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BELIZE NATURAL ENERGY L TO 11212003



TABLE OF CONTENTS



Article



Page



Definitions....................................................................................



4





II



Grant of Rights to Contract... . .. . ... . .. . .. . .. .. .. .. . .. .. . .. . .. . .. . .. . . .. . .. .. . .. .. . ... .. . ..



7





III



Tern1...................................................................................



9





IV



Relinquishment...............................................................................



10





V



General Obligations of the Contractor.....................................................



11





VI



Minimum Work and Expenditure Obligations..............



13





VII



Obligations of the Government........................................................ .....



21





VIII



Royalty/Production Payment



21





IX



Recovery of Petroleum Operations Expenditures Production Sharing................



22





X



Valuation and Measurement of Petroleum...



23





XI



Marketing, Production (Royalty) Payment in Kind and Domestic Requirement...



24





XII



Payment Procedure............................................



26





XIII



Surface Rentals..........



26





XIV



Natural Gas................................................................................. ...



27





XV



Taxes.........



28





XVI



Exemptions from Custom Duties.....



29





XVII



Exchange and Currency Controls...............................



30





XVIII



Title to Equipment...............................................................



30





XIX --



Government Participation...................................................................



30





XX



Training and Employment. .. . .. . .. ... .. ..... .. ... ....... ....... . .. . ... . .. . .. .. . ... . .... .. . . .



31





XXI



Purchases in Belize...........................................................................



32





XXII



Unitization..................................................................................



32





XXIII



Danger to Persons, Property or Environment.............................................



33





XXIV



Arbitration.....................................................................................



34





XXV



Ten11ination...............................................



35





XXVI



Books, Accounts and Audits, Records, Reports and Inspections..



36





XXVIJ!



Insurance and Indemnification..............................................................



38





XXVIII



Assignn1ent....................................................................



39





,.



. .. .



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



<,



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BELIZE NATURAL ENERGY LTD 1/2/2003



XXIX



Law of the Agreement...



.



..



.



.



40





XXX



Force Majeure...........



40





XXXI



Entire Agreement and Amendments...................



40





XXXII



Waiver......



40





XXXIII



Confidentially................................................................................



41





XXXIV



Notices...



41





Exhibit A



Description of contract area.....................



Exhibit B



Map of contract area...



Exhibit C



Security - Guarantee..............................................



44





Exhibit D



Letter of Assurance...............................................



46





Signing pages.................................................................................



48





.



42



..



43





--~\"



Annex-1



Commissioner's Bulletin (Income Tax)



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BELIZE NA rURAL ENERGY L TO 1/2/2003



PRODUCTION SHARING AGREEMENT



L



~



THIS AGREEMENT, made and entered into this

day of ~",-~v.:j, of2003, by and

between the GOVERNMENT OF BELIZE, (hereinafter referred to as the "Government") acting

through the Minister of Natural Resources, the Environment, Industry and Trade and BELIZE

NATURAL ENERGY LTD., a corporation duly organized under the laws of

BELIZE (hereinafter referred to as the "Contractor").

WHEREAS, the entire property in, and control over all Petroleum resources in or under the

territory of Belize is vested in the Government on behalf of Belize;

AND WHEREAS, no petroleum operations shall be conducted in Belize by any person other

than the Government unless such person has entered into a contract in accordance with the

Petroleum Act Chapter 225 Substantive Laws of Belize, Revised Edition 2000;

AND WHEH..EAS, the Government wishes to promote the exploration for and production of the

petroleum resources in and throughout the contract area, and the Contractor desires to join and

assist the Government in accelerating the exploration for and production of the petroleum

resources within the contract area;

AND WHEREAS, the Contractor represents that it has the financial resources, technical

competence and professional skills necessary to carry out the petroleum operations hereinafter

described;

AND WHEREAS, the Contractor is in agreement to the creation of Blocks - SA and 5B of

which negotiations may lead to the award of Block 5 of otherwise;

AND WHEREAS, the Contractor cognizance of the potential for land sterilization in Block SA

and/or 5B agree(s) to the timely negotiations and development of petroleum operations in Blocks

SA and/or 5B;



AND WHEREAS, the Contractor understands that successful implementation of contractor's

rights and obligations hereunder may involve cross-boundary and/or cross-border hydrocarbon

deposits and concomitant Joint Development Agreement(s) (JDAs);

AND WHEREAS, the Government and the Contractor agree that this Agreement is in

compliance with all Belize statutes, regulations and laws which govern or regulate the

exploration, development and production of petroleum in Belize;

AND WHEREAS, the Government and the Contractor agree that this Agreement is bound by all

Belize statutes, regulations and laws which govern or regulate the exploration, development and

production of petroleum in Belize which are in effect at the time this Agreement was signed;

AND WHEREAS, the Government and the Contractor agree that this Agreement was freely

negotiated at arms length;

AND WHEREAS, both the Government and the Contractor were represented by counsel with

respect to the drafting and negotiation of this Agreement;

AND WHEREAS, the Government and the Contractor agree that the geographic area covered

under this Agreement is that of Blocks 5B, 18, and parts of 15 and 6 respectively, referenced by

coordinates in exhibit A, attached hereto, and a map exhibit B, attached hereto;

AND WHEREAS, the Government has accepted the application for Blocks 5B, 18, and parts of

15 and 6 respectively, made by Belize Natural Energy Ltd. and submitted to the Geology &

Petroleum Department as a single area subject to an administrative fee of US$10,OOO);



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BELIZE NATURAL ENERGY LTD 1/2/2003



AND WHEREAS, the award of Blocks 5B, 18, and parts of 15 and 6 respectively, is dependent

on, infer alia, success of negotiation process and approval of project proposal (work programme)

including applicable Environmental Studies;

AND WHEREAS, the Government and Contractor agree in the event that Petroleum Block 5A

becomes vacant and available for application(s), the Contractor shall be accorded first

consideration to apply for Block A as an Amendment to the Block B Production Sharing

Agreement (PSA).

NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:



ARTICLE I

Definitions



1.1



In this Agreement, the following terms shall have the following

meanmgs:



1.1.1



"affiliated company" means any entity directly or indirectly

effectively controlling, or effectively controlled by, or under

direct or indirect effective common control of, a specified entity.

For the purposes of this definition, "control", when used with

respect to any specified entity, means the power to direct,

administer and dictate policies of such entity (it being understood

and agreed that it is not necessary to own directly or indirectly

fifty percent (50%) or more of such entity's voting securities to

have effective control over such entity, but ownership, direct or

indirect, of fifty percent (50%) or more of such entity's voting

securities shall automatically indicate effective control), and the

terms

"controlling" and "controlled" have

meanings

corresponding to the foregoing;



1.1.2



"appraisal well" means a well drilled within the contract area,

following a discovery, for the purpose of delineating the

petroleum reservoir(s) to which the discovery relates in terms of

thickness and lateral extent and estimating the quantity of

recoverable petroleum therein;



1.1.3



"barrel" means a quantity or unit of crude oil equal to 158.9874

liters (forty-two (42) United States gallons) at a temperature of

sixty (60) degrees Fahrenheit (15.56 degrees Centigrade) under

one atmosphere of pressure;



1.1.4



"barrel equivalent" means one barrel of oil is equivalent to six

thousand cubic feet of gas, equivalent to 1.64 Mega Watt Hours

Electricity.



1.1.5



"calendar year" means a period of twelve (12) consecutive

months, according to the Gregorian Calendar, starting with the

1st of January and ending with the 31st of December;



1.1.6



"calendar month" or "month" means any of the twelve (12)

months of the calendar year;



1.1.7



"carried interest" means a commercial arrangement between

Contractor and Government whereby, expenditures due from the

Government in ajoint venture are initially met by Contractor.



1.1.8



"commercial discovery" means a discovery of petroleum which

can be exploited commercially in accordance with accepted

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BELIZE NATURAL ENERGY LTD 1/2/2003



practices in the international petroleum industry;

I. I. 9



"continental shelf' means the part of the seabed and subsoil of

the submarine areas adjacent to the coast of Belize, but outside

the territorial waters, over which Belize is entitled by

international law to exercise sovereign rights for the purposes of

exploring and exploiting its natural resources;



1.1.10



"contract area" means a geographical area which is covered by

the contract; and includes the whole of, or such part or parts of,

the original area awarded to a Contractor which shall remain at

the disposal of such Contractor from time to time pursuant to the

terms of the contract;



1.1.11



"contract year" means a period of twelve (12) consecutive

calendar months, counted from the first day of the first calendar

month following the effective date of this agreement or from the

anniversary of such first day of such month;



1.1.12



"Contractor" means any person with whom the Government

enters into a contract and includes his agents, representatives and

assignees;



I. 1.13



"crude oil" means petroleum which is in liquid state at the well

head or gas/oil separator or which is extracted from natural gas,

including distillate and condensate;



1.1.14



"day" means a calendar day unless otherwise provided herein;



I. I.IS



"delivery point" means free on board (FOB) and/or the well-head

or the tank batteries in the field;



1.1.16



"development and production operations" means operations for

or in connection with the production of petroleum;



1.1.17



"development and production period" means the period referred

to in paragraph 3.4;



J . J .18



"discovery" in relation to petroleum, means petroleum not

previously known to have existed, recovered at the surface in a

flow measurable by conventional petroleum industry testing

methods;



J . J .19



"effective date" means the date first above written;



1.1.20



"exploration expenditures" means expenditures made in

conducting exploration operations hereunder, but excluding

expenditures made within the area of a field after a commercial

discovery has been declared.

These expenditures shall be

determined in accordance with the Income and Business Tax Act,

Chapter 55 Substantive Laws of Belize, Revised Edition 2000.



1.1.21



"exploration operations" means operations for or in connection

with exploration for petroleum;



1.1.22



"exploration period" means the period referred to in paragraph

3.1 ;



1.1.23



"exploration well" means a well other than an appraisal well

drj lled in the



C'()l1T


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BELIZE NATURAL ENERGY LTD 1/2/2003



drilled in the course of exploration operations;

1.1.24.1



"field" means an area, as designated by agreement between the

Government and the Contractor, where a commercial discovery

of crude oil or natural gas has been declared;



1.1.24.2



"field-small" means a field with a daily production not exceeding

10,000 barrels-equivalent.



1.1.25



"gross revenues" means the sum of all proceeds of sales and the

monetary equivalent of the value of other dispositions of

petroleum produced and saved and not used in petroleum

operations and any other proceeds derived from petroleum

operations;



1.1.26



"income tax" means that tax imposed on net income pursuant to

the Income and Business Tax Act, Chapter 55 Substantive Laws

of Belize, Revised Edition 2000.



1.1.27



"initial commercial production" means the date on which the first

regular shipment of crude oil or natural gas, or both, is made from

a field under a program of regular production and sale;



1.1.28



"Inspector" means the Inspector of Petroleum appointed under

section 4 of the Petroleum Act, Chapter 225 of the Substantive

Laws of Belize, Revised Edition 2000; or any officer of the

Geology and Petroleum Department duty designated on that

behalf;



1.1.29



"maximum efficient rate" means the maximum rate of production

of crude oil in a field, without excessive rate of decline of

production or excessive loss of reservoir pressure, and in

accordance with generally accepted practices in the international

petroleum industry and the provisions of paragraph 6.3;



1.1.30



"Minister" means the Minister responsible for petroleum affairs

in the Government of Belize;



1.1.3 1



"natural gas" means all petroleum which at atmospheric

conditions of temperature and pressure is in a gaseous state, and

includes wet mineral gas, dry mineral gas, wet gas and residue

gas remaining after the extraction, processing or separation of

liquid petroleum from wet gas, as well as non-petroleum gas or

gases produced in association with liquid or gaseous petroleum;



1.1.32



"net petroleum" means the value of the total quantity of

petroleum produced and saved in a given calendar year and not

used in petroleum operations after deductions of the value of the

royalties made in such calendar year and after recovery of

petroleum operations expenditures pursuant to paragraph 9.1;



1.1.33



"net taxable income" means net taxable income as determined in

accordance with the provisions of the Income and Business Tax

Act, Chapter 55 of the Substantive Laws of Belize, Revised

Edition 2000.



1.1.34



"petroleum" means all natural organic substances composed of

carbon and hydrogen; and includes crude oil and natural gas, and

all other mineral substances, products, by-products and



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BELIZE NATURAL ENERGY LTD 1/212003



derivatives that are found in conjunction with petroleum;

1.1.35



"Petroleum Act" means the Petroleum Act, Chapter 225

Substantive Laws of Belize, Revised Edition 2000, and any

subsidiary legislation made thereunder;



1.1.36



"petroleum operations" means the operations related to the

exploration,

development,

extraction,

production,

field

separation, transportation, storage, sale or disposal of petroleum;

but does not include any transportation or other operations (i)

beyond the point of export; or (ii) in the case of petroleum which

is processed within Belize, beyond the point of entry into a

refinery or liquefaction or natural gas treatment plant;



1.1.37



"petroleum operations expenditures" means expenditures

incurred in conducting petroleum operations hereunder,

determined in accordance with the Income and Business Tax Act,

Chapter 55 of the Substantive Laws of Belize, Revised Edition

2000;



1.1.38



"PSA" means Production Sharing Agreement



1.1.39



"quarter" means a period of three (3) consecutive months

commencing with the first day of January, April, July and

October, respectively, of each calendar year;



1.1.40



"royalty" means the royalty or production payment described in

Article VIII;



1.1.41



"well" means any opening in the ground made or being made by

drilling or boring, or in any other manner, in connection with

exploration operations or development and production operations,

other than a seismic hole;



1.1.42



"work programme" means an itemized statement of the petroleum

operations to be carried out in the contract area in each calendar

year, or to be carried out for specific activities such as drilling of

exploration wells and appraisal wells and development

programmes, all in a form acceptable to the Government;



1.1.43



"work programme budget" means the estimate of the costs of all

items included in the corresponding work programme, including

both capital and operating budgets, all in a form acceptable to the

Government.



ARTICLE II

Grant of Rights to

the Contractor



2.1



The Government grants to the Contractor, subject to the terms

and conditions set forth in this Agreement, the exclusive right to

conduct petroleum operations within the contract area for the

term of this Agreement. Except as provided in paragraph 11.3,

the Contractor shall have the right, during the term of this

Agreement, to freely lift, dispose of and export its share of the

petroleum produced hereunder.



2.2



Title to petroleum to which the Contractor is entitled hereunder

shall pass to the Contractor at the well-head or the tank batteries



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BELIZE NATURAL ENERGY L TO 1/2/2003



in the field;

2.3



The Contractor shall, except as expressly otherwise provided in

this Agreement, conduct all petroleum operations hereunder at his

sole risk, cost and expense. The Contractor shall look only to the

petroleum and to which he is entitled under this Agreement to

recover such costs and expenses, and such petroleum shall be the

Contractor's sole source of compensation thereunder.



2.4



The Contractor shall be responsible to the Government for the

execution of all petroleum operations in accordance with the

provisions of this Agreement. Without prejudice to the

Contractor's position as an independent contractor hereunder, the

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

shall be subject to the general supervision, review and approval

of the Government to which the Contractor shall report and be

responsible as herein set forth. Government approval, as required

pursuant to any provision of this Agreement, shall not be

unreasonably withheld, and unless specified to the contrary in this

Agreement, Government approval will be deemed given if the

Government has not responded to the Contractor in writing

within thirty (30) working days of Contractor's compliance with

any provision of this Agreement.



2.5



(a) The Contractor is authorized to construct storage facilities,

electricity generating plants in the event that petroleum is found

in commercial quantities and the Contractor desires to sell on the

domestic market to established producers of electricity in Belize,

pipelines, bridges, ferries, landing fields. radio, telephone,

facsimile and related communication systems as may be

necessary for petroleum operations but subject to the laws in

force in Belize from time to time for the regulation and control of

such installations and their construction. In the event that the laws

or regulations of Belize change (after the signing of this

Agreement) in any manner that frustrates the purpose of this

Agreement, the Government agrees to use best efforts to take any

action necessary to effectuate the purpose of this Agreement.

(b) The government shall provide the Contractor with a secure

pipeline right-of-way for the transportation of petroleum and/or

petroleum products from production facilities to a coastal point of

delivery near Belize City.

(c) The Government does hereby grants the Contractor the right

to discharge any saltwater or other fluids produced in association

with oil or gas into such underground zones or formations or

along some location as the Contractor so elect, provided that it

does not affect fresh, near-surface potable water, the water table

or other locations and without interference from surface owners

who shall be reasonably compensated for surface damages to the

land, where applicable. Provided further that Contractor liaises

with the Inspector of Petroleum and Chief Environmental

Officer-Department of Environment (via the Inspector of

Petroleum) prior to any such discharge of salt water or other

fluids.



2.6



The Government reserves the right to grant licenses to others to

prospect for, explore for and mine minerals, other than



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BELIZE NATURAL ENERGY LTD 1/2/2003



hydrocarbons including petroleum, within the contract area, and

further reserves to itself the right to so prospect, explore and mine

directly, all subject to the provisions of paragraph 5.3.



ARTICLE III

Term



3.1



The Contractor is authorized to conduct exploration operations

during an exploration period which shall be comprised of (i) an

initial exploration period of two (2) contract years ("Initial

Exploration Period"), and (ii) subject to the conditions hereinafter

provided, three (3) successive renewal periods ("First Renewal

Period", "Second Renewal Period" and "Third Renewal Period")

of two (2) years each to the initial exploration period. Such

renewal periods shall be granted to the Contractor upon the

Contractor's request delivered to the Government in writing not

later than ninety (90) days prior to the expiration of the then

current period, subject to the Contractor having fulfilled his

obligations hereunder for the then current period, including the

relinquishment provisions of Article IV, and having submitted

with such application a work programme and work programme

budget for the period of renewal which is consistent with the

undertakings set forth in paragraph 6.1.



3.2



If at the end of the exploration period, no commercial discovery

has been made in any part of the contract area, this Agreement

shall automatically terminate in its entirety, provided, however,

that the Government undertakes to grant an extension for such

period, and for such area as may be necessary, in the opinion of

the Government and the Contractor, (i) for the Contractor to

complete the drilling, testing, appraisal or plugging of any well

actually being drilled, tested, appraised or plugged at the end of

the exploration period and (ii) for the Government and the

Contractor to determine that a discovery resulting from such a

well is a commercial discovery pursuant to paragraphs under 6.2.



3.3



If a commercial discovery is made in any portion of the contract

area during the exploration period, the Contractor will commence

development and product operations in that particular portion of

the contract area.

­



3.4



In the event of a commercial discovery, the extent of the area

capable of production of petroleum from the formation or

formations so identified shall be determined in accordance with

the provisions of the paragraphs under 6.2 or Article XIV. The

area so determined shall thereupon be converted automatically

into a field, with effect from the date of the declaration of the

commercial discovery.

The term of the development and

production period for each field shall extend for twenty-five (25)

contract years from the first day of the calendar year commencing

after the date of the declaration of the commercial discovery in

said field. Upon an application for extension of the initial

twenty-five (25) year production period, the Government shall

grant an extension for an additional twenty-five (25) years

pursuant to Regulation 11 of the Belize Petroleum Regulations,

1992 (Statutory Instrument No. 112 of 1992) even if Belize

passes subsequent regulations, laws, or statues that may be in

conflict with Regulations 11 of the Belize Petroleum Regulations,



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BELIZE NATURAL ENERGY LTD 1/2/2003



1992 (Statutory Instrument No. 112 of 1992). In the event of a

new commercial discovery as a result of new drilling in

formations that underline and overlie each other in an existing

field, such formations shall constitute a single field and the field

shall be redefined as necessary to incorporate all underlying and

overlying formations, and the term of the development and

underlying and overlying formations, and the term of the

development and production period for such redefined filed shall

extend for twenty-five (25) contract years from the first day of

the first calendar year commencing after the date of the

declaration of the latest commercial discovery therein.



ARTICLE IV

Relinquishment



4.\



On or before the end of the initial exploration period, the

Contractor shall relinquish fifteen percent (15%) of the original

contract area.



4.\.2



On or before the end of the first renewal period the Contractor

shall relinquish an additional fifteen percent (15%) of the original

contract area.



4.2



On or before the end of the second renewal period the Contractor

shall relinquish an additional area equal to twenty percent (20%)

of the original contract area.



4.3



At the end of the exploration period, the Contractor shall

relinquish the remainder of the original contract area not then

converted to a field.



4.4



The size and shape of the portion or portions to be reiinquished

shall be determined by the Contractor, provided however, that (a)

the Contractor shall advise the Government at least ninety (90)

days in advance of the date of relinquishment of the description

and area of the portion or portions to be relinquished, (b) the

Contractor shall consult with the Government regarding the shape

and size of each individual portion of the areas being

relinquished, (c) the area being relinquished shall not be divided

into more than two portions, unless otherwise initially agreed on

between Contractor and Government each of which shall be

comprised of, and be defined by reference to, blocks as described

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

for relinquishment in accordance with this paragraph without

including in such area or areas in whole or in part a field or area

in which a discovery has been made which the Contractor is not

otherwise required to relinquish hereunder, and (d) each such

relinquished, individual portion shall be not less than twenty

percent (20%) of the area being relinquished at such time with

sides parallel to the boundaries of the original contract area, to the

extent that the boundaries of the original contract area permit, and

with the longest side not more than three times as long as the

shortest side, and shall in any event be of sufficient size and

convenient shape to enable petroleum operations to be conducted

thereon or thereunder.



4.5



The Contractor shall not be obliged to relinquish, pursuant to

paragraphs 4.1 and 4.2, any part of the original contract area

which has been converted to a field or in which a discovery has



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BELIZE NATURAL ENERGY LTO 1/2/2003



been made which the Contractor

relinquish hereunder.



IS



not otherwise required to



4.6



Upon at least ninety (90) days written notice to the Government

prior to the end of any contract year, the Contractor shall have the

right to relinquish all or any portion of the contract area effective

as of the end of such contract year, subject to the provisions of

paragraph 4.4, and such portion shall then be credited against that

portion of the contract area which the Contractor is next required

to relinquish pursuant to the provisions of paragraphs 4.1 and 4.2.



4.7



No relinquishment made in accordance with this Article IV shall

relieve the Contractor of: (a) its obligations to make payments

due as a result of surface rentals prior to the effective date of any

such relinquishment, or (b) the minimum work and expenditure

commitments undertaken pursuant to paragraphs 6.1.1 and 6.1.2.



4.8



Upon relinquishment of any area, the Contractor shall perform all

necessary clean-up activities in accordance with generally

accepted practices in the international petroleum industry, and

shall take all other action necessary to prevent hazards to human

life or third party property.



ARTICLE V

General Obligations

of the Contractor



5.1



The Contractor shall be responsible for conducting all petroleum

operations within the contract area diligently, expeditiously and

efficiently in accordance with generally accepted practices in the

international petroleum industry and the environmental laws of

Belize and pursuant to work programmes approved in accordance

with paragraph 5.4.

The Contractor shall ensure that all

equipment, materials, supplies, plant and installations used by

himself, and his contractors and subcontractors comply with

generally accepted standards in the international petroleum

industry and are of proper construction and kept in optimal

working order.



5.2



Except as otherwise provided in this Agreement, the Contractor

shall:

(a)



advance all necessary funds and purchase or lease all

equipment, materials and supplies required to be

purchased or leased in connection with petroleum

operations;



(b)



furnish all the technical expertise and assistance, including

foreign personnel, required for the conduct of petroleum

operations;



(c)



furnish all other funds for the performance of petroleum

operations as may be required, including payment to

foreign entities that perform services as contractors or

subcontractors to the Contractor;



(d)



appoint a local representative and in his absence, a

replacement therefor, with respect to this Agreement, who

shall have an office and be resident in Belize and who

shall have full authority to represent the Contractor for all

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BELIZE NATURAL ENERGY LTD 1/2/2003



purposes of this Agreement and whose name shall, on

appointment within ninety (90) days after the effective

date, be made known to the Government;

(e)



provide acceptable working conditions and living

accommodations, and access to medical attention and

nursing care, for all personnel employed by him , his

contractors and subcontractors in petroleum operations;

and



(f)



pay social security for all employees as per the Laws of

Belize.



5.3



If, after the effective date, others are granted licenses within the

contract area authorizing prospecting for, exploration for or

mining of any minerals or other substances other than petroleum,

or the Government proceeds with such prospecting, exploration

or mining directly in its own behalf, the Contractor shall use his

best efforts to avoid obstruction or interference with such

licensee's or Government's operations within the contract area.

The Government shall use its best efforts to ensure that

operations of third parties do not interfere with the Contractor's

petroleum operations within the contract area. Additionally, at the

request of the Contractor the Government shall notify Contractor

(and provide Contractor the name, phone number, and address) of

any companies which are granted licenses authorizing them to

prospect for, explore for or mine any minerals in the contract

area.



504



(a)

At least ninety (90) days prior to the beginning of each

calendar year, or at such other time as is mutually agreed by the

parties, the Contractor shall prepare and submit for approval to

the Government an annual work programme and work

programme budget of petroleum operations and petroleum

operations expenditures by quarters for the contract area setting

forth the petroleum operations the Contractor proposes to carry

out during the ensuing calendar year.

Such annual work

programmes and work programme budgets shall comply with the

minimum work and expenditure obligations described in

paragraphs 6.1. Approval by the Government of the proposed

annual work programme budget of petroleum operations and

petroleum operation expenditures will not be unreasonably

withheld or delayed. The Government and the Contractor shall

have reached agreement upon an annual work programme and

work programme budget for the period from the effective date

until the end of the calendar year in which the effective date falls

or for the ensuing calendar year if the effective date falls after the

30th day of September. kThe Government agrees to credit

Contractor for cost overruns in prior annual work programme and

budget against current and future obligations, provided that the

Contractor lodges with the Inspector of Petroleum receipts and

other supporting documents relevant to prior annual work

programme and budget expenditures within ninety (90) days of

submission of annual work programme and budget.]

(b)

Should the Government wish to propose revisions to the

annual work programme or work programme budget, it shall

within thirty (30) days after receipt thereof so notify the

Contractor specifying in reasonable detail its reasons therefor.



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BELIZE NATURAL ENERGY L TO 1/2/2003



Promptly thereafter the parties shall meet and endeavor to agree

on the revisions proposed by the Government. If the Contractor

and the Government fail to agree upon any revisions proposed by

the Government within sixty (60) days of the receipt of the

Contractor's proposals, the points of disagreement shall be

resolved as follows:

(i)



all other aspects of the annual work programme and work

programme budget to which the Government proposes

revisions shall be mutually agreed before such aspects of

the annual work programme and work programme budget

shall be adopted.



(c)

It is recognized by the parties that the details of an annual

work programme may require changes in light of then existing

circumstances. In such event, the Contractor may introduce such

changes as may be necessary, following consultation with the

Government, but subject to the following:

(i)

in the case of changes to an annual work

programme and work programme budget which relate to

exploration operations, such changes may be implemented

to the extent that they are not inconsistent with the

undertakings set forth in paragraph 6.1 or the general

objective of such annual work programme;



(ii)

in the case of changes to an annual work

programme and work programme budget which relate to

the development of a field, such changes may be

implemented to the extent that they are not inconsistent

with the applicable development work programme and

work programme budget adopted pursuant to paragraph

6.2 or the general objective of such annual work

programme;

(iii)

all other changes may be notified in writing to the

Government and shall be mutually agreed before they may

be implemented.

(d)

To the maximum extent practicable, the Contractor shall

involve representatives of the Government in the preparation of

the annual work programme and work programme budget.

(e)

Within thirty (30) days after the end of each quarter, the

Contractor shall submit to the Government a report describing

and summarizing petroleum operations carried out, and petroleum

operations expenditures incurred during such quarter.

Such

report shall be in a form acceptable to the Government based on



international petroleum practices.



ARTICLE VI

Minimum Work and

Expenditure

Obligations



6.\



The Contractor shall commence petroleum operations hereunder

not later than ninety (90) days after the effective date.



Exploration Period



6.1.\



The amount to be expended by the Contractor in conducting

exploration operations in accordance with approved work

programmes during the exploration period, shall not be less than



- 13 ­



BELIZE NATURAL ENERGY L TO 1/2/2003



the following as adjusted pursuant to paragraph 6.1.4.

6.1.1.1



Initial Exploration Period:

(a) First contract year $400,000.00 US$

(b) Second contract year $100,000.00 US$



6.1.1.2



First renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

(a) First contract year 500,000.00 US$

(b) Second contract year 500,000.00 US$



6.1.1.3



Second renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

(a) First contract year 500,000.00 US$

(b) Second contract year 500,000.00 US$



6.1.1.4



Third renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

(a) First contract year 500,000.00 US$

(b) Second contract year 500,000.00 US$



6.1.2



The Contractor undertakes to carry out and comply with the



following minimum work commitments.





6.1.2.1



Initial exploration period:





INITIAL PERIOD

(a) First contract year:

-Data compilation and prospect generation.

- Seismic reprocessing and shooting geophysical survey and/or

drill rig mobilizing and site preparation followed by drilling and

testing of one well to a depth of two thousand (2000) feet below

the rig floor passing through the Hillbank and Yalbac formations

or to the top of Margaret Creek Formation, whichever is

shallower. As used above, the Margaret Creek Formation shall

mean, the geological equivalent of that certain zone found

between 2316 feet and 2370 feet on that certain Gamma-Ray Log

of the Eagle-l well drilled near Roaring Creek in 1984.



INITIAL PERIOD

(b) Second contract year:

Assessment of l st year results will include, inter alia,

interpretation and update of geophysical, geochemical and

structural geology.

Belize Natural Energy, shall undertake to drill at least one (1)



- 14 ­



BELIZE NATURAL ENERGY L TO 1/2/2003



exploratory well on or before the



6.1.2.2



so" June, 2004.



FIRST RENEWAL PERIOD

First renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

-Exploration activities will depend on results for Initial Period

and will most likely include geological and geophysical work and

possibly exploration and/or development drilling.



6.1.2.3



SECOND RENEWAL PERIOD

Second renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

-Exploration activities will depend on results for First Renewal

Period and will most likely include geological and geophysical

work and possibly exploration and/or development drilling.



6.1.2.4



THIRD RENEWAL PERIOD

Third renewal period (if requested by the Contractor pursuant to

paragraph 3.1):

-Exploration activities will depend on results for Second Renewal

Period and will most likely include geological and geophysical

work and possibly exploration and/or development drilling.



6.1.3



.If, during any contract year in the exploration period, the

Contractor should expend more than the required minimum

annual exploration expenditures, the Contractor may subtract an

amount equal to the excess amount spent from the required

minimum exploration expenditures for the ensuing contract year

in the exploration period.jlf works carried out in any contract year

exceed the minimum work commitment relating to such contract

year as provided in paragraph 6.1.2, the excesses will count

towards the satisfaction of the minimum work commitments for

the ensuing contract year.

Compliance with the required minimum exploration expenditures

for a given contract year shall not relieve the Contractor of his

obligation to comply with the required minimum work

commitment, nor shall compliance with the required minimum

work commitment for a given contract year relieve the Contractor

of his obligation to comply with the required minimum

exploration expenditures for such contract year.



Security



6.1.4



(a) Within ninety (90) days of the effective date and where this

Agreement has been extended pursuant to Regulation 9 of the

Belize Petroleum Regulation S.J. No. 112 of 1992, and within

thirty (30) days of each extension period, the Contractor shall

provide security by means of a bank guarantee, in a form



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BELIZE NATURAL ENERGY L TO 1/2/2003



substantially similar to that set forth in Exhibit C, equal to the

total potential penalties for the initial exploration period, or, as

the case may be, for the first, second and third renewal periods, as

set forth in paragraph 6.1.1.

Upon prior confirmation by

independent accountants acceptable to both the Contractor and

the Government of the exploration expenditures actually incurred,

such security shall be reduced at the end of each contract year in

the exploration period to the extent that the Contractor has spent

the prescribed minimum amounts stipulated in paragraph 6.1.1,

provided that the outstanding balance shall not be less than the

required minimum exploration expenditures for the remaining

contract year of the exploration period in question, as stipulated

in paragraph 6.1.1 and as adjusted pursuant to paragraph 6.1.4.

(b) If, at the expiration of the exploration period, or upon the

date of termination of this Agreement, or upon relinquishment of

the entire contract area by the Contractor pursuant to paragraph

4.6, whichever first occurs, the Contractor has not expended for

exploration operations sums at least equal to the total minimum

exploration expenditures, as adjusted, required hereunder, the

balance of the security corresponding to the unexpended

minimum exploration expenditures, as adjusted automatically

shall be paid to the Government.

(c) If, at the end of any contract year in the exploration period,

the Contractor has not expended for exploration operations sums

at least equal to the minimum exploration expenditures, as

adjusted, required hereunder for such contract year, a portion of

the security corresponding to the unexpended minimum

exploration expenditures, as adjusted, for such contract year

automatically shall be paid to the Government.

Discovery and

Development Period



6.2



The terms and conditions relating to the

development period shall be as follows:



6.2. I



When in the course of petroleum operations, a discovery of

petroleum is made, the Contractor shall immediately notify the

Government in writing accordingly, specifying in such notice all

pertinent information concerning the discovery.



6.2.2



If the Contractor determines to conduct a drill-stem or production

test, in open hole or through perforated casing, with regard to the

discovery, he shall notify the Government that a drill-stem or

production test will be made within twenty-four (24) hours of the

time that such proposed test has been called. and the Government

shall have the right to have a representative present during such

test. Within two hundred (200) days after completion of such test

or tests, the Contractor shall complete the analysis and

interpretation of the data resulting from such test and submit a

report to the Government which shall contain copies of such data

and its analysis and interpretation thereof, and which shall also

contain a written notification of whether or not, in the

Contractor's opinion, such discovery is of potential commercial

interest. If the Contractor plugs and abandons the well which

encountered such discovery without conducting a drill stem or

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

with respect to such discovery within two hundred (200) days

from the date on which such discovery has been made, it shall be

deemed to have notified the Government that, in the Contractor's

- 16 ­



discovery and



BELIZE NATURAL ENERGY LTD 1/2/2003



opinion, such discovery is not of potential commercial interest.

6.2.3



If, pursuant to paragraph 6.2.2, the Contractor notifies, or is

deemed to have notified, the Government that such discovery is

not of potential commercial interest, within thirty (30) days, the

Government shall have the option, exercisable by notice in

writing to the Contractor given within thirty (30) days, to require

the Contractor to relinquish the area corresponding to such

discovery and forfeit any rights relating to such discovery and

any production therefrom. The area subject to relinquishment

shall not exceed the prospective producing area determined by

taking into account the area of the structural closure of the

prospective horizon and other relevant technical factors,

including inter alia, permeability, porosity, pressure, drive,

trapping mechanism, reservoir depth and thickness. Any such

relinquishment by the Contractor of the area relating to such

discovery before the end of the exploration period shall be carried

out in accordance with paragraphs 4.4, 4.6 and 4.8.



6.2.4



If, pursuant to paragraph 6.2.2, the Contractor notifies the

Government that the discovery is of potential commercial

interest, the Contractor shall promptly prepare and submit for

approval to the Government a reasonable work programme and

work programme budget for the appraisal of such discovery.

Such appraisal work programme and work programme budget

shall include a complete programme of appraisal operations

necessary to determine whether such discovery is a commercial

discovery.



6.2.5



Within fifteen (15) days after the submission of the appraisal

work programme and work programme budget pursuant to

paragraph 6.2.4, the Contractor and the Government shall meet

with a view to adopting such work programme and work

programme budget or mutually agreeing upon amendments or

additions thereto.

Failing agreement between the Contractor

and the Government as to such work programme and work

programme budget at such meeting, or within fifteen (15) days

thereafter, the original appraisal work programme and work

programme budget submitted by the Contractor, revised in

accordance with any agreed amendments or additions thereto,

shall be deemed adopted, and the Contractor shall immediately

commence implementation thereof. On adoption of the appraisal

work programme and work programme budget, the annual work

programme and work programme budget adopted pursuant to

paragraph 5.6 shall be revised accordingly.



6.2.6



If, pursuant to paragraph 6.2.2, the Contractor has notified the

Government that the discovery is of potential commercial

interest, it shall, unless otherwise agreed:

(a) in respect of a discovery of crude oil, advise the Government

by notice in writing, whether or not in its opinion, the discovery

is commercial within a period of agreed eighteen (18) months

from the date on which the Contractor notified the Government

that said discovery was of potential commercial interest:



(b) in respect of a discovery of non-associated natural gas, advise

the Government by notice in writing, whether or not in its

- 17 ­



BELIZE NA rURAL ENERGY L TO 1/2/2003



opinion, the discovery is commercial, within such period as may

be stipulated in an Agreement made pursuant to Article XIV with

respect to such discovery or, in the absence of such Agreement,

within thirty-six (36) months from the date on which the

Contractor notified the Government that said discovery was of

potential commercial interest.

6.2.7



If the Contractor notifies the Government that the discovery is not

commercial, or fails to notify the Government that the discovery

is commercial within the periods prescribed in paragraphs

6.2.6(a) and (b), the Government shall have the option,

exercisable by notice in writing to the Contractor, to require the

Contractor to relinquish the area corresponding to such discovery

and forfeit any rights relating to such discovery and any

production therefrom. The area subject to relinquishment shall

not exceed the prospective producing area determined by taking

into account the area of structural closure of the prospective

horizon and other relevant technical factors.

Any such

relinquishment by the Contractor of the area relating to such

discovery before the end of the exploration period shall be carried

out in accordance with paragraphs 4.4, 4.6 and 4.8.



6.2.8



(a) The notice submitted to the Government by the Contractor

pursuant to paragraph 6.2.6 (a) and (b) shall be accompanied by a

report on the discovery setting forth all relevant technical and

economic data, including, but not limited to, geological and

geophysical information, areas, thicknesses and extent of the

productive strata, petrophysical properties of the reservoir

formations, PVT data, the reservoir's productivity indices for the

wells tested at various rates of flow, permeability and porosity of

the reservoir formations, the relevant characteristics and qualities

of the petroleum discovered, additional geological data and

evaluations of the reservoir, crude oil and natural gas reserves

estimates and any other relevant characteristics and properties of

the reservoirs and fluids contained therein, as well as all

evaluations, interpretations and analyses of such data and

feasibility studies relating to the discovery prepared by the

Contractor, his contractors, subcontractors and affiliated

compames.

(b) In addition, if the Contractor believes that the discovery is

commercial, he shall submit to the Government with the report

described in paragraph 6.2.8 (a) a work programme and work

programme budget for the development of such discovery. Such

development work programme and work programme budget shall

set out detailed proposals, including cost estimates, drilling

schedules, number of wells and well spacing, production

forecasts and a timing schedule, in accordance with generally

accepted engineering practices and economics of the international

petroleum industry, for the establishment and operation of all the

facilities, installations and services required for the production,

processing, storage and transportation of petroleum from the area

in which the discovery is located and any other activities

incidental thereto. Proposals relating to production procedures

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

decline of production or an excessive loss of reservoir pressure.

Such development work programme and work programme budget

shall also contain particulars of feasible alternatives, if any,

considered by the Contractor for the development and

- 18 ­



BELIZE NATURAL ENERGY LTD 1/2/2003



exploitation of the discovery and economic feasibility studies

carried out by or for the Contractor with respect to the discovery

taking into account the location, meteorological conditions, cost

estimates, the price of petroleum and any other relevant data and

evaluations thereof.

6.2.9



The Government shall examine the report and any work

programme and work programme budget submitted pursuant to

paragraph 6.2.8 and may require the Contractor to provide, within

a specified period of time, such additional information and data

as it may reasonably require to evaluate such report, work

programme and work programme budget. As soon as possible

after the submission of the report and any work programme and

work programme budget pursuant to paragraph 6.2.8 or receipt of

such additional information and data, the Government and the

Contractor shall meet (i) to determine at such meeting, or at such

later date as may be mutually agreed, the boundaries of the area

to be delineated as a field, and (ii) to adopt a work programme

and work programme budget for the development of the

discovery.



6.2.10



(a) At the meeting described in paragraph 6.2.9, the Contractor

shall carefully consider and take into account the proposals of the

Government and the reasons therefor and shall attempt in good

faith to reach an agreement with the Government on the points at

issue paying particular consideration to the objective of achieving

initial commercial production expeditiously taking into account

generally accepted engineering practices and economics of the

international petroleum industry.

(b) If the Government and the Contractor agree upon the

boundaries of the area to be delineated as a field and upon the

adoption of a work programme and work programme budget for

the development of the discovery, the date upon which such

agreement is reached, as reflected in writing signed by both

parties, shall be the date of the declaration of the commercial

discovery for all purposes of this Agreement. The area so

determined shall, on such date, be automatically converted into a

t field, and the Contractor shall, as soon as is practicable,

commence development and production operations in the field

according to the adopted work programme and work programme

budget. Upon adoption of the development work programme and

work programme budget, the annual work programme and work

programme budget adopted pursuant to paragraph 5.6 shall be

revised accordingly.



V



(c) In the event that no agreement is reached between the

Government and the Contractor within one hundred and eighty

(180) days from the date of submission of the report and work

programme and work programme budget pursuant to paragraph

6.2.8 as to (i) matters relating to the adoption of the work

programme and work programme budget for the development of

the discovery or (ii) the boundaries of the area to be delineated as

a field, the Government or the Contractor may refer the matter for

determination pursuant to Article XXIV. The determination in

accordance with Article XXIV shall be final and the work

programme and work programme budget for the development of

the discovery and the boundaries of the area to be delineated as a

field, as the case may be, shall be deemed to have been adopted



- 19 ­



BELIZE NATURAL ENERGY L TO 1/2/2003



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

sixty (60) days of receipt of such determination, notify the

Government that the discovery to which such work programme

and work programme budget and area so determined is no longer

considered to be commercial. If the Contractor so notifies the

Government, the provisions of paragraph 6.2.7 shall apply.

Failing such notification, the date after sixty (60) days of the

receipt of such determination shall be deemed to be the date of

the declaration of the commercial discovery for all purposes of

this Agreement. The area so determined shall, on such date, be

automatically converted into a field and the Contractor shall, as

soon as is practicable, commence development and production

operations in the field according to the work programme and

work programme budget so adopted. Upon adoption of the

development work programme and work programme budget as

aforesaid, the annual work programme and work programme

budget adopted pursuant to paragraph 5.6 shall be revised

accordingly.



Production Period



6.2.11



Notwithstanding any other provision of this Agreement, in the

event that initial commercial production has not occurred within

three (3) years, in the case of a crude oil discovery on land, or

five (5) years, in the case of non-associated natural gas discovery,

or such longer period as the Government may have agreed in the

development work programme and work programme budget,

from the date of declaration of commercial discovery for a field,

the Contractor shall relinquish the area comprising such field and

shall forfeit any rights relating to such field and any production

therefrom.



6.3



The terms and conditions of the production period shall be as set

out below.



6.3.1



The Contractor shall not produce crude oil from the contract area

at a rate below the maximum efficient rate. In conjunction with

the adoption of the development work programme and work

programme budget pursuant to paragraph 6.2.10 the Contractor

and the Government shall establish at that time the maximum

efficient rate of production for crude oil and the production rate

for non-associated natural gas. Such rates shall be reviewed

annually at the time of submission of the annual work programme

by the Contractor pursuant to paragraph 5.4 and revised, if

necessary, by mutual agreement. In the case of non-associated

natural gas, the production rate shall not be required by the

Government to be less than that required to satisfy any contracts

then in existence for the sale of such natural gas.



6.3.2



Not less than ninety (90) days prior to the beginning of each

calendar year following initial commercial production, the

Contractor shall prepare and furnish to the Government for

approval a forecast statement setting forth by quarters the total

quantity of crude oil (by quality, grade and gravity) and natural

gas that the Contractor estimates can be produced, saved and

transported hereunder during such calendar year in accordance

with generally accepted practices in the international petroleum

industry. The Contractor shall endeavor to produce in each

calendar year the forecast quantity. The crude oil shall be run to

storage tanks, constructed, maintained and operated by the

Contractor in accordance with Government Regulations, in which



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BELIZE NATURAL ENERGY LTD 1/2/2003



such crude oil shall be metered or otherwise measured for all

purposes required by this Agreement.



ARTICLE VII

Obi igations of the

Government



The Government shall:

7.1



assist the Contractor in the execution of work programmes by

supplying or otherwise making available all geological,

geophysical, geographical, drilling, well, production and other

information, including well location maps, relating to the contract

area in the possession of the Government or coming into the

possession of the Government;



7.2



provide the right of ingress to and egress from the contract area

and any facilities used in petroleum operations, and, upon

application in the prescribed manner, all necessary visas, work

permits, import licenses and rights of way and easements as may

be required by the Contractor and his contractors and

subcontractors and which may be available from resources within

the Government's control.



ARTICLE VIII

Royalty/Production

Payment



8.1



The Contractor shall pay to the Government a royalty equal to (i)

seven and one half percent (7.5%) of the value of the annual gross

production of crude oil produced and saved in each calendar year

and not used or consumed in petroleum operations and (ii) five

percent (5%) of the value of the annual gross production of natural

gas produced, saved and sold in each calendar year and not used or

consumed in the conduct of petroleum operations.



8.2



The royalty with respect to crude oil shall be payable in cash

and/or kind at the option of the Government. The royalty with

respect to natural gas shall always be paid in cash.



8.3



For the purposes of determining the amount of the royalty due,

crude oil and natural gas shall be valued in accordance with

paragraphs 10.1, 10.2 and 14.4~J~_s_s__SQc:..b..c:'Q?J.s.a&.1heGovernment

may reasonably allow for handling and transportation from the

wellhead to the delivery point as described in such paragraphs, and

--the royalty shalCbe payable quarterly within thirty (30) days of the

end of each quarter on the basis of crude oil production or natural

gas sales which occur in each such quarter. Payment shall be

accompanied by a certificate from the Contractor setting forth in

detail the basis for computation of the royalty. Such certificate

shall be in a form acceptable to the Government.



8.4



If the Government elects to take the Royalty with respect to Crude

Oil, or any part thereof, in kind, it shall notify the Contractor in

accordance with the provisions of paragraph 11.2.



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BELIZE NATURAL ENERGY L TO 11212003



ARTICLE IX

Recovery of

Petroleum

Operations

Expend itures:

Production Sharing



.....­



9.1



LIn each calendar year, after discharging its obligation for the

royalty payment due to the Government pursuant to Article VIII,

the Contractor shall be entitled to recover all petroleum operations

expenditures incurred hereunder, out of one hundred percent

(100%) of the petroleum produced and saved in such calendar year

and not used in petroleum operations by retaining and disposing of

that amount of petroleum equal in value to the unrecovered

petroleum operations expenditures for that calendar year plus all

unrecovered petroleum operations expenditures from prior

calendar year~ This Percentage will be reduced from one hundred

percent (100%) to no less than ninety percent (90%) if the

government decides to purchase up to a ten percent (10%) equity.

All such petroleum operations expenditures shall be recovered

without a ceiling in the manner, to the extent provided for, in the

Income and Business Tax Act, Chapter 55 of the Substantive Laws

of Belize, Revised Edition 2000. For the purpose of determining

the value of the quantity of petroleum to which the Contractor is

entitled in each calendar year pursuant to this paragraph 9.1, the

provisions of Article X shall be applied.



9.2



The remaining quantity of petroleum produced and saved in a

given calendar year and not used in petroleum operations, after

deduction of the value of the royalty payments made in such

calendar year and after recovery by the Contractor of petroleum

operations expenditures pursuant to paragraph 9.1, ("Net

Petroleum") shall be taken and disposed of separately by the

Government and the Contractor in each calendar year in the

following proportions:



Daily Average Production: ( in barrel or equivalent-barrel):

Government's Share

Percent (%)



Contractor's Share

Percent (%)



First 25,000 barrels



1.5



98.5



Next 25,000 barrels



2.5



97.5



Next 25,000 barrels



5



95



Next 50,000 barrels



7.5



92.5



Next 50,000 barrels



10



90



Next 50,000 barrels



12.5



87.5



Any volume above first

225,000 barrels



15



85



ARTICLE X

Valuation and

Measurement of

Petroleum



10.1



Crude oil sold to third parties shall be valued at the net realized

price at the delivery point, well-head or tank batteries in the

field in Belize received by the Contractor for such crude oil.



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BELIZE NATURAL ENERGY LTD 1/2/2003



field in Belize received by the Contractor for such crude oil.

10.2



Crude oil sold to other than third parties shall be valued as

follows:



10.2.1



By using the weighted average unit price received by the

Contractor from sales to third parties at the delivery point, net of

any commissions and brokerages paid in relation to such third

party sales, during the ninety (90) days preceding such sale,

adjusted as necessary for quality, grade and gravity, and taking

into consideration any special circumstances with respect to such

sales, unless less than fifty percent (50%), by volume, of crude oil

sales during such period are made to third parties, in which case

crude oil sold to other than third parties shall be valued in

accordance with paragraph 10.2.2.



10.2.2



If no third party sales have been made during such period of time,

then (a) on the basis used to value other crude oil from Belize of

similar quality, grade and gravity (or, if not similar, adjusted as

necessary for quality, grade and gravity) and taking into

consideration any special circumstances with respect to sales of

such crude oil, or (b) if there is no other crude oil from Belize, on

the basis used to value crude oil from other sources in the

Caribbean, Central America, Colombia and Venezuela as posted in

Platt's Oil Gram for Caribbean/Central American Crudes of

similar quality, grade and gravity and taking into consideration

any special circumstances with respect to sales of such similar

crude oil.



10.3



Natural gas shall be valued in accordance with the provisions of

paragraph 14.4.



10.4



Third party sales referred to in this Article shall mean sales other

than barter sales made by the Contractor to purchasers who are not

affiliated companies of the Contractor in arms length transactions

and with whom (at the time the same is made) the Contractor has

no contractual interest involving directly or indirectly any joint

interest.



10.5



Commissions or brokerages incurred in connection with sales to

third parties, if any, shall not exceed the customary and prevailing

rate.



10.6



In the event that petroleum operations involve the segregation of

crude oils of different quality, grade or gravity, and if the parties

do not otherwise mutually agree, any and all provisions of this

Agreement concerning valuation of crude oil shall separately

apply to each segregated crude oil. However, in electing to take

crude oil for internal consumption pursuant to paragraph 11.7 and

to take royalty in kind pursuant to paragraph 11.2, the Government

shall have the right to receive, at its own expense and risk, crude

oil of the quality, grade and gravity of its choice.



10.7



The Contractor shall supply, operate and maintain equipment for

measuring the volume and quality of the petroleum produced and

saved hereunder, including gravity, density, temperature and

pressure measuring devices and any other devices that may be

required. All measurement equipment and devices shall, prior to

their installation or usage, be approved by the Inspector of

Petroleum. Such equipment and devices shall at all reasonable

- 23­



BELIZE NATURAL ENERGY LTD 1/2/2003



times be available for inspection and testing by the Inspector of

Petroleum or other authorized representatives. Any such

inspection or testing shall not interfere with the normal operation

of the facilities involved. The equipment and devices used or

installed pursuant to this paragraph shall not be replaced or altered

without the prior approval of the Government.

10.8



The Contractor shall undertake to measure the volume and quality

of the petroleum produced and saved hereunder, consistent with

generally accepted practices in the international petroleum

industry, with the frequency and according to procedures which

shall be approved by the Government.



10.9



The Contractor shall give the Inspector of Petroleum timely notice

of its intention to conduct measuring operations and the Inspector

shall have the right to be present at and supervise, either directly or

through authorized representatives, such operations.



10.10



If it is determined, following an inspection or test carried out by

the Government or its representatives, that the equipment, devices

or procedures used for measurement are inaccurate and exceed the

permissible tolerances which shall be established by agreement

between the Government and the Contractor, and such

determination is verified by an independent surveyor acceptable to

both parties, such inaccuracy shall be deemed to have existed for

one-half of the period since the last previous such inspection or

test, unless it is proved that such inaccuracy has been in existence

for a longer or shorter period. Appropriate adjustments covering

such period shall be made within thirty (30) days from the date of

such determination.



ARTICLE XI

Marketing, Production

(Royalty) in Kind and

Domestic

Regui rements



11.1



The Contractor shall be obligated to market all crude oil produced

and saved from the contract area, subject to the provisions

hereinafter set forth.



11.2



If the Government elects to take the royalty payment on crude oil

in kind, it shall so notify the Contractor in writing not less than

sixty (60) days prior to the commencement of each six month

period of each calendar year specifying the quantity, and

designating the grade and quality that it elects to take in kind,

based upon estimates, including those contained in the forecast

statement furnished pursuant to paragraph 6.3.2.

Final

adjustments shall be made within ninety (90) days of the end of

each calendar year on the basis of actual quantities. Such notice

shall be effective for the ensuing six month semester of that

calendar year. Failure to give such notice shall be conclusively

deemed to indicate the election by the Government not to take in

kind.



11.3



Any sale by the Contractor of any part of the Government's share

of crude oil production shall not be for a term expiring more than

six (6) months after the date of execution of the sales contract

without the Government's written consent. If the Government so

consents, the Government shall not exercise its rights to receive

crude oil in kind pursuant to paragraph 11.2.



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BELIZE NATURAL ENERGY LTD 1/2/2003



11.4



Any sale by the Contractor of any part of its share of the crude oil

produced and saved from the contract area shall not be for a term

expiring more than twelve (12) months after the date of execution

of the sales contract without the Government's written consent.

The Government shall not exercise its rights under paragraph 11.7

to require the Contractor to satisfy the internal consumption

requirements of Belize from crude oil which is subject to such

contract.



11.5



Crude oil which the Government has elected to take in kind shall

be delivered by the Contractor, free of cost to the Government, at

regularly spaced intervals at the delivery point or to the

Government's storage facilities in the field, or both, at the option

of the Government. The Government shall provide at such

delivery points, at its sole risk and expense, all storage,

transportation and other facilities necessary to receive such crude

oil, provided, however, that if the Government requests, the

Contractor shall provide adequate storage facilities at such places,

free of charge, at the risk of the Government, for a quantity of the

Government's crude oil not exceeding one hundred thousand

(100,000) barrels for each field. If storage exceeds one hundred

thousand (100,000) barrels per field at any time, the Government

shall pay to the Contractor a reasonable storage charge for such

excess. If such storage is provided, and the Government has no

need for such storage capacity, the Contractor has the right to use

such storage capacity for its own use and Government shall not

pay any storage charge for any such period in which Contractor

uses the storage facilities.



11.6



If the Government elects to meet all or part of the requirements of

the domestic market of Belize from crude oil production in Belize,

it shall use its share of production from all crude oil production in

Belize to do so. If in any year there is domestic demand in excess

of the Government's share of such production, the Government

may require the Contractor to sell crude oil in Belize on a pro rata

basis with other producers in Belize, according to the quantity of

crude oil production of each producer in each year.

The

Government shall give the Contractor at least three (3) months

notice in advance of such requirement and the term of supply will

be on an annual basis. The price for such sales shall be the price

as calculated pursuant to paragraph 10.2 above.



11.7



If the Government elects to exercise its rights under paragraph

11.6, it shall notify the Contractor in accordance with the

provisions of paragraph 11.2 relating to the Government's election

to take royalty payment in kind. The amounts to be taken shall be

based upon estimates, including those contained in the forecast

statement furnished pursuant to paragraph 6.3.2, and final

adjustments shall be made within ninety (90) days of the end of

each calendar year on the basis of actual quantities.



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BELIZE NATURAL ENERGY LTD 1/2/2003



11.8



Not less than twelve (12) months prior to initial commercial

production in any field, the Contractor shall submit to the

Government for approval, proposed procedures and related

operating regulations and financial terms covering the scheduling,

storage and lifting of crude oil from such field. The procedures,

regulations and terms shall be in accordance with accepted

standards and practices in the international petroleum industry and

comprehend the subjects necessary to efficient and equitable

operations including, but not limited to:

rights of parties,

notification time, maximum and minimum quantities: duration of

storage, scheduling, conservation, spillage, liabilities of the

parties, and penalties for over and under lifting, safety and

emergency procedures.



ARTICLE XII

Payment Procedure



12.1



All payments due to the Government hereunder shall be made in

United States dollars at a bank to be designated by the

Government, or at the Contractor's election, such other currency

as is acceptable to the Government.



12.2



All payments due to the Contractor hereunder shall be made in

United States dollars at a bank to be designated by the Contractor,

or, at the Government's election, such other currency as is

acceptable to the Contractor.



12.3



Except as otherwise expressly provided herein, all payments

required to be made pursuant to this Agreement shall be made

within thirty (30) days following the end of the calendar month in

which the obligation to make such payment occurs.



12.4



First year administrative fees for the Initial Exploration period

shall be paid to the Government of Belize (GOB) via the Inspector

of Petroleum within ninety (90) days of execution of PSA. Fees

for the subsequent years of the Exploration period shall be paid on

or before anniversary of effective date of PSA.



12.5



If any payment is not made when due, such unpaid amount shall

bear interest from and after the due date at an interest rate

compounded annually at two percent (2%) greater than the interest

rate charged by any Commercial Bank in Belize to prime

commercial customers for ninety (90) day loans as in effect from

time to time until the date of payment or US prime rate plus three

percent (3%).



ARTICLE XIII

Surface Rentals



13.1



The Contractor shall be liable for payment of such fees and surface

rentals as are stipulated in the Petroleum Regulations 1992. The

fees payable for each year shall be paid in advance and in

accordance with paragraph 12.4. The fees for the first year shall

be paid within ninety (90) days of the effective date of this

Agreement.



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BELIZE NATURAL ENERGY LTD 1/2/2003



ARTICLE XIV

Natural Gas



\4.\



The Contractor shall have the right to use associated natural gas

for petroleum operations, including re-injection for pressure

maintenance in the field or adjacent fields of the Contractor.

Associated natural gas which is, in the opinion of both the

Contractor and the Government, not economical, shall be returned

to the subsurface structure, or may be flared with the consent of

the Government. In the event that the Contractor chooses to

process and sell associated natural gas, the Contractor shall notify

the Government of the same and upon such notification, the

Government and the Contractor shall, as soon as practicable

thereafter, meet together with a view to reaching an agreement on

the production, processing and sale of such gas. In the event the

Contractor chooses not to process and sell associated natural gas,

the Government may elect to off-take at the outlet flange of the

gas-oil separator and use such associated natural gas which is not

required for petroleum operations. There shall be no charge to the

Government for such associated natural gas, provided that the cost

to gather such associated natural gas in the field at the point of

being flared and to process and utilize it shall be for the account of

the Government.



14.2



Where non-associated natural gas is discovered in the contract area

and the Contractor has, pursuant to paragraph 6.2 informed the

Government that the discovery is of potential commercial interest,

the Government and the Contractor will, on completion of the

appraisal programme relating to such discovery, or sooner if so

agreed, meet together with a view to reaching an agreement on the

development, production, processing, utilization, disposition or

sale of such gas.



14.3



In the event that the development, production, processing,

utilization, disposition or sale of natural gas from the contract area

is determined by the parties to be economically feasible in

accordance with this Article XIV, the costs of development and

production of the same from the reservoir to the delivery point,

and the revenue derived therefrom, shall, unless otherwise agreed

pursuant to paragraphs 14.1 and 14.2, be included in petroleum

operations expenditures and gross revenues, respectively, for all

purposes of this Agreement, subject to the accounting procedure

outlined in the Bulletin of the Income Tax Commissioner

(Annex 1).



\4.4



The price to be paid for natural gas, or the value to be attributed

thereto shall ­



14.4.1



for sales to third parties, be equal to the net realized price obtained

by the Contractor for such Natural Gas at the delivery point;



\4.4.2



for sales other than to third parties, be determined by agreement

between the Government and the Contractor, provided, however,

that such price or value shall reflect the following: (i) the quality

and quantity of the natural gas (ii) the price at which sales of

natural gas from other sources in Belize, if any, are then being

made, (iii) the price at which sales, if any, of natural gas imported

into Belize are being made, (iv) the purpose for which the natural

gas is to be used, and (v) the international market price of



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BELIZE NATURAL ENERGY L TO 1/2/2003



competing or alternative fuels or feedstocks.

14.4.3



Third party sales shall mean sales as described in paragraph lOA



ARTICLE XV

Taxes



15.1



The Contractor and his contractors and subcontractors shall be

obligated to pay income tax for the applicable calendar year upon

net taxable income derived from petroleum operations pursuant to

the Income and Business Tax, Act Chapter 55 Substantive Laws of

Belize, Revised Edition 2000.



15.2



In each calendar year, the Contractor's income tax shall be payable

to the Government in installments on the last day of each quarter

on the basis of the estimate, and quarterly updates thereto,

provided to the Government. The estimated unpaid liability for

income tax for each calendar year as of the current estimate or

quarterly update shall be payable equally over the remaining

quarterly installments for such calendar year. Adjusting payments

or refunds, as the case may be, shall be made within ninety (90)

days of the end of the calendar year based upon the detailed

accounts submitted for such calendar year pursuant to paragraph

26.2 as approved by the Government.



15.3



(a) The Contractor shall within ninety (90) days of the end of each

calendar year, notify the Government of any and all amounts paid

to its contractors with respect to operations carried out by them in

Belize and in turn shall notify its contractors that they must

similarly advise the Government within ninety (90) days after the

end of each calendar year of any and all amounts paid to their sub­

contractors with respect to operations carried out by them in

Belize.

(b) The Contractor shall also advise each of its contractors, and

shall require such contractors to likewise notify their

subcontractors that for every six (6) months such contractors and

subcontractors shall furnish to the Government a list of all their

Belizean and expatriate personnel, along with the remuneration

received by each of such personnel, and that they shall be required,

prior to leaving Belize, to establish to the satisfaction of the

Government that the necessary income taxes have been paid.



15.4



The Contractor and his contractors and subcontractors and their

respective personnel shall be obligated to pay such reasonable

transfer taxes and stamp duties as may be in effect from time to

time at the rates which are generally applicable to all persons or

entities in Belize.



15.5



Except as may be otherwise agreed in wntmg between the

Government and the Contractor, all transactions giving rise to

revenues, costs or expenses which will be credited or charged to

the books, accounts, records and reports prepared, maintained or

submitted hereunder shall be conducted at arm's length or on such

a basis as will assure that all such revenues, costs or expenses will

not be higher or lower, as the case may be, than would result from

a transaction conducted at arm's length on a competitive basis

with third parties.



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BELIZE NATURAL ENERGY LTD 1/2/2003



ARTICLE XVI

Exemptions from

Custom Duties



16.1



The Contractor and his non- Belizean contractors and

subcontractors engaged III conducting petroleum operations

under this Agreement shall be permitted to import upon

application to and approval by the Minister of Finance for

exemptions from customs duties with respect to the importation of,

machinery, equipment, spare parts, materials, supplies,

consumable items, moveable property, and any other items or

articles connected with petroleum operations, subject to the

provisions of paragraph 16.2. Furthermore the Contractor and his

subcontractors shall be permitted to purchase in Belize the

following products duty-free, including, inter alia, gasoline, diesel

fuel and gas to be used in petroleum exploration and production

operations.



16.2



The exemptions provided in paragraph 16.1 shall not apply to any

imported item when, in the reasonable opinion of the Government,

items of the same, or substantially the same, kind and quality are

manufactured locally and/or are available locally for purchase and

timely delivery at the Contractor's operating base in Belize at a

price equal to the cost of the imported item(s).



16.3



The Government reserves the right to inspect during normal

business hours the records, documentation or the physical item or

items for which an exemption is or has been provided under

paragraph 16.1 to determine that such item or items are being or

have been imported solely for the purpose for which the

exemption was granted.



16.4



The item or items exempt from customs duties hereunder shall not

be sold to third parties (who are not in their own right exempt from

such customs duties) for use or consumption in Belize unless prior

written authorization is obtained from the Government and the

importing party pays the tax or duty due on the assessed value of

such item or items at the time of sale.



16.5



Any of the items imported into Belize, whether exempt or non­

exempt from customs duties, may be exported by the importing

party at any time without the payment of any export duties, taxes

or imposts.



16.6



"Custom duties" as used herein shall include all duties, taxes, or

imposts (except those charges, as may be in force from time to

time, paid to the Government for actual services rendered such as

normal handling and storage charges) which are payable as a result

of the importation of the item or items under consideration.



16.7



The Contractor shall be exempted from any duty, fee or any other

financial imposts (except those charges paid to the Government for

actual services rendered such as normal handling and storage

charges if any) in respect of the export of petroleum to which the

Contractor is entitled hereunder.



16.8



The Contractor shall not, directly or indirectly, export any

petroleum produced from the contract area to any country or

person which the Government has by law or official



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BELIZE NATURAL ENERGY LTD 11212003



pronouncement declared to be hostile or unfriendly.



ARTICLE XVII

Exchange and

Currency Controls



17.1



The Contractor shall be subject to the applicable exchange control

legislation and regulations in effect from time to time in Belize,

provided, however, that:

(i) the Contractor shall be permitted to freely dispose of any crude

oil produced after satisfying its obligations of payment of taxes,

bonuses, royalties and other fees to the Government and with the

prior approval of the Central Bank of Belize to receive and hold

the proceeds from the sale of any petroleum, crude oil, natural gas

and casinghead petroleum spirit produced therefrom in its offshore

banking account;

(ii) the Contractor shall be permitted to remit any profits,

dividends, capital, or sums owed in repayment of loans including

sums owed to affiliates, which are not required for conducting the

petroleum operations, to their home office or non-resident

shareholders free of any charges, taxes, imposts or other duties;

(iii) the Contractor shall have the right to establish and maintain

local bank accounts which may be denominated in Belize dollars

or, subject to the prevailing conditions of the Central Bank of

Belize, in United States dollars which may be utilized as necessary

for payment of Contractor's obligations in Belize;

(iv) no restriction shall be placed on the importation by the

Contractor of funds necessary for carrying out the petroleum

operations stipulated in this Agreement;

(v) the Contractor shall have the right to pay directly outside of

Belize from its offices abroad for purchases or services for

petroleum operations hereunder, provided, however, that no such

payments shall be made to residents of Belize or to firms using

Belize as their main base of operations (whether natural or

juridical) contrary to the Laws of Belize.



ARTICLE XVIII

Title to Equipment



18.1



All equipment and assets which are fixed installations and are not

exported by the Contractor under paragraph 16.6 shall become the

property of the Government without cost as soon as this

Agreement is terminated.



ARTICLE XIX

Government

Participation



19.1



The Government shall have the option to acquire for itself or for

its designee an equity interest of up to ten percent (10%) of the

total interest of the Contractor in this Agreement and in return

therefore shall furnish its working interest share of the funds as

provided in paragraph 19.2. The equity interest shall be made up

of two portions, a reimbursed Working Interest share of up to five



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BELIZE NATURAL ENERGY L TO 1/2/2003



percent (up to 5%) and a Carried Interest of up to an additional

five percent (up to 5%).

\9.2



\9.3



Within ninety (90) days following the date of declaration of

commercial discovery for any field, the Government, by written

notice to the Contractor, may exercise its option to participate in

this Agreement. If the Government exercises its option to

participate, (a) it shall promptly reimburse the Contractor an

amount, equivalent to the Working Interest up to five (up to 5%)

percent of all exploration expenditures incurred within the entire

contract area prior to the date of declaration of commercial

discovery for such field and (b) the Contractor (or each

corporation, individual or entity comprising the Contractor at that

time pro rata) shall assign and transfer to the Government or its

designee up to five percent (up to 5%) Working Interest that the

Government has opted to acquire. The Government or its designee

shall assume all rights and obligations of the Contractor pro rata

with its equity interest, in connection with this Agreement.

The Government may, upon giving the Contractor reasonable

written notice, require the Contractor to lend the Government up to

one hundred percent (100%) of the funds required to pay the­

Government's pro-rata share of expenditures for up to five percent

( up to 5%) Carried Interest. Those expenditures represent the pro­

rata share of all exploration expenditures incurred within the entire

contract area prior to the date of declaration of commercial

discovery for such field and the pro-rata share of capital and

operating costs. The loan shall bear interest at US prime rate plus

three percent (3%). The Government shall make repayments of

the loan on a quarterly basis in amount equal to fifty percent

(50%) of the differences between the gross revenues attributable Lo

the Government's Carried Interest in the field and the operating

costs and capital expenses, including royalty but excluding income

taxes, attributable to the Government's Participating Interest in the

field for Petroleum Operations. Repayments of the loan shall be

applied first to accrued and unpaid interest and the balance shall be

applied in reduction of the outstanding principal balance. The

terms of the loan shall be no longer than 10 years. The percentage

Carried Interest revert to a Working Interest after repayment of the

loan. Provided that, where parties agree that a well and/or field is

small, the Government shall not participate via Carried Interest

Equity.



ARTICLE XX

Training and

Employment



20.\



The Contractor agrees to train and employ qualified nationals of

Belize in its petroleum operations and, after initial commercial

production, will undertake the schooling and training of nationals

of Belize for staff positions, including administrative and

executive management positions. The Contractor will require his

contractors and subcontractors to do the same. The Contractor

undertakes to gradually replace its expatriate staff with qualified

nationals of Belize as they become available. An annual

programme for training and phasing in of nationals of Belize shall

be established by the Contractor and shall be submitted for

approval to the Government. Such programme shall be included in

the annual work programmes submitted by the Contractor pursuant



- 31 ­



")~>­



I



tr .cr"

j



BELIZE NATURAL ENERGY L TO 1/2/2003



to paragraph 5.4. Within thirty (30) days of the end of each

calendar year, the Contractor shall submit a written report to the

Government describing the number of personnel employed, their

nationality, their positions and the status of training programmes

for nationals of Belize.

20.2



The Contractor shall also be required to establish a programme,

satisfactory to the Government, to train personnel of the

Government to undertake skilled and technical jobs in petroleum

operations for the Government. Such programme shall also include

provisions for involving representatives of the Government in

preparation of the annual work programme and work programme

budgets as required by paragraph 5.4 (d).



20.3



The Contractor shall be responsible for on-the-job training of

Belizean nationals during the exploration and development periods

pursuant to paragraphs 20.1 and 20.2. Commencing with the first

contract year following initial commercial production in the first

field, the Contractor shall undertake responsibility of training not

less than three (3) Belizean nationals per each calendar year in

accordance with paragraphs 20.1.



ARTICLE XXI

Purchases in Belize



21.\



In procurement, the Contractor shall give preference to goods

which are produced or available in Belize and services which are

rendered by nationals of Belize and companies of Belize, provided

such goods and services are offered on terms equal to or better

than imported goods and services with regard to quality, price and

availability at the time and in the quantities required.



21.2



Locally produced or available equipment, materials and supplies

shall be deemed equal in price to imported items if the local cost

of such locally produced or available items at the Contractor's

operating base in Belize is not more than ten percent (10%) higher

than the cost of such imported items before customs duties but

after transportation and insurance costs have been added.



ARTICLE XXII

U11 itization



22.1



If a field is designated within the contract area and such field

extends beyond the contract area to other areas of Belize over

which other parties have the right to conduct exploration,

development and production operations the Government may

require that the development of the field and the production of

petroleum therefrom be carried out in collaboration with the other

contractors consistent with accepted practices in the international

petroleum industry. The same rule shall be applicable if deposits

of petroleum within the contract area, although not equivalent to a

commercial discovery if developed alone, would be deemed to be

a commercial discovery if developed with those parts of the

deposits which extend to areas controlled by other contractors.



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BELIZE NATURAL ENERGY L TO 11212003



22.2



If the Government so requests, the Contractor shall collaborate

with other contractors in preparing a collective proposal for

common development and production of the deposits of petroleum

for approval by the Government.



22.3



If the proposal for common development and production has not

been presented within ninety (90) days of the request described in

paragraph 22.2, or if the Government does not approve such

proposal, the Government may prepare or cause to be prepared, for

the account of the Contractor and the other contractors involved, a

reasonable plan for common development and production. If the

Government adopts such plan, the Contractor shall comply with all

conditions established in such plan.



22.4



The Contractor may within twenty eight (28) days from the date

on which notice in writing of such plan has been given to him by

the Minister refer the matter to arbitration pursuant to Article

XXIV. In such event the plan shall not be implemented until the

arbitrators render a decision or the parties agree on a compromise

plan, whichever occurs first.



22.5



This Article XXII shall also be applicable to discoveries of

deposits of petroleum within the contract area which extend to

areas that are not within the dominion of Belize, provided that in

these cases the Government shall be empowered to impose the

special rules and conditions which may be necessary to satisfy

obligations under any agreements with international organizations

or adjacent states with respect to the development and production

of such deposits of petroleum.



22.6



Within ninety (90) days following the approval or adoption of a

unitization plan for common development and production, the

Contractor shall proceed to operate under any such plan. If a

clause of a cooperative or unitary development and production

plan which by its terms affects the contract area or a part of the

same, contradicts a clause of this Agreement, the clause of the

cooperative or unitary plan shall prevail.



ARTICLE XXIII

Danger to Persons,

Property or

Environment



23.1



The Contractor shall undertake relevant studies to identify sources

of potential environmental damage and pollution which may result

as a consequence of petroleum operations under PSA I of 2003.

The Contractor shall identify mitigation/prevention measures to be

adopted to minimize the effect(s) of any and all such sources

identified, and shall submit these to the approval of the

Government prior to the execution of any work.



23.2



If the Government reasonably determines that any works or

installations erected by the Contractor or any operations conducted

by the Contractor endanger or may endanger persons or third party

property or cause pollution or harm wild-life or the environment to

a degree that is unacceptable according to international petroleum

standards, the Government may require the Contractor to take

remedial measures within a reasonable period established by the

Government and to repair any damage to the environment that

may be necessary in accordance with international petroleum

standards. In the event that the Contractor fails to take the



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BELIZE NATURAL ENERGY LTD 1/2/2003



remedial measures required by the Government within the time

period established by the Government, the Government may carry

out such remedial measures for the Contractor's account.

23.3



(a) The Contractor shall contribute: one tenth of one percent

(Ill o" of 1%) of the value of the annual gross production of crude

oil and/or natural gas produced and saved in each calendar year

and not used or consumed in petroleum operations to a Common

Fund to be held in trust by the Government and managed for the

sole purpose of indemnification against any or all environmental

damages caused during the petroleum operations.



(b) Furthermore the Contractor agrees that nine tenths of one

percent (911 oth of 1%) of the value of the annual gross production

of crude oil and/or natural gas produced and saved in each

calendar year and not used or consumed in petroleum operation

shall be lodged in a Trust Fund to be managed by a board of

trustees comprising no less than fifty-one percent (51 %) of

Belizean nationals and/or residents of Belize and no more than

forty-nine percent (49%) of Foreign nationals, for the sole

purposes of environmental conservation and general education.

Half of the trustees will be named by the contractor and the other

half by the Inspector of Petroleum of the Geology & Petroleum

Department.

23.4



The Contractor shall not be held responsible for any hazard

created by the present condition of the Eagle-l well that endanger

or may endanger persons or third party property or cause pollution

or harm wild-life or the environment. Provided that Contractor

undertakes to secure the Eagle 1 Well via methods acceptable to

well security as employed within the International Petroleum

Industry (IPI).



ARTICLE XXIV

Arbitration



24.1



If any time during the continuance of this Agreement or any

renewal thereof or after the termination thereof any question,

disagreement or dispute shall arise regarding this Agreement or

any matter or thing connected therewith or the breach thereof or

the powers, duties, or liabilities of the parties thereunder, the

parties shall first attempt to amicably solve the question,

disagreement or dispute between themselves by consulting and

negotiating with each other in good faith. If the Government and

the Contractor are not able to amicably resolve their differences

within a period of forty-five (45) days after such difference arises,

then the dispute or differences shall be finally settled by arbitration

in accordance with the Arbitration Rules of the United Nations

Commission on International Trade Law (hereinafter referred to as

UNCITRAL Arbitration Rules).



24.2



The number of arbitrators shall be three. The Government shall

appoint one and the Contractor shall appoint one. The two

arbitrators thus appointed shall choose the third arbitrator who will

act as the Presiding Arbitrator. If the two arbitrators cannot come

to an agreement on the designation of the third, the third arbitrator

shall be designated in accordance with the UNCITRAL



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BELIZE NATURAL ENERGY LTO 1/2/2003



Arbitration Rules.

24.3



The place of arbitration shall be Belmopan, Belize if at the time of

such arbitration, Belize is recognized as a member state of the

1958 Convention on the Recognition and Enforcement of Foreign

Arbitral Awards ("New York Convention"). If Belize is not a

member state of the New York Convention at that time, the place

of arbitration shall be Mexico City, Mexico.



24.4



The language to be used in the arbitration proceeding shall be

English.



24.5



The arbitral tribunal shall decide all questions presented on the

basis of:

(a)

the laws and regulations of Belize applicable to this

Agreement and other relevant laws, both national and

international;

(b) the provisions of the Agreement, and

(c) trade usages and customs of the international petroleum

industry.



24.6



Arbitral awards shall be final and binding upon the parties from

the date they are made and judgment upon the award may be

entered in any court having jurisdiction.



ARTICLE XXV

Termination



25.1



The Government shall have the right to terminate this Agreement

upon giving thirty (30) days written notice of its intention to do so

if the Contractor (a) fails to make any monetary payment required

by law or under this Agreement for a period of thirty (30) days

after the due date for such payment, (b) fails to comply with any

other material obligation that he has assumed under this

agreement, or (c) fails to comply with the Petroleum Act Chapter

225 Substantive Laws of Belize, Revised Edition 2000 and any

lawful acts, regulations, orders or instructions issued by the

Government or any department or agency of the Government, or

(d) becomes bankrupt, or goes into liquidation because of

insolvency or makes a composition with its creditors.



25.2



If the circumstance or circumstances that result in termination

under paragraph 25.1(a), (b) or (c) are remedied by the Contractor

within the thirty (30) days period following the notice of

termination as aforesaid, such termination shall not become

effective.



25.3



If the circumstance or circumstances that would otherwise result in

termination under paragraph 25.1 are the result of force majeure,

then termination shall not take place so long as such force majeure

continue and for such period thereafter as is reasonable.



25.4



The termination of this Agreement for whatever reason shall be

without prejudice to the obligations incurred and not discharged by

the Contractor prior to the date of termination.



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BELIZE NATURAL ENERGY LTD 1/2/2003



25.5



In the event of termination pursuant to paragraph 25.1 or 25.7, the

Government may require the Contractor, where reasonable, for a

period not to exceed one hundred eighty (180) days, to continue,

for the account of the Government at the Government's sole risk

and expense, crude oil or natural gas production activities until the

right to continue such production has been transferred to another

entity.



25.6



Within ninety (90) days after the termination of this Agreement

pursuant to paragraph 25.1 or paragraph 25.7, unless the Minister

has granted an extension of this period, the Contractor shall

complete any reasonably necessary action as directed by the

Government to avoid environmental damage or a hazard to human

life or third party property.



25.7



The Contractor has the right to terminate this Agreement for

material nonperformance of the Government consistent with all

available remedies at law and equity. Additionally, Contractor

shall have the right to terminate this Agreement totally, or

partially, (a) with respect to any part of the contract area other than

a field then producing, or that prior thereto had produced, crude oil

or natural gas upon giving thirty (30) days written notice of its

intention to do so, and (b) with respect to any field then producing,

or that prior thereto had produced crude oil or natural gas upon

giving ninety (90) days written notice of its intention to do so.

Upon termination, the provisions of paragraphs 4.7 and 4.8 shall

apply.



ARTICLE XXVI

Books, Accounts

and Audits. Records,

Reports and

Inspections



26.1



The Contractor shall be responsible for keeping complete

accounts, books and records reflecting all petroleum operations

expenditures and gross revenues consistent with generally

accepted procedures and standards in the international petroleum

industry and in accordance with the accounting procedure outlined

in the Bulletin of the Income Tax Commissioner (Annex 1).



26.2



Within ninety (90) days after the expiration of each calendar year,

the Contractor shall submit to the Government detailed accounts

showing all petroleum operations expenditures and all gross

revenues during the past calendar year. Before submission to the

Government, the accounts shall be audited by an independent

chartered accountant or certified public accountant acceptable to

both parties, at the expense of the Contractor. It is understood that

the Government, through the Auditor General's Department,

retains the authority to review and audit the Contractor's accounts,

books and records with respect to petroleum operations conducted

hereunder either directly or through an independent accountant

designated by the Government.



26.3



The Government and its duly authorized representatives shall have

full and complete access to the contract area at all reasonable times

with a right to observe petroleum operations and shall have the

right to inspect all assets, records, books, accounts and data kept

by the Contractor relating to petroleum operations and this

Agreement. In so doing, the Government and its representatives

shall not unduly interfere with the Contractor's petroleum

operations. However, the Government and its representatives may



- 36­



BELIZE NATURAL ENERGY LTD 1/2/2003



make a reasonable number of surveys, drawings, tests and copies

for the purpose of implementing this Agreement. In doing so, the

Government and its representatives shall be entitled to make

reasonable use of the equipment and instruments of the Contractor

provided that no damage to the equipment or instruments or

impediment to the petroleum operations hereunder shall result

from such use. The Government shall indemnify and reimburse the

Contractor for any loss or damage which may in fact result from

any such use of equipment and instruments, provided that such

loss or damage is reported to the Government within twenty-four

(24) hours from the time of such inspection. The Government and

its representatives shall be given reasonable assistance by the

Contractor for such functions, and the Contractor shall afford to

the Government and its representatives all facilities and privileges

afforded to its own personnel in the field.

26.4



The Contractor shall prepare and maintain accurate and current

records of its activities in the contract area hereunder. The

Contractor shall furnish the Government in conformity with the

applicable regulations, and as the Government may reasonably

require, information, reports and data concerning its activities and

operations under this Agreement.



26.5



The Contractor shall save and keep for the duration of this

Agreement all unused cores and samples taken from the wells

drilled, which shall be forwarded to the Inspector of Petroleum or

his authorized representatives at such time and in the manner

directed by the Government. All cores and samples acquired by

the Contractor shall be available for inspection by the Inspector of

Petroleum or his authorized representatives at all reasonable times.

Unless previously forwarded to the Government pursuant to

instructions given under this paragraph, the Contractor shall

forward to the Government all remaining cores and samples upon

the expiration or termination of this Agreement.



26.6



Unless otherwise agreed to by the Government, in the case of

exporting any rock or petroleum samples from Belize for the

purpose of testing and analysis, samples equivalent in size and

quantity shall, before such exportation, be delivered to the

Inspector of Petroleum.



26.7



Originals of records and other data can be exported only with the

permission of the Government, provided, however, that magnetic

tapes and any other data which must be processed or analyzed

outside Belize may be exported if a comparable record is

maintained in Belize and provided that such exported records and

data shall be repatriated to Belize.



26.8



The Contractor shall provide to the Inspector of Petroleum in

appropriate form all original data resulting from petroleum

operations, including, but not limited to, geological, geophysical,

petrophysical engineering, well logs,

production data and

completion status reports and any other data which the Contractor

may compile during the term hereof including all reports, analyses,

interpretations, maps and evaluations thereof prepared by the

Contractor and any contractors, subcontractors or consultants to

the Contractor or by affiliated companies, and cuttings of all

samples that have been obtained or compiled during the term

hereof ("data"). The Government shall have title to all such data.



- 37 ­



BELIZE NATURAL ENERGY L TD 1/2/2003



Such data shall not be disclosed to third parties by the Government

prior to relinquishment of the area to which they relate, or prior to

the end of the exploration period if such area is not sooner

relinquished, provided, however, that the Government may make

copies available to professional consultants, legal counsel,

accountants, underwriters, lenders and such Government entities

as may need to be made aware thereof or have the right to require

disclosure. In any event, the Contractor may retain copies of all

such data. The Contractor shall not disclose such data to any third

parties without the Government's prior written consent, provided,

however, that the Contractor may make copies available to

professional consultants, legal counsel, accountants, underwriters,

lenders, affiliated companies and contractors and subcontractors of

the Contractor and such government entities as may need to be

made aware thereof or have the right to require disclosure. Any

data which are disclosed by the Government or the Contractor to

third parties pursuant to this paragraph (26.8) shall be disclosed on

terms which ensure that such data are treated as confidential by the

recipient. To the extent that there is any inconsistency between

the provisions of this paragraph (26.8) and the provisions of

Article XXXIII, the provisions of this paragraph (26.8) shall

govern.



ARTICLE XXVII

Insurance and

Indemnification



27.1



To ensure that the Contractor shall meet his obligations to third

parties, or to Government agencies, that might arise in the event of

damage or injury (including environmental damage or injury,

removal of wrecks and cleaning up caused by accidents) caused by

petroleum operations, notwithstanding that the damage is

accidental, the Contractor shall maintain in force a third party

liability insurance policy covering the activities of himself, his

contractors and subcontractors and the employees of all such

parties. Such insurance policy shall include the Government as an

additional insured, shall waive subrogation against the

Government and shall provide that it may not be cancelled except

upon thirty (30) days prior written notice to the Government. A

certificate evidencing such insurance policy shall be furnished to

the Government within ninety (90) days of the effective date. The

limits, coverage, deductibles and other terms thereof shall be

subject to approval in writing by the Government. To the extent

that such third party liability insurance is unavailable or is not

obtained, or does not cover part or all of any claims or damage

caused by or resulting from petroleum operations, the Contractor

shall remain fully responsible and shall defend, indemnify and

hold the Government harmless against all such nature whatsoever.

The Contractor shall maintain in force a third party liability

insurance policy covering the activities of himself, his contractors

and subcontractors and the employees of all such parties. Such

insurance policy shall include the Government as an additional

insured, shall waive subrogation against the Government, and shall

provide that it may not be canceled except upon thirty (30) days

prior written notice to the Government. A certificate evidencing

such insurance policy shall be furnished to the Government within

ninety (90) days of the effective date. The Contractor shall

procure at his own expense and maintain in full force at all times,



- 38­



BELIZE NATURAL ENERGY LTD 11212003



where applicable and available, the following:

1. Workmen's Compensation Insurance in full compliance with

the laws of the applicable country and state of hire.

2. Employer's liability Insurance.

3. Commercial General Liability Insurance with Bodily Injury

(other than automobile)

4. Pollution Liability: Sudden and accidental pollution liability on

a claims made basis.

5. Umbrella Liability or Excess Insurance: Excess liability

insurance pursuant to an "umbrella" policy covering claims III

excess of the underlying insurance as set forth in (3) above.

6. Automobile Liability: Coverage with Bodily Insurance and

Property Damage with combined Single Limit per Occurrence.

7.

Energy Exploration and Development Policy: Blowout

insurance covering cost of well control, redrilling and pollution

liability.

Such insurance will be purchased within limits that are mutually

agreed to and acceptable based on international industry standards.

Originals of all insurances obtained under Article XXVII, this

para. 27.1 shall be lodged with the Inspector of Petroleum within

thirty (30) days of execution of insurances.

27.2



The Contractor shall indemnify, defend and hold the Government

harmless against claims, losses and damages, without limitation,

claims for loss or damage to property or injury or death to persons

caused by or resulting from only petroleum operations conducted

by or on behalf of the Contractor, provided that the Contractor

shall not be held responsible to the Government under this

paragraph (27.2) for any loss, claim, damage or injury caused by

or resulting from any negligent action of personnel of the

Government.



27.3



Nothing contained in paragraph 27.3 above shall be construed to

relieve the Contractor of his obligations of indemnification as set

elsewhere out in this Agreement.



ARTICLE XXVIII

Assignment



28.1



The Contractor may assign, transfer, conveyor otherwise dispose

of any part or all of its rights or interest under this Agreement with

the prior written consent of the Government, which consent shall

not be unreasonably withheld.



28.2



Notwithstanding the provisions of paragraph 28.1, if the

Contractor assigns to any affiliated company, the Contractor shall

remain fully liable for the performance of this Agreement and

shall be fully liable for the performance of any such assignee.



28.3



In the case of an assignment to any non-affiliated company, the

Contractor shall provide to the Government an unconditional

undertaking by the assignee to assume all obligations of the



- 39­



BELIZE NA rURAL ENERGY L TO 11212003



Contractor under this Agreement.

Notwithstanding such

undertaking, the Contractor shall remain jointly and severally

liable with the assignee for performance of the obligations of the

Contractor unless the Contractor assigns his entire interest under

this Agreement.



ARTICLE XXIX

Law of the

Agreement



29.1



This Agreement shall be construed under, governed by and

interpreted in accordance with the laws of Belize and such

principles of international law as may be applicable.



ARTICLE XXX

Force Majeure



30.1



Except as otherwise provided in this Article, each party shall be

excused from complying with the terms of this Agreement, if such

compliance is prevented by strikes, wars (declared or undeclared),

acts of God, governmental intervention not otherwise addressed in

this Agreement, third-party intervention, or by any act or cause

that is reasonably beyond the control of such party, such causes

being herein called "force majeure". In the event that either party

hereto is rendered unable, wholly or in part, by any of these causes

to carry out its obligations under this Agreement, such party shall

give notice and details of force majeure in writing to the other

party within thirty (30) days after the party giving notice of such

force majeure is aware of its occurrence. In such cases, the

obligations of the party giving the notice shall be suspended

The

during the continuance of any inability so caused.

Government and Contractor will do all that is reasonably within

their power to remove such cause.



ARTICLE XXXI

Entire Agreement

and Amendments



31.1



This Agreement embodies the entire agreement and understanding

between the Contractor and the Government relative to the subject

matter hereof, and supercedes and replaces any provisions on the

same subject in any other Agreement between the parties, whether

written or oral, prior to the date of this Agreement. This

Agreement may not be amended, modified, varied or

supplemented except by an instrument in writing signed by the

Contractor and the Government.



ARTICLE XXXII

Waiver



32.1



Performance of any condition or obligation to be performed

hereunder shall not be deemed to have been waived or postponed

except by an instrument in writing signed by the party which is

claimed to have granted such waiver or postponement.



32.2



No waiver by any party of anyone or more obligations or defaults

by any other party in the performance of this Agreement shall

operate or be construed as a waiver of any other obligations or



- 40­



BELIZE NATURAL ENERGY LTD 1/2/2003



defaults whether of a like or of a different character.



ARTICLE XXXIII

Confidentiality



33.1



This Agreement and any confidential information of any party

hereto which becomes known to the other party in connection with

the performance of this Agreement shall not be published or

disclosed to third parties without the former party's prior written

consent, except as otherwise provided herein, and provided

however that such other party may communicate confidential

information to legal counsel, accountants, other professional

consultants, underwriters, lenders, agents, contractors or shipping

companies to the extent necessary in connection with this

Agreement, with the obligation of the parties receiving such

information to maintain confidentiality, or to an agency of the

Government of the country of the Contractor having authority to

require such disclosure.

The term "confidential information", as used herein shall mean

information identified as "confidential" by the party originally in

possession of it and disclosed to the other party, excluding

information previously known to the other party or information

which is publicly known (except through disclosure of the other

party in violation of this Article XXXIII) or information that

comes into the legitimate possession of such other party.



33.2



The confidentiality obligations of this Article XXXIII shall expire

upon relinquishment of the area to which the information relates.



ARTICLE XXXIV

Notices



34.1



All notices and other communications required or permitted

hereunder or any notices that one party may desire to give to the

other party shall be in writing in the English language and deemed

to have been properly delivered if personally handed to an

authorized representative of the party for whom intended, or sent

by registered airmail, cable, telex, facsimile and/or e-mail, at or to

the address of such party for whom intended, or such other

addresses as any party may from time to time designate by notice

in writing to the other party.



- 41 ­



BELIZE NATURAL ENERGY L TO 1/2/2003



EXHIBIT "A"



THIS EXHIBIT"A" is attached to and is incorporated as part of the award and delivery of

acreage dated this).



",,6



­



day of \~",,,,,d.I(1-' 2003 from Government of Belize (GOB) to



Belize Natural Energy Ltd. (BNE Ltd), covering 470 Sub-sectors or 467,672 acres more or

less.



ACREAGE DESCRIPTION



SECTOR



SUB-SECTORS



NO. SUB­



AREA



SECTORS



(ACRES)



138



C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y and parts of B,G,L,Q,V



>15



15522



139



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



140



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



156



Parts ofX,Y



<1



786



157



C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y and parts of B,G,L,Q,U,V



>15



16426



158



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X, Y



25



24710



159



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



175



A,B,C,D"E, F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



176



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



177



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



193



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



194



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



195



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



196



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



ill



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



212



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X, Y



25



24710



213



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T, U,V,W,X,Y



25



24710



214



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



228



C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y



15



14826



229



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



230



A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y



25



24710



>470



467672



TOTAL:



- 42­



Belize Natural Energy Ltd 11212003



EXHIBIT "B"



MAP OF CONTRACT AREA



340,OOOmE

1,950,OOOmN



313,765mE

1,950,OOOmN



'~



\

.)i'"



W+E



!1' .fIiI:'



,



;1.



,0-'::",;,



,<



<



~



N



~38



139



14n



s



~



~~



~



-.



313,595mE

1,93O,750mN

306,060mE

1,929,690mN



306,070mE

1,930,825mN



\,



300,010mE

1,929,745mN~







'~


175



-,



<,



'l;,



',;1,

i-'



't

280,OOOmE

1,910,OOOmN



\

280,OOOmE

1,900,OOOmN



m~\

j







192

4



290,OOOmE

1,910,OOOmN



1-



-.. I

r-



;) II



"4

~

~



1~'~



,



~,



:'."",



Et



~~.



111



;,>13



I I~



~,.,~



~



z



191:1



;



'(I



'\



-.



320,OOOmE

1,910,OOOmN



214



I, 9OO,OOOmN



<.



~



3OO,OOOmE

1,900,OOOmN



?:m



<,



?)q



230



f-......



Nad 27 UTM Zone 16



300,OOOmE

1,890,OOOmN



274,OOOmE

1,890,OOOmN



o



10



L

KILOMETRES



- 43­



'~



:",1



.... ,

?1~~



320,OOOmE

1,900,OOOmN



~~



.~



<.



I



340,OOOmE

1,930,OOOmN



1



,



'J .. ~ ~.


"



330,OOOmE

1,930,OOOmN



"



,177



176



I Ir

212



-.



"

I



1ge



'it



~.



~



I -D

I U



159



·W



'"



~



300,OOOmE

1,920,OOOmN



290,OOOmE

1,920,OOOmN



158



157



33O,OOOmE

1,910,OOOmN



BELIZE NATURAL ENERGY LTD 1/2/2003



EXHIBIT "C"



SECURITY - GUARANTEE





Ministry of Finance,

Government of Belize,

Belmopan, Belize



Gentlemen,

RE: OUR IRREVOCABLE LETTER OF GUARANTEE NO.1 OF 2003.

In compliance with the request of BELIZE NATURAL ENERGY LTD. ("the Contractor"), we

INTERNATIONAL NATURAL ENERGY LLC, (Parent Company of BELIZE NATURAL

ENERGY LTD.) issue this unconditional irrevocable letter of guarantee in your favour for a

sum not exceeding One (1) Million United States Dollars (US $1,000,000.00), which

represents twice the total minimum exploration expenditures set forth in paragraph 6.1.1 of the

Agreement ("Agreement"), dated



r"'~ January,



2003, between the Contractor and the



Government of Belize ("Government"), relating to petroleum exploration, development and

production in the territory of Belize, to guarantee the Contractor's faithful performance of its

minimum exploration expenditures obligations as provided for in the Agreement, the said sum of

One (1) Million United States Dollars (US $1,000,000.00) is to be reduced at the end of each

contract year, as defined in the Agreement, by the amount stipulated to be expended in such

contract year, if such amount is in fact expended as evidenced by a signed certificate from the

Government, provided, however, that said sum shall under no circumstances be reduced below

the stipulated minimum exploration expenditures for the remaining contract year of the Initial

Exploration Period, as set forth in paragraphs 6.1.1 of the Agreement, as evidenced by a signed

certificate from the Government.



The terms and conditions of this Letter of Guarantee are as follows:



1.



A sum not exceeding fifty percent (50%) shall be paid to you upon our receipt of your

written statement that the amount claimed is duly payable under the Agreement.



2.



We hereby waive diligence, presentment, demand for payment, protest, any requirement

that the Government exhaust any right or power or take any action against the Contractor,

all notices (whether of non-payment by the Contractor, dishonour, protest or otherwise)

and all demands whatsoever.



Our obligations hereunder are continuing, absolute and



unconditional, and will not in any way affected by giving of time or any forbearance by the

Government, the waiver or consent by the Government with respect to any provisions of

the Agreement, and irrespective of the validity, regularity, enforceability or value of the



- 44­



BELIZE NATURAL ENERGY LTD 1/2/2003



Agreement, or by any other circumstances which might otherwise constitute a legal or

equitable discharge or defense of a surety or guarantor, all of which are hereby expressly

waived.



3.



The obligations hereunder shall be paid in United States Dollars to the bank account

designated by the Government, free and clear of and without reduction by reason of any

and all present and future taxes, levies, assessed, imposed or collected with respect thereto

by the Government of or any political subdivision or taxing authority thereof of therein.

We shall bear connection with this Letter of Guarantee.



4.



In order to give effect to this Letter of Guarantee, we hereby declare that the Government

shall be at liberty to act as though we were the principal debtor, and we hereby waive all

and any of the rights as surety which may at any time be inconsistent with any of the above

provisions.



5.



Any claim or demand under this Letter of Guarantee shall be presented, to us on or before

the expiration of the date of the validity of the Letter of Guarantee.



G.



This Letter of Guarantee shall be effective the date of Production Sharing Agreement

(PSA) and expire ninety (90) days after the end of the Initial Exploration period as defined

in the Agreement, and thereafter automatically without any formality become null and void

for all its effects and this Letter of Guarantee shall be returned to us immediately.



Yours very truly,



-~-



MICHAEL USHER

FOR INTERNATIONAL NATURAL ENERGY LLC



- 45­



BELIZE NATURAL ENERGY L TO 1/2/2003



EXHIBIT "D"



LETTER OF ASSURANCE





INTERNATIONAL NATURAL ENERGY LLC

January 2, 2003

Ministry of Natural Resources & the Environment

Geology & Petroleum Department

Belmopan City

Cayo District

Belize

Attention:



Ms. Evadne Wade



Dear Sirs,

Re:



Assurance & Guarantee of Performance by Belize Natural Energy Limited



This letter serves to inform you, inter alia, that Belize Natural Energy Limited ("BNE"),

a Belizean corporation, is a subsidiary of our company International Natural Energy LLC, a

Nevis corporation. Under this structure, International Natural Energy LLC shall procure the

necessary financing for the intended oil exploration project and petroleum operations of BNE,

whether by way of dept or equity financing. BNE, with the financing from our company, will

then carryon all petroleum operations in Belize in pursuance of a production sharing agreement

to be agreed between BNE and the Government of Belize ("Government").

We understand that the Government is concerned as captioned above with the

performance by BNE of the works, expenditures and petroleum operations as BNE has

represented and agreed that it shall do in accordance with the proposed production sharing

agreement with the Government of Belize.



In furtherance of discussions and representations of legal representatives of BNE in

respect thereof, we wish to formally and irrevocably undertake hereby that any funds raised by

International Natural Energy LLC, a Nevis corporation, shall be used to finance BNE's

petroleum operations in Belize to the extent necessary to meet its obligations under the said

proposed production sharing agreement (PSA).

We currently maintain an account with

Provident Bank & Trust of Belize Limited in which we already hold in or about Seven Hundred

Fifty Thousand Dollars United States Currency. These funds shall be directed to the financing

of BNE' s petroleum operations in Belize.

We are hopeful that this undertaking shall satisfy your concerns of BNE's performance.

We assure you that BNE and International Natural Energy LLC are totally committed to this

endeavour and to its success.

We further guarantee up to limit of liability of Five Hundred Thousand Dollars United

States Currency (US$500,000.00) ("Guarantee Sum") BNE's faithful performance of its

minimum exploration expenditure obligations as provided for in the said PSA. The said

Guarantee Sum is to be reduced at the end of each contract year, as defined in the PSA, by the

amount stipulated to be expended in such contract year, if such amount is in fact expended as

evidenced by a signed certificate from the Government, provided however that the said sum shall

under no circumstances be reduced below the stipulated minimum exploration expenditures for

the remaining contract year of the Initial Exploration Period, as set forth in paragraph 6.1.1 of the

PSA, as evidenced by a signed certificate from the Government.



- 46­



BELIZE NATURAL ENERGY LTD 1/2/2003



The terms and conditions of this Guarantee are as follows:

1.



A sum not exceeding the above-mentioned Guarantee Sum shall be paid to you

upon our receipt of your written statement that the amount claimed is duly payable

under the PSA.



2.



We hereby waive diligence, presentment, demand for payment, protest, any

requirement that the Government exhaust any right or power or take any action

against BNE, all notices (whether of non-payment by BNE, dishonour, protest or

otherwise) and all demands whatsoever. Our obligations hereunder are continuing,

absolute and unconditional, and will not in any way affected by giving of time or

any forbearance by the Government, the waiver or consent by the Government

with respect to any provisions of the PSA, and irrespective of the validity,

regularity, enforceability or value of the PSA, or by any other circumstances which

might otherwise constitute a legal or equitable discharge or defense of a surety or

guarantor, all of which are hereby expressly waived.



3.



The obligations hereunder shall be paid in United States Dollars to the bank

account designated by the Government, free and clear of an without reduction by

reason of any and all present and future taxes, levies, assessed, imposed or

collected with respect thereto by the Government or any political subdivision or

taxing authority thereof or therein. We shall bear connection with this Guarantee.



4.



In order to give effect to this Guarantee, we hereby declare that the Government

shall be at liberty to act as though we were the principal debtor, and we hereby

waive all and any of the rights as surety which may at any time be inconsistent

with any of the above provisions.



5.



Any claim or demand under this Guarantee shall be presented to us on or before

the expiration of the date of the validity of this Guarantee.



6.



This Guarantee shall be effective the date of execution of the Production Sharing

Agreement (PSA) and expire ninety (90) days after the end of the Initial

Exploration period as defined in the PSA, and thereafter automatically without any

formality become null and void for all its effects and this Guarantee shall be

retuned to us immediately.



Yours sincerely,

INTERNATIONAL NATURAL ENERGY LLC



~~,



PER: MICHAEL USHER

DIRECTOR



- 47­



BELIZE NATURAL ENERGY L TO 1/2/2003



IN WITNESS WHEREOF, the Government and the Contractor have hereunto set their hands and

seals the day and year first herein before written.

SIGNED, SEALED AND DELIVERED BY

the above-named HONOURABLE JOHN BRICENO

for and on behalf

of the Government of Belize

in the presence of:



,(; ,



SIGNED, SEALED AND DELIVERED BY



f---r------__/__~



SUSAN MORRICE FOR

BELIZE NATURAL ENERGY LTD.



EFOR



GYLTD.



in the presence of:



f~,~



t L,).L



WITNESS



I, JOHN BRICENO of Belmopan, hereby acknowledge that I did sign, seal and deliver the

within-written document as my act and deed.



"J



Acknowledged at BELMOPAN this ~ day of .~~ ~J' 2003.



Before me,



BE IT REMEMBERED, that on the



..,...J-.

'7



day of



<

JL~:::>



Iv



2003 personally appeared



before me the within named JOHN BRICENO and acknowledged before me that he did sign,

seal and deliver the within-written instrument as his act and deed and that the signature of JOHN

BRICENO is in his writing.



- 48­



BELIZE NATURAL ENERGY L TO 1/2/2003



1, EVADNE L. WADE MAKE OATH AND SAY as follows:



I.



1 am subscribing witness to the execution of this agreement by SUSAN MORRICE



FOR BELIZE NATURAL ENERGY LTD.

2.



1 was present and did see SUSAN MORRICE FOR BELIZE NATURAL ENERGY



LTD. sign, seal, and deliver this agreement as her act and deed.

3.



Signature~,



The



MORRICE FOR



fLt ~.c~,



is



in



the



proper



handwriting



B~~'~ATU'LENERGY LTD. and the signature" 'f!



of SUSAN



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" is my own proper handwriting.



SWORN AT BELMOPAN

TI-IIS 3AI) DAY OF'~) D/1..



e-iil<}':j,



2003



J



i'~"J..J ,Ilv:l(

WITNESS



Before me,



C



BE IT REMEMBERED that on the



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day of



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2003, personally appeared before



me the within-named EVADNE L. WADE and made oath that she was a subscribing witness to

the execution of this AGREEMENT by SUSAN MORRICE FOR BELIZE NATURAL



r



ENERGY LTD. and was present and did see SUSAN MORRICE FOR BELIZE NATURAL

ENER Y LTD. sign, seal, and deliver this agreement as her act and deed and that the signature

(



.



f-",



~:



"is in her proper handwriting.



- 49­



BELIZE NA rURAL ENERGY L TO 1/2/2003



I hereby certify that I have count the within-written document and that it contains two hundred

and seventy-three (273) folios of seventy-two words each and forty-four (44) words over and no

more.



AS WITNESS my hand this ~ of



1onuory, 2003.



s



THIS DOCUMENT was prepared in the Geology & Petroleum Department for the Inspector



of Petroleum for and on behalf of the Government of Belize.



INSPECTOR OF PETROLEUM



- 50 ­



Annex-I



INCOME TAX COMMISSIONER'S BULLETIN





Article I

1.1



; 1.2

1.3

1.4



1.5

1.6

1.7

1.8



1.9

1.10



1. 11

1.12



1.13



General Provi sions



Definitions

Inconsistency

Accounting Records and Reports

Language - and Units of Account

Tax Accounting Principles

Accrual Basis

Definitions of Capital and Operating Expenditures

Depreciation

Arm's Length Transactions

General Exclusions

Currency Exclusions

Revision of the Accounting Procedure

Acceptance of Costs



Articlell



,



,



~



,'1

! ;



'I,



,



Petroleum Operations Expenditures



2.1



Definition for the Purpose of Determining Compliance with the Minimum

Exploration Expenditures Commitment



2.2



Definition for the Purpose of Article IX



j1

., '



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,I



:,



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Article III

3.1



3.2

3,3



3.4

3.5

3.6

, 3.7

3.8

3.9



Accounting Methods and Principles



.



I



Labour Costs

Material Costs

Technical Services Costs

Insurance and Claims

Legal and Litigation Costs

General Administration and Services

Interest, etc

Office Costs, etc. in Belize

Example of Production Share Calculation



!I



ARTICLE I

GENERAL PROVISIONS

1.1



1. 2



The Accounting Procedure described herein is to be

followed and observed in the performance of both parties'

obligations under this Agreement. The definitions appearing

in Article I of this Agreement shall also apply to this Exhibit.



In the event of any inconsistency or conflict between the



provisions of this Exhibit and the other provisions of this



Agreement, then the other provisions of this Agreement shall



prevail.





ACCOUNTING

RECORDS AND

REPORT



1.3



(a) The Contractor shall establish and maintain at its business



office in Belize complete accounts, books and records of all



revenues, costs and expenses relating to all Petroleum



Operations hereunder in accordance with generally accepted



procedures and standards in the international petroleum



industry. Such accounts, books, records and reports will be



available for the Inspection and use of the Government and



its representatives in carrying out its supervisory function



under the Agreement.



(b) Wi thin thirty (30) day s of the Effective Date of this



Agreement, the Contractor shall submit to and discuss with



the Government a proposed outline of charts of accounts,



books, records and reports, which outline shall be in



accordance with generally accepted and recognized



accounting systems applied by Certified Public Accountants



in the United States of America and consistent with modern



petroleum industry practices and procedures. Within ninety



(90) days of receiving the above submission, the



Government shall either indicate its approval of the proposal



or request revisions to the proposal. Within one hundred



and eighty (180) day s after the Effecti ve Date of the



Agreement, the Contractor and the Government shall agree



on the outline of charts of accounts, books, records and



reports which shall describe the basis of the accounting



system and procedure to be developed and used under this



Agreement. Following such agreement, the Contractor shall



expeditiously prepare and provide the Government with



fonnal copies of the comprehensive charts of accounts and



manuals related to the accounting, recording and reporting



functions, and procedures which are, and shall be, observed



under this Agreement.



(c) All reports and statements will be prepared in

accordance with this Agreement, the laws of Belize, and

where there are no relevant provisions of either of these, in

accordance with generally accepted practices in the

international petroleum industry .



.' LANGUAGE

AND UNITS OF

ACCOUNT



14



TAX ACCOUNTING 1. 5

PROCEDURES

1.5.1



Unless otherwise agreed, all accounts, records, books and



reports shall be maintained and prepared in the English



language and shall be recorded in United States dollars.



The following tax accounting principles shall apply:



In the event that the Contractor at any time comprises more



than one corporation, individual or entity, in the form of a



partnership, joint venture, unincorporated association or



other combination of entities or individuals, Income Tax



shall in all cases be calculated and assessed on the basis of



the Net Taxable Income of each corporation, individual,



partner, joint venturer, associate or other entity comprising



the Contractor. In the event the Government or its assignee



elects, pursuant to paragraph 19.2 of the Agreement to









I

1\





participate herein, the Government or Its assignee shall not

be treated differently for purposes hereof than the



Contractor.



CARRYFORWARD 1.5.2

. OFLOSSES



Commencing with the Calendar Year in which Initial

Commercial Production first occurs, any allowable

deductions for Income Tax purposes with respect to

Petroleum Operations Expenditures, the Production Payment

(Royalty) and the Government's share of Crude Oil

/:'

production which remain unrecovered In any Calendar Year

from Gross Revenue shall be treated as an operating loss

and may be carried forward as an allowable deduction to

subsequent Calendar Years until fully recovered from Gross

Revenues. In the event that an operating loss remains

unrecovered upon the termination of this Agreement, such

loss may be carried over and deducted from other revenues

of the Contractor from Petroleum Operations in Belize.



: ACCRUAL BASIS



All books, accounts and records shall be prepared on an

accrual basis. Revenue shall be deemed to be earned, in the

case of petroleum sales, in the accounting period when title

passes to the purchaser. Revenues shall be attributed to the

accounting period in which they are earned, and costs and

expenses to the accounting period in which they are

incurred, without the need to distinguish whether cash is

received or disbursed in connection with a particular

transaction. Costs and expenses shall be deemed to have

been incurred, in the case of physical items, in the

accounting period when title thereto passes, and in the case

of services, in the accounting period when such services are

performed.



1.6



1.7

DEFINITION OF

PETROLEUM

OPERATIONS



EXPENDITURES





CAPIT AL

; EXPENDITURES



1. 7.1



Petroleum Operations Expenditures may consist of capital

and operating expenditures as follows:





Capital expenditures are those Petroleum Operations

Expenditures for asset that normally have a useful life which

extends beyond the year in which the asset was acquired.

In addition to expenditures relating to assets that normally

have a useful life beyond the year in which the asset was

acquired, the costs of development and production drilling

operations, as described in paragraph 1.7.1 (e) of this

Exhibit, will be classified as capital expenditures.

Capital expenditures include, but are not limited to, the

following:

(a) Construction utilities, but are not limited to, the

following: water facilities, warehouses, and field roads.

Cost of Crude Oil treating plants and equipment, secondary

recovery systems, natural gas plants and steam systems,

(b) Construction housing and welfare housing - recreational

facilities and other tangible Property incidental to

constructi on,

(c) Production facilities - production rigs (including the costs

oflabor, fuel, hauling and supplies for both the offsite

fabrication and onsite installation of rigs, and other

construction costs in erecting rigs and installing pipelines),

wellhead equipment, subsurface lifting equipment,

production tubing, sucker rods, surface pumps, flow lines,

gathering equipment, delivery lines and storage facilities,

(d) Movables - surface and subsurface drilling and

production tools, equipment and instruments, barges,

floating craft, automotive equipment, aircraft, construction





.,





,.



equipment, furniture and office equipment and miscellaneous

equipment,

,



I,



(e) Development and production drilling labor, materials

and services used in drilling wells with the object of

penetrating a proven reservoir, including the drilling of

delineation wells as well as redrilling, deepening or

recompleting wells, and access roads, if any, leading directly

to wells,

OPERATING

EXPENDITURES



1.7.2



I



Operating expenditures are all Petroleum Operations

Expenditures other than capital expenditures.







Operational expenditures include, but are not limited to, the

following:

(a)

Exploration drilling -labor, materials and services

used in the drilling of walls with the object offinding

unproven reservoirs of crude oil and natural gas, and access

roads, if any, leading directly to wells.

(b)

Surveys -labor, materials and services used in aerial,

geological, topographical, geophysical and seismic surveys,

and core hole drilling, and

(c)

Other exploration expenditures - auxiliary or

temporary facilities having lives of one year or less used in

exploration and purchased geological and geophysical

information.

DEPRECIATION



1.8



Capital expenditures, as defined in paragraph 1.7 of this

Exhibit, shall be depreciated only for -the purpose of the

calculation ofIncome Tax. For the purpose of determining

the amount of depreciation which is allowable as a deduction

in each calendar year, the following principles shall apply,



1.8.1 Capital expenditures will be depreciated using the straight

line method over five (5) years,

1.8.2



A full year's depreci ation may be taken in the first cal end ar

year in which such depreciation is allowable,











.i

: I

. I



1.8.3 Deductions with respect to depreciation of capital

expenditures incurred shall be allowable commencing with

(A) the calendar year in which the capital asset is placed -into

service, or, if the capital expenditure does not relate to an

asset that normally has a useful life beyond the year in which

it is placed in service, the calendar year in which the capital

expenditure is incurred, or (B) the calendar year in which

Initial Commercial Production first occurs, whichever Is

later.

ARM'S LENGTH

TRANSACTIONS



1.9



Except as may be otherwise agreed in writing between the

Government and the Contractor, all transactions giving rise



to revenues, costs or expenses which will be credited or



charged to the books, accounts, records and reports



prepared, maintained or submitted hereunder shall.be



conducted at arm's length or on such a basis as will assure



that all such revenues, costs or expenses will not be



higher or lower, as the case may be, than would result from



a transaction conducted at arm's length on a competitive



basis with third parties.





GENERAL

EXCLUSIONS



1. 10 The following expenditures shall not be included in

Petroleum Operations Expenditures:

(a)

costs and expenses incurred at any time prior to the

Effecti ve Date,

(b)

costs relating to petroleum marketing or

transportation beyond the15e1ivery Point,



.



"



H



I

I'



(c)

contributions and donations, except those approved

by the Government,

(d)

gifts or rebates to suppl iers, and gifts or

commissions to intermediaries arranging service or supply

contracts,

(e)

any interest, fines, monetary corrections or increases

i n expenses resulti ng from the Contractor's failure to

comply with its obligations under this Agreement, applicable

law or agreements with third parties, and

(f) any other expenditures not directly related to Petroleum

Operations or not in compliance with the provisions of this

Exhibit.



For conversion purposes between any other currency and

United States dollars, the average of the buying and selling

rate of exchange shall be used as Issued by the Central Bank

of Belize on the first day of the month in which 'the

revenues, costs or expenses are recorded. Any realized or

unrealized gains or losses from the exchange of currency

shall be charged or creditedto Petroleum Expenditures. A

record of the exchange rates used in converting other

currencies into United States dollars shall be kept by the

Contractor.

'REVISION OF THE I. 12 By mutual agreement between the Government and the



A C C 0 U NT I N G

Contractor this Accounting Procedure may be revised



PROCEDURE

from time to time.



ACCEPTANCE OF

; COSTS



1.13



The acceptance by the Government of the values and

treatment proposed by the Contractor relating to all costs and



expenses may be condi tional upon the presentation by the



Contractor, following a request by the Government or its



representatives, of all records and original documents



supporting such costs and expenses, such as invoices, cash



vouchers, debit notes, price lists or similar documentation



verifying the value and treatment proposed. For a period of



twenty four (24) months following the delivery by the



Contractor of the records and original documents described



above, the Government shall have the right, but not the



obligation to audit the books and records of the contractor.



In the event that no claim for adjustment is lodged by the



Government within said twenty-four (24) month period, the



values and treatment afforded by the contractor shall be



deemed to be final for the periods covered by said records.



ARTICLE II



PETROLEUM OPERATIONS EXPENDITURES

DEFINITIONFOR 2.1

THE PURPOSE OF

DETERMINING

COM PL I A N C E

WITH THE

MIN IMUM

EXPLORATION

EXPENDITURES

COMMITMENT



In determining the Contractor's compliance with the



minimum Exploration Expenditures obligations



undertaken pursuant to this Agreement, Petroleum



Operations Expenditures shall include all costs and



expenses incurred in the performance of exploration



operations in accordance with approved work



programmes, but excluding those incurred in the



performance of development and production operations



in the contract year in question without the need to



distinguish, between capital and operating expenditures.



DEFINITION FOR 2.2



THE PURPOSE OF



ARTICLE IX



2.2.1 For each calendar year, including any calendar year prior to

the calendar year in which Initial commercial production



(

I



\



, 'p



first occurs, petroleum operations expendi tures, for the

purposes of Article IX of this Agreement, shall include all

petroleum operations expenditures incurred in that calendar

year in the contract area. Provided however, that Contractor

shall also be entitled to all previously.approved petroleum

operations expenditures submitted under thosecertain- .._~..........



Production Sharing Agreements dated May 21, 1993

(Gladden Basin PSA) and January 30, 1996 (Block 13 PSA)

between the Government and Belize Natural Resources, Ltd.

and its assigns.

2.2.2 The following costs and expenses shall not be included in

petroleum operations expenditures for the purposes of

Article IX of this Agreement:

(a) surface rentals payable pursuant to Article XIII of

this Agreement,

(b) any costs relating to the provision of the security

described in paragraph 6.1.6 of this Agreement including

payments made to the Government pursuant to such security

or otherwise for failure to incur the minimum exploration

expenditures in accordance with paragraph 6.1 of this

Agreement, and

(c) any interest, fees, duties, taxes and other fi nancial

charges, referred to in paragraph 3.7 of this Exhibit, relating

to loans and credits obtained by the Contractor to acquire

funds for the execution of its obligations under this

Agreement.

2.3

DEFINITION FOR

THE PURPOSE OF

THE INCOME TAX



For each calendar year, commencing with the calendar year

in which Initial commercial production first occurs, .

petroleum operations expenditures which shall be deductible

for the purpose of the calculation of Income Tax payable

shall consist of the sum of:

(I) the current calendar year's operating expendi tures

incurred, including the current calendar year's allowable

deductions for depreciation of capital expenditures

determined In accordance with subparagraphs 1.5.2 of this



Exhibit,

ARTICLE III

ACCOUNTING METHODS AND PRINCIPLES

Petroleum operations expenditures incurred

hereunder shall be calculated and accounted for in a manner

consistent with the followi ng principles and definitions and

shall include:

LABOUR COSTS



MATERlAL COSTS



3. 1



3.2



Costs of salaries and wages of the Contractor's

employees directly engaged in petroleum operations,

including costs of holidays, vacations, sickness, living and

housing allowances, travel time, bonuses and other

established plans for employee benefits customarily granted

to the Contractor's employees and their families In similar

ventures

Costs of materials, equipment, machines, tools and any

other goods of a similar nature used or consumed in

petroleum operations subject to the following:

(a) Acquisition - the Contractor shall only supply or

purchase materials f or use in petroleum operations that may

be used in the foreseeable future. The accumulation of

surplus stocks and inventory shall be avoided. Inventory



r

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.i



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'



levels shall, however, take into account the time lag for

replacement, emergency needs and similar considerations,

(b) Components of costs - costs of materials purchased by

the Contractor for use in petroleum operations may include,

in addition to the invoice price (subtracting the discounts

given, if any), freight costs and costs of transportation

between the supply point and delivery point (provided that

such costs are not Included in the invoice price), inspection

costs, insurance, custom duties, taxes and other items that

may be charged to imported materials or to materials

purchased in the Belize,

(c) Accounting - such materials costs shall be charged to the

accounting records and books based on the "First In-First

Out" (FIFO) method,

(d) Supply of Materials by Affiliated Companies - materials

supplied by the Contractor's Affiliated Companies shall be

charged to the accounting records and books at prices no

higher than the prices comparable material purchased on a

competitive basis from third party suppliers. This criterion

shall apply to both new and used materials,

(e) Inventories - the Contractor shall maintain both a

physical and accounting inventory of all materials in stock in

accordance with generally accepted practices in the

international petroleum industry. The Contractor shall make

a physical inventory of all such materials at least twice in any

Contract Year. The Government may carry out total or

partial inventories whenever it deems it necessary. The costs

of non capital items purchased for inventory shall be charged

to operating expenditure when issued from stock for

consumption,

.



The value of technical services Costs relating to Petroleum



Operations shall be:



(a) In the case of technical services performed by third

parties directly subcontracted, including outside consultants,

contractors and utilities, the price paid by the Contractor,

provided that such prices are no higher than the pri ces

charged by other suppliers for comparable work and

services, and

(b) In the case.of technical services performed by the



Contractor or its Affiliated Companies, prices which are no



higher than the most favorable prices charged to other



Affiliated Companies of the Contractor and to third parties



for comparable services,



··INSURANCE AND



3. 4



.• CLAIMS



LEGAL AND

3 .5

LITIGATION COSTS



Costs relating to insurance, provided such insurance is

customary, affords prudent protecti on agai nst risks and is at

a premium no higher than that charged on a competitive basis

by insurance companies which are not Affiliated Companies

of the Contractor. The proceeds of any insurance or claim

shall be credited against Petroleum Operations Expenditures.

Except in cases where insurance coverage is required

pursuant to Article XXV of this Agreement, ifno insurance

is carried for a particular risk, all costs incurred by the

Contractor in settlement of any related loss, claim, damage

or judgement, :including legal services, shall be includable in

Petroleum Operations Expenditures so long as they or the

matters they relate to, were incurred incidental to an

approved work program budget.

Costs and expenses of litigation and legal or related services

necessary or expedient for the protection of the Contract

area. Any damages or compensation received shall be

credited against Petroleum Operations Expenditures. Under



no circumstances may the Contractor's costs incurred in the



;



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course of arbitration, entered into under Article XXII of this

Agreement, be included in Petroleum Operations

Expendi tures,

GENERAL

3.6

ADMINlSTRATION

AND SERVICES

OVERHEAD

COSTS



General services and administrative costs, other than direct

costs, including, but not limited to:

(a) The Contractor's personnel and services costs including

reasonable office space in the United States relating to

administration, legal, accounting, treasury, auditing,

taxation, planning, employee relations, purchasing and other

functions required for Petroleum Operations under this

Agreement, and

(b) Reasonable travel expenses of the Contractor's

personnel in the general and administrative categories listed

in (a) above for the purpose of inspection and supervision of

Petroleum Operations in Belize shall be allocable to

Petroleum Operations Expenditures according to methods

agreed to by the Contractor and the Government. The

methods agreed shall result from a detailed study and the

methods selected following such study shall be applied each

year consistently unless otherwise agreed by the parties. In

the case of Exploration Operations, these general

administration and services overhead costs shall not exceed

three percent (3%) of the direct costs incurred in such

operations in each Calendar Year. Following the date of

declaration of Commercial Discovery in the first Field, the

Government and the Contractor shall agree upon the level of

General Administration and Services Overhead Costs which

may be allocable to Petroleum Operations Expenditures and

the percentage of direct costs ceiling shall be reduced

accordingly.



I



INTEREST, ETC.



3,7



~



Interest, fees, duties, taxes and other financial charges

relating to loans and credits obtained by the Contractor to

acquire funds for the execution of its obligations under this

Agreement at rates not exceeding the prevailing commercial

rates may be charged to Petroleum Operations Expenditures.

Details of any financing plan, and amounts thereof, shall be

Included in each annual Work Programme Budget.



OFFICE COSTS,

ETC. IN BELIZE



3. 8



Staffing and maintenance of the Contractor's head office in

Belize and other offices in Belize, including rent, telephone,

telex and radio expenses, as well as the expenses of general

facilities such as shore bases, warehouses, water, power and

communications systems, roads and bridges.



EXAMPLE OF



3.9



The example below shows the application of the scale of

Production Sharing for a field producing 360,000 bbls per

day 011 an average in the course of a quarter.



PPODUCTION

SHARE

CALCU'~ATION



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