised or made subject to intervention.



1

1



(c)



In the event that the Petroleum Law is repealed or amended, the

Government undertakes to ensure that this EPC remains in full force and

effect provided always that nothing in this provision will be construed as

requiring the Government to relieve the Concessionaire from compliance

with the provisions of applicable law relating to Petroleum Operations, not

inconsistent herewith, which may be in force from time to time.



27.12 (a)



Where for the purpose of conducting Petroleum Operations hereunder the

Concessionaire, Operator or any Subcontractor requires from MIREM, the

Government or from any agency or instrumentality of the Government or

from a political subdivision thereof any approvals, licences, permits,

authorisations, consents or releases or any assistance, advice or guidance

relating to the above, then subject to the terms and conditions of this EPC,

the same shall be granted or given expeditiously and without undue delay.



(b)



Without prejudice to the generality thereof, the undertaking set out in

Article 27.12 (a) shall apply to:



86



formalities relating to the import and export of goods including the

export of Petroleum Produced hereunder;

formalities relating to the use by the Concessionaire of any form of

transport for the movement of employees, equipment and materials

and to the use of communication and port facilities in the Republic

of Mozambique;

the grant of permits or other approvals required for the admission

into and employment in the Republic of Mozambique of Expatriate

Personnel;

the grant of land rights or the permits or other approvals necessary

for the use of land in accordance with this Article;

the grant of rights to take or use water and minerals;

procedures and formalities relating to foreign exchange; and

approval of assignments and, to the extent required, transactions

relating to the shares of any Person constituting the Concessionaire.



The Government will expedite all formalities regarding the

Concessionaire's registration to do business in Republic of Mozambique

and the new registration of any leases, contracts or other documents. The

Government will, to the extent that circumstances and resources permit,

ensure that the Concessionaire and its employees and property enjoy

reasonable protection in Republic of Mozambique.



27.13



In the event of changes in petroleum legislation or in other Mozambican

legislation affecting Petroleum Operations that may, individually or in the

aggregate, create a material adverse effect to the economic benefits of the

Concessionaire or to the Government in terms of this EPC, the Parties shall, as

soon as possible after any of the above-mentioned situations occur, meet to

verify and agree on the changes, in all cases, that may be required to the EPC in

order to restore, as closely as possible, the economic benefits that the

Concessionaire would have derived if the change in the legislation had not been

effected.



87



I



I

I

I

I

I

1

1

I

I

I

I

I

I

I

I

I

I

I

I



The provisions of this Article shall not be read or construed as imposing any

limitation or constraint on the scope, or due and proper enforcement, of

Mozambican legislation which does not discriminate, or have the effect of

discriminating, against the Concessionaire, and provides for the protection of

health, safety, labor or the environment, or for the regulation of any category of

property or activity carried on in Mozambique, provided, however, that the

Government will at all times during the period of Petroleum Operations ensure

that, in accordance with the terms of Article 31, measures taken for the

protection of health, safety, labor or the environment are in accordance with

standards that are reasonable and generally accepted in the international

petroleum industry.



88



Article 28

Protection of the Environment



28.1 The Government will at all times during the life of the Petroleum Operations

ensure in accordance with this Article, that measures taken in the interest of

safety, health, welfare or the protection of the environment are in accordance

with standards generally accepted from time to time in the international

petroleum industry and are not unreasonable.



28.2 In carrying out Petroleum Operations hereunder the Concessionaire shall:



(a)



in accordance with accepted standards in the international petroleum

industry employ up-to-date techniques, practices and methods of

operation for the prevention of environmental damage, the control of

waste and the avoidance of unnecessary loss of, or damage to, natural

resources;



(b)



observe applicable laws and regulations of general application in force

from time to time in the Republic of Mozambique for the protection of

the environment; and



(c)



comply strictly with the obligations relating to the protection of the

environment it has assumed under any approved Development Plan .



28.3 The Concessionaire undertakes for the purposes of this EPC to take all

necessary and adequate steps in accordance with Good Oil Field Practices to:



(a)



ensure, if the Concessionaire is otherwise legally responsible, proper

compensation for injury to Persons or damage to property caused by

the Petroleum Operations;



(b)



avoid irremediable environmental damage to the EPC Area and

adjoining or neighbouring lands and marine areas caused by the

Concessionaire's Petroleum Operations; and

89



(c)



rehabilitate at its own cost all areas that suffer environmental damage

as a result of the Petroleum Operations.



28.4 If the Concessionaire fails to comply with the terms of Articles 28.2 or 28.3

or contravenes any law on the prevention of environmental damage and such

failure or contravention results in any environmental damage, the

Concessionaire shall take all necessary and reasonable measures to remedy

such failure or contravention and the effects thereof.



28.5 (a)



If the Government has reasonable grounds to believe that any works or

installations erected by the Concessionaire or any operations carried

out by the Concessionaire in the EPC Area are endangering or may

endanger Persons or any property of any other Person or is causing

pollution or harming wildlife or the environment to a degree which the

Government considers unacceptable, the Government shall notify the

Concessionaire of its concerns and the Government and the

Concessionaire shall immediately consult to agree on remedial

measures to be taken by the Concessionaire. Said remedial measures

will be undertaken within a reasonable period of time to repair any

damage and to prevent further damage to the extent reasonably

practicable. If there is a disagreement between the Government and

the Concessionaire regarding the existence of a problem of the type

described in this Article or the remedial action to be taken by the

Concessionaire, such matter shall be submitted to a sole expert for

determination pursuant to Article 30.6.



(b)



In the case of any matter referred to a sole expert under Article 28.5(a),

if requested by the Government, the Concessionaire shall undertake

such temporary measures to address the Government's concerns as

may be reasonably requested by the Government.



28.6 Without limitation to the generality of Articles 28.2, 28.3, 28.4 and 28.5, the

Concessionaire shall cause a consulting firm or individuals, approved by the

90



Government on account of their special knowledge of environmental matters,

to carry out an environmental impact study on terms of reference determined

by the Concessionaire and approved by the Government, in order to establish

what the effect will be on the environment, human beings, wildlife or marine

life in the EPC Area in consequence of the Petroleum Operations to be

undertaken under this EPC.



28.7 If the Concessionaire fails to comply with any terms contained in this Article

within a reasonable period of time the Government may, after giving the

Concessionaire written notice of such failure to comply and a reasonable

period of time necessary to take corrective action, take any action which may

be necessary to cure such failure, and recover, immediately after having taken

such action, all payments incurred in connection with such action from the

Concessionaire together with interest at the prevailing LIBOR rate plus one

(1) percentage point compounded quarterly and calculated from the date such

expenditure is made until repaid. "LIBOR" means the annual rate equal to the

three (3) month term of the London interbank offered rate for United States

dollar deposits as published by the Wall Street Journal or, if not published

therein, then by the Financial Times of London, on the first day of the month

following the first date any such payment is incurred. Should a rate not be

quoted for a relevant date (such as weekends or public holidays), then the first

subsequent quoted rate shall be used.



28.8 The Concessionaire and MIREM shall notify each other of any

environmentally, archaeologically, historically or similarly protected areas or

features which might be affected by the Petroleum Operations.



28.9 In the event that Petroleum Operations are intended to be conducted within

the boundaries of any protected area within the EPC Area, the Concessionaire

shall obtain such additional approvals from the Government, as may be

required by applicable law.



91



I

Article 29



I



Surrender and Cancellation



29.1 The Concessionaire on giving to MIREM not less than thirty (30) days notice

may:

1



(a)



if its obligations in respect of any Exploration Period have been

fulfilled, at any time thereafter surrender its rights in respect of the

entire EPC Area with the consequence that no new obligations will

thereafter accrue; and



(b)



at any time, surrender its rights in respect of any acreage forming part

of the EPC Area with the consequence that no new obligations will

thereafter accrue in respect of such acreage; provided, however, that:



(i)



no surrender by the Concessionaire of its rights over any part of

the EPC Area shall relieve the Concessionaire of any of its

obligations as set out in Article 4; and



(ii)



any area surrendered shall be continuously delineated by

meridians and parallels of latitude expressed in whole minutes

of a degree.



29.2 Unless otherwise provided in this Article, the Government may, by notice to

the Concessionaire, cancel this EPC for the reasons given in applicable law,

including in any of the following events:

I

(a)



the Concessionaire is in material breach of the terms and conditions of

this EPC;



(b)



the Concessionaire fails to materially comply within a reasonable

period of time with any final decision reached as a result of arbitration

proceedings conducted pursuant to Article 30.2 or fails within a

reasonable period of time to accept as final and binding the decision of

92

‘.1



I

1

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

1

I

!



a sole expert to whom, pursuant to this EPC, any matter has been

referred under Article 30;



(c)



where the Concessionaire is one Person, an order is made or a

resolution is passed by a court of competent jurisdiction winding up

the affairs of the Concessionaire unless the winding up is for the

purpose of amalgamation or reorganisation and the Government has

been notified of the amalgamation or reorganisation, or if without the

approval of the Government, the majority of the shares in the

Concessionaire are acquired by third parties other than an Affiliated

Company; or



(d)



the Concessionaire is more than one Person and all Persons who

constitute the Concessionaire are for the purpose of Article 29.3(a)

Defaulting Participants.



29.3 (a)



In the event that more than one Person constitutes the Concessionaire,

and in respect of any such Person (hereinafter in this Article referred to

as the "Defaulting Participant") an event occurs of the kind described

in Article 29.2(c) or any such Person (also hereinafter referred to as

the "Defaulting Participant") is in material breach of an obligation

under this EPC which as provided in Article 5.2(a) is a several

obligation, the Government will not be entitled to cancel this EPC

pursuant to Article 29.2 or otherwise, unless all the Persons who

constitute the Concessionaire are Defaulting Participants, but may

subject to Article 29.4, serve on the Defaulting Participant a notice

(hereinafter referred to as an "Assignment Notice").



(b)



Where an Assignment Notice has been served on a Defaulting

Participant, the Defaulting Participant shall forthwith, unconditionally,

without consideration, and free from all encumbrances assign its

undivided participating share in this EPC to the other Persons who

constitute the Concessionaire (the "Non-Defaulting Participants") in

undivided shares in proportion to the undivided shares in which the ✓'

93



,st



Non-Defaulting Participants hold their shares in this EPC, and each of

the Non-Defaulting Participants shall be obliged to accept that

assignment. A Non-Defaulting Participant accepting such an

assignment shall not be responsible for any obligations of the assigning

Defaulting Participant to the Government, or any third party which

accrued prior to the assignment.



29.4 The Government may cancel this EPC pursuant to Article 29.2 or serve an

Assignment Notice under Article 29.3 only if:



(a)



the Government gives not less than ninety (90) days notice (the

"Notice") to the Concessionaire or, as the case may be, the Defaulting

Participant, of an intention to cancel this EPC or to serve an

Assignment Notice stating in detail in the Notice the alleged material

breach or other grounds for cancellation or service of an Assignment

Notice relied upon by the Government;



(b)



the Concessionaire or the Defaulting Participant is given a period of

thirty (30) days from its receipt of the Notice to provide any

information it wishes the Government to consider;



(c)



the Concessionaire or Defaulting Participant is given a period of sixty

(60) days from its receipt of the Notice:



(i)



to cure or remove such material breach or other grounds

specified in the Notice for cancellation or service of an

Assignment Notice; or



(ii)



if such material breach or other grounds aforesaid cannot be

cured or removed within such sixty (60) day period, to

immediately begin efforts to cure or remove the alleged

material breach or other grounds aforesaid and to diligently

pursue such efforts; or



94



(iii)



where it is impossible to cure or remove such material breach

or other grounds aforesaid, to pay reasonable compensation to

the Government , in respect thereof; and



(d)



the Concessionaire or the Defaulting Participant either:



(i)



has failed within the said sixty (60) days to cure or remove such

material breach or other grounds aforesaid pursuant to Article

29.4(c)(i);



(ii)



has failed to diligently pursue efforts to cure or remove such

material breach or other grounds aforesaid pursuant to Article

29.4(c)(ii); or



(iii)



in the event that it is impossible to cure or remove such

material breach or other grounds aforesaid, has failed within the

said sixty (60) days to pay reasonable compensation;



and the Concessionaire or the Defaulting Participant has not

commenced arbitration proceedings pursuant to Article 29.5.



29.5 Any dispute between the Parties as to whether :



(a)



there are grounds under Article 29.2 on which this EPC may be

cancelled;



(b)



there are grounds under Article 29.3 on which an Assignment Notice

may be served on any Person;



(c)



the requirements of Article 29.4(a), (b) and (c) have been satisfied; or



(d)



the Concessionaire or, as the case may be, the Defaulting Participant

has remedied or removed a ground in respect of which this EPC may

be cancelled under Article 29.2 or an Assignment Notice served under

Article 29.3 or whether full, prompt and effective compensation has

been paid in respect of grounds for cancellation or the service of an

Assignment Notice which are impossible to remedy or remove;

95



shall be referred to arbitration under Article 30.



29.6 (a)



Where notice of a dispute has been given by the Concessionaire in

respect of any of the matters specified in Article 29.5, the Government

may not pursuant to Article 29.2 cancel this EPC until the matter or

matters in dispute have been resolved by an award and in that event

only if cancellation is consistent with the award rendered.



(b)



Where the existence of a material breach of the terms and conditions of

this EPC relates to a matter in dispute between the Government and

the Concessionaire which has been referred for determination by a sole

expert pursuant to Article 30.6, a notice served on the Concessionaire

pursuant to Article 29.4 may not rely upon that matter as a reason for

the intended cancellation of this EPC until the sole expert has

determined the matter and in that event only if to do so would be

consistent with the way in which the matter has been so determined.



96



Article 30

Consultation, Arbitration and Independent Expert



30.1 For the purpose of this article there are two Parties, the Government and the

Concessionaire.



30.2 A dispute shall be resolved, if possible, by negotiation between the Parties. A

notice of the existence of a dispute shall be given by a Party to another in

accordance with the provisions of Article 35. In the event that no agreement is

reached within thirty (30) days after the date one Party notifies the other that a



1I

I



dispute exists, or such longer period that is specifically provided for elsewhere

in this EPC, either Party shall have the right to have such dispute determined

by arbitration or an expert as provided for in this Article 30. Arbitration and

expert determination as aforesaid shall be the exclusive method of determining

a dispute under this EPC.



30.3 Subject to the provisions of this Article 30, and save for any matter to be

referred to a sole expert as provided in clause 30.6, the Parties shall submit



I



any dispute arising out of or in connection with this EPC which cannot be

resolved by negotiation as provided in clause 30.2 to arbitration as hereinafter

provided:

(a)



the dispute shall be submitted to the International Centre for Settlement

of Investment Disputes ("ICSID") for settlement by arbitration

pursuant to the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States in accordance with the

arbitration rules thereof in effect on the Effective Date (the

"Convention"). It is hereby stipulated that the transaction to which this

EPC relates is an investment. The Parties agree that Anadarko shall be

treated as a national of Mauritius for the purposes of ICSID;



(b)



the seat of the arbitration shall be Geneva, Switzerland, and the law of

the merits of the arbitration shall be Mozambique law. The arbitration

97



\./



shall be conducted in the English language. If for any reason an ICSID

arbitral tribunal declines to approve Geneva as the place of arbitration,

the place of arbitration for that case shall be the Permanent Court of

Arbitration in The Hague. Notwithstanding Article 32, the English

version of this EPC signed by the Parties shall be used as the official

translation in arbitral proceedings;



I



1I



I

I



(c)



ENH has been designated to ICSID by the Government in accordance

with Article 25(1) of the Convention. The Government has given its

approval to this consent to arbitration in acoordance with Article 25(3)

of the Convention;



(d)



if the dispute is not between one or more Parties who are nationals of a

Contracting State, on the one hand, and the Government and/or ENH,

on the other hand, or if for any reason ICSID refuses to register a

request for arbitration or an arbitral tribunal established in accordance

with the ICSID Arbitration Rules determines that the dispute is not

within the jurisdiction of ICSID, the dispute shall be be settled by

arbitration in accordance with the UNCITRAL Arbitration Rules. In

the event that UNCITRAL Arbitration Rules shall be applied, the

appointing authority shall be the Permanent Court of Arbitration in The

Hague;



(e)



an award by an arbitrator or arbitrators shall be final and binding on all

Parties;



(0



the arbitral panel shall be composed of three (3) arbitrators to be

appointed in accordance with the ICSID Rules, provided that, upon

mutual agreement of both Parties, the arbitration may be conducted by

a sole arbitrator appointed under the ICSID Rules. Unless both Parties

have agreed that the dispute shall be settled by a sole arbitrator, the

claimant Party shall nominate in the request for arbitration, and the

respondent Party shall nominate within thirty (30) days of the

registration of the request, one (1) arbitrator pursuant to the ICSID

Rules. Within a period of thirty (30) days from the date when both

arbitrators have accepted their appointments the arbitrators so

98



appointed shall agree on a third arbitrator, who shall act as Chairman

of the arbitral tribunal. If either Party fails to nominate an arbitrator as

provided above, or if the arbitrators nominated by the Parties fail to

agree on a third arbitrator within the period specified above, then

ICSID shall make such appointments as necessary in accordance with

the ICSID Rules. If both Parties have agreed that the dispute shall be

settled by a sole arbitrator the sole arbitrator shall be nominated by

agreement between them subject to acceptance by the nominated

arbitrator; provided that if the Parties are unable to agree on a nominee

for sole arbitrator within thirty (30) days from the date of the



1



registration of the request, then ICSID shall appoint the sole arbitrator

in accordance with the ICSID Rules;



(g)



insofar as practicable, the Parties shall continue to implement the terms

of this EPC notwithstanding the initiation of arbitral proceedings and

any pending disputes;



(h)



the provisions set out in this Article 30 shall continue after the

termination of this EPC; and



(i)



Neither any sole expert nor any arbitrator of the arbitral tribunal, as

applicable, shall be of the same nationality as any Party.



30.4 An award or a decision, including an interim award or decision, in arbitral



1



I

I



proceedings pursuant to this Article 30 shall be binding on the Parties and

judgment thereon may be entered in any court having jurisdiction for that

purpose. Each of the Parties hereby irrevocably waives any defences based

upon sovereign immunity and waives any claim to immunity:



(a)



in respect of proceedings in aid of arbitration or to enforce any such

award or decision including, without limitation, immunity from service

of process and from the jurisdiction of any court; and



99



(b)



in respect of immunity from the execution of any such award or

decision against the property of the Republic of Mozambique held for

a commercial purpose.



Parties in this clause 30.4 shall be understood to include each Person

comprising the Concessionaire.



30.5 Any matter in dispute of a technical nature not involving interpretation of law

or the application of this EPC and which is required to be referred to a sole

expert for determination under the provisions of this EPC, including Articles

10.3 (e) and 28.5 (a) of this EPC and Article 2.1 (e) of Annex "C" or other

issues of a substantially equivalent nature to said clauses (or with respect to

any other matter which the Parties may otherwise agree to so refer) shall be

referred to a sole expert for determination by a Party giving notice to such

effect pursuant to Article 35. Such notice shall contain a statement describing

the dispute and all relevant information associated therewith. A sole expert

shall be an independent and impartial person of international standing with

relevant qualifications and experience appointed pursuant to the mutual

agreement of the Parties. Any sole expert appointed shall act as an expert and

not as an arbitrator or mediator and shall be instructed to endeavour to resolve

the dispute referred to him within thirty (30) days of his appointment, but in

any event within sixty (60) days of the appointment. Upon the selection of the

sole expert, the Party receiving the notice of referral above shall submit its

own statement containing all information it considers relevant with respect to

the matter in dispute. The decision of the sole expert shall be final and binding

and not subject to any appeal, save for fraud, corruption or manifest disregard

of applicable procedure of this EPC. If the Parties are unable to agree on the

appointment of a sole expert within twenty (20) days after a Party has received

a notice of referral under this Article the sole expert shall be selected by the

ICC Centre for Expertise, and the person so selected shall be appointed by the

Parties.



30.6 The sole expert shall decide the manner in which any determination is made,

including whether the Parties shall make oral or written submissions and

100



arguments, and the Parties shall co-operate with the sole expert and provide

such documentation and information as the sole expert may request. All

correspondence, documentation and information provided by a Party to the

sole expert shall be copied to the other Party, and any oral submissions to the

sole expert shall be made in the presence of all Parties and each Party shall

have a right of response. The sole expert may obtain any independent

professional or technical advice as the sole expert considers necessary. The

English version of this EPC signed by the Parties shall be used as the official

translation in any determination by the sole expert. The fees and expenses of a

sole expert appointed under the provisions of Article 30.5 shall be borne

equally by the Parties.



30.7 The Parties hereby agree not to exercise any right to institute proceedings to

set aside any interim or final arbitral award made pursuant to this Article 30,

except that nothing in this Article 30.7 shall be read or construed as imposing

any limitation or constraint on either Party's right to seek to nullify any such

interim or final arbitral award (a) rendered by an ICSID arbitral tribunal on the

limited grounds and in accordance with the procedure set forth in Article 52 of

the Convention or (b) rendered by the arbitral tribunal pursuant to the

UNCITRAL Arbitration Rules on the limited grounds set forth in Article 52 of

the Convention.



101



Article 31

Applicable Law



31.1 This EPC shall be governed by and construed in accordance with the laws of

the Republic of Mozambique.



31.2 (a)



The Government and the Concessionaire agree to cooperate on

preventing corruption. The Parties undertake to take administrative

disciplinary actions and rapid legal measures in their respective

responsibilities to stop, investigate and prosecute in accordance with

national law any person suspected of corruption or other intentional

misuse resource.



(b)



No offer, gift, payments or benefit of any kind, which would or could

be construed as an illegal or corrupt practice, shall be accepted, either

directly or indirectly, as an inducement or reward for the execution of

this EPC or for doing or not doing any action or making any decision

in relation to this EPC.



(c)



The above is equally applicable to the Concessionaire, its Affiliated

Companies, agents, representatives, sub-contractors or consultants

when such offer, gift, payments or benefit violate:



(i)



the applicable law of the Republic of Mozambique;



(ii)



the laws of the country of formation of the Concessionaire or of

its ultimate parent company (or its principal place of

business);or,



(iii)



the principles described in the Convention on Combating

Bribery of Foreign Public Officials in International Business

Transactions, signed in Paris on December 17, 1997, which

entered into force on February 15, 1999, and the Convention's

Commentaries.

102



31.3 References in this EPC to applicable law are without prejudice to the rights of

the Parties under clauses 9.11, 11.9 and 27.13 when such applicable law is

Mozambican law.



103



Article 32

Language



This EPC has been drawn up in the Portuguese and English languages and three (3)

originals of each text have been prepared for signature by the Government and the

Concessionaire. One (1) signed original of each text will be retained by the Parties.

Both the Portuguese and English text are binding. However, the Portuguese text will

prevail in case of conflict.



104



Article 33

Joint Operating Agreement



33.1 A joint operating agreement shall be signed between Persons constituting the

Concessionaire immediately upon execution of this EPC.



33.2 The joint operating agreement is subject to the approval of the Government

and such an approval is a condition for the EPC.



33.3 Every agreement other than the joint operating agreement relating to the

Petroleum Operations made between the Persons who constitute the

Concessionaire shall be consistent with the provisions of this EPC and shall

be submitted to MIREM as soon as the same has been executed.



105



Article 34

Future Agreements



It is understood that any written agreement which may at any time be concluded

between the Concessionaire on the one hand and the Government on the other, as may

be required or desired within the context of this EPC shall be deemed to have been

approved to the same extent as if it was originally included in this EPC.



106



Article 35

Notices



35.1 All notices, invoices and other communications hereunder shall be deemed to

have been properly given or presented, if delivered in writing in person or by

courier or sent by facsimile confirmed by courier at the addresses indicated in

Article 35.2 with the charges associated with the delivery of the notice,

invoice or other communication being paid by the sender.



35.2 All such notices shall be addressed to the Government or the Concessionaire,

as the case may be, as follows:



(a)



The Government



MINISTERIO DOS RECURSOS MINERAIS

Predio Montepio, Avenida Fernao de Magalhaes, 34, 1s floor

Caixa Postal 4724

Maputo, Mozambique



(b)



Attention



Chairman of the National Petroleum Institute



Telephone



+258 21 320935



Telefax



+258 21 430 850



Anadarko Mocambique Area 1, Limitada

Av. do Zimbabwe, 1214

Maputo



Attention



Manager



Telephone



+258 21 214 400



Telefax



+258 21 494 710



107



1



I

I

I

I

I

I

1

I

I

I

I

I

I

I

I

I

1

I

I

!



(c)



Empresa Nacional de Hidrocarbonetos E.P.

Av. 25 de Setembro, 270, block 1

Time Square, 4th floor

Caixa Postal 4787

Maputo, Mozambique

Attention



Chairman



Telephone



+258 21 429456



Telefax



+258 21 324808



35.3 Subject to Article 35.4 each Party hereto may substitute or change the

aforesaid address by giving written notice thereof to the others.



35.4 The Concessionaire shall at all times maintain an address in Maputo for the

purpose of service of notice.



108



IN WITNESS WHEREOF, the Government and the Concessionaire have signed this

EPC in three (3) originals in each of the Portuguese and English languages, as of the

date first herein above stated.



The Government

By:

Esperanca Laurinda Francisco Nhivane Bias

Minister of Mineral Resources

Date:



1

-) <.-- 1



Anadarko Moc. bique



'

1 Limitada



By:

Peffer

Title:

Date:



nager

W//



Empresa Naciona1 de Hidrocarbonetos E.P.

By:

Issufo Anuar D uto A duld.

Chairman of ENH Board

Date:



jA) \



1

ANNEX A

DISCRIPTION OF THE EPC AREA



1



1



1



POINTS



Latitude S



Longitude E



A



10° 24' 53"



40° 29' 34"



E



10° 18' 46"



40° 40' 07"



N



10° 06' 42"



41° 00'



M



12° 00'



41° 00'



D



12° 00' 00"



40° 30' 00"



I

I



1

I

I

I

I

I

I

I

I

1

1

I

I

1

I

I

I

I

I



ANNEX B

MAP OF THE EPC AREA

40°0'0"E



40°30'0"E



41°0'0"E



I



I



I



40°0'0"E



40°30'0"E



41°0'0"E



Annex "C"



EPC Accounting and Financial Procedure



TABLE OF CONTENTS



Section 1 General Provisions



2



1.1 Definitions

1.2 Statements required to be submitted by the Concessionaire

1.3 Language and Units of Account

1.4 Payments

1.5. Audit and Inspection Rights of the Government

Section 2 Classification, Definition and Allocation of Costs and Expenditures



2

2

3

3

4

5



2.1. Exploration Costs

2.2. Development and Production Capital Expenditures

2.3. Operating Costs

2.4. Service Costs

2.5. General and Administrative Expenses

Section 3 Costs, Expenses, Expenditures and Credits of the Concessionaire



5

5

6

7

7

10



3.1 Costs recoverable without further approval of the Government.

3.2 Costs recoverable only with approval of the Government

3.3 Costs not recoverable under the EPC

3.4 Recoverability and Deductibility

3.5 Credit under the EPC

3.6 Duplication of Charges and Credits

Section 4 Records and Valuation of Assets



10

15

15

15

15

16

17



Section 5 Production Statement



18



Section 6 Value of Production and Petroleum Production Tax Statement



19



Section 7 Cost Recovery Statement



20



Section 8 Statement of Expenditure and Receipts



21



Section 9 Final End-of-Year Statement



22



Section 10 Budget Statement



23



Section 11 Long Range Plan and Forecast



24



11.1 Exploration Plan

11.2 Development Forecast

11.3 Changes of Plan and Forecast

Section 12 Revision of Accounting and Financial Procedures



24

24

25

26



Section 13 Conflict with the EPC



27



Annex C

EPC Accounting and Financial Procedure

This Annex is attached to and made part of the Exploration and Production

Concession Contract dated December , 2006 awarded by the Government of

the Republic of Mozambique to Anadarko Mocambique Area 1, Limitada and

Empresa Nacional de Hidrocarbonetos, (ENH) E.P (hereinafter referred to as

"the EPC").



Page 1 of 19



Section 1 General Provisions

1.1



Definitions

For the purposes of this EPC Accounting and Financial Procedure the terms

used here in which are defined in applicable law, the EPC or the Joint

Operating Agreement shall have the same meaning when used in this EPC

Accounting and Financial Procedure.



1.2 Statements required to be submitted by the Concessionaire

(a)



Within ninety (90) days of the Effective Date, the Concessionaire shall

submit to the Government a proposed outline of charts of accounts,

operating records and reports, which outline shall be in accordance

with applicable law and generally accepted and recognised accounting

principles, used in the international petroleum industry. Within ninety

(90) days of receiving the above submission Government shall either

indicate its approval of the proposal or request revisions to the

proposal. Within one hundred and eighty (180) calendar days after the

Government has approved the Concessionaire's proposals, the

Concessionaire and Government shall approve an outline charts of

accounts, operating records and reports which shall describe the basis

of the accounting system and procedures to be developed and used

under the EPC. Following such approval, the Concessionaire shall

expeditiously prepare and provide the Government with formal copies

of the comprehensive charts of accounts related to the accounting,

recording and reporting functions, and allow Government to examine

the Concessionaire's manuals, if any, and to review procedures which

are, and shall be, observed under the EPC.



(b)



Notwithstanding the generality of the foregoing, the Concessionaire is

required to make regular statements relating to the Petroleum

Operations. These Statements are as follows:

(i)



Production Statement (see Section 5 of this Annex);



(ii)



Value of Production and Petroleum Production Tax Statement

(see Section 6 of this Annex);



(iii)



Cost Recovery Statement (see Section 7 of this Annex);



(iv)



Statement of Expenditures and Receipts (see Section 8 of this

Annex);



(v)



Final End-of-Year Statement (see Section 9 of this Annex);



(vi)



Budget Statement (see Section 10 of this Annex);



(vii)



Long Range Plans (see Section 11 of this Annex).



Page 2 of 29



(c)



All reports and statements will be prepared in accordance with the

EPC, applicable law and, where there are no relevant provisions in

either of these, in accordance with generally accepted and recognised

accounting principles used in the international petroleum industry.



1.3 Language and Units of Account

(a)



Accounts shall be maintained in United States dollars and such other

currency as may be required under the applicable law. Metric units

and barrels shall be employed for measurements required under this

Annex. The language employed shall be English and such other

language as may be required under the applicable law. Where

necessary for clarification the Concessionaire may also maintain

accounts and records in other languages, units of measurement and

currencies.



(b)



It is the intent of this Accounting and Financial Procedure that neither

Government nor the Concessionaire should experience an exchange

gain or loss at the expense of, or to the benefit of, the other. However,

should there be any gain or loss from exchange of currency, it will be

credited or charged to the accounts under the EPC.



(c)



Amounts received and costs and expenditures made in Mozambican

Meticais or in United States dollars shall be converted from

Mozambican Meticais into United States dollars or from United States

dollars into Mozambican Meticais on the basis of the average of the

buying and selling exchange rates between the currencies in question

as published by Banco de Mocambique or in accordance with the

applicable law, prevailing on the actual day of the transaction on which

such amounts are received and costs and expenditures are paid, or as

agreed by the Parties.



1.4 Payments

(a)



Except as provided in Subsections 1.4(b) and (c), all payments between

the Parties shall, unless otherwise agreed, be in United States dollars

and through a bank designated by each receiving Party.



(b)



Payment of any tax by the Concessionaire shall be made in accordance

with the provisions of the EPC and the applicable law.



(c)



Discharge of the Concessionaire's obligation with respect to the

Petroleum Production Tax and the Government's share of Profit

Petroleum shall be made in accordance with the EPC.



(d)



All sums due by a Concessionaire to the Government under the EPC

during any calendar month shall, for each day such sums are overdue



Page 3 of 29



during such month, bear interest compounded quarterly at an annual

rate equal to LIBOR plus one (1) percentage point.



1.5. Audit and Inspection Rights of the Government

(a)



Upon giving the Concessionaire sixty (60) calendar days notice, the

competent authority of the Government shall have the right to audit the

Concessionaire's accounts and records maintained hereunder with

respect to each calendar year within three (3) years from the end of

Notice of any exception to the

each such calendar year.

Concessionaire's accounts of any calendar year must be submitted to

the Concessionaire within three (3) years from the end of such calendar

year. For purposes of auditing, the Government may examine and

verify at reasonable times all charges and credits relating to the

Petroleum Operations such as books of account, accounting entries,

material records and any other documents, correspondence and records

necessary to audit and verify the charges and credits. Furthermore the

auditors shall have the right in connection with such audit to visit and

inspect, subject to reasonable notification, all sites, plants, facilities,

warehouses and offices of the Concessionaire serving the Petroleum

Operations including visiting personnel associated with those

operations.



(b)



Without prejudice to the finality of matters as described in Subsection

1.5(a) all documents referred to in that sub-section shall be maintained

and made available for inspection by the Government for such a time

as prescribed by the applicable law.



(c)



In the event that Government does not conduct an audit with respect to

a calendar year or conducts the audit but does not issue an audit report

within the time specified in Subsection 1.5 (a) above, Government

shall be deemed not to have objected the Cost Recovery Statement

prepared and maintained by the Concessionaire and such Cost

Recovery Statement shall be considered true and correct for Cost

Recovery purposes for such calendar year absent manifest disregard of

applicable procedure, fraud or wilful misconduct. In case where

Government conducts a review and issue an audit report, Government

shall be deemed not to have objected to the Cost Recovery Statement

and such Cost Recovery Statement shall be considered true and correct

for Cost Recovery purposes for such calendar year with respect to each

item which is not the subject of an exception in such audit report

absent manifest disregard of applicable procedure, fraud or wilful

misconduct.



Page 4 of 29



Section 2 Classification, Definition and Allocation of Costs

and Expenditures

All expenditures relating to the Petroleum Operations shall, subject to

applicable law be classified, defined and allocated as follows:

2.1. Exploration Costs

Are all direct and allocated indirect costs incurred in the search for Petroleum

in the EPC Area, including but not limited to:

(a)



Aerial, geophysical, geochemical, paleontological, geological,

topographical and seismic surveys and studies and their interpretation.



(b)



Core hole drilling and water well drilling.



(c)



Labour, materials and services used in drilling wells with the object of

finding new petroleum reservoirs or for the purpose of appraising the

extent of Petroleum Reservoirs already discovered provided such wells

are not completed as producing wells.



(d)



Facilities used solely in support of these purposes including access

roads and purchased geological and geophysical information.



(e)



Service Costs allocated to the Exploration Operations on a basis

determined by applicable law or in absence of such law agreed to

between the Government and the Concessionaire on a systematic basis

and, failing agreement, to be determined by a sole expert in accordance

with Article 30 of the EPC.



(f)



General and Administrative Expenses allocated to the Exploration

Operations on a basis determined by applicable law or in absence of

such law agreed to between the Government and the Concessionaire on

a systematic basis and, failing agreement, to be determined by a sole

expert in accordance with Article 30 of the EPC.



2.2. Development and Production Capital Expenditures

These shall consist of all expenditures incurred in the Development and

Production Operations, including but not limited to:

(a)



Drilling wells which are completed as producing wells and drilling

wells for purposes of producing from a Petroleum Reservoir already

discovered whether these wells are dry or producing.



Page 5 of 29



(b)



Completing wells by way of installation of casing or equipment or

otherwise after a well has been drilled for the purpose of bringing the

well into use as a producing well.



(c)



Intangible drilling costs such as labour, consumable material and

services having no salvage value which are incurred in drilling and

deepening of wells for production purposes.



(d)



The costs of field facilities such as flow lines, production and treatment

units, wellhead equipment, subsurface equipment, enhanced recovery

systems, offshore platforms, Petroleum storage facilities, export

terminals and piers, harbours and related facilities, access roads for

production activities.



(e)



Engineering and design studies for field facilities.



(f)



Service Costs allocated to the Development and Production Operations

on a basis determined by applicable law or in absence of such law

agreed to between the Government and the Concessionaire on a

systematic basis and, failing agreement, to be determined by a sole

expert in accordance with Article 30 of the EPC.



(g)



General and Administrative Expenses allocated to the Development

and Production Operations on a basis determined by applicable law or

in absence of such law, agreed to between the Government and the

Concessionaire on a systematic basis and, failing agreement, to be

determined by a sole expert in accordance with Article 30 of the EPC.



2.3. Operating Costs

These are all expenditures incurred in the Petroleum Operations after the start

of the Commercial Production which are other than Exploration Costs,

Development and Production Capital Expenditures, General and

Administrative Expenses and Service Costs, including but not limited to:

(a)



Operating, servicing, maintaining and repairing production and

injection wells and all field facilities completed during the

Development and Production Operations.



(b)



Planning, producing, controlling, measuring and testing the flow of

Petroleum and collecting, gathering, treating, storing and transferring

the Petroleum from the Petroleum Reservoir to the Delivery Point.



(c)



The balance of General and Administrative Expenses and Service

Costs not allocated to the Exploration Operations or the Development

and Production Operations.



Page 6 of 29



2.4. Service Costs

These are direct and indirect expenditures in support of the Petroleum

Operations including warehouses, offices, camps, piers, marine vessels,

vehicles, motorised rolling equipment, aircraft, fire and security stations,

workshops, water and sewage plants, power plants, housing, community and

recreational facilities and furniture, tools and equipment used in these

activities. Service costs in any calendar year shall include the total costs

incurred in such year to purchase and/or construct said facilities as well as the

annual costs to maintain and operate the same. All Service Costs will be

regularly allocated as specified in Subsections 2.1(e), 2.2(f) and 2.3 to

Exploration Costs, Development and Production Capital Expenditures and

Operating Costs.

Service Costs incurred during the period commencing with the Effective Date

and ending with the date of approval by the Government of the first

Development Plan for a proposed Development and Production Area, shall be

fully allocated to Exploration Cost. Commencing with the date of approval by

the Government of the first Development Plan for a proposed Development

and Production Area, and if it becomes necessary allocate Service Costs to or

between Petroleum Operations, such allocation shall be made on an equitable

basis in accordance with applicable law, or in absence of such law, agreed to

between the Government and the Concessionaire on a systematic basis and,

failing agreement, the allocation to be determined by a sole expert in

accordance with Article 30 of the EPC.

The Concessionaire shall furnish a description of its allocation procedures

pertaining to Service Costs, along with each proposed Development Plan.

2.5. General and Administrative Expenses

(a)



All main office, field office and general administrative costs in the

Republic of Mozambique including but not limited to supervisory,

accounting and employee relations services.



(b)



An overhead charge for services rendered outside the Republic of

Mozambique for managing the Petroleum Operations and for staff

advice and assistance including financial, legal, accounting and

employee relations services. This charge shall be five percent (5%) of

contract costs up to five million US dollars (US$5,000,000), three

percent (3%) of that portion of contract costs between five million US

dollars (US$5,000,000) and ten million US dollars (US$10,000,000)

and one and one half percent (1.5%) of contract costs which are in

excess of ten million US dollars (US$10,000,000). The contract costs

referred to herein shall include all Exploration Costs, Development and

Production Capital Expenditures, Operating Costs and Service Costs.



(c)



All General and Administrative Expenses will be regularly allocated as

specified in Subsections 2.1(f), 2.2(g) and 2.3 to Exploration Costs,

Page 7 of 29



c)



Development and Production Capital Expenditures and Operating

Costs.

General and Administrative Expenses incurred during the period commencing

with the Effective Date and ending with the date of approval by the

Government of the first Development Plan for a proposed Development and

Production Area, shall be fully allocated to Exploration Cost. Commencing

with the date of approval by the Government of the first Development Plan for

a proposed Development and Production Area, if it becomes necessary to

allocate General and Administrative Expenses to or between Petroleum

Operations, such allocation shall be made on an equitable basis agreed

between the Parties in accordance with applicable law, failing agreement, the

allocation to be determined by a sole expert in accordance with Article 30 of

the EPC.

Concessionaire shall furnish a description of its allocation procedures

pertaining to General and Administrative Expenses, along with each proposed

Development Plan.



2.6 Decommissioning Fund

For the purpose of costs related to the implementation of a Decommissioning Plan

a Decommissioning Fund shall be established for each Development and

Production Area, commencing from the calendar quarter in whichever of the

following situations first occur:

a) the Petroleum Produced has reached 50% of the aggregate

recoverable reserves as determined in an approved Development

Plan and any successive reappraisal of such initial recoverable

reserves; or

b) five (5) years prior to the expiry or surrender of this EPC or the use

of any facility for the purpose of extracting Petroleum from a

Production and Development Area within this EPC is permanently

terminated.

For every subsequent calendar quarter in which Petroleum is produced, the

Concessionaire shall charge as Operating Costs a portion of the estimated future

cost of Decommissioning.

The amount to be deposited in the Decommissioning Fund for a calendar quarter

shall be charged as Operating Costs subject to the Cost Recovery limitation

stipulated in article 9.5 of the EPC and calculated in the following manner:



Page 8 of 29



QD = (ECA X (CPP/EPR)) - DFB

where:

QD



is the amount of funds to be transferred to

the Decommissioning Fund in respect of the

relevant calendar quarter;



ECA is the estimated cost of abandonment

operations established pursuant to the

Decommissioning Plan;

EPR is the estimated remaining Petroleum

reserves to be recovered at the time the

Decommissioning Fund was opened;

CPP



is the cumulative production of Petroleum

of the relevant calendar quarter



DFB is the Decommissioning Fund balance at the

end of the previous calendar quarter.



Page 9 o[29



Section 3 Costs, Expenses, Expenditures and Credits of the

Concessionaire

3.1



Costs recoverable without further approval of the Government.

Subject to the provisions of the EPC and applicable law, the Concessionaire

shall bear and pay the following costs and expenses in respect of the

Petroleum Operations. These costs and expenses will be classified under the

headings referred to in Section 2. They are recoverable by the Concessionaire

under the EPC and include, but are not limited to the following:

(a)



Surface Rights

This covers all direct costs attributable to the acquisition, renewal or

relinquishment of surface rights acquired and maintained in force for

the EPC Area.



(b)



Labour and Associated Labour Costs

(i)



gross salaries and wages including bonuses and premiums of

the Concessionaire's employees directly engaged in the

Petroleum Operations, irrespective of the location of such

employees, it being understood that in the case of those

personnel only a portion of whose time is dedicated to the

Petroleum Operations, only that pro-rata portion of applicable

salaries, wages and fringe benefits will be charged;



(ii)



the Concessionaire's costs regarding holiday, vacation,

sickness, severance unless for dismissal of an employee without

cause as determined by a court or arbitral body of competent

jurisdiction and disability, retirement and survival payments

applicable to the salaries and wages chargeable under (i) above.

In respect of the severance, retirement, and survival payments

mentioned above, the amount that will be cost recoverable shall

be in proportion of the total time the employee was directly

engaged in the Petroleum Operations on a full time basis to the

employee's total tenure with the Concessionaire and its

Affiliates. If it becomes necessary to allocate these amounts to

or between Petroleum Operations, such allocation shall be

made on an equitable basis in accordance with applicable law,

in the absence of such law as agreed between the Government

and the Concessionaire and, failing agreement, the allocation to

be determined by a sole expert in accordance with Article 30 of

the EPC.



Page 10 of 29



(c)



(iii)



expenses or contributions made pursuant to assessments or

obligations imposed under the applicable law which are

applicable to the Concessionaire's cost of salaries and wages

chargeable under (i) above;



(iv)



the Concessionaire's cost of established plans for employees'

life insurance, hospitalisation, pensions, and other benefits of a

like nature customarily granted to the Concessionaire's

employees;



(v)



reasonable travel and personal expenses of employees of the

Concessionaire including those made for travel and relocation

of the expatriate employees and their families assigned to the

Republic of Mozambique, all of which shall be in accordance

with the Concessionaire's normal practice;



(vi)



any personal income taxes of the Republic of Mozambique

incurred by employees and paid or reimbursed by the

Concessionaire.



Transportation

The cost of transportation of employees, equipment, materials and

supplies necessary for the conduct of the Petroleum Operations.



(d)



Charges for Services

(i)



Third Party Contracts

The actual costs of contracts for technical and other services

entered into by the Concessionaire for the Petroleum

Operations, made with third parties other than Affiliated

Companies of the Concessionaire are recoverable, provided that

the prices paid by the Concessionaire are no higher than those

generally charged by other international or domestic suppliers

for comparable work and services.



(ii)



Affiliated Companies of Concessionaire

Without prejudice to the charges to be made in accordance with

Subsection 2.5, in the case of services rendered to the

Petroleum Operations by an Affiliated Company of the

Concessionaire, the charges will be based on actual costs and

will be competitive. The charges will be no higher than the

most favourable prices charged by the Affiliated Company to

third parties for comparable services under similar terms and

conditions elsewhere. The Concessionaire shall specify the

amount of the charges which contributes an allocated

proportion of the general material, management, technical and

other costs of the Affiliated Company, and the amount which is

Page 11 of 29



4N'



the direct cost of providing the services concerned. If

necessary, certified evidence regarding the basis of prices

charged may be obtained from the auditors of the Affiliated

Company.

(e)



Material

(i)



General

So far as is practicable and consistent with efficient,

economical and internationally accepted operational

requirements, only such material shall be purchased or

furnished by the Concessionaire for use in the Petroleum

Operations as may be required for use in the reasonably

foreseeable future and to the extent that such purchase or

supply are in accordance with the EPC.



(ii)



Warranty of Material

The Concessionaire does not warrant material beyond the

supplier's or manufacturer's guarantee and, in case of defective

material or equipment, any adjustment received by the

Concessionaire from the suppliers/ manufacturers or their

agents will be credited to the accounts under the EPC.



(iii)



Value of material charged to the accounts under the EPC

(a)



Except as otherwise provided in (b) below material

purchased by the Concessionaire for use in the

Petroleum Operations shall be valued to include invoice

price less trade and cash discounts (if any), purchase

and procurement fees plus freight and forwarding

charges between point of supply and point of shipment,

freight to port of destination, insurance, taxes, customs

duties, consular fees, other items chargeable against

imported material and where applicable handling and

transportation expenses from point of importation to

warehouse or operating site, and its costs should not

exceed those then currently prevailing in normal armslength transactions on the open market.



(b)



Materials purchased from Affiliated Companies of the

Concessionaire shall be charged at the prices specified

in (1) and (2) hereof.

(1)



New material (condition "A") shall be valued at

the current international price which should not

exceed the price prevailing in normal armslength transactions on the open market.



Page 12 01'29



(2)



Used material (conditions "B" and "C")

(i) material which is in sound and

serviceable condition and is suitable for

reuse without reconditioning shall be

classified as condition "B" and priced at

seventy-five percent (75%) of the current

price of new materials defined in (1)

above.

(ii)



material which cannot be classified as

condition "B" but which:

(a)



after reconditioning will be

further serviceable for original

function as good second-hand

material condition "B", or



(b)



is serviceable for original

function but substantially not

suitable for reconditioning,



shall be classified as condition "C" and

priced at fifty percent (50%) of the

current price of new material as defined

in (1) above. The cost of reconditioning

shall be charged to the reconditioned

material provided that the condition "C"

material value plus the cost of

reconditioning does not exceed the value

of condition "B" material.

(iii)



material which cannot be classified as

condition "B" or condition "C" shall be

priced at a value commensurate with its

use.



(iv)



material involving erection costs shall be

charged at the applicable percentage, in

accordance to its condition, of the current

dismantled price of new material as

defined in (1) above.



(v)



when the use of material is temporary

and its service to the Petroleum

Operations does not justify the reduction

in price as provided for in (2)(ii) hereof,

such material shall be priced on a basis

that will result in a net charge to the



Page 13 of 29



accounts under the EPC consistent with

the value of the service rendered.

(f)



Rentals, Duties and Other Assessments

All rentals, taxes, levies, charges, fees, contributions and any other

assessments and charges levied by the Government, its political

subdivisions, agencies and instrumentalities, to the extent that they

have or may acquire the power to do so, in connection with the

Petroleum Operations and paid directly or indirectly by the

Concessionaire with the exception of the Corporate Income Tax

imposed on the Concessionaire.



(g)



Insurance and Losses

Insurance premia and costs incurred for insurance arranged in

accordance with the EPC provided that if such insurance is wholly or

partly placed with an Affiliated Company of the Concessionaire, such

premia and costs shall be recoverable only to the extent generally

charged by competitive insurance companies other than an Affiliated

Company of the Concessionaire. Costs and losses incurred as a

consequence of events which are, and in so far as, not made good by

insurance obtained under the EPC are recoverable under the EPC.



(h)



Legal Expenses

All costs and expenses of litigation and legal or related services

necessary or expedient for the procuring, perfecting, retention and

protection of the EPC Area, and in defending or prosecuting lawsuits

involving the EPC Area or any third party claim arising out of

activities under the EPC, or sums paid in respect of legal services

necessary or expedient for the protection of joint interest of the

Government and the Concessionaire are recoverable. Where legal

services are rendered in such matters by salaried or regularly retained

lawyers of the Concessionaire or an Affiliated Company of the

Concessionaire, such compensation will be included instead under

Subsection 3.1(b) or 3.1(d) above, as applicable.



(i)



Training Costs

All costs and expenses incurred by the Concessionaire in training of its

employees located in Mozambique and engaged in the Petroleum

Operations pertaining to activities in the EPC Area and such other

training as required under the EPC or applicable law.



(j)



General and Administrative Expenses

The costs described in Subsection 2.5(a) and the charge described in

Subsection 2.5(b).



Page 14 of 29



(k)



The costs of any guarantee required by the Government under the EPC.



(1)



Payments into the Decommissioning Fund and cost incurred for

decommissioning according to applicable law and the EPC.



3.2 Costs recoverable only with approval of the Government

Interest, fees and related charges incurred on commercial loans raised by the

Concessionaire for the Petroleum Operations to the extent that such interest,

fees and related charges are commensurate with interest, fees and related

charges normally paid on loans of such nature, approval in respect thereof not

to be unreasonably withheld.

3.3 Costs not recoverable under the EPC



3.4



(a)



Petroleum marketing or transportation costs of Petroleum beyond the

Delivery Point.



(b)



Costs of arbitration and the independent expert under Article 30 of the

EPC.



(c)



Petroleum Production Tax and Corporate Income Tax



(d)



Fines and penalties imposed by any public authority in the Republic of

Mozambique or elsewhere.



Recoverability and Deductibility

The determination of whether the costs and expenses set forth herein are

recoverable or non-recoverable shall apply only to this EPC, and shall not be

interpreted to preclude the Concessionaire from deducting said amounts in

computing its net income from the Petroleum Operations for Corporate

Income Tax purposes under applicable law.



3.5 Credit under the EPC

The net proceeds of the following transactions will, subject to applicable law,

be credited to the accounts under the EPC:

(a)



The net proceeds of any insurance or claim in connection with the

Petroleum Operations or any assets charged to the accounts under the

EPC when such operations or assets were insured and the premia

charged to the accounts under the EPC.



(b)



Revenue received from outsiders for the use of property or assets

charged to the accounts under the EPC.



Page 15 of 29



(c)



Any adjustment received by the Concessionaire from the

suppliers/manufacturers or their agents in connection with defective

material the cost of which was previously charged by the

Concessionaire to the accounts under the EPC.



(d)



Rentals, refunds or other credits received by the Concessionaire which

apply to any charge which has been made to the accounts under the

EPC.



(e)



The amounts received for inventory materials under the EPC and

subsequently exported from the Republic of Mozambique without

being used in the Petroleum Operations.

Legal expenses charged to the accounts under Subsection 3.1(h) and

subsequently recovered by the Concessionaire.



3.6 Duplication of Charges and Credits

Notwithstanding any provision to the contrary in this Accounting and

Financial Procedure, it is the intention that there shall be no duplication of

charges or credits in the accounts under the EPC.



Page 16 of 29



Section 4 Records and Valuation of Assets

The Concessionaire shall maintain detailed records of property in use for the

Petroleum Operations in accordance with applicable law and normal practice

in exploration and production activities of the international petroleum

industry. At reasonable intervals but at least once a year with respect to

movable assets with an individual value equal to or greater than US$100 (one

hundred US dollars) per unit and once every five (5) years with respect to

immovable assets, inventories of the property under the EPC shall be taken by

the Concessionaire. The Concessionaire shall give the Government at least

thirty (30) days written notice of its intention to take such inventory and the

Government shall have the right to be represented when such inventory is

taken. The Concessionaire will clearly state the principles upon which

valuation of the inventory has been based. When an assignment of rights

under the EPC takes place a special inventory may be taken by the

Concessionaire at the request of the assignee provided that the costs of such

inventory are borne by the assignee.



Page 17 of 29



Section 5 Production Statement

5.1

Subsequent to the commencement of Commercial Production from the EPC

Area, the Concessionaire shall submit a monthly production statement

(hereinafter referred to as the "Production Statement") to the Government

showing the following information for each Development and Production

Area:

(a)



The quantity of Crude Oil produced.



(b)



The quantity of Natural Gas produced.



(c)



The quantities of Petroleum used for the purposes of carrying on

drilling and production operations and pumping to field storage.



(d)



The quantities of Natural Gas flared.



(e)



The size of Petroleum stocks held at the beginning of the month.



(f)



The size of Petroleum stocks held at the end of the month.



(g)



Any other relevant information as may be required under the

applicable law.



5.2

The Production Statement of each calendar month shall be submitted to the

Government no later than twenty (20) calendar days after the end of such

calendar month.



Page 18 of 29



Section 6 Value of Production and Petroleum Production Tax

Statement

6.1

The Concessionaire shall prepare a statement covering the determination of

the fair market value of Crude Oil and Natural Gas respectively, produced

during each calendar month and the value of the Petroleum Production Tax

payable to the Government. This statement shall contain the following

information:

(a)



The quantities and prices realised therefor by the Concessionaire as a

result of sales of Crude Oil and Natural Gas respectively to third

parties made during the calendar month in question.



(b)



The quantities and the prices realised therefor by the Concessionaire as

a result of sales of Crude Oil and Natural Gas respectively made during

the calendar month in question, other than to third parties.



(c)



The quantity of stocks of Crude Oil and if applicable Natural Gas at the

end of the preceding calendar month.



(d)



The quantity of stocks of Crude Oil and if applicable Natural Gas at the

end of the calendar month in question.



(e)



The total Petroleum Production Tax liability for Crude Oil and Natural

Gas respectively for the calendar month.



(0



Published information available to the Concessionaire, when requested

by the Government, concerning the prices of Crude Oil or Natural Gas

produced by the main petroleum producing and exporting countries

including contract prices, discounts and premia, and prices obtained on

the spot markets.



6.2

The Value of Production and Petroleum Production Tax Statement of each

calendar month shall be submitted to the Government not later than thirty (30)

calendar days after the end of such calendar month.



Page 19 of 29



Section 7 Cost Recovery Statement

7.1

The Concessionaire shall prepare with respect to each calendar quarter a cost

recovery statement (hereinafter referred to as the "Cost Recovery Statement")

containing the following information:

(a)



Recoverable costs carried forward from the previous quarter, if any.



(b)



Recoverable costs for the quarter in question.



(c)



Total recoverable costs for the quarter in question (Subsection 7.1(a)

plus Subsection 7.1(b)).



(d)



Quantity and value of Cost Petroleum taken proportionally in Crude

Oil and Natural Gas and disposed of by the Concessionaire for the

quarter in question.



(e)



EPC costs recovered for the quarter in question.



(0



Total cumulative amount of EPC costs recovered up to the end of the

quarter in question.



(g)



Amount of recoverable EPC costs to be carried forward into the next

quarter.



7.2

The Cost Recovery Statement of each quarter shall be submitted to the

Government no later than sixty (60) calendar days after the end of such

quarter.



Page 20 of 29



Section 8 Statement of Expenditure and Receipts

8.1

The Concessionaire shall prepare with respect to each calendar quarter a

statement of expenditures and receipts under the EPC (hereinafter referred to

as the "Statement of Expenditure and Receipts"). The statement will

distinguish between Exploration Costs, Development and Production Capital

Expenditures and Operating Costs and decommissioning costs including

amounts drawn from the Decommissioning Fund and will identify major items

of expenditures within these categories. The statement will show the

following:

(a)



Actual expenditures and receipts for the quarter in question.



(b)



Cumulative expenditure and receipts for the budget year in question.



(c)



Latest forecast cumulative expenditures at the year end.



(d)



Variations between budget forecast and latest forecast and explanations

thereof.



8.2

The Statement of Expenditure and Receipts of each calendar quarter shall be

submitted to the Government no later than thirty (30) calendar days after the

end of such quarter.



Page 21 of 29



Section 9 Final End-of-Year Statement

The Concessionaire will prepare a Final End-of-Year Statement. The

statement will contain information as provided in the Production Statement,

Value of Production and Petroleum Production Tax Statement, Cost Recovery

Statement and Statement of Expenditures and Receipts but will be based on

actual quantities of Petroleum produced and expenses incurred. Based upon

this statement, any adjustments that are necessary will be made to the

payments made by the Concessionaire under the EPC. The Final End-of-Year

Statement of each calendar year shall be submitted to the Government within

ninety (90) calendar days of the end of such calendar year.



Page 22 of 29



Section 10 Budget Statement

10.1

The Concessionaire shall prepare an annual budget statement (hereinafter

referred to as the "Budget Statement"). This will distinguish between

Exploration Costs, Development and Production Capital Expenditures and

Operating Costs and will show the following:

(a)



Forecast expenditures and receipts for the budget year under the EPC.



(b)



Forecast cumulative expenditures and receipts to the end of the said

budget year.



(c)



A schedule showing the most important individual items of forecast

Development and Production Capital Expenditures for the said budget

year.



10.2

The Budget Statement shall be submitted to the Government with respect to

each budget year no less than ninety (90) calendar days before the start of the

year except in the case of the first year of the EPC when the Budget Statement

shall be submitted within sixty (60) calendar days of the Effective Date.

10.3

It is recognised by the Concessionaire and the Government that the details of

the Budget Statement may require changes in the light of existing

circumstances and nothing herein contained shall limit the flexibility to make

such changes. Consistent with the foregoing, the revision of said Statement is

provided for annually.



Page 23 of 29



Section 11 Long Range Plan and Forecast

The Concessionaire shall prepare and submit to the Government either one or

both of the following two (2) long range plans, whichever is appropriate:

11.1 Exploration Plan

During the Exploration Period, the Concessionaire shall prepare an

Exploration Plan for each period of the current year and next calendar year

commencing as of the first day of January following the Effective Date

(hereinafter referred to as the "Exploration Plan") which shall contain the

following information:

(a)



Estimated Exploration Costs showing outlays for each of the calendar

years covered by the Exploration Plan.



(b)



Details of seismic operations planned for each such year.



(c)



Details of all drilling activities planned for each such year.



(d)



Details of infrastructure utilisation and requirements.



The first such Exploration Plan shall also include the above information for

the period starting on the Effective Date and ending on the last day of

December of that calendar year.

The Exploration Plan shall be revised at the beginning of each calendar year

following of the Effective Date. The Concessionaire shall prepare and submit

to the Government the first Exploration Plan within sixty (60) calendar days of

the Effective Date and thereafter shall prepare and submit to the Government

no less than ninety (90) calendar days before the end of each calendar year

following the Effective Date a revised Exploration Plan.

11.2 Development Forecast

The Concessionaire shall prepare a development forecast for each period of

five (5) calendar years (hereinafter referred to as the "Development Forecast")

commencing as of the first day of January following the date when the first

Development Plan is approved and the Concessionaire commences the

implementation of such plan.

The Development Forecast shall contain the following information:

(a)



Forecast of Development and Production Capital Expenditures for each

of the five (5) calendar years.



(b)



Forecast of Operating Costs for each such calendar year.



Page 24 of 29



(c)



Forecast of Petroleum production for each such calendar year.



(d)



Forecast of number and types of personnel employed in the Petroleum

Operations in the Republic of Mozambique.



(e)



Description of proposed Petroleum marketing arrangements.



(f)



Description of main technologies employed.



(g)



Description of working relationship of the Concessionaire to the

Government.



The Development Forecast shall be revised at the beginning of each calendar

year commencing as of the second year of the first Development Forecast.

The Concessionaire shall prepare and submit to the Government the first

Development Forecast within one hundred and twenty (120) calendar days of

the date when the first Development Plan is approved and the Concessionaire

commences the implementation of such plan and thereafter shall prepare and

submit a revised Development Forecast to the Government no later than fortyfive (45) calendar days before each calendar year commencing as of the

second year of the first Development Forecast.

11.3 Changes of Plan and Forecast

It is recognised by the Concessionaire and the Government that the details of

the Exploration Plan and Development Forecast may require changes in the

light of existing circumstances and nothing herein contained shall limit the

flexibility to make such changes. Consistent with the foregoing the revision of

said Plan and Forecast is provided for annually.



Page 25 of 29



Section 12 Revision of Accounting and Financial Procedures

The provisions of this Accounting and Financial Procedure may be amended

only in accordance with the EPC. Any such amendments shall be made in

writing and shall state the date upon which the amendments shall become

effective.



Page 26 0129



Section 13 Conflict with the EPC

In the event of any conflict between the provisions of this Accounting and

Financial Procedure and the EPC, the provisions of the EPC shall prevail.



Page 27 of 29



ANNEX "D"

Bank Guarantee



[Date]



The Ministry for Mineral Resources

Av. Fernao de Magalhaes, 34

Maputo

Mozambique



1.



We understand that, on December



, 2006, the Government of the Republic of



Mozambique, Empresa Nacional de Hidrocarbonetos, (ENH) E.P and Anadarko

Mocambique Area 1, Limitada (the "Guarantee Party") entered into an Exploration and

Production Concession Contract for Area 1 "Offshore" of the Rovuma Block in Mozambique

(the "EPC"). For purposes of this Bank Guarantee, ENH and the Guarantee Party are

collectively referred to as the "Concessionaire". Capitalised words not defined in this Bank

Guarantee shall have the meaning ascribed to them in the EPC.



2.



We, the undersigned [BANK LEGAL NAME] (the "Bank"), hereby, save for the conditions

stipulated below in clause 5, unconditionally and irrevocably guarantee in favour of the

Government of the Republic of Mozambique (the "Government") the due and punctual

payment of all sums owed to the Government and unpaid by the Guarantee Party in respect

of:



2.1



the Concessionaire's failure to fulfil the Exploration work commitments in relation to

the initial Exploration Period, up to a maximum of United States dollars two hundred

sixty-eight million (US$ 268,000,000); or



2.2



in the event that the Concessionaire has elected to enter the second Exploration

Period, the Concessionaire's failure to fulfil the Exploration work commitments in

relation to the second Exploration Period, up to a maximum of United States dollars

one hundred ninety-seven million (US$ 197,000,000).



3.



The guarantee amounts referred to in clause 2 above shall be reduced from time to time

upon delivery to the Bank of a certificate from the Concessionaire countersigned on behalf

of the Government setting forth the amount of such reduction based on completion of the

corresponding items of the Minimum Expenditure resulting from the Exploration work

commitments stipulated in the EPC.



‘'0



I



I

I

I

1

I

I

I

I

1

I



4.



This Bank Guarantee shall become effective on the Effective Date of the EPC and shall

terminate on the expiry of the initial Exploration Period, or if applicable, on the expiry of any

subsequent Exploration Period, or such earlier time as the total of the reductions during any

particular Exploration Period equals the applicable guarantee amount referred to in clause 2

above.



5.



Demands may be made under this Bank Guarantee by the Government by delivering to the

Bank the Government's written statement setting forth the amount claimed and certifying

that the amount claimed represents the amount due and owing by the Guarantee Party in

respect of the Concessionaire's failure under the EPC to fulfil the Exploration work

commitments in relation to the initial Exploration Period, or if applicable, in relation to any

subsequent Exploration Period and:



(a)



the Concessionaire has failed to incur the Minimum Expenditure in relation to the

relevant Exploration Period;



(b)



the Guarantee Party and the Concessionaire have been notified in writing by the

Minister of Mineral Resources, by registered letter or courier (a copy of which to be

attached to such written statement), of Concessionaire's non-compliance and the

details thereof, and has been advised that a drawing is being made against this

unconditional and irrevocable Bank Guarantee; and



(c)



the Concessionaire has been provided thirty (30) days following written notice

pursuant to item (b) above of such non-compliance within which to correct the

conditions of non-compliance and has failed to do so.



6.



Upon its cancellation or expiry, this Bank Guarantee shall be returned to the Guarantee

Party.



The duly authorised representative of the Bank has executed this Bank Guarantee on this the

day of



20



.



Very truly yours,

for and on behalf of

[BANK LEGAL NAME]



2



ANNEX "E"

Parent Company Guarantee

THIS GUARANTEE is made the



day of



200_ .



BETWEEN

(1)



Anadarko Petroleum Corporation, a corporation established under the laws of

the State of Delaware, the United States of America (the "Guarantor"), and,



(2)



THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE, herein

represented by the Minister for Mineral Resources (the "Government");

(each a "Party" and collectively the "Parties")



WHEREAS

A On

, Anadarko Mocambique Area 1, Limitada (the

"Concessionaire") entered into an Exploration and Production Concession

Contract (the "EPC") for Area 1 "offshore" of the Rovuma Block, Mozambique,

with the Government.



B



The Guarantor is the ultimate parent company of Anadarko Mocambique Area

1, Limitada.



C



The Government requires that the due and proper performance of the

Concessionaire Obligations shall be guaranteed by the Guarantor under the

terms of this Guarantee and the Guarantor is willing to grant this Guarantee.



D



The Operator shall secure cross-indemnification guarantees from all other

Persons constituting the Concessionaire in the Joint Operating Agreement as

contemplated by the JOA.



NOW IT IS HEREBY AGREED AS FOLLOWS:

1.



DEFINITIONS AND INTERPRETATION

Capitalized terms used in this Guarantee and not otherwise defined herein shall

have the respective meanings ascribed thereto in the EPC.



1.1



"Affiliate" means, with respect to any Party, a company, partnership or other

legal entity which controls, or is controlled by, or which is controlled by an entity

which controls, such Party. Control means the legal or beneficial ownership

directly or indirectly, of fifty percent (50%) or more of the shares conferring

upon the holder the right to vote for or appoint the directors or officers of such

company, partnership or other legal entity.



1.2



"Concessionaire Obligations" means the Concessionaire obligations to the

Government, related to or arising out of the Concessionaire's activities or

Petroleum Operations under the EPC during any period up to and including final

implementation of decommissioning of facilities occurring any time after the

date on which the Development Plan for the first Development and Production

Area delineated pursuant to the terms of the EPC is approved.



2.



GUARANTEE



2.1



The Guarantor irrevocably and unconditionally guarantees, subject to all the

other terms of this Guarantee, that if the Concessionaire fails, in whole or in

part, to perform any of the Concessionaire Obligations towards the Government

as Concessionaire may be adjudged liable to pay by final, non-appealable order

or judgment of a court or arbitral body of competent jurisdiction, as a result or

consequence of the Concessionaire acts or omissions in carrying out the

Concessionaire Obligations, the Guarantor shall as soon as reasonably

practicable following a demand made in accordance with clause 3 of this

Guarantee, take such steps itself as shall be necessary:

(a)



to perform such Concessionaire Obligation or remedy such breach; or



(b)



where such failure or breach is not capable of remedy, restore

performance of the breached Concessionaire Obligation.



2.2



This Guarantee shall become effective upon approval of the first Development

Plan and shall terminate on termination of all relevant Petroleum Operations

subject to the EPC.



2.3



Upon termination of this Guarantee, the Guarantor shall have no further liability

whatsoever to the Government under or in connection with this Guarantee save

in respect of any breach notified by the Government in accordance with clause

3 of this Guarantee prior to its termination.



3.



DEMANDS



3.1



The Government shall notify the Concessionaire and the Guarantor in writing

when a breach of a Concessionaire Obligation has occurred and such notice

shall contain a description of such breach.



3.2



Subject to clauses 4 and 7 of this Guarantee, if the Concessionaire fails to

remedy a breach specified in a notice given under clause 3.1 above within thirty

(30) days of receipt of such notice by the Guarantor, the Government may then

make a demand in writing to the Guarantor that shall (i) set out the alleged

breach of the Concessionaire Obligation(s); and (ii) require the Guarantor to

take such steps as are provided in clause 2 of this Guarantee.



4.



RIGHTS AND OBLIGATIONS



4.1



The Government shall be obliged before exercising any of the rights, powers or

remedies conferred upon it in respect of the Guarantor by this Guarantee or by

law:

4.1.1 to notify the Concessionaire of the breach of a Concessionaire

Obligation;

4.1.2 if the Concessionaire disputes the breach notified by the Government, to

have obtained an arbitral award or expert determination confirming such

breach by the Concessionaire; or

4.1.3 to make or file any claim or proof in winding-up or dissolution of the

Concessionaire(s) (to the extent applicable).



5.



PRESERVATION OF RIGHTS



5.1



The obligations of the Guarantor under this Guarantee shall not be discharged

or impaired by any act or omission or any other event or circumstance

whatsoever (whether or not known to the Concessionaire, the Guarantor or the

Government) which would or might (but for this clause 5) operate to impair or

discharge the Guarantor's liability under this Guarantee, including, but without

limitation:

5.1.1 any of the Concessionaire Obligations being or becoming illegal or

invalid, in any respect of all other Concessionaire Obligations;

5.1.2. any granting of time (or other indulgence) to the Concessionaire or any

other person; or

5.1.3. any amendment to or variation, waiver or release of, any of the terms of

the EPC to the extent that such amendment, variation, waiver or release

is made with the Guarantor's prior written consent.



6.



ASSIGNMENT AND SUCCESSORS



6.1



Any benefit of this Guarantee shall not be assignable by the Government to any

person.



6.2



The Guarantor may not assign its rights and obligations under this Guarantee

without the prior written consent of the Government.



7.



LIMITATION AND MAXIMUM LIABILITY OF GUARANTOR



7.1



Notwithstanding any other provisions of this Guarantee, the Guarantor shall

have all of the rights, limitations and defences including, without limitation, all

rights of set off, available to the Concessionaire under the EPC, and in no

circumstances shall the Guarantor be liable to pay any amount under this

Guarantee which is greater than the Concessionaire would have been liable to

pay if the Concessionaire had performed the Concessionaire Obligations.



7.2



Notwithstanding any other provisions of this Guarantee, the Government, prior

to making any demand or attempt to collect under this Guarantee, shall first

pursue collection from Concessionaire and shall exhaust all recourse against

and liquidation of Concessionaire's assets including but not limited to any

applicable insurance coverage available to satisfy any such Concessionaire

Obligation.



7.3



This Guarantee shall be for the benefit of the Government, and no third party

shall be entitled to any benefit hereunder.



8



GOVERNING LAW AND JURISDICTION

This Guarantee shall be governed by and construed in accordance with the

laws of the Republic of Mozambique. The provisions of Article 30 of the EPC

shall apply 'mutatis mutandis' to this Guarantee in respect of all disputes

between or among the Government, the Guarantor or the Concessionaire.



I



I

I

I

1

I

I

1

I

1



9



NOTICES



9.1



Any notice to be given by either Party to the other under this Guarantee shall be

in writing and shall be delivered by hand to the Guarantor or the Government,

as the case may be, or sent to such recipient by recorded delivery or facsimile

addressed to such recipient at such address and for the attention of such

person as the Guarantor or the Government, as the case may be, shall from

time to time designate by notice, and until such notice shall be given the

addresses of the Guarantor and the Government shall be as follows:

The Guarantor



Attention:

Telephone:

Telefax:

The Government

Avenida Fernao de Magalhaes, 34

Caixa Postal 2904

Maputo, Mozambique

Attention:

President, National Petroleum Institute

Telephone: +258 21 320 935

Telefax:

+258 21 430 850

9.2



All notices delivered by recorded delivery or hand shall be deemed to be

effective upon receipt. Notices given by facsimile shall be deemed to have been

received where there is confirmation of uninterrupted transmission by a

transmission report and where there has been no telephonic communication by

the recipient to the senders (to be confirmed in writing) that the facsimile has not

been received in legible form within twenty-four (24) hours of sending.



IN WITNESS WHEREOF this Guarantee has been executed by the Guarantor and has

been accepted by the Government on the date specified above.



for and on behalf of



for and on behalf of THE GOVERNMENT

OF THE REPUBLIC OF MOZAMBIQUE



Ir



I

I

I



....



-----



ANNEX F



JOINT OPERATING AGREEMENT