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 TABLE OF CONTENTS





ARTICLE PAGE


I DEFINITIONS.................................................................................. 3


n ANNEXES TO THE CONTRACT.............................................................. 11


III TERM, GRANT OF RIGHT AND PAYMENT OF COSTS....................... 12





IV EXPLORATION PERIOD, WORK PROGRAM AND ESTIMATED


EXPENDITURES............................................................................. 12


V RELINQUISHMENT...................... 19





VI OPERATIONS AFTER DISCOVERY....................................................... 20


VII RECOVERY OF COSTS AND EXPENSES, PRODUCTION SHARING


AND PROFIT PETROLEUM AND NON-RECOVERABLE COSTS....... 25





IX ALBANIAN TAXES.................................................................................


X OFFICE AND SERVICE OF NOTICE................................................... ... 34


XI SAVING OF PETROLEUM AND PREVENTION OF LOSS................ ... 34


XII CUSTOMS EXEMPTIONS.....................................................................


XIII BOOKS OF ACCOUNT ACCOUNTING AND PAYMENT.................... ... 36


XIV RESPONSIBILITY FOR DAMAGES...................................................... ... 37


XV RECORDS, REPORTS AND INSPECTION........................................... ... 38


XVI EMPLOYMENT RIGHTS AND TRAINING OF ALBANIAN


PERSONNEL............................................................................................ .. 39


XVII LOCAL CONTRACTOR AND LOCALLY MANUFACTURED 41


XVIII LAWS AND REGULATIONS.................................................................. .. 41


XIX ASSIGNMENT’......................................................................................... .. 42


XX FORCE MAJEURE.................................................................................... 43


XXI DISPUTES AND ARBITRATION............................................................. 43


XXII PIPELINES AND OTHER FACILITIES................................................... 45


XXIII TITLE TO .ASSETS AND ABANDONMENT............................................ 46


XXIV TERMINATION.......................................................................................... 48


XXV ENVIRONMENTAL PROTECTION......................................................... 49


XXVI ENGLISH AND .ALBANIAN TEXT........................................................... 50


XXVII BONDS PAYMENTS.................................................................................. 50


XXVIII GOVERNMENT APPROVAL, THE EFFECTIVE DATE........................ 51


XXTX MISCELLANEOUS.................................................................................... 51








Annex “A" Description of Contract Area........*............*......................................A'l


Annex “B" Map of the Contract Area..............................*..................................B’ l


Annex ,[C” Accounting Procedure.....................................................................C-1





Annex “D” ITocedure for Determining the


BOE of Gas and for Pricing Gas and LPG......................................D-l


Annex "E” Form of the Bank Guarantee...........................................................E- I












































-ii-


 PRODUCTION SHARING CONTRACT





FOR





EXPLORATION, DEVELOPMENT AND PRODUCTION OP


PETROLEUM IN ALBANIA ONSHORE


BLOCK 2-3














between











MINISTRY OF ECONOMY, TRADE AND ENERGY OF ALBANIA


(Acting by and through the National Agency of Natural Resources)





and








DWM Petroleum AG











This Contract signed as of the 1 day of ty&vf.MTV:

OF ECONOMY, TRADE AND ENERGY of the Government of the Republic of


Albania (acting by and through the National Agency of Natural Resources,


hereinafter referred to as “AKBN”), pursuant to the Petroleum law No. 7*746


dated 284)7.1993, “Petroleum Law (Exploration and Production)", represented by


C>-j\ I . as one Party, and DWM Petroleum AG, a company organized


and existing under the laws of Switzerland represented by


hlFiAtl , <,{ hi t. 2 as the other Party, (hereinafter referred to as


“CONTRACTOR”).








WITNESSETH-








WHEREAS, all natural resources, including minerals and hydrocarbons in the


Republic of Albania are the property of Albania;


WHEREAS, petroleum operations in the Republic of Albania are generally


governed by the Laws of the Republic of Albania, and if not mentioned elsewhere


in this Contract, mainly by the following laws and regulations;


• Law No, 7746 dated 28.07.1993 “Petroleum Law' (Exploration and


Production)”, as amended by Law No. 7853 dated 29.07.1994 “For Some


Additions to Law No-7746, Dated 28.07.1993 "Petroleum Law (Exploration


and Production)1’; and as further amended by Law No. 8297, dated


4.03.1998 “For a Change to Law No,7746, Dated 28.07,1993 "Petroleum


Law (Exploration and Production)" (collectively the ‘'Petroleum Law"), and


- Law No. 7811 dated 12,04.1994 “On the Approval with Amendments of the


Decree No. 782 dated 22,2.1994 "On the Fiscal System in the Petroleum


Sector (Exploration-Production)", as amended by l,aw No. 8345 dated


13.05.1998 “For a Change to Law No.78ll, dated 12.04.94 ‘On the


Approval with Amendments of the Decree No. 782 dated 22.02.94 “On the


Fiscal System in the Petroleum Sector (Exploration-Production)”, and


- Law No. 9975, dated 28,07,2008, “On the National Taxes”, and


- La w No. 9946, dated 30,06.2008 “On the Sector of Natural Gas”, and


• Law No. 7928 “On Value Added Tax”, dt, 27.04.1995, as amended by; Law


No, 8070 dated 15,02-1996 “On some changes and additions to Law No.


7746, dt. 28.07.1993 “On Petroleum (Exploration and Production)”: Law-


No. 8126 dated 09.07.1996; Law No. 8130 dated 22.07.1996; Law No. 8149


dated 11.09.1996: Law No. 8186 dated 23.01.1997; Law No, 8240 dated


16.09.1997; Law No. B445 dated 21.11.1999; Law No. 8505 dated


07.07.1999: Law No. 8714 dated 15.12.2000; Law No. 8779 dated


26-04.2001; Law No. 8845 dated 11.12.2001; Law No. 8963 dated


24.10.2002; Law No. 9162 dated 18.12.2003; and Law No. 9332 dated


December 6, 2004 (collectively, the “VAT Law”), and


- Law No. 8976 dated 12.12.2002 “On Excises”, as amended by the Law No.


9163 dated 18.12.2003 “On Some Additions and Changes to Law No. 8976


dated 12.12.02 'On Excises”; Law No. 9041 dated 27.03.2003; and Law No.


9328 dated December 6, 2004 “On Some Additions and Changes to Law


No. 8976 dated 12.12.2002” (collectively, the “Excise Tax Law”), and


- Decision of Council of Ministers No. 547 dated 9.08,2006 “On Setting Up


the National Agency of Natural Resources"; and


WHEREAS, AKBN is authorized by the Government of Albania to carry out all


Petroleum Operations in Albania, including Exploration, Development and


Production;


WHEREAS, CONTRACTOR desires to undertake all operations for the


Exploration, Development and Production of Petroleum in and throughout the








2


Contract Area described in Annexes “A" and "B” of this Contract and to fulfill the


obligations and enjoy the rights provided for in this Contract as a contractor to


AKBN in accordance with the terms and conditions contained in this Contract!


and


WHEREAS, the Government of the Republic of Albania has authorized AKBN to


enter into this Contract with CONTRACTOR for carrying out all Petroleum


operations described in this Contract.


NOW, THEREFORE, the Parties agree as follows^


ARTICLE I


DEFINITIONS


1.01 “Accounting Procedure” means the procedure set out as Annex “C” to this


Contract and which forms an integral and indivisible part hereof.


L02 “Affiliated Company" means a subsidiary company, a parent company or a


sister company to a Party or an entity comprising a Party. For the


purposes of the foregoing definition'


1.02.1 A subsidiary company is a company controlled by a Party or an


entity comprising a Party!


1.02.2 A parent company is a company that controls a Party or an entity


comprising a Party!


1.02.3 A sister company is a company that is controlled by the same


company as a Party or an entity comprising a Party.


for which purpose “Control’ means that a company owns share capital,


either directly or through other companies, which confers upon it a


majority of the votes at the stockholders' meetings of the company which is


controlled.


1.03 “Albania" means the Republic of Albania.


1.03.1 “Albanian Government" means the Government of the Republic of


Albania", including any legislative, ministry, department, agency,


political subdivision or instrumentality thereof or any other


governmental authority of Albania.


1.04 “Appraisal" means those works performed by CONTRACTOR, which in


CONTRACTOR'S opinion are required as a follow-up to a Discovery to


establish if such Discovery is commercial and/or to establish the limits of a


possible Commercial Discovery.


1.05 "Available Petroleum" means the amount of daily production of Petroleum


(less any amount lost, used in operations, flared or re-injected) produced,


saved and metered from the Contract Area at the Metering Poult.


Available Petroleum may be available Crude Oil and/or available Gas, as


appropriate.


1.06 "Average Daily Production'’ means the average production of Available


Petroleum for each Day during a Calendar Month, calculated by dividing


the total amount of Available Petroleum metered from the Contract Area


at the Metering Point during that Calendar Month, by the number of Days


in that Calendar Month. For the Calendar Month in which the Date of


Initial Commercial Production occurs, said Available Petroleum shall be


divided by the number of Days in that Calendar Month following and


inclusive of the Date of Initial Commercial Production.


1.07 “Barrel” means forty-two (42) United States gallons (equivalent to


approximately 158.984 liters), liquid measure, corrected to a temperature


of sixty (60) degrees Fahrenheit, with pressure at sea level of 1.01325 bars.


1.08 “BOE” means Barrels of Crude Oil Equivalent,


1.09 "BOFD" means Barrels of Crude Oil per Day.


1.10 "BPD” means Barrels per Day and shall include BOPD, aa well as BOE.


1-11 "BUT means one thousand fifty-five and fifty-six one thousandths


(1,055.056) Joules.


1.12 '‘Budget” means an estimate of costs required to carry out Petroleum


Operations pursuant to an approved Work Program.


1.13 “Calendar Month” means any of the twelve (12) months of the Calendar-


Year.


1.14 “Calendar Quarter" or ‘‘Quarter'' means a period of three (3) consecutive


Months commencing on the first day of January, April, July or October of


each Calendar Year


1.15 “Calendar Year” means a period of twelve (12) consecutive Calendar


Months according to the Gregorian calendar commencing on January1 1


and ending on following December 31, both dates inclusive.


1.16 "Commercial Discovery" means a Petroleum accumulation Discovery,


which in Contractor’s opinion, can be exploited economically in accordance


with this Contract.


1.17 “Contract” means this Contract including its Annexes as may be amended


from time to rime by mutual agreement of the Parties.


1.18 "CONTRACTOH" means DWM Petroleum AG or its respective successors


and any assigns of any Participating Interest pursuant to Article XIX.


1.19 “Contract Area" means on the Effective Date the area described in Annex


“A” and delineated on the map attached as Annex “B" to this Contract, as


it may be changed by relinquishments CONTRACTOR shall make


pursuant to this Contract.


1.20 ''Cost Recovery Petroleum" means the portion of Available Petroleum


determined in accordance with Paragraph 7.1 of this Contract.


1.20.1 “Annroved Costs” means the costs determined pursuant to


Paragraph 4 of Article 1 of the Accounting Procedure.


1.21 “Crude Oil" means .any hydrocarbons produced from the Contract Area and


which, at the well head or separator, are in a liquid state including but not


limited to crude oil, natural gas liquids and condensates which are stable


or have been established and if necessary otherwise treated to render them


suitable for transportation,


1.22 “Customs Duties", as used herein, shall include all tributes, duties, taxes,


fees, rights or any other financial imposts, which may be due as a result of


the importation of the item or items referred to in Article XII of this


Contract.


1.23 “Date of Commercial Discovery” means the date on which CONTRACTOR


notifies AKBN in writing of a Commercial Discovery pursuant to


Paragraph 6.4.1 of this Contract.


1.24 “Date of Discovery" of a well is the date on which a well at which there has


been a Discovery is completed and tested.


1.25 “Data of Initial Commercial Production” means the date on which the first


regular shipment of Petroleum is made from a Commercial Discovery to


the Metering Point pursuant to a Development Plan, and shall not include


shipment of test or extended test production.


1.26 means a period of twentyfour (24) hours commencing at


OO'OO hours and ending at 24:00 (twentyfour) hours, Albanian time.


1.27 ‘'Discovery'’ means any Petroleum accumulations discovery arising from


drilling activity on any geological feature which, after testing in


accordance with sound and accepted international petroleum industry


practices, is found by CONTRACTOR to be capable of producing


Petroleum.


3.28 “Discovery Area" means an area or areas which CONTRACTOR may


establish al any Lime prior to the expiration of the Exploration Period by


notifying AKBN that CONTRACTOR has made a Discovery and by


supplying AKBN with a map showing an outline of the boundaries of any


part of the Contract Area which CONTRACTOR believes to contain a


Discovery. Once designated pursuant to Article VI, a Discovery Area shall


extend to ail depths within its lateral boundaries.


L29 "Delivery Point" means any point, within Republic of Albania as agreed by


the Parties where each Party takes its respective shares of Cost Recovery


Petroleum and Profit Petroleum. A Delivery Point may or may not be the


same as the Metering Point.


1.30 "Development'1 means and shall include, but not be limited to, all the


operations and activities pursuant to approved Development Plan, Work


Programs and Budgets under this Contract with respect to:


1.30.1 The drilling, plugging, side tracking, deepening, and completing


and equipping of wells for the purpose of Production and the


changing of the status of any such well, and


1.30.2 The design, construction, installation and operation (within or


outside the Contract Area) of equipment; platforms; pipelines!


water, electrical and other systems; facilities (including storage


port and loading facilities); and plants, as needed to produce from


wells, to take, save, treat, handle, store, flare, transport and


deliver Petroleum for export and for local market; and to


undertake injection or re-injection and other enhanced recovery


projects.


Use of the term Development in this Contract shall include Production as


defined in this Contract, when appropriate to the context and


circumstances.


The verb “Develop" means conducting Development,


1.31 ‘Development and Production Area" means the area determined by the


CONTRACTOR, in accordance with Article 1,33, at any time prior to the


expiration of the Exploration Period by notifying AKBN that


CONTRACTOR has made a Commercial Discovery and supplying AKBN


with a map describing an area comprised of all or a part of the Discovery


Area. A Development and Production Area may consist of more than one


non-contiguous area.


1.32 “Development, Expenditures" means all direct and indirect costs and


expenses for Development and Production, with the exception of Operating


Expenses.


 1.33 “Development Plan” means a plan submitted by the CONTRACTOR and


approved by the AKBN for the development of a Discovery after any


Appraisal of the Discovery the contents of which shall include but shall not


be limited to the following:


(a) details of all exploration activities carried out in respect of the


relevant Discovery and all information used for Appraisal, details of


geological structure and hydrocarbon occurrence and Stratigraphy


and details of any further Appraisal as may be required by


CONTRACTOR:


(b) estimated volumes of oil and/or gas initially in-place and the


quantity estimated to be recoverable, expected drive mechanism and


recovery efficiency, drainage spacing, intended reservoir operating


policy and the scope for secondary recovery;


(c) full details of the facilities or structures and any other works which


CONTRACTOR proposes to construct or carry out during the


Development and Production period for the relevant Discovery for


the purpose of producing oil and/or gas from such Discovery, and for


minimizing flaring of gas and preventing environment pollution;


(d) the location of and the purposes for which the facilities, structures or


other works are to be used and the times at which each facility,


structure or other work is to be commenced and completed;


(e) CONTRACTOR’S assessment of marketability of Petroleum, the


maximum and minimum quantities of Petroleum which


CONTRACTOR expects to recover from the relevant Discovery in


each year of tho Production period relating thereto, the rate of


recovery expected and details of any problems expected to be


encountered in relation to Production and marketing!


(0 details of yearly forecast expenditure and cash flow of both capital


and Operating Expenses! and


(g) contingencies for minimizing gas wastage, pressure maintenance


program to optimize Petroleum recoveries and additional


Development;


(h) a reasonable estimate of the time necessary to undertake the


Development Plan;


(i) Prospective Metering Points and Delivery Points!


(j) Development and Production Area details and the extent of the


proposed Development and Production Area relating to the


Commercial Discovery which area should correspond to the surface


projection of the geological extension of the Commercial Discovery


over reasonably related areas and to be designated as the


Development and Production Area for the Commercial Discovery


concerned.


1.34 "Dollars" or the symbol “S’* means United States of America Dollars.


1.35 "Effective Date” means, for this Contract, the date on which the Decree of


the Council of Ministers of the Government of Albania approving this


Contract enters in force.


1.36 "Profit Petroleum” means the quantity of Available Petroleum determined


pursuant to the Paragraph 7.6 of this Contract.


1.37 "Expert” means an individual who is not a resident or citizen of Albania


nor who has been employed by CONTRACTOR or AKJBN and who by


training and extensive experience has highly'developed knowledge in the


technical area wherein lies the dispute or disagreement which the said


individual is to address, and who is appointed pursuant to the relevant


provisions of this Contract.


1.38 “Exploration’' means Petroleum Operations which are conducted under


this Contract during the Exploration Period for or in connection with the


exploration for Petroleum including, without limitation, geological,


geophysical and other surveys and studies, the review, processing and


analysis of data, the drilling of exploratory wells, associated planning,


design, administrative, engineering, construction and maintenance


operations and all other related operations and activities referred to in


Annex "C" or otherwise contemplated under the provisions of this


Contract.


The verb “Explore” means conducting Exploration.


1.39 "Exploration Expenditures’’ means all direct and indirect costs and


expenses for Exploration.


1.40 "Exploration Period” means the First Exploration Period, the Second


Exploration Period and the Third Exploration Period, as respectively


determined in the Paragraphs 4.1.1, 4.1.2 and 4.1.3


1.41 "Exploration Well" means either a Wildcat Well or an Appraisal Well


drilled to at least a minimum depth and/or financial obligation specified in


the Work Program.


“Wildcat Well" means a well located on a geological feature from which


commercial Petroleum has not been discovered.


“Appraisal Well" means any well whose purpose at the time of


commencement of drilling is the determination of the extent or the volume


of Petroleum reserves contained in a Discovery.


1.42 "Financial Year” means the financial year starting on January 1 and


ending on following December 31, both dates inclusive.


1.43 "Force Maieure” means an event that causes delay in performance or any


non perform a nee by a Party of its obligations under this Contract caused


by circumstances beyond the control and without the fault or negligence of


the said Party, including but not limited to, acts of God or the public


enemy, extreme weather conditions, mechanical failure, perils of


navigations, fire, hostilities, war (declared or undeclared), blockage, labor


disturbances, strikes, riots, insurrections, quarantine restrictions,


epidemics, earthquakes, or accidents but excluding shortage of funds.


1.44 "Gas* means natural gas, both associated and nonassociated, and all of its


constituent elements produced from any well in the Contract Area and all


non-hydrocarbon substances therein. Gas includes liquefied petroleum gas


(“L£G”), which ia a mixture of principally butane and propane liquefied by


pressure and temperature.


1.45 "Good International Petroleum Industry Practices" means those practices,


methods, standards, and procedures generally accepted and followed


internationally by prudent, diligent, skilled, and experienced operators in


Petroleum exploration, development, and production operations and which,


at a particular time in question, in the exercise of reasonable judgment and


in light of facts then known at the time a decision was made, would be


expected to accomplish the desired results and goals established in respect


of which the practices, methods, standards, procedures and safety


regulations, as the case may be, were followed) provided, however, that


“Good International Petroleum Industry Practices” is not intended to be


limited to the optimum practices or method to the exclusion of all others,


but rather to be a spectrum of reasonable and prudent practices, methods,


standards, procedures and safety regulations.


1.46 ‘‘Line Fill” means that Petroleum determined pursuant to Paragraph 7.9 of


this Contract.


1.47 "MCE” means one thousand (1,000) standard cubic feet (“SCF”). One (1)


SCF is the amount of Gas necessary to fill one cubic foot of space at


atmospheric pressure of 14.65 pounds of pressure per square inch absolute


at a base temperature of sixty (60) degrees Fahrenheit.


1.48 “Metering Point” means the place or places, mutually agreed by AKBN and


CONTRACTOR, where appropriate equipment and facilities will be located


for the purpose of performing all volumetric measurements and other


determinations, temperature and other adjustments, determination of








3


water and sediment content and other appropriate measurements, to


establish, for the various purposes of this Contract, the volumes of


Available Petroleum. AH said measurements and determinations will be


acknowledged in writing by AKBN and CONTRACTOR’S representatives


at the Metering Point. The Metering Point may or may not be the same as


the Delivery Point.


1.49 "MMBTU" means one million (l ,000,0001 BTUs.


1.50 “Month" means a period counted as from any Day of a Calendar Month


ending on the same Day of the following Calendar Month or, if it does not


exist, on the last Day of such Calendar Month,


1.51 “Operating Expenses" means all direct and indirect ousts, expenses and


expenditures made after the Date of Initial Commercial Production, which


costs, expenses and expenditures are not normally depreciable, including


operation, maintenance and servicing of all types of facilities required for


Petroleum Operations, including, without limitation, human health, safety


and environmental protection costs and compliance. Operating Expenses


shall include workover, repair and maintenance of assets, but shall not


include any of the following: side tracking; re-drilling and changing the


status of a well replacement of assets or part of an asset; additions,


improvements, or renewals that extend the life of the asset.


1.52 “Operator" means an entity appointed by the CONTRACTOR and


approved by AKBN to be responsible for carrying out Petroleum


Operations in the Contract Area or in any part thereof under the terms of


this Contract, The nomination of a successor Operator shall be subject to


the prior AKBN approval, provided that no such approval is required and


only written notification has to be given if the successor Operator is an


Affiliated Company.


1.53 “Participating Interest" means the respective undivided interest held by


each of the entities that may comprise the CONTRACTOR at any


particular time.


1.54 "Parties” means AKBN and CONTRACTOR, and “Party” means any one of


the Parties, including their respective successors and assigns.


1.55 "Petroleum” means collectively or individually, as the context requires,


Crude Oil and Gas as well as those substances produced therewith or


derived therefrom.


1.56 "Petroleum Operations'1 means all or any of the operations related to the


Exploration for, Development, extraction. Production, separation and


treatment, storage and transportation and sale or disposal of Petroleum up


to the Delivery Point in Albania.


1.57 “Production" means every type of operation to produce Petroleum and


operate Development wells after the commencement of Production, and the


taking, saving, treating, handling, storing, transporting, metering, and


delivering of Petroleum, injection or reinjection, and every other type of


operation to obtain primary and enhanced recovery of Petroleum, and


transportation, storage and any other work or activities necessary or


ancillary to such operations.


The verb "Produce” means conducting Production.


1.58 “Reiected Costs" means those costs determined pursuant to the second


paragraph of Paragraph 4.10 of this Contract.


1.59 “Reservoir’ means a porous and permeable stratum capable of producing


Petroleum and which must be considered, because of the character of the


substances it holds (similitude of physical properties, density, Gas-oil ratio,


viscosity and a pressure relationship) as a unit in regard to its natural


exploitation.


1.60 “Statement of Cost Recovery" means the statement referred to in


Paragraph 1 of Article III of the Accounting Procedure.


1.61 “Suspended Costs'* means those costs determined pursuant to the first


paragraph of Paragraph 4.10 of this Contract.


1.62 “Tax Year” means the period of twelve (12) Months according to the


Gregorian calendar starting January 1 and ending December 31, both


dates inclusive, for which tax returns or reports are required according to


any applicable income, profits or other tax law or regulations of Albania.


1.63 “Termination" moans the end of this Contract by expiration of the


applicable contractual term, by operation of the provisions of Article XXIV


or by mutual written agreement of the Parties.


1.64 “Work Program1* means a program as contemplated by Article IV and other


provisions of this Contract, and, unless the context otherwise indicates,


shall refer to the same as amended or supplemented.


1.65 “Contract Year” means a period of twelve (12) consecutive Months


commencing with the Effective Date.


1.66 “Government Allocation” means that share of production determined


pursuant to Paragraph 7.7 of this contract.


1.67 "Royalty Tax" means the tax according to the Law No. 9975 dated


28.07.2008, “On the national Taxes"


 ARTICLE li


ANNEXES TO THE CONTRACT


2.1 Annex “AH is a description of the Contract Area at the Effective Date.


2.2 Annex "B" is a map indicating the Contract Area at the Effective Date,


2.3 Annex ,rC* is the Accounting Procedure.


2.4 Annex “D” is the procedure for pricing Gas.


2.5 Annex “E” is the Form of tile Bank Guarantee


2.6 The Annexes "A”, L,B*, “C\ "D” and "E" to this Contract are hereby made a


part of this Contract, and they shall be considered as having equal force


and effect with the provisions of this Contract. However, in the event of


any conflict between the Annexes and the hody of this Contract, the body


of this Contract shall prevail,





ARTicmn


TERM. GRANT QF RIGHT AND PAYMENT OF COSTS


3.1 Unless sooner terminated in accordance with the terms hereof, this


Contract shall remain in effect during the Exploration Period, any


Appraisal Period and any Development and Production Period.


3.2 AKBN hereby grants CONTRACTOR the exclusive right for Exploration,


Development and Production of Petroleum in the Contract Area, subject to


the terms and conditions of this Contract.


3.3 The Participating Interest of each of the entities that comprise the


CONTRACTOR, subject to Article XTX, is as followe;


DWM Petroleum AG 100%


3.4 CONTRACTOR shall pay one hundred percent (100%) of all costs and


expenses associated with Exploring, Developing and Producing Petroleum


from the Contract Area, subject to the coat recovery provisions of this


Contract.























12


 ARTICLE fV


EXPLORATION PERIOD, WORK PROGRAM AND ESTIMATED


EXPENDITURES


4.1 Within three (3) months after the Effective Date, CONTRACTOR shall


take all necessary steps to commence performance of the following


Minimum Work Program covering that period of time collectively referred


to as the “Exploration Period”:


4.1.1 First Exploration Period (3 Years from Effective Date)


CONTRACTOR shall perform the following Minimum Work


Program during the initial three (3) Years of the Exploration


Period {"First Exploration Period”):





Minimum Work Program Minimum Expenditure in USD


1 G&G 400.000





2 Seismic Re- processing 150 km 100.000


3 Exploration Wen Block 2 4.000 m 8.000.000





Total Commitment 8.500.000








G&G-' Acquisition of technical data, reprocessing of selected


seismic lines, interpretation of geological, geophysical and well


data. Regional geological and structural studies (mapping,


balanced cross sections).


Exploration Well-' One well in a minimum vertical depth of 4000


m, or until it reaches the Carbonates of the Eocene or Cretaceous,


whichever first occurs.


During the First Exploration Period in addition to fulfilling the


Minimum Work Program set forth in this article 4.1.1,


CONTRACTOR may elect to undertake additional Exploration


work including without limitation the drilling of additional well


(s), seismic acquisition and processing, geological field work, and


rock mechanical studies.


The additional Exploration work lias to be submitted to AKBN for





approval, which approval shall not be unreasonably withheld.


 4.1.2 Second Exploration Period (2 Years)





Provided it has completed the Minimum Work Program for the


First Exploration Period or it has paid to AKBN the amount of


U.S.Dollars pursuant to Paragraph 4.1.4 of this Contract,


CONTRACTOR shall have the option of extending the Exploration


Period for an additional period of two (2) Years (“Second


Exploration Period”). Such option may be exercised by


CONTRACTOR giving to AKBN, not less than thirty (30) Days


prior to the end of the First Exploration Period, written notice oft


(i) its election to enter the Second Exploration Period and 60 its


commitment to perform the following Minimum Work Program


during the Second Exploration Period:





Minimum Work Program Minimum Expenditure in USD





t G&G 300.000





2 1 Exploration Well +.000 m 8.000,000





Total Commitment 8.300.000





G&G: Acquisition of technical data, reprocessing of selected


seismic lines, interpretation of geological, geophysical and well


data. Regional geological and structural studies (mapping,


balanced cross sections).


Exploration Well: One well in a minimum vertical depth of 4000


m, or until it reaches the Carbonates of the Eocene or Cretaceous,


whichever first occurs.





During the Second Exploration Period in addition to fulfilling the


Minimum Work Program set forth in this article, CONTRACTOR


may elect to undertake additional Exploration work including


without limitation the drilling of additional well (s), seismic


acquisition and processing, geological field work, and rock


mechanical studies.


The additional Exploration work has to be submitted to AKBN for


approval, which approval shall not be unreasonably withheld.





4.1.3 Third Exploration Period (2 Years)


Provided it has completed the Minimum Work Program for the





Second Exploration Period or it has paid to AKBN the amount of


U.S.Dollars pursuant to Paragraph 4.1.4 of this Contract,


 CONTRACTOR shall have the option of extending the Exploration


Period for an additional period of two (2) Tear* (“Third Exploration


Period”) if, as approved by the AKBN, there are special


circumstances which require more time for the CONTRACTOR to


perform adequate Exploration activity. Such option may be


exercised by CONTRACTOR giving to AKBN, not less than thirty


(30) Days prior to the end of the Second Exploration Period, a


written notice of (i) its election to enter the Third Exploration


Period and (ii) its commitment to perform the following Minimum


Work Program during the Third Exploration Period .








Minimum Work Program Minimum Expenditure in USD


1 G&G 300.000





2 1 Exploration Well 4.000 m 8.000.000





Total Commitment 8.300.000








G&G: Acquisition of technical data, reprocessing of selected


seismic lines, interpretation of geological, geophysical and well


data. Regional geological and structural studies (mapping,


balanced cross sections).


Exploration Well: One well in a minimum vertical depth of 4000


m, or until it reaches the Carbonates of the Eocene or Cretaceous,


whichever first occurs.


During the Third Exploration Period in addition to fulfilling the





minimum work program set forth in this article, CONTRACVTOR


may elect to undertake additional exploration work including


without limitation the drilling of additional well (a), seismic


acquisition and processing, geological field work, and rock


mechanical studies.


The additional exploration work has to be submitted to AKBN for





approval, which approval shall not be unreasonably withheld.


4.1.4 If CONTRACTOR fails to timely complete a firm obligation for re¬





processing the existing seismic data, CONTRACTOR shall pay to


AKBN a sum of U.S. Dollars C£7 for every line kilometer of


existing 2D seismic data not re1 processed and shall thereby be


relieved of the obligation to re process the said seismic data;


provided however, CONTRACTOR may, with AKBN approval, be


relieved of the said monetary obligations for not re processing said


data, and the corresponding seismic obligation, if such relief is


considered by AKBN as justified on the technical grounds.


If CONTRACTOR fails to timely commence drilling of an obligatory


Exploration Well, or after commencing the drilling of an obligatory


Exploration Well abandons the well without having completed the well or


Without having met the Minimum Expenditure for that well,


CONTRACTOR shall pay to AKBN the Minimum Expenditure in the case


where the commencement of drilling did not occur, or the balance of the


Minimum Expenditure in the case where the well was abandoned.


4.2 CONTRACTOR shall be entitled to recover any expenditure fulfilling its


Work Program as Exploration Expenditures in the manner provided in


Article VII.


4 3 Notwithstanding any other provision of this Contract, the First


Exploration Period, the Second Exploration Period or the Third


Exploration Period shall be automatically extended for the period of time


necessary to allow for 1) completion of drilling or testing of a well and/or 2)


evaluation of results from the drilling or testing of a well, provided,


however, that such evaluation period may not exceed six (6) Months from


and after the date the drilling or any testing ceases (by which date


CONTRACTOR may continue to hold the relevant area by Submitting a


notice under Paragraph 6.4.1, Paragraph 6.4.2, or Paragraph 6.4.3) except


for reasons of Force Majeure.


If CONTRACTOR, in compliance with Paragraphs 4.1.2 or 4.1.3 provisions


does not decide to enter into any of Second Exploration Period or Third


Exploration Period, CONTRACTOR shall be relieved of any work and


expenditure obligations with respect to any such period not entered into,


but CONTRACTOR shall have the right to proceed with the Appraisal of


any potential Commercial Discovery resulting from any well drilled during


the Exploration Period.


4.4 All wells committed hy CONTRACTOR under this Article TV will be


programmed to a bona fide objective and drilled in a workmanlike manner


in accordance with Good International Petroleum Industry Practices.


4.5 At least three (3) Months prior to the beginning of each Calendar Year, or


at such times as otherwise mutually agreed to by AKBN and


CONTRACTOR, CONTRACTOR shall prepare an Exploration Work


Program and Budget for the Contract Area setting forth the Exploration


operations which CONTRACTOR plans to carry out during the ensuing


Calendar Year,


During the Exploration Period, each such Work Program and Budget shall


be at least sufficient to satisfy CONTRACTOR'S minimum work


obligations for the period it covers.








16








4.6 The Exploration Work Program and Budget, any Appraisal Plan and any


Development Plan shall be reviewed by a joint committee to be established


by AKBN and CONTRACTOR after the Effective Date of this Contract.


Tlhs committee, hereinafter referred as the "Exploration Advisory


Committee’' shall consist of six (6) members, three (3) of whom shall be


appointed by AKBN and three (3) by CONTRACTOR. The Chairman of


the Exploration Advisory Committee shall be designated by AKBN from


among the members appointed by it. The Exploration Advisory Committee


will be installed within thirty (30) Days from the Effective Date The


Exploration Advisory Committee shall meet at least twice in each


Calendar Year unless agreed upon by Operator and AKBN, and shall liavo


the following functions and responsibilities under this Contract -a) to


provide opportunity for and to encourage the exchange of information,


views, ideas, and suggestions regarding the proposed Exploration Work


Program and Budget(s) and results of Exploration Operations; (b) in case


of a Discovery, to review CONTRACTOR’S proposals for the Appraisal and


possible Development of such Discovery; and (c) to foster cooperation


between AKBN and CONTRACTOR towards implementation of this


Contract in accordance with its terms.


CONTRACTOR shall be responsible for making necessary arrangements


for the conduct of the Exploration Advisory Committee meetings. The


reasonable and necessary cost of conducting Exploration Advisory


Committee meetings (including, without limitation, the reasonable and


necessary costs of the authorized representatives of AKBN and


CONTRACTOR attending such meetings) shall be born and paid by


CONTRACTOR on behalf of the AKBN as part of CONTRACTOR’S cost


recoverable Exploration Expenditures under this Contract.


Following review by the Exploration Advisory Committee, CONTRACTOR


may make the appropriate revisions and submit the Exploration Work


Program and Budget to AKBN, as it may have been revised.


Also the Exploration Advisory Committee shall monitor all Petroleum





Operations.





4.7 It is further agreed that:


4.7.1 CONTRACTOR may revise or modify said Work Program and


Budget as may be required for operational reasons or as a result of


Exploration activities. These revised or modified Work Programs


and Budgets will be subject to the procedure established in


Paragraph 4.6.


4.7.2 In the event of emergencies involving danger or loss of lives or


property or environmental damage CONTRACTOR may expend


such additional unbudgeted amounts as may be required to








17


alleviate such danger and shall inform AKBN of the


circumstances. Such expenditures, subject to AKBN approval,


shall be considered as Exploration Expenditures and shall be


recovered pursuant to Article VII hereof.


•1.8 CONTRACTOR shall supply AKBN, as soon as possible but not later than


sixty (60) Days from the end of each Calendar Quarter, a statement of


Exploration Activity, showing Exploration Expenditures made and


incurred by CONTRACTOR during such Calendar Quarter.


CONTRACTOR'S records and supporting documents shall be available for


inspection by AKBN at any time during regular working hours for three (3)


Months from the date of receiving each statement.


Within three (3) Months from the date of receiving such statement, AKBN


shall advise CONTRACTOR, in writing, with necessary supporting


reasons, if it considers that;


4.8.1 Record of costs is not correct;


4.8.2 Costa of goods or services supplied are not in line with the


international market prices for goods or services of similar quality


supplied on similar terms prevailing at the time such goods or


services were ordered;


4.8.3 Condition of the materials furnished by CONTRACTOR does not


tally with their prices.


4.9 CONTRACTOR shall confer with AKBN in connection with objections


made under Paragraph 4.8, and the Parties shall attempt to reach a


settlement, which is mutually satisfactory. If, within the three (3) Month


period, specified in Paragraph 4.8 above, AKBN has not objected to any


item on a statement, such statement shall be deemed approved. Any


items, which are not objected to within said three (3) Months shall be


deemed approved.


4.10 Those costs to which AKBN has taken exception as provided in Paragraph


4.8 (“Suspended Costs”) shall be included in the Statement of Cost


Recovery and shall be cost recoverable, pending settlement or until the


matter has been resolved according to the arbitration provisions of Article


XXI of this Contract.


Suspended Costs that are subsequently agreed by AKBN and


CONTRACTOR (or are determined by arbitration under Article XXI


hereof) to be properly excluded from cost recovery under this Contract


(“Rejected Costs") shall be borne and paid entirely by CONTRACTOR and


shall not be cost recoverable.


Any reimbursement due to AKBN out of Cost Recovery Petroleum, as a


result of a decision by arbitrators or by settlement after audit, shall he


made in cash to AKBN within thirty (30) Days from the date of the


decision or settlement,


4,11 On or as soon as possible after the Effective Date, AKBN shall make


available for CONTRACTOR'S use. copies of all seismic and other


exploration data in AKBN's possession with respect to the Contract Area


without cost to CONTRACTOR, excluding nominal gathering, preparation


and reproduction costs, and thereafter shall timely provide to


CONTRACTOR any such other data as and when obtained by AKBN.


These data will be subject to restrictions on CONTRACTOR’S disclosure of


same as described in Paragraph 15,5.


412 OPERATOR


4.12.1 The CONTRACTOR shall select one of the entities comprising


CONTRACTOR to act as Operator, which shall conduct the


Petroleum Operations in the Contract Area in accordance with the


terms and conditions of this Contract and with good international


petroleum practice,


4.12.2 DWM Petroleum AG is hereby appointed as Operator, as from the


Effective Date.


4.12.3 The nomination of a successor Operator shall be subject to prior


approval of AKBN, provided that such approval is not required


and only written notification has to be given if the successor


Operator is an Affiliated Company,








ARTICLE V


relinquishment





5.1 Mandatory Relinquishment1


5.1.1 If CONTRACTOR enters the Second Exploration Period or the





Third Exploration Period, within one hundred eighty (130) days


after the end of the previous Exploration Period CONTRACTOR


will relinquish to AKBN twenty-five percent (25%) of the Contract


Area less any portion of the Contract Area relinquished previously,


subject to Paragraph 5,1,3 of this Contract.


5.1.2 At termination of the Exploration Period, CONTRACTOR shall


relinquish to AKBN all of the remaining acreage of the Contract


Area not then subject to a Discovery Area or a Development and


Production Area.


5.1.3 Notwithstanding any other provision of this Contract,


CONTRACTOR will not be required to relinquish areas included


in a Discovery Area or in a Development and Production Area.


5.2 CONTRACTOR may voluntarily, at any time, relinquish all or part of the


Contract Areal provided that, at the time of such voluntary


relinquishment, its Exploration obligations for the then current period


have been satisfied.


Any such voluntary relinquishments shall, at Contractor’s discretion, be


credited against future mandatory relinquishments.


5.3 Areas relinquished by CONTRACTOR under this Article V will revert


automatically to AKBN and may be freely used or disposed of by AKRN.


However, CONTRACTOR may continue using those operating facilities


and installations it has constructed or it ia Constructing in those areas for


the purpose of this Contract.


5.4 Areas relinquished by CONTRACTOR under this Article V will be in


dimensions and shapes reasonably sufficient to enable the performance of


hydrocarbon operations on them by AKBN or third parties, provided this


does not interfere with CONTRACTOR'S operations under this Contract.


5.5 Any relinquishment under this Article V shall be free of any income,


transfer or related taxes, charges or fees.


5.6 Prior to relinquishing any portion of the Contract .Area upon which


Petroleum Operation* have been conducted, CONTRACTOR shall take all


reasonable steps to remedy any significant negative environmental impact


directly caused by the Petroleum Operations, all to the extent required by


legal requirements in effect on the Effective Date and abandon the


Contract Area in conformity with an Abandonment Plan submitted to and


duly approved by AKBN, which approval will not be unreasonably


withheld or delayed.


5.7 Upon the date on which any relinquishment is duo or is to take effect or


upon the termination of this Contract, the CONTRACTOR shall have no


further rights or obligations in regard to the relinquished areai


nevertheless any ha billty hereunder imposed on the CONTRACTOR prior


to said date shall continue to subsist from the date of termination of the


Contract until AKBN has released CONTRACTOR in writing, which


release shall not be unreasonably delayed or withheld.


5.3 No relinquishment shall relieve CONTRACTOR from its unfulfilled


minimum commitments under Article IV and/or any other obligation


accrued prior to such relinquishment.


ARTICLE VI


OPERATIONS AFTER DISCOVERY


6.1 Within fifteen (15) Days after a Date of Discovery is determined by


CONTRACTOR, CONTRACTOR shall notify AKBN, in writing, of the


Discovery and will provide AKBN with the results of the testing.


Following a Discovery, CONTRACTOR may produce, transport and sell


Petroleum on test, as permitted by AKBN. Such production shall be


subject to Article VII.


6.2 Within sixty (60) days after the notice of Discovery under Paragraph 6.1,


CONTRACTOR will notify AKBN in writing whether CONTRACTOR


considers the Discovery to be worthy of Appraisal as a potential


Commercial Discovery.


6.3 In case CONTRACTOR notifies AKBN under Paragraph 6.2 that it


considers a Discovery to be worthy of Appraisal as a potential Commercial


Discovery, CONTRACTOR shall promptly thereafter inform AKBN of its


Appraisal plans for the concerned Discovery and will undertake the


Appraisal of the Discovery by performing such works that, in the


CONTRACTOR'S opinion, may be necessary to determine whether such


Discovery is worthy of being Developed commercially, taking into


consideration all relevant technical and economic factors.


6.4 Within six (6) months after completion of the Appraisal, CONTRACTOR


shall either^


6.4.1 Submit to AKBN a Development Plan for the purpose of dedaring


a Commercial Discovery; or


6.4.2 Notify AKBN that the Discovery could be commercial if other


Discoveries are made and jointly Developed and exploited with it,


or that CONTRACTOR proposes to do additional work in the


Contract Area for that purpose; or


6.4.3 Notify AKBN that CONTRACTOR does not consider the Discovery


to be potentially commercial.


6.5 A Development Plan submitted pursuant to Paragraph 6.4.1 above and aB


presented to the Exploration Advisory Committee, will be subject to the


approval of AKBN, which approval shall not be unreasonably withheld and


will be given within ninety (90) Days from receipt of the Development Plan


or else shall bo deemed to have been approved. CONTRACTOR shall then


proceed to Develop the Discovery in accordance with the approved


Development Plan.


6-6 In case of a notice by CONTRACTOR under Paragraph 6.4.2 above,


CONTRACTOR shall present to Exploration Advisory Committee and


submit in writing for AKBN approval, which approval shall not be


unreasonably delayed or withheld, a plan containing a description of the


additional works that CONTRACTOR considers necessary and the


estimated schedule for said works, in accordance with Good International


Petroleum Industry Practices. CONTRACTOR shall undertake, as part of


its Exploration program, the performance of said additional works in


accordance with the plan and schedule submitted to AKRN.


6.7 In case of a notice by CONTRACTOR under Paragraph 6.4.3 above, AKBN


shall have the right to Develop and exploit the Discovery for its sole benefit


and at its sole cost and risk, and CONTRACTOR will have no rights in


such Discovery and will relinquish, in accordance with Good International


Petroleum Industry Practices, the Discovery Area; however,


CONTRACTOR'S rights in the remainder of the Contract Area shall not be


affected thereby.


6.8 Any Commercial Discovery may consist of one (1) Reservoir or a group of


Reservoirs which, after Appraisal, is considered by CONTRACTOR worthy


of being Developed commercially.


6.9 Within three (3) Months following a submission under Paragraph 6,4.1 of


this Contract, CONTRACTOR shall provide AKBN with a report on the


technical and economic factors considered in determining that the


Discovery is worth being Developed commercially.


6.10 The Production period shall be twenty (20) Years for each field from its


Date of Initial Commercial Production and baaed on the Petroleum Law


may be extended, at CONTRACTOK'3 option, by five (5) additional Years,


subject to approval by AKBN. which approval shall not be unreasonably


withheld.


6.11 CONTRACTOR shall prepare a Development Work Program and Budget


for the remainder of the Calendar Year in which the CONTRACTOR


makes a submission pursuant to Paragraph 6.4.1 of this Contract, and


shall submit it to AKBN for approval not later than ninety (90) Days after


the date of such submission. On or before the fifteenth (16th) Day of


October of each Calendar Year thereafter, CONTRACTOR shall prepare


and submit to AKBN for approval a Development Work Program and


Budget for the succeeding Calendar Year. Approval by AKBN shall not lx?


unreasonably withheld and will be given within thirty (30) Days from


receipt of each Development Work Program and Budget, absent which,


approval shall be deemed to have been given. CONTRACTOR shall also


submit to AKBN an annual Production schedule based on the provisions of


Paragraph 7.15.











22


6.12 CONTRACTOR shall record the data relating to the quantities of


Available Petroleum and water produced each Calendar Month under this


Contract, showing the share of Profit Petroleum corresponding to each


Party according to this Contract. These data will be submitted to A KB hi


and the relevant Albanian tax authorities on a Monthly basis. Daily or


weekly statistics regarding the Production from the Contract Area shall be


available at all reasonable times for examination by authorized


representatives of AKBN.


6.13 CONTRACTOR shall render to AKBN, within sixty (60) Days from the end


of each Calendar Quarter, a Statement of Development Activity, reflecting


all charges and credits related to Development and Production for that


Calendar Quarter (“Development Expenditures and Operating Expenses”)


summarized by appropriate classifications indicative of the nature thereof.


This Statement shall be subject to audit by AKBN, as provided for in


Paragraph 4.2 of Article I of the Accounting Procedure.


6.14 If it appears reasonable from reviews of technical data that a Discovery


Area or a Development and Production Area could extend outside the


Contract Area, the Parties shall meet to discuss cooperation among


themselves and/or with any third party which may be involved in


extending Exploration, Development or Production outside the Contract


Area, but such discussions shall not interfere with CONTRACTOR


continuing with the Appraisal, Development and Production of Petroleum


from the portion of the Reservoir located in the Contract Area,


6.14.1 If it is proven by drilling outside the Contract Area that the


Petroleum bearing strata in the Contract Area extends into


another area or areas in respect of which another contract or


license is in force or has been granted by AKBN, and recognized


petroleum industry standards and practices necessitate that the


entire field should be worked and developed as a unit,


CONTRACTOR shall endeavour to cooperate with license holders


in adjacent blocks in order to achieve the optimum technical and


economical solution for the development of the entire field. If


CONTRACTOR and the other license holders in the respective


adjacent blocks cannot agree on a joint Development scheme or on


the operatorship, or if AKBN considers that the proposed joint


Development scheme is not in the national interest, AKBN may


direct that all operations shall be conducted in accordance with a


joint Development scheme.


6.14.2 The joint Development scheme shall be agreed to between


CONTRACTOR and the third party license holding granted by


AKBN who shall jointly submit the scheme for approval of AKBN.


Failing agreement on a unit Development scheme between


CONTRACTOR and the third party, or failing approval of AKBN,


the unit Development scheme shall be the scheme prepared by an








23


Expert If CONTRACTOR finds the scheme prepared by the


Expert unacceptable, CONTRACTOR shall have the right to


request modification thereof or relinquish the Discovery Area.


6.14.3 If the Petroleum bearing strata in the Contract Area, considered


by CONTRACTOR as a single Discovery Area or Development and


Production Area, extends into another area or areas over which


the Albanian Government has the jurisdiction and in respect of


which no contract or license is in force nor is subject to a grant t>£


rights by AKBN, then AKBN and CONTRACTOR shall use their


respective best efforts to negotiate an agreement to enlarge the


Contract Area accordingly and to provide for the proper Appraisal


and Development of the Discovery. Such agreement shall include


provisions that this Contract shall apply to the enlarged area.


CONTRACTOR shall be allowed to carry out such Appraisal in the


area concerned, as may be required to delineate the area for


enlargement. Before commencement of discussions on such


agreement, CONTRACTOR shall be allowed to review any


technical data relating to the area which is available to any agency


of the Albanian Government.


6.14.4 In the event that the Petroleum-hearing strata referred to in


Paragraph 6.14 extend into an area not forming part of the


Contract Area and over which the Republic of Albania has no


jurisdiction, the CONTRACTOR'S Petroleum Operations shall be


conducted in accordance with such of Albania's international


obligations as may be applicable and AKBN shall undertake to


negotiate with the competent agency of the foreign government


having jurisdiction to agree upon a Unit Development Scheme,


bearing in mind the interests of the CONTRACTOR. This Contract


shall bfi amended to reflect the agreement reached between the


two countries. If such amendment is unacceptable to


CONTRACTOR then CONTRACTOR shall have the right to


request modification thereof Or relinquish the Discovery Area in


which the Petroleum hearing strata are located.


6.15 CONTRACTOR may freely use for the Petroleum Operations hereunder


Petroleum produced from the Contract Area, in accordance with Good


International Petroleum Industry Practices.


G.16 Associated natural Gas from the Contract Area not used by


CONTRACTOR for the Petroleum Operations and not subject to Article


Vlll of this Contract may be flared or re-injected at CONTRACTOR'S


option, unless AKBN requests CONTRACTOR, in writing, to deliver said


associated natural Gas to AKBN at the field separators. This delivery to


.AKBN shall not interfere with CONTRACTOR'S normal Petroleum


Operations and schedule for Development. Any cost relating to


CONTRACTOR’S compliance with AKBN’a request will be borne by AKBN.


 ARTICLE Vli


RECOVERY QF COSTS AMP EXPENSES. PBOPUCTION SHAKIRS


AND PROFIT PETROLEUM AND NON-RECOVERABLE COSTS





Cost Recovery Petroleum


The Contractor shall recover all costs and expenses under this Contract


out of a portion of Available Petroleum, which is sometimes called as


applicable “Cost Recovery Petroleum, Cost Recovety Crude Oil or Cost


Recovery Gas". The portion of Available Petroleum that is Cost Recovery


Petroleum is one hundred percent (100 %) after the Royalty Tax and


Government Allocation is deducted, as described below in paragraph 7,7,


CONTRACTOR shall be entitled to take the Cost Recovery Petroleum in


kind, freely export it, and dispose of it.


Recoverable costs and expenses in each Calendar Month shall be recovered


first from Cost Recovery Crude oil, if any, and second from Cost recovery


Gas, if any.


Costs and expenses under this Contract shall be recovered from Cost


Recovery Petroleum in the following manner:


7.2.1 Exploration Expenditures, including the total of those


accumulated prior to the Date of Initial Commercial Production,


shall be recoverable in full, without amortization, commencing in;


(i) the Calendar Month in which such Expenditures are incurred or


(ii) the Calendar Month in which the Date of Initial Commercial


Production or test or extended Production occurs, whichever


Month comes later.


7.2.2 Development Expenditures, including those accumulated prior to


the Date of Initial Commercial Production shall be recoverable in


full, without amortization, commencing in: (i) the Calendar Month


in which such expenditures are incurred or (ii) the Calendar


Month in which the Date of Initial Commercial Production occurs,


whichever Month comes later. Development Expenditures must be


reasonable, that is, in accordance with international Petroleum


industry practices and market prices for services, equipment and


materials of the same kind and quality, available at the time they


are required under this Contract.


7.2.3 All Operating Expenses incurred after the Date of Commercial


Discovery shall be recoverable in full, without amortization,


commencing in: (j) the Calendar Month in which they are incurred,


or (ii) the Calendar Month in which the Date of Initial Commercial


Production occurs, whichever Month comes later. Operating


Expenses must be reasonable, that is, in accordance with


international Petroleum industry practices and market prices for


services, equipment and materials of the same kind and quality,


available at the time they are required under this Contract.


7.3 To the extent that, for any Calendar Quarter, the Statement of Cost


Recovery shows unrecovered costs and expenses, such unrecovered


amounts shall be carried forward in the said Statements for recovery in the


next succeeding Calendar Quarter or Quarters until fully recovered.


7.4 Simultaneously with the approval of a Development Plan, AKBN and


CONTRACTOR shall agree whether the AKBN's share of Profit Petroleum


and Government Allocation will be lifted in Petroleum by AKBN or will be


lifted and sold by Contractor on behalf of the AKBN and subsequently,


after having collected the proceeds from such sales, paid in cash to AKBN


based on the valuation of Petroleum as per Article VII.


In case the Parties agree that the Government Allocation and/or the


AKBN's share of Profit Petroleum shall be lifted in kind by AKBN, the


agreement shall inter alias also contain provisions in respect of the


allocation of different qualities of Petroleum and procedures for the lifting


including under and over lifting of AKBN's share.


7.5 Each Calendar Month CONTRACTOR shall take in kind at the Metering


Point and dispose of all Cost Recovery Petroleum, plus its share of Profit


Petroleum pursuant to Paragraph 7.6. Upon submission to AKBN of each


Quarterly Statement of Cost Recovery, the Parties will make the


appropriate adjustments pursuant to Paragraphs 7.3 and 7.4.


Profit Petroleum Sharing * R Factor


7.6 With respect to each Calendar Month, all Available Petroleum remaining


after deducting the Royalty Tax and Government Allocation and all


recoverable costs and expenses under this Contract for that Calendar


Month shall be Profit Petroleum and pursuant to Paragraph 7.5 herein


above shall be taken in kind at the Metering Point and freely and


separately disposed of by export or otherwise, and at their respective risk,


cost, and expense by the AKBN and by CONTRACTOR, as applicable. The


respective share, or percentage, of Profit Petroleum to which each of the


.AKBN and CONTRACTOR is entitled during a Calendar Month is


determined as provided in this Paragraph 7.6.


The “R" Factor shall be used for purposes of determining the





Parties' respective entitlement to Profit Petroleum and


Government Allocation in each Calendar Month. "R” Factor shall


mean and be calculated as the ratio of CONTRACTOR’S


cumulative receipts from the Effective Date until the end of the


preceding Calendar Year to the CONTRACTOR'S cumulative


26





expenditures incurred from the Effective Date until the end of the


preceding Calendar Year.


The cumulative receipts shall be the aggregate value, determined


pursuant to Article VII and Annex D, of (a) CONTRACTOR’S


share of Profit Petroleum plus (b) the Cost Recovery Petroleum,


less all of CONTRACTOR’S Albanian taxes as paid.


Said cumulative receipts shall be adjusted by an inflation factor


based on the Consumer Price Index as published by the United


States Department of Labor and calculated on an annual basis.


The cumulative expenditures shall be the aggregate amount of all


costs, expenses, and expenditures previously incurred by


CONTRACTOR under the Contract, whether as Development


Expenditures, Exploration Expenditures, or Operating Expenses,


or as a payment made under Article XXVII.


Said cumulative expenditures shall be adjusted by an inflation


factor based on the Consumer Price Index as published by the


United States Department of Labor and calculated on a monthly


basiB.


7.6.2 Subject to other provisions of this Contract, the percentage of


Profit Petroleum that constitutes the respective shares of


CONTRACTOR and AKBN is determined for each Calendar


Month using the “R.” Factor applicable to that Calendar Year


(calculated as provided in Paragraph 7.6.1). CONTRACTOR'S and


AKBN’s share of the Profit Petroleum is shown in the following


tables:








PROFIT PETROLEUM











o

1.5 < R < 2 $3%


10 %


2

2.5 < R R5% 15 %








ft is acknowledged that CONTRACTOR’S share of Profit Petroleum will be


subject, during the term of this Contract, to a fifty percent (50%) Albanian


profit tax rate to be paid in accordance with Article IX of this Contract. In


the event the Development of a Discovery is determined to be economically


marginal or has became marginal due to its exploitation, anti additional


tax incentives are required by CONTRACTOR in order to proceed with the


Development, CONTRACTOR and AKBN will use their best efforts to


obtain tax relief as needed by CONTRACTOR to develop the field as per


Law No. 7811 dated April 12, 1994.


7.7 AKBN shall be entitled to a Government Allocation on production, which


shad be equal to-











RFACTOR GOVERNMENT ALLOCATION


0 < R < 1.5 ow


J.5

2.0-cR 5%





7.8 The percentages of Profit Petroleum to which the AKBN and


CONTRACTOR are entitled apply to profit sharing Crude Oil and to profit


sharing Gas.


7.9 Notwithstanding any provision of this Contract to the contrary, Average


Daily Production 3hall not be determined until all pipelines, or parts


thereof required for the disposition of Petroleum either upstream or


downstream of the Metering Point are filled and pressurized by the


necessary amount of Petroleum ("Line Fill”). AKBN and CONTRACTOR


shall agree in writing as to the time that the Line Fill may be disposed of


and may be included in Average Daily Production.


7.10 Under this Contract, the following expenses shall not be recoverable:


a) costs incurred before the Effective Date as related to performance


of a work obligation, unless approved by AKBN;


b) costs incurred beyond the Delivery Point;


c) donations or contributions unless approved by the AKBN;


d) any production bonuses paid to the AKBN pursuant to Article


X.wu;


e) fines or penalties duly levied by an agency of the Albanian


Government and paid by CONTRACTOR; and


0 interest expenses incurred by the Contractor with respect to bank


loans in order to finance the Petroleum Operations.


7 li





The value of Crude Oil taken in kind and disposed of by CONTRACTOR


under this Contract during each Calendar Month, for all purposes of this


Contract, will be the weighted average price actually received in freely


convertible currency on F.O.B. point of export sales of Crude Oil from


Albania under this Contract undertaken by CONTRACTOR, For this


purpose, all Crude Oil sales contracts then currently in effect with


non-Affiliated companies will be taken into account, but excluding barter


agreements, and any spot sales not reasonably consistent with prevailing


market prices for the Crude Oil. It is understood that, in the case of C.I.F.


sales, appropriate deductions shall be made for transportation and


insurance charges, actual or declared, whichever are lower, in order to


calculate the F.O.B. price at the point of export. In no event shall any


commission or marketing fee be deducted,


7,12 For the case in which, during any Calendar Month, there are no export


sales by CONTRACTOR under Crude Oil sales contracts then currently in


effect, AKBN and CONTRACTOR shall, prior to the Date of Initial


Commercial Production, agree upon a basket of at least two (2) but no


more than four (4) crude oils, quoted for pricing purposes and available for


export at Mediterranean ports, that are comparable to the Available Crude


Oil and that are freely traded in international markets (the "Basket'). The


value of the Cost Recovery Crude Oil shall be the average price of the


Basket for any Calendar Month in which such export sales are not made as


determined from the prices of the crude oil in the Basket as published by


Platt’s Oilgram Price Report for World Crude Oil Prices, "Short Term


Contract/Spot" column for transactions concluded in such Calendar Month.


It is understood that the following principles will apply with respect to ths


Basket:


7.12.1 The crude oils to bo included in the Basket as comparable to the


Available Crude Oil shall be those which shall differ no more than


four (4> degrees API greater or less than such Crude Oil and the


sulfur content thereof shall be no greater than one percent (1%)


more than that of such Crude Oil.


7.12.2 The price of the Basket shall be adjusted as follows: (i) by one and


one-half United States Cents (U.S.$0.015) per Barrel for each full


one-tenth (l/lOth) of API degree by which the Crude Oil is above


or below the arithmetic average of the API gravity of the Basket,


(iD by five United States Cents (U.S.$0.05) per Barrel for each full


one-tenth of one percent (0.1%) by which the sulfur content of the


Crude Oil is above or below the arithmetic average of the sulfur


content of the Basket; and (iii) by the difference between the


freight rate for the transport of the Crude Oil from the point of


export to Lavera, France, and the arithmetic average of the freight


rate for the Basket for the transport of the crude oiks in the Basket








29


from their usual F.O.B. point of origin to Lavera, France. If the


arithmetic average freight rate of the Basket is higher, this


difference will be added to the price of the Basket. If the


arithmetic average freight rate of the Basket is lower, this


difference will be subtracted from the price of the Basket. For this


purpose, the "freight rate” shall be defined as the “Average Freight


Rate Assessment” (AFRA) rate quotation for LR2 size vessels as


published for such Calendar Month multiplied by: (a) the then


applicable WORLDSCALE flat rate for Crude Oil transportation


from the point of export to Lavera, France and (b) the arithmetic


average of the then applicable WORLDSCALE flat rate for the


crude oils in the Basket from their usual F.O.B port of export to


Lavera, France.


7.12.3 Should said publication or any adequate succeeding publication


cease to be published, AKBN and CONTRACTOR must agree in


writing on a substitute publication. In case there is no publication


which may be used as a basis, the Parties will agree in writing on


the procedure to be followed to fix the Basket.


7.12.4 In the event that, in the future, the price of one or more of the


crude oils which make up the Basket is quoted in a currency other


than Dollars, said price will be converted into Dollars at the


average buying rate of exchange rates for that currency quoted by


Citibank, London, at the close of business on each relevant day.


7.12.5 The Basket may be revised periodically, if required, by written


agreement between AKBN and CONTRACTOR to reflect any


change in the quality of the Crude Oil produced from the Contract


Area,


7.12.6 In the absence of a quotation of one (l) or more of the agreed crude


oils in the Basket, AKBN and CONTRACTOR shall meet to agree


on the replacement crude oil.


7.13 In the event AKBN and CONTRACTOR have been unable to determine


the Basket for the purposes of Paragraph 7.12 within thirty (30) Days after


the end of the relevant Calendar Month, each shall, within thirty (30) Days


thereafter, nominate an Expert in crude oil pricing. These two (2) Experts


shall, within a further thirty (30) Days, agree upon a third Expert in crude


oil pricing, whereupon these three (3) Experts shall, as soon as possible,


attempt to determine the Basket in accordance with the general principles


set out in Paragraph 7.12 above. If either AKBN or CONTRACTOR


defaults in appointing its Expert as aforesaid, the other Party shall have


the right to apply to the International Chamber of Commerce in Paris,


France, to appoint an Expert to act for the defaulting Party.











30


Should these two (2) Experts be unable to agree upon a third, a neutral


Expert shall also be appointed by the International Chamber of Commerce


in Paris, France. The determination on the Basket shall be made no later


than sixty (601 Days after the appointment of the third Expert. The


determination by the three (3) appointed Experts shall be taken by their


majority vote and shall be binding and final for AKBN and


CONTRACTOR. The costs and expenditures of the experts shall be


charged equally to AKBN and CONTRACTOR.


7.14 Pending mutual agreement under Paragraph 7.12, or Expert


determination under Paragraph 7.13, the Basket used shall be the last


Basket determined pursuant to Paragraphs 7.12 or 7.13, whichever is the


latest, and Once an agreement has been reached under Paragraph 7.12, or


a determination by Experts has been made under Paragraph 7.13,


appropriate adjustments will be made {and any appropriate payments


pursuant to the determination will be made) within thirty (30) Days after


the date of said agreement or Expert determination to place the Parties in


the same position they would have been in had they agreed on the Basket,


or had the Experts’ Basket been in effect during the period in question.


7.15 No later than sixty (60) Days prior to the Date of Initial Commercial


Production and thereafter at the beginning of each Calendar Quarter, the


CONTRACTOR shall prepare and furnish to AKBN a production forecast


setting out the total quantity of Available Petroleum that is estimated can


be produced from the Contract Area in each of the next four (4) Calendar


Quarters based on the production rate designed to maximize the ultimate


recovery of Petroleum (Maximum Efficient Rate) from the Contract Area in


accordance with practices generally accepted in the international


Petroleum industry, CONTRACTOR shall give due consideration to any


comments or recommendations made by AKBN representatives in respect


of such forecast. CONTRACTOR shall endeavor to produce each Calendar


Quarter the forecasted quantity.


7.16 CONTRACTOR shall have the right to separately take in kind and export


all Cost Recovery Petroleum and Profit Petroleum to which it is entitled


under this Contract. CONTRACTOR shall have the right to freely transmit


or retain outside Albania all proceeds acquired by it, including the


proceeds from the sale of its share of Cost Recovery and Profit Petroleum,


whether such sales are in Albania or of Petroleum exported by


CONTRACTOR.


7.17 At a reasonable time, prior to the Date of Initial Commercial Production,


and from time to time as required thereafter. AKBN and CONTRACTOR


shall meet and agree upon a procedure for scheduling liftings of Petroleum


at the Metering Point. No Party shall either gain or lose as a result of any


liftings under such schedule. Liftings by CONTRACTOR are deemed to


consist firstly of CONTRACTOR’S full entitlement of Cost Recovery


Petroleum, in order that cost recovery may proceed in accordance with this





31


 Contract, and the remainder of such liftings is deemed to consist of Profit


Petroleum.








AmCLEVIH


GA£


8.1 If Gas (as defined in Paragraph 1.44) is Produced or becomes producible for


sale from the Contract Area, AKBN and CONTRACTOR shall consider all


possible economic alternatives for its use and decide jointly on the best


alternative for AKBN and CONTRACTOR. Jn this case, the provisions of


this Article VIII, Annex "D”, and Law No. 9946, dated 30.06.2006 "On the


Sector of Natural Gas" will apply.


8.2 If CONTRACTOR makes a Discovery' of Gaa, the procedures of Article VI


shall apply and be followed, subject to the following. If there is any


Discovery of Gas which CONTRACTOR considers could be a Commercial


Discovery, and there is a lack of or inadequacy of an available


commercially viable market for the Gas reserves thereof, tliie Contract


shall be suspended aa to such Gas Discovery during the period of time in


which Development of the Gas reserves has not commenced, provided that


this period cannot exceed five (5) Years from the date of the pertinent


Discovery of Gas (“Gas Suspension Period”). During the Gas Suspension


Period for such Discovery, the Parties shall use their reasonable, good faith


efforts to investigate and consider the markets which could be Developed


commercially for such Gas reserves and also consider whether mutually


agreeable modifications or actions could be taken to result in it being a


Commercial Discovery. During any Gaa Suspension Period under this


Paragraph 8.2, the portion of the Contract Area comprising the geological


feature that contains the Gas reserves of the Discovery ("Gas Suspended


Area”) shall be determined by CONTRACTOR, subject to AKBN approval,


and shall not be subject to mandatory relinquishment pursuant to Article


V hereof, nor any other provision of this Contract, including without


limitation, expiration of the Exploration Period. As soon as Development


of the Gas Suspended Area has commenced, the Gas Suspension Period


will terminate and the pertinent provisions of Article VI will apply. It is


understood that, in case Development of the Gas Suspended Area has not


commenced during the Gas Suspension Period, CONTRACTOR shall


relinquish the Gas Suspended Area.


8.3 Should the price publications referred to in Article VII and Annex “D” fail


to publish or fail to reflect the actual market conditions anchor prices,


Crude Oil and product quotations will be taken from those tables


published in another publication that continues to be published, adjusted


as the Parties agree, so ae to most nearly approximate the results which


would have been used if such failure had not occurred. If euch publications


cease publication, the Parties will agree on other price reference sources.


 8-4 Should any pr:ce reference source referred to either in Article VII or in


Annex L,D" publish a retroactive change, either upwards or downwards, for


any Crude Oil or product price that is referred to either in Article VII or in


Annex “D”, the effect of such change in calculating prices for any Calendar


Month will be limited to the Month prior to the Month of publication of


such retroactive change.








ARTICLE IX


ALBANIAN TAXES





9.1 CONTRACTOR shall pay the Royalty Tax m the amount of 10% of the


Available Production pursuant to Law No. 9975 dated £8.07.2008, "On the


National Taxes".





9.2 Each of the entities comprising CONTRACTOR, as may result during the


term of this Contract, is subject to the payment of profit tax in Albania, in


accordance with Albanian law and the provisions of this Article IX, at the


race of City percent (50%) applicable on its share of Profit Petroleum.





During the term of this Contract each entity comprising CONTRACTOR





separately shall be subject to the profit tax in accordance with Law No


7811 dated 12/04/94 "On the Fiscal System in the Petroleum Sector


(Exploration and Production)’’ and shall comply with the requirements


thereof








9.3 The profit sharing percentages agreed upon under Paragraph 7.6 of this


Contract have been established, taking into consideration that the entities


comprising CONTRACTOR shall be subject to an Albanian profit tax of


fifty percent (50%). Therefore, the Parties agree that the profit tax rate of


fifty percent (50%) will be fixed for the entire term of this Contract, unless


such rate is decreased pursuant to Article 1, subsection (3), of Law No


7811 dated 12/04/94 "On the Fiscal System in the Petroleum Sector


(Exploration and Production)” or other Albanian law or regulation,


9.4 fn the unlikely ovent that the profit tax rate referred to in Paragraph 9,2 is


increased in spite of Law No 7811 dated 12/04/94 “On the Fiscs!System in


the Petroleum Sector (Exploration and Production)", and the provisions


hereof, the profit sharing percentages established under Paragraph 7.6


will be deemed, to be automatically modified accordingly in order to


maintain the economic equilibrium of thia Contract so that CONTRACTOR


shall receive the same share of Profit Petroleum as if the profit tax rate


 had remained at fifty percent (50%) (as the same may be reduced pursuant


to Paragraph 9.2 above).








9.5 If during execution of this Contract CONTRACTOR may be comprised of


more than one entity, the Albanian profit tax of each of the entities


comprising CONTRACTOR wilt be paid in cash to the relevant Albanian


Government authority, as advised by AKBN, in accordance with the


applicable Albanian laws and regulations and the following procedure'





9 5.1 Each of the entities comprising CONTRACTOR shall pay Albanian


profit tax for each Calendar Year in cash within sixty (60) Days


from the presentation to AKRN of the Statement of Cost Reeovery


for the relevant Calendar Year, as required by Article 111 of the


Accounting Procedure. The payment of the Royalty Tax shall be


done according to the provisions of the Raw No. 9975, dated


28.07.2008 “On the National Taxes”.








9.5.2 AK8N shall take care that the CONTRACTOR or the entities


comprising CONTRACTOR get the official tax receipts from the


appropriate Albanian authorities showing that Albanian profit tax


has been paid by them in a timely manner.


9.0 Other than the Royalty Tax and Albanian profit tax as described above,


each entity comprising COtNTRACTOR, their respective Affiliated


Companies and expatriate personnel shall be exempt from Albanian taxes,


duties, fees, charges and levies of any nature whatsoever, including


without limitation, value added taxes in accordance with the VAT Law and


excise taxes in accordance with the Excise Tax Law, payable to Albania,


with respect to all activities relating to the Petroleum Operations. This


exemption does not include normal port, warehouse and postal charges


and other similar customary charges of general application for actual


services rendered.








9.7 CONTRACTOR shall comply with the requirements of Albanian laws with


respect to the filing of returns, the assessment of taxes and the keeping for


review by authorized persons of books of accounts and records.





























ii


 AEIimMi


CUSTOMS EXEMPTIONS


12.1 CONTRACTOR and its subcontractors engaged in earring out operations


under this Contract shall be permitted to import, and shall be exempt from


Customs Duties, and fees (with the exception of normal port and


warehouse charges of general application in Albania for actual services


rendered to CONTRACTOR) with respect to the importation of equipment,


machinery, materials, including, but not limited to, consumable items,


moveable property, and spare parts for any of the above, to be used in


carrying out operations under this Contract according to Law No. 7811


dated 12 April 1994 “On the Approval with Amendments of the Decree No.


782 dated 22.2.1994 "On the Fiscal System in the Petroleum Sector


(Exploration <& Production)", as amended by Law No. 8345 dated 13 May


1998 "For a Change to Law No,7811, dated 12.04.94 'On the Approval with


Amendments of the Decree No. 782 dated 22.02.94 "On the Fiscal System


in the Petroleum Sector (Exploration &, Production)”. For this purpose,


CONTRACTOR and its subcontractors shall be exempt from any


prohibition, limitation and restriction of import, and country of origin.


CONTRACTOR shall fallow procedural stops lawfully prescribed by the


Albanian General Customs Directorate that are necessary for the purpose


of implementing the import permissions and Custom Duties exemptions


granted to CONTRACTOR under this Paragraph 12,1.


12.2 Each expatriate employee of CONTRACTOR and its subcontractors shall


be permitted to import and shall be exempted from all customs duties,


import license and other permits and fees (with the exception of normal


port and warehouse charges of general application in Albania for actual


services rendered to them) with respect to the reasonable importation of


articles of personal use, provided, however, that such properties are


imported for the sole use of the employee and his family.


12.3 The exemption provided in Paragraph 12.3 shall not apply to any imported


items when items of the same or substantially the same kind and quality


are manufactured locally and are available for purchase and timely


delivery in Albania at a price not higher than the cost of the imported!


items before Customs Duties, but after transportation and insurance costs


have been added.


12.4 Subject to AKBN approval as to any items for which there has been cost


recovery, any of the items imported into Albania, either exempt or


nonexempt from customs duties under this Article, which have not been


sold to third parties in Albania in accordance with Paragraph 12.5, may be


exported by the importing party, at any time after notification to the


Customs Office, without the payment of any tax, export duty, right or


impost.


12.5 Subject to AKBN approval as to any items for which there has been cost


recovery, new or used, but serviceable, material, equipment and goods


used in operations hereunder by CONTRACTOR and household goods,


items and personal effects which belong to the personnel of


CONTRACTOR may he sold within Albania! provided that the purchasers


shall pay the applicable customs duties, if any, to the Customs Office,


except if sold to any other entity which is enjoying similar exemption as


CONTRACTOR.


12.6 Subject to AKBN approval as to any items for which there has been cost


recovery, material, equipment and goods damaged or used as to be


unserviceable and which are classified by CONTRACTOR as scrap or as


junk may be sold as scrap Or junked without payment of customs duties by


CONTRACTOR,


12.7 In the event of such sale under Paragraphs 12 5 (except household goods,


items atid personal effects owned by the employees of CONTRACTOR and


its subcontractors) and 12.6 above, the proceeds from such sales shall be


divided in the following manner: CONTRACTOR shall be entitled to


receive the proceeds, which proceeds (Net of cue tome duties), when


received, shall reduce the unrecovered cost, if any, winch CONTRACTOR


is entitled to recover pursuant to Article Vll hereof. If no costs remain to


be recovered by CONTRACTOR, then the entire proceeds (net of Customs


Duties) of such sale, if any. shall be paid to AKBN.


12.8 CONTRACTOR shall require no License in respect of the export of Crude


Oil from Albania. Regarding export of Natural Gas, the provisions of the


law No. 9946, dated 30.06.2008 "On the Natural Gas" shall apply case by


case. Also CONTRACTOR shall be exempted from any duty, tax, fee or any


other financial impost related to the export of Petroleum from Albania


except for the Royalty Tax, that, according to the legislation in power, it


should be payed at Custom Office when the expert is done.


12.S AKBN will cooperate with CONTRACTOR in order to facilitate the import


and export operations, including ihe pertinent clearance procedures, under


this Contract.








ARTICLE XIII


BOOKS OF ACCOUNT. ACCOUNTING AND PAYMENT





13.1 CONTRACTOR shall maintain at its business offices in Albania books of


account in accordance with accounting practices required under Albanian


Law, the Accounting Procedure and accounting practices generally used in


the international petroleum industry and such other books and records as


may be necessary to show the work performed under this Contract,


including the amount of all Available Petroleum. CONTRACTOR shall








37


keep its books of account and accounting records in Dollars and Albanian


Leke,


In the event of any arbitration proceedings under Article XXI of this


Contract, which involve CONTRACTOR’S Albanian books of account, those


books of account maintained in accordance with the accounting procedure


and international petroleum industry practices shall prevail over


inconsistent portions of the books of account maintained in accordance


with Albanian Jaw.


13.2 Ail Dollar expenditures shall be recorded in CONTRACTOR'S books in the


amount expended. All Albanian currency expenditures shall be translated


into Dollars at the official buying rate of exchange quoted by the Bank of


Albania on the Day the relevant expenditure is paid. All other nonDollar


expenditures shall be translated into Dollars at the rate for buying Dollars


with such currency as quoted by the Citibank, London, England, at 12 00


noon, London time, on the Day the relevant expenditure is made, and if


this is not a banking Day in London, on the next succeeding banking Day.


A record shall be kept of the exchange rates used in translating Albanian


currency or other non-Dollar expenditures to Dollars. CONTRACTOR shall


also bo permitted to maintain and freely use Dollar bank accounts outside


Albania and in Albania for purposes of its operations under this Contract.


13.3 The aforesaid books of account and other books and records referred to


above shall be kept in English and Albanian Language and be available at


all reasonable times for inspection by duly authorized representatives of


AKBN and Albanian tax authorities.


ARTICLEXIY


RESPONSIBILITY FOR DAMAGES


14.1 CONTRACTOR shall exercise reasonable skill, care and diligence in the


discharge of its obligations under this Contract, but its liability to AKBN


arising out of the performance or non-performance by CONTRACTOR


shall be limited to cases of any demonstrated negligence on the part of


CONTRACTOR.


14.2 In case of any damage for which CONTRACTOR is responsible under this


Article XIV, CONTRACTOR shall endeavor to promptly and diligently


take the necessary measures, in accordance with Good International


Petroleum Industry Practices, to mitigate the damage and to restore


normal operations. CONTRACTOR will pay the appropriate compensatory


damages for which it is finally declared responsible.


14.3 CONTRACTOR shall in no event be liable for consequential damages, that


is, damages which are riot a direct and immediate result of


CONTRACTOR'S acts or failure to act, including loss of Production or lose


of profits.








33


or





14,4 CONTRACTOR shall, as part of Petroleum Operations, maintain


insurance which a reasonable and prudent operator in the Petroleum


industry would maintain in connection with its operations, including


insurance of assets to which ownership has passed to AKBN under Article


XXIII of this Contract. However, CONTRACTOR shall be under no


obligation to maintain insurance in respect of assets to which ownership


has passed to AKBN as aforesaid where such assets have ceased to be used


by CONTRACTOR in Petroleum Operations,


ARTICLE XV


RECORDS, REPORTS AND INSPECTION


15.1 CONTRACTOR shall prepare and, at all times while this Contract is in


force, maintain accurate and current records of its Petroleum Operations


hereunder. CONTRACTOR shall furnish AKBN or its representatives


information and data concerning its Petroleum Operations in Albania


under this Contract.


15.2 Unless otherwise agreed to by AKBN, in case of exporting any rock


samples outside Albania for analysis abroad, samples equivalent in size


and quality, shall be kept by CONTRACTOR in Albania.


15.3 Originals of technical data records can he exported by CONTRACTOR for


analysis abroad; provided, however, that magnetic tapes and any other


data which must be processed or analyzed outside Albania may be


exported if a monitor or a comparable record is maintained in Albania by


CONTRACTOR.


16.4 CONTRACTOR shall permit AKBN, through its duly authorized


representatives or employees, to have full and complete access to the


Contract Area, at all reasonable times, with the right to observe the


operations being conducted and to inspect all records and data kept by


CONTRACTOR. AREN’S representatives in exercising this right under


the preceding sentence of this Paragraph 15.4 shall take care that the


Petroleum Operations are not hindered or delayed.


15.5 CONTRACTOR shall supply AKBN on a current basis with copies of all


technical data records (including, but not hmiLed to, seismic field tapes,


geological and geophysical reports, logs and well surveys, information and


interpretation thereo0, which are available to CONTRACTOR, including


sample tests, related to Petroleum Operations under this Contract. All


such data shall be deemed to bo strictly confidential and .shall not be


divulged by AKBN, except to other government authorities, without the


consent of CONTRACTOR nor by CONTRACTOR, except to Affiliated


Companies, professional consultants, banks or financial institutions from


whom the CONTRACTOR or any entity comprising Contractor is seeking


or obtaining finance and third parties who may be interested in acquiring


 an interest in this Contract (provided always that such Affiliated


Companies, consultants, banks, financial institutions and third parties are


bound by a strict undertaking of confidentiality), or to the extent required


by any stock exchange on which the shares of the CONTRACTOR or any


entity comprising Contractor or an Affiliated Company of CONTRACTOR


or any entity comprising Contractor are quoted, with prior notification to


AKBN, while this Contract remains in force. Should this Contract be


terminated in the First Exploration Period or any subsequent Exploration


Period, CONTRACTOR shall be bound not to divulge, except to Affiliated


Companies, t.he data and information obtained by it and not to relinquish


them in any manner whatsoever during at least five (5) years from the


Termination of this Contract. The confidentiality undertaking by AKBN


docs not include data on areas relinquished by CONTRACTOR, data which


can be delivered to third parties provided that the recipients of such data


agree to use them only to determine the possibility of entering into a


contract for that area with AKBN and to maintain the data confidential.








article ayi


EMPLOYMENT rights.AND. IBAafflHSLQLALBAMlAg PERSONNEL


16.1 it is the desire of the Parties that Petroleum Operations hereunder he





conducted in a businesslike and efficient manner; therefore, AKBN agrees


that:





16.1.1 The expatriate administrative, professional and technical


personnel employed by CONTRACTOR, and the personnel of its


subcontractors for the conduct of the Petroleum Operations


hereunder, shall bo granted residency and permission to work in


Albania.


16.1.2 Expatriate administrative, professional and technical personnel


employed by CONTRACTOR shall be paid for their services in


accordance with CONTRACTOR'S policies applicable to said


personnel, which will be consistent with international petroleum


industry practices.


16.2 CONTRACTOR shall be free to select its employees and determine the





number thereof to be used for Petroleum Operations hereunder in


accordance with international petroleum industry practices. Without


prejudice to the foregoing, it is agreed that:





16.2.) Taking into account CONTRACTOR'S operational requirements


under this Contract, CONTRACTOR shall employ Albanian


personnel if their professional skills, knowledge and experience are


adequate to CONTRACTOR'S requirements. CONTRACTOR shall


reasonably cause its subcontractors to follow this procedure.











40


CP





 16.2.2 During Production, CONTRACTOR will gradually replace its non¬


executive expatriate personnel by qualified Albanian personnel, as


available.


16.2.3 It pursuant to applicable Albanian law, CONTRACTOR is


required to withhold any taxes, social security payments and/or


health insurance payments from wages paid to its Albanian


employees or subcontractors or to perform all or some of social


security and health insurance payments for its Albanian


employees, CONTRACTOR will comply with such requirements


and, where applicable, remit such taxes and payments to the


appropriate authorities of the Albanian Government.


16.3 CONTRACTOR will prepare and carry out training programs for its





Albanian employees engaged in Petroleum Operations hereunder with


respect to applicable aspects of the Petroleum industry.





16.4 CONTRACTOR shall cooperate with AKBN's training programs as follows:


16.4.1 Within thirty (30) Days from the commencement of each Contract





Year CONTRACTOR shall pay to AKBN One hundred thousand


US Dollars (US$100,000) per Contractual year during the


Exploration Period, to be used for:





a) the purchase for the AKBN of advanced technical


literature, data, software, hardware and technical


instruments or specific services as requested by AKBN;





b) the sending of AKBN employees to selected courses in the


fields of petroleum science, engineering and management;


and





c) the coverage by the AKBN of certain administrative


expenditures related to this Contract implementation.





In the event these periods do not start at the beginning or


terminate at the end of a full Contract Year, such amount will be


prorated accordingly.





16.5 All costs and expenses incurred by CONTRACTOR related to training


programs for Albanian employees shall be recovered by CONTRACTOR


under Article VII hereof as Exploration Expenditures.





ARTICLE XVTt


LOCAL CONTRACTOR AND LOCALLY MANUFACTURED MATERIAL





CONTRACTOR and its subcontractors shall-





41


 17.1 Give priority to local contractors as long a

availability of their performance are comparable with international prices


and performance.


17.2 Give preference to locally manufactured materials, equipment, machinery


and consumables, so long as their price, quality and time Gf delivery are


comparable to internationally available materials, equipment, machinery


and consumables. For purposes of price comparison, the cost of imported


items will exclude custom duties, but will include transportation and


insurance costs.


17.3 Submit for competitive bidding in accordance with Operator's policy, any


contract with an estimated value in excess of two million dollars


($2,000,000).





ARTICLE XV1J1


LAWS AND REGULATIONS





18-1 This Contract shall be governed and interpreted in accordance with the


laws of Albania to the extent they are applicable with due recognition of


internationally accepted laws. CONTRACTOR shall be subject to all laws


and regulations of local application in force in Albania, as Specified in this


Article XVIil.


18.2 The rights and obligations of AKBN and CONTRACTOR under and for the


effective term of this Contract shall be governed by and in accordance with


the provisions of this Contract and can only be altered or amended by the


mutual written agreement of the Parties.


18.3 The subcontractors of CONTRACTOR shall be subject to the provisions of


this Contract applicable to them, and they shall also be subject to all laws


and regulations of local application and their amendments.


18.4 In the event that any new provisions or changes or amendments to


Albanian laws or regulations, or any changes in the interpretation thereof,


impose on CONTRACTOR new or higher tributes, taxes, duties, rights,


payments or any other obligations, with respect to those expressly


considered applicable to CONTRACTOR or ita subcontractors under the


terms of this Contract, Parties agree ta amend the Contract that the profit


sharing percentages established under Paragraph 7.6 be adjusted


accordingly to maintain the economic equilibrium of this Contract, by


allowing CONTRACTOR to receive the same net share of profit sharing


Petroleum as if no changes or amendments had occurred.


18.5 Should the nature of the new provisions, changes, amendments or


interpretation referred to above make it impracticable to modify the profit


sharing percentages referred to in Paragraph 7.6, AKBN and








42


CONTRACTOR may agree on a different method to compensate


CONTRACTOR for the additional burden imposed on CONTRACTOR


provided this alternate method maintains the economic equilibrium of this


Contract as if no changes or amendments had occurred.


18.6 In order to determine the profit sharing percentage adjustment or the


alternate method to compensate CONTRACTOR referred to above, AKBN


and CONTRACTOR will meet within thirty (30) Days from the date on


which the changes or amendments have occurred and any adjustment to


the profit sharing percentages established under Paragraph 7.6 or the


alternate method of compensation to CONTRACTOR will be effective


retroactively as from the date of the event that motivated the adjustment,








ARTICLE XIX


ASSIGNMENT


19.1 CONTRACTOR, or the entities comprising CONTRACTOR, shall not sell,


assign, nor otherwise transfer to any person, firm or corporation not a


Party hereto, in whole or in part, any of its Participating Interest nor any


other rights, privileges, duties or obligations under this Contract without


the written consent of the AKBN, except to an Affiliated Company.


Any such permitted sale, assignment or other transfer without necessary


consent shall require the transferring party to utilise its best efforts to


protect the interests of the other Parties.


CONTRACTOR or any entity comprising CONTRACTOR shall be free to


sell, assign, or otherwise transfer all or any part of its interest under this


Contract to an Affiliated Company and shall notify the AKBN thereof.


19.2 In the event that CONTRACTOR or any entity comprising Contractor


wishes to sell, assign, or otherwise transfer in whole or in part, any of its


interest hereunder other than as permitted above without consent, the


written consent thereto of the other Party shall not be unreasonably


withheld. Any purported sale, assignment, or other transfer without such


consent shall be void.


19.3 Any assignment made pursuant to the provisions of this Article shall be


free of any income, transfer or related taxes, charges or fees. The


instrument of assignment must contain provisions stating precisely that


the assignee is bound by all covenants contained! in this Contract and any


modifications or additions that up to such time may have been made.


Where AKBN's consent is required, a draft of such instruments of


assignment shall be submitted to AKBN for review and approval before


being formally executed.


 ARTICLE XX


FORCE MAJEURE





20.1 The nonperformance or delay in performance by AKBN and


CONTRACTOR, or either of them, of any obligation under this Contract


shall be excused if and to the extent that such nonperformance or delay is


caused by Force Majeure. The period of such nonperformance or delay,


together with such period as may be necessary for the restoration of any


damage done during such delay, shall be added to the time given in this


Contract for the performance of such obligations dependent thereon and to


the term of this Contract,


Any Party claiming Force Majeure hereunder shall notify the other Party


as soon as possible after occurrence of the event with reasonable


particulars thereof,


20.2 If the Force Majeure event occurs during the First Exploration Period, or


any subsequent Exploration Period thereof, and continues in effect for a


period of two (21 years, CONTRACTOR shall have the option, upon ninety


(90) days' prior written notice to AKBN, to terminate this Contract without


further liabilities of any kind, provided that no termination shall relieve


CONTRACTOR for any unfulfilled commitment or other obligation accrued


prior to Force Majeure,


ARTICLE XXI


DISPUTES AND ARBITRATION


21.1 Any dispute, controversy, claim or difference of opinion, arising out of or


relating to this Contract or the breach, termination or validity thereof, or


to the Petroleum Operations carried out hereunder, shall be finally and


conclusively settled by arbitration in accordance with the UNCITRAL


Arbitration Rules ("Rules").


21.2 With respect to the foregoing, the appointing authority under the Rules


shall be die President of the Court of International Arbitration of the


International Chamber of Commerce in Paris, France.


21.3 The number of arbitrators shall be three. The Party instituting the


arbitration shall appoint one arbitrator and the Party responding shall


appoint another arbitrator, and upon failure of such responding Party to so


appoint an arbitrator within thirty (30) days the Party instituting the


arbitration may request the appointing authority to appoint such second


arbitrator in accordance with the Rules. The two (2) arbitrators thus


appointed shall choose the third arbitrator who will act as the presiding


arbitrator of the tribunal.











44


21.4 If, within thirty (30) days of appointment of the second arbitrator to be


appointed, the two (2) appointed arbitrators cannot agree upon the third


arbitrator, either Party may request the appointing authority to appoint


the third arbitrator.


21.5 The arbitration shall take place in Victoria, British Columbia (Canada).


The language to be used in the arbitration proceedings shall be English.


The Parties expressly waive any right to appeal an arbitral award to any


court whatsoever, and the arbitral award shall be final and binding upon


the Parties,


21.6 The arbitral award shall contain the reasons upon which the award is


based and an award of costs.


21.7 The right to arbitrate under this Article XXI shall survive the termination


of this Contract.


21.8 AKBN expressly waives any right to claim sovereign immunity in


connection with any proceeding instituted pursuant to this Article XXI,


any proceeding to compel enforcement of this Article-XXI, or any


proceeding to enforce any award made by arbitration under this


Article XXI.


21.9 Judgment on the award rendered may bo entered in any Court having


jurisdiction or application may be made to such Court for a judicial


acceptance of the award and an order of enforcement, as the case may be.


21.10 Except as provided in Paragraph 7.13, any matter in dispute between


AKBN and CONTRACTOR which in terms of this Contract is to be


referred to an Expert, shall be referred for determination by a sole expert.


Tbe Expert shall be given terms of reference, which shall be mutually


agreed between the Parties. The Expert shall be appointed by agreement


between AKBN and CONTRACTOR. If AKBN and CONTRACTOR fail to


appoint the expert within thirty (30) days after agreement on the terms of


reference has been reached, either Party may apply to the International


Chamber of Commerce Centro for Technical Expertise, Paris, France, for


appointment of an expert in accordance with its Rules. The Expert shall


make his determination in accordance with the provisions contained


herein based on the best evidence available to him. Representatives of


AKBN and CONTRACTOR shall have the right to consult with the Expert


and furnish him with data and information, provided the Expert may


impose reasonable limitations on thie right. Any such data and


information has to be submitted to the other Party to the dispute at the


same time. The Expert shall be free to evaluate the extent to which any


data, information or other evidence is substantiated or pertinent. The


Expert's fees and expenses, and the costs associated with an appointment,


if any, made by the International Chamber of Commerce Centre for


Technical Expertise, shall be borne equally by AKBN and CONTRACTOR.








45


 The Expert's determination shall be final and binding upon the Parties,


subject to any manifest error in his determination.








ARTICLE XXII


PIPELINES ANDQTHER FACULTIES


22.1 During the term of this Contract and any extension thereof,


CONTRACTOR is entitled to the full use in the Contract Area, and any


other area approved by AKBN, of all fixed and moveable assets acquired or


obtained by the CONTRACTOR for the Petroleum Operations.


22.2 During the term of this Contract and any extension thereof,


CONTRACTOR shall be entitled, for the purpose of transporting


Petroleum within or from the Contract Area to the point of export or any


other delivery point agreed upon by AKBN and CONTRACTOR, to


oonstruct, and operate, any Pipelines and related facilities, as well as other


transportation and/or terminal facilities within or outside the Contract


Area, in accordance with an approved Development Work Program and


Budget. The construction of any facility outside the Contract Area shall


not unreasonably interfere with AKBN's or third parties' operations shall


be done in coordination with AKBN and shall not be in contradiction with


the approved development policies of the Albanian Government and other


competent Albanian authorities.


22.3 If CONTRACTOR wishes to make use of any pipeline, transportation and


terminal facilities, which are at the disposal of AKBN and are not then


needed for other Petroleum operations, AKBN and CONTRACTOR shall


meet and agree on mutually satisfactory conditions for the use thereof


based on a reasonable economic tariff.


22.4 Any payment made by CONTRACTOR for such use shall be recoverable as


Operating Expenses under Article VII.





ARTICLE XXIII


TITLE TO ASSETS AND ABANDONMENT





23,1 Title to fixed and moveable assets shall be transferred automatically and


gradually from CONTRACTOR to AKBN as their cost becomes subject to


recovery in accordance with the provisions of Article VII and the


Accounting Procedure. However, the full title to fixed and moveable assets


shall be transferred automatically from CONTRACTOR to AKBN when


their total cost has been recovered by CONTRACTOR in accordance with


the provisions of Article VII or at the time of the termination of this


Contract whichever first occurs.


23.2 Title to assets not subject to cost recovery by CONTRACTOR or imported


into Albania by CONTRACTOR'S expatriate personnel or by


CONTRACTOR’S subcontractors will not be transferred to AKBN, and said


items can be, at their owner's option, either sold in Albania subject to


Paragraph 12.5, or freely exported.


23.3 During the entire term of this Contract and any extension period thereof


CONTRACTOR is entitled to the full free use in Albania of all fixed and


moveable assets acquired or obtained for the Petroleum Operations,


regardless of whether or not their cost has been recovered by


CONTRACTOR.


23.4 CONTRACTOR shall, upon request of the AKBN, remove any installations


or structures constructed by CONTRACTOR for the purposes of this


Contract and which are abandoned or disused, and for which there is no


prospect for future use, during the term or upon termination of this


Contract,


23.5 In accordance with its term, the aforesaid removal and other abandonment


obligations shall be subject to and determined in accordance with the


following provisions^


(i) CONTRACTOR shall, in consultation with AKBN, timely prepare


and submit for AKBN approval an abandonment plan (hereinafter


referred to as the "Abandonment Plan”) including a detailed


technical and engineering description of the removal and


abandonment measures, consistent with the aforesaid obligations,


which it wishes to carry out upon completion of testing, Appraisal


or production from the Development and Production Area.


(ii) Not later than 180 days prior to the date referred to in (iii) below'


CONTRACTOR shall submit to AKBN for its approval a detailed


budget (hereinafter referred to as the “Abandonment Budget”)


detailing the estimated cost for the Abandonment Plan.


(iii) Ten (10) years prior to the estimated date of termination of


production operations or at the end of the Quarter in which


cumulative production reaches seventy-five percent (75%) of


expected recovery of Petroleum, whichever occurs first, an amount


equal to the Abandonment Budget shall be accrued on the books of


account (hereinafter referred to as the “Abandonment Cost


Account”) to be utilized to meet the costs of abandonment. This


amount shall be recoverable by CONTRACTOR in accordance with


Article VIJ, for the purpose of which the amount shall be prorated


on a unit of production basis over the expected remaining recovery


of Petroleum from the Development and Production Area.











47


(iv) On the first anniversary of the date referred to in (in) hereinabove,


and on an annual basis thereafter, the Parties will meet to


reassess the estimated Abandonment Budget and, if necessary,


will revise such Abandonment Budget, in which event the Parties


will also agree on any consequential adjustment to be made to the


amount to be placed in the Abandonment Cost Account.


(v) Not later than one hundred and eighty (180) days prior to the


estimated date of termination of the Petroleum Operations in


respect of all or part of the Development and Production Areas,


CONTRACTOR shall prepare and submit to the AKBN a final


Abandonment Plan with such revisions, consistent with the


CONTRACTOR1 aforesaid obligations. Within sixty (60) days from


the approval of the said Abandonment Plan, CONTRACTOR shall


prepare and submit to AKBN a final Abandonment Budget. If the


balance in the Abandonment Cost Account (hereinafter referred to


as the “Coat Balance") is insufficient to meet the aforesaid


Abandonment Budget, an amount necessary to moot the


Abandonment Budget shall be recorded in the Abandonment Cost


Account and shall be recoverable by the CONTRACTOR in


accordance with Article VTT


(vi) CONTRACTOR shall diligently carry out the removal and


abandonment operations specified in the Abandonment Plan and


such expenditures shall reduce the Abandonment Cost Account-


Any balance in the Abandonment Coat Account remaining on the


completion of operations and recovered in accordance with Article


VII shall be paid to the AKBN within thirty (SO) days from the


completion of the said operations.


23.6 Without prejudice to the provisions of the Paragraphs 23.4 and 23.5


CONTRACTOR may, if in the opinion of the CONTRACTOR there are


circumstances that do not warrant continuation of the Petroleum


Operations and in consultation with AKBN, at any time give ninety (90)


days' written notice to AKBN of its intention to relinquish its rights and


obligations pursuant to this Contract, except such rights and obligations as


have accrued in the period prior to such relinquishment as well as other


continuing rights and obligations as may be contemplated under this


Contract, and abandon the Contract Area in conformity with an


Abandonment Plan submitted to and duly approved by AKBN, which


approval will not be unreasonably withheld or delayed.








ARTICLE XXIV


TERMINATION


24.1 This Contract may be terminated by CONTRACTOR by giving not less


than thirty (30) days' written notice t.o AKBN. provided that no








48


termination shall relieve CONTRACTOR from any unfulfilled commitment


or other obligation accrued prior to such termination. If one of the Parties


does not comply with any of the obligations stipulated in this Contract due


to reasons other than Force Majeure (including, but not limited to,


knowingly and intentionally providing false information to the other


Party), the other Party may give notice in writing to such non complying


Party, informing it of the noncompliance and of its intention to terminate


the Contract at the end of the term of six (6) Months, unless said


noncompliance is rectified within said term. However, the Party


responsible for the noncorapliance may submit the issue to arbitration


according to the provisions of Article XXI of this Contract within said


period of six (6) Months, and the Contract will continue to be in force


during the time the final resolution by the arbitrators has not been issued


and enforced.


24.2 Except in the case of Force Majeure, this Contract may be terminated by


AKBN by giving not less than one hundred and twenty (120) days' written


notice to CONTRACTOR in the following events:


a) If CONTRACTOR has repeatedly committed a material breach of


its fundamental duties or obligations under this Contract and has


been advised by AKBN of AKBN’s intent to terminate the Contract


pursuant to this provision and CONTRACTOR has foiled to


remedy such breach within a reasonable period of time; or


b) If CONTRACTOR does not substantially comply with any final


decision resulting from an arbitration procedure under Article XXI


hereof) or


c) If CONTRACTOR is adjudged bankrupt by a competent court or, if


there is more than one entity constituting CONTRACTOR, any of


them has been declared bankrupt by a competent court without


the other entities or entity taking appropriate action to remedy


such situation.


24.3 Upon the Termination of this Contract, all the rights and obligations of the


Parties specified in this Contract will fully cease, subject to the following


provisions:





24.3.1 That the rights and obligations of the Parties arising out of this


Contract before such Termination shall be honored.





24.3.2 That in the case of noncompliance and responsibility incurred


prior to the Termination by any of the Parties with respect to any


of the obligations stipulated in the Contract, these must be


rectified by the Party in default.











49


 24.4 Subject to earlier termination pursuant to Paragraphs 24.1 or 24.2, this


Contract shall automatically terminate in its entirety if all of the Contract


Area has been relinquished or the Development and Production Period or


any subsequent extension has lapsed pursuant to this Contract provisions.








ARTIELOXV





25.1 Without prejudice to Paragraph 5.6, CONTRACTOR shall comply with


Albanian Law No.8934, dated 05.09.2002, “On Environmental Protection”;


Law No.8905 dated 06.06.2002 “On Protection of Marine Environmental


from Pollution and Damage"; Law No.8990 dated 2301.2003 “On


Environment Impact Assessment"; Law No.9115 dated 24.07.2003 "On


environmental Treatment of Waste Waters"; Law No.9010 dated


13,02.2003 "On Environmental Administration of Solid Waste” and Law


No. 9108, dated 17.07.2003, “On Chemical Substances and Preparations’1


end other environmental regulations which may he issued; provided that


any new environmental laws and regulations issued, or any change in the


interpretation or application of existing environmental laws and


regulations occurring, after the Effective Date shall be subject to


Paragraph 18.4.


CONTRACTOR will adopt internationally accepted measures to avoid or


minimije environmental contamination so that such contamination will


not cause degradation to the quality of life or health of human beings,


animals and vegetative resources.


25.2 CONTRACTOR is exclusively responsible to employ internationally


accepted programs to try to eliminate or minimize environmental


contamination. Wherever CONTRACTOR has been unable to avoid


contamination of the environment, it will be responsible for taking


reasonable steps to return the affected media or medium, as much as is


practicable, to its condition on the Effective Date, and to remedy any


significant negative environmental impact directly caused by the


operations to the extent required by Albanian laws and regulations


applicable to oil and gas industry and in accordance with Good


International Petroleum Industry Practices.


25.3 AKBN may inspect CONTRACTOR’S records concerning compliance with


this Article XXV at all reasonable times after the Effective Date and until


six (6) months after Termination.




















50


 ARTICLE XXVI


ENGLISH AND AI.HA NT AN TEXT


The English and Albanian versions of this Contract shall both have equal value





and be referred to in construing or interpreting this Contract! in case, however, of


any conflict in such construction or interpretation, the English version shall


prevail.














27.1 CONTRACTOR shall pay to the AKBN one time only signature bonus


totaling Four hundred thousand US Dollars (US$400,000) The


CONTRACTOR will pay from this total amount of Four hundred thousand


US Dollars (US$400,000) within sixty (60) days after the Effective Date


the amount of Hundred sixty thousand US Dollars (US$100,000) in cash.


The remaining Two hundred forty thousand US Dollars (US$240,000) will


be used by the CONTRACTOR to copy Albanian seiemic data In case the


total costs for data copying is less than Two hundred forty thousand US


Dollars (US$240,000), the CONTRACTOR will pay the remaining


difference to the AKBN. In case the value for copying of the data is higher


than Two hundred forty thousand US Dollars (US$240,000) than AKBN


will cover the additional cost via the Training and Administration fund of


the coming year as defined in article 16.4.1 (a).


Details to this paragraph will be defined via a separate contract between


CONTRACTOR and AKBN.


27.2 CONTRACTOR shall pay a production bonus of One hundred thousand US


Dollars (US $ 100,000) on the start up of production and a production


bonus of Five hundred thousand US Dollars (US $500,000) to AKBN when


average daily Crude Oil production from the Contract Area over any


consecutive ninety-day (90) period reaches fifteen thousand (15,000)


Barrels oil per day and a furiher production bonus of One million US


Dollars (US $ 1.000,000) to AKBN when average daily Crude Oil


production from the Contract Area over any consecutive ninety-day (90)


period reaches thirty thousand (30,000) Barrels oil per day.








ARTICLE XXVIII








This Contract shall be binding upon the Parties as from the Effective Dote,


AKBN shall provide CONTRACTOR with a copy of the document evidencing


approval of this ConLract by the Council of Ministers of the Government of the


Republic of Albania, within ten (10) working days the said Decision has been


published in the "Fletoron Zyrtare*.


 ARTICLE XXIX


MISCELLANEOUS


29.1 Except as provided for in Article IX, the liabilities and obligations under


this Contract of the entities comprising the CONTRACTOR are joint and


several,


29.2 The failure of any Party to exercise or enforce any right under this


Contract shall not be deemed a waiver of any such right.


29.3 CONTRACTOR shall indemnify the Albanian Government, the Ministry


and AKBN and their respective employees, officials, officers, directors and


agents from all claims by third parties for personal injury or property


damage resulting from the conduct of Petroleum Operations, whether


conducted by or on behalf of CONTRACTOR including without limitation,


reasonable attorney's fees and direct costs of defense, provided however,


that CONTRACTOR shall not be liable under this Paragraph 29,3 for any


loss, claims, damage or injured caused by or resulting from any negligent


action of the Albanian Government, AKBN and their employees, officials,


directors and respective agents.


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


cause to he executed and shall deliver to the AKBN a Bank Guarantee


substantially in the form of that attached to and made a part of this


Contract as Annex “B".


Should the CONTRACTOR decide to enter any of the subsequent


Exploration Periods, CONTRACTOR shall execute and deliver to the


AKBN, not later than sixty (60) days after such decision, a Bank


Guarantee substantially in the form of that attached to and made a part of


this Contract as Annex "E".


29.5 In connection with the Bank Guarantee referred to in Paragraph 29.4


above, AKBN shall, commencing three months after the Effective Date and


at monthly or three-monthly intervals thereafter, as agreed in between the


Parties, deliver to CONTRACTOR a written statement of the expenditure


incurred by CONTRACTOR during the three-month period covered by the


said statement ami accepted by AKBN as counting towards fulfillment by


CONTRACTOR of its Work Program obligations fbr the First Exploration


Period and, as the case may be, the Second Exploration Period and the


Third Exploration Period.


With the purpose of reduction of the Bank Guarantee in case of the drilling


of the well, the value of financial obligation of drilling one meter will be


calculated, and every month the Bank Guarantee will be reduced by the


corresponding value of the metera drilled during that month.


IN WITNESS HEREOF, this Contract has been duly signed by the respective


Parties hereto as of the date first set out above.














MINISTRY OF ECONOMY, TRADE AND ENERGY OF ALBANIA


























DWM Petroleum AG


By: /s/ti . sc bo\^





 ANNEX “A"





DESCRIPTION OF CONTRACT AREA








The Contract Area covered and affected by this Contract comprises, on the


Effective Date, the area enclosed by the following lines, also shown on the map


comprising ANNEX “B":








AL.BANIAQNSHO.RE BLOCK 2,-3 BO UNPAID








41* 00’ 00" N


19* 37’ 00" E





41* 00’ 00" N


19* 45’ 00" E





40* SO’ 00" N


19* 45’ 00” E


40* 50' 00" N


20* 02* 00” E





41* 00’ 00” N


20* 02’ 00"E


00’


41* 00”N


20* 15’ 00"E


40s 20* 00"N


20° 15’ 00 ”E





40° 20’ 00”N


19° 45’ 00"E


21’


40" 0TN


19C 43’ 0fl"E


40° 25’ 00"N


19" 43’ 00"E





40" 25’ 00”!S


19° 37’ 00“E














A-l


EXCLUSION ZONES (Existing Oil Fields):








A Gorisht - Kocul (down to 1450m)





1 4CF ao’ 00.442” N 19° 39' 48.406" E


2 40" 30' 02.039” N 19" 42’ 08.515” E


3 40" 2T 19 985" N 19" 42' 11.635” E


4 40® 27' 18,391" N 19° 39’ 51.619" E


B. Amomca (down to 2680m)








1 40s 25’ 56.741” N 19" 39' 55.356” E


2 40® 25’ 57.512” N 19" 41' 02.668" E


3 40° 24’ 53.778“ N 19" 41’ 42*633" E


4 40" 23’ 16.545” N 19" 41’ 44.511” E


W N *-* K ^ cii cn A w to h Q ai yi *1. w to m q U>tn 40" 23’ 15.823” N 19° 40’ 40-931" E


40" 24' 12.256" N 19" 39’ 46.820" E





Balish -Hekal (down to 1860m)





40° 35’ 59.029” N 190 42’ 44.148” E


40" 35’ 28.764" N 19* 46’ 01.404” E





40" 32 56.403” N 19* 46’ 01.437" E


40" 30' 15.697” N 19* 44’ 24.154" E


40* 30’ 15.338" N 19* 43’ 33.201" E





40* 32’ 12.627" N 19* 43’ 30.976” E





Cakran - Mollaj (down to 3900m)








40* 38’ 50.002" N 19° 37’ 00.001” E


40* 38’ 18.831” N 19* 38' 36.775” E


40* 36’ 02.648” N 19* 43' 18.102” E


40* 32* 45.318" N 19® 43T 65.853” E


40* 32’ 33.081” N 19® 42’ 35.346" E


40* 36’ 00.092“ N 19* 39’ 32.743” E


40® 37’ 41.992” N 19* 37’ 00.001" E





Visoka (dawn to 200m)





40* 44’ 33.735” N 19® 37’ 01.794” E


40® 44’ 35,582” N 19® 39’ 38.387” E


40* 43’ 03.647” N 19" 40’ 17.509" E


40* 38’ 35.770” N 19" 44’ 27.529" E


5 40® 36’ 42.334” N 19® 44’ 29,659" E


6 40® 36’ 40.685” N 19* 42’ 00.811” E


7 40* 41’ 11.132” N 19* 37’ 01.726” E








A-2


/


 ANNEX “C”


ACCOUNTING PROCEDURE





ARTICLE I. GENERAL PROVISIONS





1. Definitions





The definitions contained in Article i of the Contract shall apply to this


Accounting Procedure and have the same meaning.





2. Accounting Records





2.1 CONTRACTOR shall maintain accounting records in accordance


with Article XIII of the Contract and with generally accepted


accounting practices used in the international petroleum


industry.


2.2 CONTRACTOR shall open and maintain such separately


identifiable accounting records as may be necessary to record, in a


full and proper manner, all costs in respect of the Contract and all


credits obtained by CONTRACTOR in connection with Petroleum


Operations.


2.3 Accounting books shall be expressed in US Dollars and Albanian


Leke in accordance with Paragraph 13.2 of the Contract. Any loss


or gain resulting from the exchange of currency required for


CONTRACTOR'S Petroleum Operations or from related


translations from one currency to another shall be charged or


credited to recoverable costs.


3. Statement of Activities


3.1 CONTRACTOR shall render to AKBN, as soon as possible, but no


later than sixty (60) Days from the end of each Calendar Quarter,


a Statement of Exploration Activity as per Paragraph 4.8 of the


Contract. Such Statement will reflect all charges and credits


related to Exploration Expenditures fbr that Calendar Quarter


summarized by the classification specified in Article IT of the


Accounting Procedure.


3.2 CONTRACTOR shall render to AKBN, as soon as possible, but tin


later than sixty (dO) Days from the end of each Calendar Quarter,


a Statement of Development Activity as per Paragraph 6,13 of the


Contract, reflecting all charges and credits related to


Development and Production for that Calendar Quarter





C-l


(“Development: Expenditures and Operating Expenses")


summarized by appropriate classifications indicative of the


nature thereof.


Audits and Adjustments





4.1 Each cost item in a Statement of Exploration Activity shall be


conclusively deemed to be an Approved Cost after three (3)


Months following the receipt of that Statement by AKBN, unless


within the said three (3) Months AKBN takes written audit


exception thereto in accordance with Paragraph 4.8 of the


Contract. In that event, AKBN and CONTRACTOR shall confer


in a timely manner and attempt to reach a settlement, in the


course of which said Parties shall identify Rejected Costs and


Suspended Costs that result from such audit.


4.2 Each cost item in a Statement of Development Activity shall be


conclusively deemed to be an Approved Cost, after twelve (12)


Months following the receipt of that Statement by AKBN, unless


within the said twelve (12) Months period AKBN takes written


audit exception thereto. In the event AKBN takes such written


exception, AKBN and CONTRACTOR shall confer in a timely


manner and attempt to reach a settlement, in the course of which


said Parties shall identify Rejected Costs and Suspended Costs


that result from such audit.


4.3 .AKBN shall make every reasonable effort to conduct audits in a





manner which will result in a minimum of inconvenience to


CONTRACTOR and CONTRACTOR'S Petroleum Operations


CONTRACTOR shall make every reasonable effort to cooperate


with AKBN and, as appropriate, will provide reasonable facilities


and assistance,





4.4 All adjustments resulting from an audit agreed between


CONTRACTOR and AKBN shall be rectified promptly in the


subsequent Statement of Activities by CONTRACTOR and


reported to AKBN. If any dispute shall arise in connection with


an audit, it shall be discussed by the Finance Management of


AKBN and CONTRACTOR and, if not solved, the item or items in


dispute shall be settled by arbitration as provided in Article XXI


of the Contract.


If a Party fails to make any payment due under the jirovisions of this





Contract within the time that is specified for such payment, then such


Party shall add to such overdue payment interest at a rate per annum of


two and one-half percent (2.5%) higher than the London Interbank


Borrowing Offered Rate (‘"LIBOR") for three (3) Month deposits of


United States Dollars as quoted by the London Office of Citibank (or








02


• r.


1 j


 such other Bank as the Parties may agree) at approximately 11:00 AM


London Time for the day or days that the rate will apply.





ARTICLE II, COSTS. EXPENSES AND EXPENDITURES


Subject to the provisions of the Contract, CONTRACTOR shall alone bear arid,


directly or through its Affiliated Companies, pay the following costs and


expenses, which costs and expenses shall be treated and recovered by


CONTRACTOR in accordance with Article VII of the Contract provided that they


are not incurred prior to the Effective Date except as to those expenditures


related to an Exploration Period Work Program, as agreed by AKBN.


1 Governmental Payments


All governmental fees, rentals, assessments, renewal and extension fees


and other payments of every kind or nature paid by CONTRACTOR


under the terms of the Contract, except for production bonuses paid


pursuant to Article XXVII] of the Contract.


2, Personnel Costs


2.1 Salaries and wages of CONTRACTOR’S employees directly


engaged in Petroleum Operations, including salaries or wages


paid to CONTRACTOR'S expatriate employees who are


temporarily assigned to and employed on such operations. Under


this subparagraph 2.1, CONTRACTOR is entitled to charge, on a


monthly basis, the costs of all staff who are engaged in Petroleum


Operations.


2.2 CONTRACTOR'S costs for employees' holidays, vacations, living


and housing allowances, traveling, bonuses, and other customary


allowances applicable to the salaries and wages chargeable under


subparagraph 2.1 and Paragraphs 11 and 12 of this Article II.


2.3 Expenditures or contributions made pursuant to law or


assessments imposed by governmental authority which are


applicable to CONTRACTOR'S labor costs or salaries and .wages


as provided under subparagraphs 2.1 and 2,2 and Paragraphs 21


and 12 of this Article II.


3. Employee Benefits


CONTRACTOR'S cost of established plans for employees group life


insurance, medical, disability, hospitalization, pension, retirement,


stock purchase, thrift, and other benefits of a like nature for expatriate


employees and for national employees, all are chargeable under


subparagraphs 2.1 and 2.2 and Paragraphs 11 and 12 of this Article 11.





C-3


Severance pay will be charged at a fixed rate applied to payrolls, which


will equal an amount equivalent to the maximum liability for severance


payments, as required by the obligations of CONTRACTOR under


Albanian Labor Law.


4. Materials


Materials, equipment and supplies purchased or furnished by


CONTRACTOR for use in Petroleum Operations.


4.1 Purchase


Material and equipment purchased shall be charged at the price


paid by CONTRACTOR after deduction of all discounts actually


received by CONTRACTOR or its Affiliated Companies. Price


shall include, but not be limited to, such costs as third party


procurement fees, inspection and expediting charges, export


broker's fees, transportation charges, insurance charges, loading


and unloading fees, import duties and license fees, and all other


items customarily associated with the procurement of material


and equipment and applicable taxes.


4.2 Materials Furnished by CONTRACTOR


Material required for Petroleum Operations shall be purchased


directly whenever practicable, except that CONTRACTOR may


import such material from CONTRACTOR'S or CONTRACTOR'S


Affiliated Companies' stocks outside Albania under the following


conditions-


4.2.1 New Material (Condition “A")


New Material transferred from CONTRACTOR'S Affiliated


Companies' warehouse or other properties shall be priced


at cost, net of all discounts taken, provided that the cost of


material supplies is not higher than international prices for


material of similar quality supplied on similar terme


prevailing at the time such material was ordered.


4.2.2 Used Material (Condition “B" and “C), which will be used


with approval of AKBN.


4.2.2.1 Material, which is in sound and serviceable


condition for reuse without reconditioning shall


be classified as Condition "ET and priced at


seventy-five percent (75%) of the price of new


material. This category shall include, but not be


confined to, material, which has undergone a





C-4


 reconditioning process and has been restored to


fully serviceable condition.


4.2.2.2 Material, which cannot be classified as Condition





“B”, but which is serviceable for its original


function, but substantially not suitable for


reconditioning, shall be classified as Condition


"C and priced at fifty percent (60%) of the price


of new material.


4.2.2.3 Material, which cannot be classified as condition





“B" or "C7 shall be priced at a value


commensurate with its use.





4.3 Premium Prices


Whenever material is not readily obtainable at the customary


supply points and at prices specified in subpara graphs 4.1 and 42


of this Paragraph 4 because of national emergencies, strikes or


other unusual causes, CONTRACTOR may charge for the


required material on the basis of CONTRACTOR'S direct costs


and expense incurred in procuring such material, in making it


suitable for use, and in moving it to the location.


4.4 Warranty of Material Purchased or Furnished by CONTRACTOR


CONTRACTOR does not warrant the material. The only guaranty


for material purchased or furnished by the CONTRACTOR is the


dealer’s or manufacturer's guaranty; in case of defective material,


credit shall be passed as obtained from or pursuant to supplier’s


or manufacturer’s guarantees, when adjustment has been


received by CONTRACTOR from the supplier or manufacturer.


Transportation


Transportation of employees, equipment, material and supplies


necessary for the conduct of the Petroleum Operations. This includes ail


employees1 transportation and relocation costs, but only to the extent


covered by the established policy of CONTRACTOR, including travel


expenses for employees and their families at the time of employment, at


the time of separation and for vacations, and as a result of transfer from


one location to another. Such costs shall also include transportation of


personal and household effects and all other relocation costs








6.1 The cost of consultants, contracted services and utilities procured


from third parties.


 (5.2 The coat of technical, professional and other services furnished by


CONTRACTOR'S Affiliated Companies performed in any other


country outaide Albania shall consist of salaries, wages and


payroll burden of such employees of CONTRACTOR'S Affiliated


Companies who are performing services in respect of Petroleum


Operations. These costs, together with associated overheads, will


be charged in accordance with the following rates:





Charges and Credits Rate Chargeable





$0 ■ $5 MM 5%


$5 MM - $10MM 3%


Greater than $10 MM 2%





Such rates shall be applied on an annual basis to the cumulative


charges and credits as reported in the Statements of Activities as


referred to in Article I, paragraph 3, Such charges will cover, but


will not be limited to, the following types of services:


Engineering, Geological, Geophysical, Health, Environmental and


Safety, Accounting, Finance, Treasury, Tax, Legal, Employee


Relations, Administration, Executive Management, Data


Processing and Purchasing and Drafting


6.3 For services rendered by equipment or facilities owned or leased


exclusively by CONTRACTOR'S Affiliated Companies, the cost to


be charged shall be at rates commensurate with the cost of


ownership and operation or, in respect of major items such as


drilling rigs or vessels, at rates not higher than those prevailing


in the international petroleum industry.


Damages and Losses


All costs and expenses necessary to replace or repair damages or losses


incurred by fire, flood, Storm, theft, accidents or any other cause not


controllable by CONTRACTOR. CONTRACTOR shall furnish AKBN


with a written notice of damages or losses incurred as soon as


practicable after report of the same has been received by


CONTRACTOR.


Legal Expenses


8.1 All costs and expenses of litigation, or legal services otherwise


necessary or expedient for the protection of CONTRACTOR'S


interest in the Contract Area or under and pursuant to the


Contract, including attorney’s fees and expenses as hereinafter


provided, together with all judgments obtained against


CONTRACTOR or on account of the Petrel sum Operations and


 actual expenses incurred by CONTRACTOR in securing evidence


for the purpose of defending against any action or claim


prosecuted or urged against the Petroleum Operations or the


subject matter of the Contract, provided these expenses are not


related to unsuccessful disputes of CONTRACTOR with AKBN.





8.2 In the event actions or claims are handled by CONTRACTOR'S


legal staff, appropriate charges shall be borne for rendering such


services.





9. Taxes





All taxes, duties, dues or imposts of every kind and nature assessed or


levied upon or in connection with the operations hereunder, other than


those covered by Article IX of the Contract.





10. Insurances and Claims





10.1 Premiums paid for any public liability, property damage and


other insurance carried by CONTRACTOR, together with all


expenditures incurred and paid in settlement of any and all


losses, claims, damages, judgments and other expenses, including


legal services, not recovered from insurance carrier.





10.2 If the item or event is not covered by insurance, the actual


expenditures incurred and paid by CONTRACTOR in settlement


of any and all losses, claims, damages, judgments and any other


expenses, including legal services.


10.3 All settlements arising from insurance claims made by





CONTRACTOR against insurers in respect of insurance carried


for the benefit of the Petroleum Operations shall be credited to


recoverable costs in the month in which they are received.





11. I .ocaI Administration/Field Offices


The salaries and expenses of CONTRACTOR’S management and other


employees, located in Albania, serving the Petroleum Operations, whose


time is not allocated directly to the Petroleum Operations, and the cost


of maintaining and operating Exploration and/or Production offices and


necessary sub-offices (including housing facilities for employees, if


required) used in the conduct of such Petroleum Operations. Such


charges shall be apportioned bo all Contract Areas served on an


equitable basis, if applicable.




















C-7


12. Warehouse Handling Charges


In the event that warehouse facilities are required to carry out the


Petroleum Operations, all costs required to establish and maintain the


warehouse and all costs incurred in handling material in the warehouse.


13. Other Expenditures


Any other costs and expenses necessary and proper. including, without


limitation, acquisition of real property rights for Petroleum Operations,


and abandonment expenses, incurred by CONTRACTOR under Work


Programs and Budgets or to solve Emergency Situations.


14. Credits


In addition to other credits made to the accounts in accordance with the


Contract and this Accounting Procedure, the net proceeds, when


received, arising from the following shall be credited to recoverable costa


to the extent that costs were originally debited to the recoverable costa:


14.1 Income received from third parties for use of CONTRACTOR'S


property exclusively used in the Petroleum Operations! and


14.2 Rentals, refunds and other credits received by the


CONTRACTOR applicable to any charge that has been made to


recoverable costs.


14.3 Any adjustment received by CONTRACTOR for the


suppliers/manufacturers or their agents in connection with


defective equipment or material t he cost of which was previously


charged by CONTRACTOR under the Contract.


14.4 Costs recovered on time exported pursuant to article 12.4 of this


Contract.


14.5 Proceeds from all sales of surplus material charged to the amount


under the Contract in accordance with the Article 12.7.


14.6 Insurance proceeds.


16, No duplication of charges and credits


Notwithstanding any provision to the contrary in this Accounting


Procedure, it is the intention that there shall be no duplication of


changes or credits in the accounts under this Contract.


ARTICLE ill, CQST RECOVERY


1. Statement of Cost Recovery


CONTRACTOR shall render to AKRN, as promptly as practicable, but


not later than sixty (60) Days after each Calendar Quarter, a Statement


of Cost Recovery for that Quarter,


Pending completion of each audit and any settlement or arbitration


pursuant thereto under the Contract, CONTRACTOR shall prepare


directly from each Statement of Exploration Activity and Development


Activity, for each Calendar Quarter, the Statement of Cost Recovery for


that Quarter. All necessary adjustments that are consequent upon


completion of audits and settlements (by whatever means) of audit


exceptions shall be accounted for as they arise, and in accordance with


the Contract, by their inclusion as debit or credit (as appropriate) in the


next Statement of Cost Recovery then to be prepared: however, no


Rejected Cofit may be included in any such Statement.


The Statements of Cost Recovery will show the following1


1.1 Section 1 - Total Coats


1.1.1 Total costa brought forward from prior Calendar Quarters.


1.1.2 New revisions (Rejected Costs and Approved Costs) to prior


Statements of Exploration and Development Activity, to be


effected in this Statement.


1.1.3 New Exploration and Development Expenditures and


Operating Expenses for the Calendar Quarter (subject to


audit) from Statements of Exploration and Development


Activity.


1.1.4 Total costs, including those subject to audit.


1.2 Section 2 ; Valug.pf..Cost Recovery Petroleum


(taking into consideration any prior underliftinge against


entitlement)


1.2.1 Value of Cost Recovery Crude Oil taken in kind and


disposed of by CONTRACTOR for the Calendar Quarter.


1.2.2 Value of Coat Recovery Gas taken in kind and disposed of


by CONTRACTOR for the Calendar Quarter,


1.2.3 Total value of Cost Recovery Petroleum (1.2.1 plus 1.2.2).


 1.3 Section 3 - Cost Recovery


1.3.1 Costs from Section 1 recovered from value of Cost Recovery





Petroleum.


1.3.2 Carry forward of unrecovered costs, if any.


1.4 Section 4 • Profit Petroleum





1.4.1 Value of Profit Crude Oil, if any.





1.4.2 Value of Profit Gas, if any.


1.5 Section 5 ; Suspended Costs Account





1.5.1 Total Suspended Costs brought forward from prior


Calendar Quarters.


LG.2 Net Suspended Costs newly settled, or newly identified by


audit, during the Calendar Quarter.





1.G.3 Total Suspended Costs carried forward to tho next


Calendar Quarter (1.5,1 plus 1,5.2).


2. Payments





If a Statement of Cost Recovery shows an amount due to AKBN,


payment of that due amount shall be made in Dollars within thirty (30)


Days after presentation of that Statement.





3. Audit Right





AKBN shall have a period of twelve (12) Months from receipt of each


Statement of Cost Recovery in which to audit and raise objection to such


Statement. AKBN and CONTRACTOR shall agree on any appropriate


adjustments aa a result of such audit. Supporting documents and


accounts will be available to AKBN during said twelve (12) Month


period.





4.





CONTRACTOR shall establish a Cost Recovery Control Account and an


off-setting contra-account to control therein the amount of cost


remaining to be recovered, if any, the amount of costs recovered and the


value of Profit Petroleum, if any. Such accounts shall be prepared on


the basis of (and be consistent with) the Calendar Quarterly Statements


of Cost Recovery.











c-io


ARTICLE IY,.fi£33gmOF THE ACCOUWTOfP f BQCSPUW5


The provisions of this Accounting Procedure may be amended by unanimous


written agreement of the Parties. Any Party may request a review of possible


modifications. If agreement is reached, an instrument of amendment, which shall


state the effective date of such amendment, shall be prepared and executed by


the Parties.


 ANNEX “D”


PROCEDURE FOR DETERMINING THE BOB OF GAS AND


FOR PRICING GAS AND LPG


The definitions contained in Article I of the Contract are hereby adopted


for use in this ANNEX and incorporated herein by reference.


In case AKBN and CONTRACTOR enter into Gas sales contracts for the


use of Gas produced under the Contract for sales to customers outside


Albania, said Gas sales contracts shall contain provisions generally used


in the international Petroleum industry. The prices which AKBN and


CONTRACTOR shall receive for such Gas shall be specified in the Gas


sales contracts.


In case AKBN and CONTRACTOR enter into a Gas sales contract for


use in Albania of CONTRACTOR'S share of Gas produced under the


Contract, said Gas sales contract shall contain provisions generally used


in the international Petroleum industry, including a long-term purchase


commitment by AKBN and the delivery by CONTRACTOR of the


minimum agreed daily volume in accordance with technical constraints.


The Parties shall negotiate and endeavor to enter into a gas sales


contract covering the Gas {as defined herein) for sale in the Albanian


domestic market. The Parties shall agree on the proportion of Gas that


is available for immediate sale to the Albanian domestic market


provided, however, that all Gas to be sold in the Albanian domestic


market under such gas sales contract shall be sold on terms and


conditions no less favorable than those available to CONTRACTOR in


the international market, including the following terms and conditions:


(a) a term which requires the initial delivery date for the Gas to be


sold in the Albanian domestic market to be coincident with or


within fifteen (15) days of the initial delivery date anticipated for


the delivery of the Gas in the international market;


(b) a provision setting a price which is not less than the price


CONTRACTOR could obtain in the international market


(calculated on an equivalent BTU basis); and


(c) a term which requires the buyer(s) of the Gas to be responsible for


all costs, expenses and liabilities associated with the design,


construction, installation and operation of a natural gas pipeline


and related facilities necessary to make the Gas available for


delivery into the Albanian domestic market.


In no event, however, shall the entering into a gas sales contract for the


sale or the use of the Gas in the Albanian domestic market jeopardize or


impede CONTRACTOR’ ability to enter into a Gas sales contract for any


 „f CONTRACTOR'S .h ar. of a»» * COIltracl for the Albanian


event the proposed or offer g ,,f the above terms and


drStiC",m^‘cSSBr£.U have The unfettered right to enter


“«Tis^. contract covering its fall chare of Cma tn


international market.


The initial Gas price which the AKBN shall pay te


3.1 CONTRACTOR shall be the average of prices paid





delivered to Italy for the six (6) Calendar Month period prior to


the date of the Initial Commercial Production of Gas, as

the table listed as “European Border Prices mthe weU known


and internationally quoted publication SLHSU2


jMTRl.T.mRNCE. which is published by Petroleum & Energy'


Intelligence Weekly, Inc. with reference to the gross calorific


value.


The initial Gas price shall be effective for the first Calendar


3.2


Month of production after the Date of the Initial Commercial


Production and for the partial Month preceding this first


Calendar Month if the Date of Initial Commercial Production is


not on the first day of a Calendar Month.





3.3 The price that the AKBN or its designated purchaser shall pay to


CONTRACTOR for its share of such Gas for any Month of


delivery after the first Calendar Month of production after the


Date of the Initial Commercial Production shall be the average of


prices paid for Gas delivered to Italy for the six (6) Calendar


Months' period prior to the Month of delivery, as quoted in the


table listed na “European Border Prices" in the well known and


internationally quoted publication WOR|.T> GAS


INTEhLf GEN CIS, which is published by Petroleum & Energy


value*86™6 Weeltly’ *RC-’ witb refercnce to the gross calorific





3.4 CONTlScTOP^ °r ,tS/eslgnated P^chaser shall pay to





SEJSEStare f SUch Gas 8hal1 Pa* » Dollars


delivered byCONTRACTOR Z °f a ,Ca,e"dar Month for Gas


> V.UIV1 KAC l OR m the preceding Calendar Month.


t'Omniercial Discovery nf p > ,


CONTRACTOR and the region of a ^ F C°ntract by


may lead, should market conditions™ ° S ®ales <*>****& with AKBN


of discussions concerning the inmlememsmtate, to the commencement


*uch discussions and LuW nlT °f ** LPG P"*®*. Any


Contract resulting plan shall meet the terms of the














D-2


 ANNEX “BT


Form of Bank Guarantee


To


NATIONAL AGENCY OF NATURAL RESOURCES


TIRANA


We have been informed that DWM Petroleum AG has entered into a Production Sharing


Contract for the Albania Onshore Block “2&3" with the Ministry of Economy, Trade and


Energy of Albania effective (hereafter "the PSCH) and understand that,


according to the provisions of the PSC a Performance Guarantee is required.


We have been further informed that pursuant to the terms of the PSC DWM Petroleum AG


has undertaken during the First Exploration Period to cany' out a Work Program in the


Contract Area (all as described in the PSC) and in so doing to spend an amount of United


States Dollars Eight Million Five Hundred Thousand (8,500,000),


At the request of DWM Petroleum AG* we, ____________ Bank,


_(address) hereby guarantee and undertake to pay you any amount


or amounts not exceeding the sum of United States Dollars Eight Million Five Hundred


Thousand (8,500,000) as the case may be, upon receipt by us of your first demand made in


accordance with the claim procedure detailed below.


Your demand must be submitted by letter, and must be accompanied by:


» Your statement stating that the principal is in breach of its obligations under the


underlying contract and the respect in which the Principal is in breach


• a copy of your notice to DWM Petroleum AG (dated at least thirty (30) days prior to


the date of your demand), informing DWM Petroleum AG of a breach of its Work


Program obligations under the PSC, the nature and quantum of the breach and of your


intention to demand payment under this Guarantee if the breach is not remedied within


fifteen (i 5) days from the date of your notice; and


* your signed declaration stating that DWM Petroleum AG has failed to remedy the


breach detailed in your notice by the date specified.


Any demand hereunder and the documents specified above must be received by us at our


above address ip accordance with the aforesaid claim procedure on or before the date of


expiry of this Guarantee as described below, after which date this Guarantee will be of no


effect whatsoever.


A demand submitted by facsimile transmission will not be accepted.


This guarantee shall enter into force sixty (60) days after the effective date of the PSC and


shall remain valid until the earlier of (a) six (6) months after the termination of the First


Exploration Period and (b) the date when the total amount of this Guarantee has been drawn


or reduced as set out in the next following paragraph.


The amount of this Guarantee shall be reduced every month or three months, as agreed in


beween AKBN and DWM Petroleum AG, during the First Exploration Period by an amount


equal to the sum spent by DWM Petroleum AG on its Work Program obligations during such


month or three months, such reductions to be effected in accordance with monthly or


quarterly written statements issued by the National Agency of Natural Resources to DWM


Petroleum AG ,a copy of which shall be forwarded to us and we shall accept same as


conclusive evidence for reductions of our engagement under this guarantee.


This Guarantee is personal to yourselves and is not transferable or assignable (except with our


prior written consent which is not to be unreasonably withheld).


This guarantee is subject to the Uniform Rules for Demand Guarantees, ICC Publication No,


458, and to the extent not inconsistent therewith, shall be governed by and construed in


accordance with Swiss Law, place of jurisdiction is Zurich, Switzerland


































































































E-2