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EXPLORATION AND PRODUCTION SHARING AGREEMENT

BETWEEN 

NATIONAL OIL CORPORATION 






and

VERENEX ENERGY AREA 47 LIBYA LIMITED


and

MEDCO INTERNATIONAL VENTURES LIMITED 



CONTRACT AREA 47
 TABLE OF CONTENTS





Page No.


PARTIES...,......................................................................... 1


RECITALS........................................................ 1


ARTICLE 1 DEFINITIONS...................................................................................................2


1.1 “Abandonment”.......................................................................................................2


1.2 “Affiliate”...............................................................................................................2


1.3 “Agreement”............................................................................................................2


1.4 “Appraisal Operations”.........................................................................................2


1.5 “Appraisal Well”.................................... 3


1.6 “Associated Gas”..................................... 3


1.7 “Barrel”............................................................... 3


1.8 “Block”.....................................................................................................................3


1.9 “Budget”...................................................................................................................3


1.10 “Calendar Quarter”.............................................................. 3


1.11 “Calendar Year”....................................................................................................3


1.12 “Commercial Production Start Date”...............................................................3


1.13 A “Commercial Discovery”...................................................................................3


1.14 “Contract Area”....................................................................................................4


1.15 “Contract Year”.............................................. 4


1.16 “Crude Oil”.................... 4


1.17 “Development Expenditures”...............................................................................4


1.18 “Development Operations”...................................................................................4


1.19 “Development Plan”..............................................................................................4


1.20 A “Discovery”..........................................................................................................4


1.21 “Effective Date”.....................................................................................................5


1.22 “Excess Associated Gas”.......................................................................................5


1.23 “Exploitation Area”..............................................................................................5


1.24 “Exploitation Capital Expenditures”.................................................................5


1.25 “Exploitation Operations”...................................................................................5


1.26 “Exploitation Operations Expenditures”..........................................................5


1.27 “Exploitation Period”............................................................................................5


1.28 “Exploration and Appraisal Expenditures”......................................................5


1.29 “Exploration Operations”....................................................................................5


1.30 “Exploration Period”.............................................................................................6


1.31 “Exploration Program”........................................................................................6


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1.32 “Field”......................................................................................................................6


1.33 “Good Oilfield Practices”....................................................................................6


1.34 “LIBOR”......................................................................................................................6


1.35 “Liquid Hydrocarbon By-Products”...................................................................6


1.36 “Management Committee”....................................................................................6


1.37 “Maximum Efficient Rate” or “MER”..................................................................6


1.38 “Natural Gas”........................................................................................................7


1.39 “New-Field Wildcat Well”...................................................................................7


1.40 “Non-associated Gas”............................................................................................7


1.41 “Operator”...............................................................................................................7


1.42 “Operating Account”.............................................................................................7


1.43 “Operator’s Management Committee”...............................................................7


1.44 “Party”.....................................................................................................................7


1.45 “Petroleum”............................................................................................................7


1.46 “Petroleum Law”....................................................................................................7


1.47 “Petroleum Operations”.......................................................................................8


1.48 “Petroleum Operations Expenditures”...............................................................8


1.49 “Residue Gas”..........................................................................................................8


1.50 “Sector”...................................................................................................................8


1.51 “Signature Date”....................................................................................................8


1.52 “U.S. Dollars" or "U.S.S”......................................................................................8


1.53 “Work Program”.....................................................................................................8


ARTICLE 2 SCOPE...............................................................................................................8





ARTICLE 3 TERM.................................................................................................................9


3.1 Term of Agreement................................................................................................9


3.2 Early Termination.................................................................................................9


3.3 Withdrawal by Second Party..............................................................................10


ARTICLE 4 MANAGEMENT COMMITTEE......................................................................10


4.1 Appointment of Management Committee...........................................................10





4.2 Decisions..................................................................................................................11


4.3 Meetings...................................................................................................................11


4.4 Procedures........................................ 12





ARTICLE 5 OPERATOR.......................................................................................................12


5.1 Operator during Exploration Period.................................................................12


5.2 Operator during Exploitation Period................................................................12


iS£2 5.3 Removal of JOC.......................................................................................................13


'm 5 A Second Party rjghts..............................................................................................13














2 Area 47


5.5 Obligations of Operator.......................................................................................14


5.6 Contractors.............................................................................. 15


5.7 Libyan Personnel and Training...........................................................................15


5.8 Priority to Local Work......................................................... 16


5.9 Liability........................................ 16


ARTICLE 6 COMMENCEMENT OP PETROLEUM OPERATIONS................................16


ARTICLE 7 WORK PROGRAMS AND BUDGETS...........................................................16


7.1 Preparation by Operator and Approval by Management Committee..........16


7.2 Expenditures by Operator....................................................................................17


ARTICLE 8 SECOND PARTY’S MINIMUM EXPLORATION COMMITMENT.............17


ARTICLE 9 APPRAISAL......................................................................................................18


9.1 Appraisal Operations and Preliminary Appraisal Report by Operator.......18


9.2 Final Appraisal Report..........................................................................................18


ARTICLE 10 DECLARATION OF COMMERCIAL DISCOVERY OF CRUDE OIL.......19


AND SOLE RISK...................................................................................................................19


10.1 Review by Management Committee and Declaration of


Commercial Discovery..........................................................................................19


10.2 Subsequent Development Plan............................................................................20


10.3 Sole Risk...................................................................................................................20


ARTICLE 11 PRODUCTION PROGRAMS - LIFTING- MAKE-UP


OF UNDERLIFTINGS...........................................................................................................21


11.1 Production Programs............................................................................................21


11.2 Lifting.......................................................................................................................22


11.3 Underlifting............................................................................................................22


ARTICLE 12 SHARING PETROLEUM PRODUCTION....................................................23


12.1 Allocation of Crude Oil and Liquid Hydrocarbon By-Products


and Natural Gas.............................................................................................................23


12.2 Accounts..................................................................................................................24


12.3 Valuation................................................................................................................25


12.4 Illustration............................................................................................................25


12.5 Taking in Kind.........................................................................................................25


12.6 Production Rate.....................................................................................................26


ARTICLE 13 NATURAL GAS..............................................................................................26


13.1 General....................................................................................................................26


13.2 Excess Associated Gas...................... 26


13.3 Non-associated Gas...............................................................................................27


13.4 Gas Sales Agreement.............................................................................................28


13.5 Natural Gas for Domestic Use.............................................. 29


13.6 Transportation and Processing Agreement.....................................................30


ARTICLE 14 COSTS AND EXPENSES...............................................................................30


14.1 Costs and Expenses of Petroleum Operations..................................................30


14.2 Determination of Costs and Apportionment by Management Committee ... 31


14.3 Head Office Overhead Charges...........................................................................31


14.4 Calls for Funds......................................................................................................31


14.5 Default in Contribution of Funds.......................................................................31


ARTICLE 15 BONUSES AND MANNER OF PAYMENTS...............................................32


15.1 Bonuses....................................................................................................................32


15.2 Manner of Payments to First Party...................................................................33


ARTICLE 16 TITLE TO PURCHASED ITEMS..................................................................33


ARTICLE 17 TECHNICAL ASSISTANCE AND SERVICES............................................34


BY THE PARTIES AND AFFILIATES................................................................................34


ARTICLE 18 DATA...............................................................................................................34


18.1 Use of Data..............................................................................................................34


18.2 Title to Data...........................................................................................................34


18.3 Confidentiality......................................................................................................34


ARTICLE 19 RENTS. ROYALTY AND INCOME TAXES................................................35


19.1 Royalties and Taxes..............................................................................................35


19.2 Customs Duties.......................................................................................................36


19.3 Rentals and Fees................................................... 36


19.4 Other Income....................................... 36


ARTICLE 20 BOOKS. ACCOUNTS AND AUDITS...........................................................36


20.1 Operator's Responsibility for Books and Accounts........................................36


20.2 Audits.......................................................................................................................36


ARTICLE 21 GOVERNING LAW........................................................................................37


ARTICLE 22 FORCE MAJEURE.........................................................................................37


22.1 Excuse of Obligations...........................................................................................37


22.2 Notification.............................................................................................................37


22.3 Extension of Term; Termination..........................................................................37


ARTICLE 23 SETTLEMENT OF DIFFERENCES - ARBITRATION................................38


23.1 Amicable settlement..............................................................................................38


23.2 Arbitration.............................. 38


ARTICLE 24 ASSIGNMENT................................................................................................38


24.1 Assignment by First Party....................................................................................38


24.2 Assignment by Second Party................................................................................38


ARTICLE 25 TERMINATION................. 39


25.1 Right of Termination.............................................................................................39


25.2 Acceleration...........................................................................................................41


ARTICLE 26 ABANDONMENT..........................................................................................41


ARTICLE 27 MISCELLANEOUS........................................................................................43


27.1 Notices........................................................ 43


27.2 No Watver; Cumulative Remedies.......................................................................44


27.3 Amendments.............................................................................................................44


27.4 Satisfactory Documentation..............................................................................44


27.5 Entirety of Agreement.................................................................................. 45


27.6 No Third Party Beneficiaries...............................................................................45


27.7 Conflict in Terms................................... 46


27.8 Language................................................. 46


27.9 Headings...................................................................................................................46


27.1 (Indemnity.................................................................................................................46


27.11 Effective Date........................................................................................................46





EXHIBIT (A)............................CONTRACT AREA


EXHIBIT (B) .....................MINIMUM EXPLORATION PROGRAM


EXHIBIT (C).......................... ACCOUNTING PROCEDURE


EXHIBIT (D).......................... GUARANTEES


EXHIBIT (E)........................... EXAMPLE CALCULATIONS





EXHIBIT (F)........................... TAX RECEIPT


EXHIBIT (G)...........................SHAREHOLDER AGREEMENT


EXHIBIT (H) ........................... OPERATING AGREEMENT


THIS AGREEMENT is made and entered into the___day of Safar, 1373, corresponding


to the twelfth day of March, 2005, by and between NATIONAL OIL CORPORATION


(hereinafter referred to as "NOC" or “First Party”), a corporation established by Law No.


24 of 1970, as amended, reorganized under Decision No. 10/1979 of the General


Secretariat of the General People's Congress of the Great Socialist People's Libyan Arab


Jamahiriya (GSPLAJ), and having its principal office at Bashir Sadawi Street, Tripoli,


GSPLAJ, and


1) Verenex Energy Area 47 Libya Limited (hereinafter refereed to as "Verenex"), a


Corporation established under the laws of Jersey and having a branch registered in the


Commercial Register of Tripoli, GSPLAJ, under No.___with an office at


_____, GSPLAJ;


2) Medco International Ventures Limited (hereinafter referred to as "MTV"), a company


established under the laws of the Labuan, Malaysia and having a branch registered in the


Commercial Register of Tripoli, GSPLAJ, under No.____with an office at


__, GSPLAJ.


Both Verenex and MIV hereinafter being collectively referred to as Second Party.


WITNESSETH:


WHEREAS, Law No. 25 of 1955, as amended, establishes that all Petroleum existing and


being within the statutory' mining territory of GSPLAJ are national riches of the State;


WHEREAS, NOC has the exclusive right and authority to explore for, develop and


produce Petroleum in and throughout the Contract Area described in Exhibit "A" hereto;


WHEREAS, by virtue of Decree No. 10/1979 issued by the General Secretariat of the


General People's Congress of GSPLAJ on the 12th day of Ramadan, 1388, corresponding


to the 5th day of August, 1979, First Party is authorized and empowered to enter into this


Agreement subject to and effective upon the approval of the General People's Committee


of GSPLAJ;


WHEREAS, Second Part)' acknowledges that it is fully familiar with the laws and


regulations of GSPLAJ and has the means to maintain such familiarity during the term of


this Agreement;


WHEREAS, Verenex and MIV each hold an undivided participating interest share in


Second Party of fifty percent (50%) and fifty percent (50%) respectively; and


WHEREAS, First Party and each company comprising Second Party recognize and


acknowledge that each other party hereto is entering into this Agreement in its own name


and in its capacity as a legal entity empowered to contract on its own behalf and each party


accepts that no person or entity other than any other party hereto may be liable or


responsible for such other party's obligations hereunder, except in the event of an express


written guarantee such as the guarantee set forth in Exhibit "D" hereto.


NOW, THEREFORE, for and in consideration of the mutual covenants, conditions and


obligations herein contained, the Parties agree as follows:











ARTICLE 1


DEFINITIONS





The following definitions of certain words and terms used in this Agreement shall apply (in


both singular and plural forms) for purposes of this Agreement:


1.1 “Abandonment’’


means, the abandonment activities, including but not limited to: the plugging and


abandonment of wells, the decommissioning and removal of all plants and facilities


and the restoration of sites used for Petroleum Operations hereunder to a standard


required under the laws and regulations of GSPLAJ and in accordance with Good


Oilfield Practices.


1.2 “Affiliate”


means, with respect to any party hereto, any other legal entity that, directly or


indirectly, controls, is controlled by or is under common control with such party.


"Control” means the ownership, directly or indirectly, of 50% or more of the voting


shares or voting rights of such entity.


1.3 “Agreement”


means this instrument, including all exhibits attached hereto, all of which are


hereby made a part hereof.


1.4 “Appraisal Operations”


means the appraising by all appropriate means of the limits and production capacity


of a Field, including, without limitation: geological and geophysical surveys;


drilling of Appraisal Well(s), reservoir and other suidies (including the reports and


studies referred to in Article 9 hereof), and all auxiliary operations and activities


required or expedient for the better conduct or result of die above activities.




















2 Area 47


1.5 “Appraisal Weir


means any well drilled in the Contract Area whose purpose at the time of


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


Petroleum reserves contained in a Discovery within a single geological feature.


1.6 “Associated Gas”


means Natural Gas which existed or exists in a reservoir in solution with Crude Oil,


or as free gas cap gas.


1.7 “Barrel”


means a quantity or unit of Crude Oil equal to forty-two (42) United States gallons


at standard conditions (sixty (60) degrees Fahrenheit, 14.7 psi).


1.8 “Block”


means a division of the Contract Area as described in Exhibit "A" hereto.


1.9 “Budget”


means a cost estimate of all items included in a Work Program.


1.10 “Calendar Quarter”


means a period of three (3) consecutive months according to the Gregorian calendar


starting on 1 January, 1 April, 1 July or 1 October.


1.11 “Calendar Year”


means a period of twelve (12) months according to the Gregorian calendar


commencing on any January 1st and ending on the following December 31 st.


1.12 “Commercial Production Start Date”


means the date when regular production starts for the purpose of the line fill and


commercial use of such production.


1.13 A “Commercial Discovery”


will have been made:


(a) with respect to Crude Oil, if and at the time that the Management Committee


decides to proceed with the development of a Field pursuant to Article 10.1


herein, where a Discovery of Crude Oil has been made, or


(b) with respect to Non-associated Gas, if and at the time that the Management


Committee decides to proceed with the development of a Field pursuant to


Article 13.3.3 herein, where a Discovery of Non-associated Gas has been


made.














3 Aica 47


 

1.14 “Contract Area”


means the entire area described in Exhibit "A" hereto, as the same may be amended


in accordance with Article 3.2 hereof.


1.15 “Contract Year”





means a period of twelve (12) consecutive months according to the Gregorian


calendar counted from the Effective Date or any anniversary thereof.


1.16 “Crude Oil”





means crude petroleum oil and all other hydrocarbons, regardless of gravity,


produced at the well in liquid form by ordinary production methods and which are


not the result of condensation of gas.


1.17 “Development Expenditures”


means any and all costs, expenses and liabilities of or relating to Development


Operations.





1.18 “Development Operations”


means any and all operations carried out in accordance with a Development Plan,


conducted with a view to developing a Field in which a Commercial Discovery has


been made, including, without limitation: the drilling of wells; primary and


subsequent recovery projects and pressure maintenance; the engineering, building


and erecting or laying of production plants and facilities (including, without


limitation: separators; compressors; generators; pumps and tankage; gathering lines;


pipelines; and all facilities required to be installed for production, pressure


maintenance, and treatment, storing and transporting of Petroleum, and loading


Petroleum into seagoing tankers); the obtaining of such materials, equipment,


machinery, articles and supplies as may be required or expedient for the above


activities; and all auxiliary operations and activities required or expedient for the


better conduct or result of the above activities.


1.19 “Development Plan”





means a time scheduled program specifying Development Operations required to


develop an increment of producing capacity in a particular Field, such as initial,


intermediate or complete Field Development, a Field extension, or a secondaiy or


other subsequent recovery project.





1.20 A “Discovery”


will have been made when Petroleum has been found as a result of the drilling,


completing and testing of a New-Field Wildcat Well.























4 Area 47


 1.21 “Effective Date”


means the date of approval of this Agreement by the General People's Committee


of GSPLAJ.


1.22 “Excess Associated Gas”





means the Associated Gas available after deduction of the quantities of Associated


Gas required for Petroleum Operations.





1.23 “Exploitation Area”


means such number of Sectors within the Contract Area covering the whole


extension of the underlying structures or stratigraphic closures defining the


reservoir or pay zone of any Field where a Commercial Discovery has been made.


1.24 “Exploitation Capital Expenditures”





means, with respect to any Exploitation Area, all capital expenditures incurred after


the Commercial Production Start Date, including but not limited to, development


drilling, acquisition of physical assets related to Petroleum Operations, and


construction of new facilities.





1.25 “Exploitation Operations”


means any and all activities carried out in an Exploitation Area after the


Commercial Production Start Date, including, without limitation, petroleum


engineering, operating, servicing, repairing and maintaining any and all wells,


plants, equipment, pipelines, terminals and all other installation facilities.


i 1.26 “Exploitation Operations Expenditures”





means any and all costs, expenses and liabilities of or relating to Exploitation


Operations and all auxiliary activities required or expedient for the better conduct


ot result of the activities.





1.27 “Exploitation Period”


means the period of twenty five (25) Contract Years commencing from the end of


the Exploration Period and any extension thereof.


1.28 “Exploration and Appraisal Expenditures”





means any and all costs, expenses and liabilities of or relating to Exploration


Operations and Appraisal Operations.


1.29 “Exploration Operations”


means any and all operations conducted with a view to discovering Petroleum,


including, without limitation: any and all activities necessary to commence


operations; any and all topographical, hydrographical, geological, geophysical,


aerial and other surveys and activities (including interpretations, analyses and














5 Area 47





A


 fv: i


I





es i


related studies) having as a scope the subsurface investigation for the proper


location of New-Field Wildcat Wells; the drilling of shot holes, core holes and


stratigraphic test holes; the spudding, drilling, testing, coring, logging and


equipping of New-Field Wildcat Wells; the obtaining of such material, equipment,


machinery, articles and supplies as may be required or expedient for the above


activities; and all auxiliary' operations and activities required or expedient for the


better conduct or result of the above activities. !





1.30 “Exploration Period” i i


means the period of five (5) Contract Years commencing on the Effective Date and


any extension thereof.





1.31 “Exploration Program”


means the minimum exploration program specified in Exhibit "B" hereto.


1.32 “Field”





means one or several petroleum reservoirs that are related to a single geological


feature and their projection(s) on the ground surface, \ j





1.33 “Good Oilfield Practices” i





means those practices, methods, standards, and procedures generally accepted and


followed by prudent, diligent, skilled and experienced operators in petroleum


exploration, development and production operations and which, at the 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. i





1.34 “Libor”





means the London Inter-Bank Offered Rate at which U.S. Dollar deposits for three


(3) months are offered in the Inter Bank market in London as quoted by the British


Bankers Association for the day or days in question.





1.35 “Liquid Hydrocarbon By-Products”


means any hydrocarbon liquid resulting from processing of Natural Gas.





1.36 “Management Committee”


means the committee to be appointed under Article 4.1 hereof.


1.37 “Maximum Efficient Rate” or “MER”





means the maximum rate, according to Good Oilfield Practices, at which oil or gas


can be produced without excessive decrease of reservoir pressure or loss of





reservoir energy. m














6 Area 47


1.38 “Natural Gas”


means any and all hydrocarbon substances which are or would be in gaseous or


vaporous form at atmospheric pressure and temperature, regardless of their status in


the reservoir.


1.39 “New-Field Wildcat Well”


means a hole drilled on a geologic structure or in a geologic environment where


Petroleum has not yet been discovered.


1.40 “Non-associated Gas”


means Natural Gas other than Associated Gas and Residue Gas.


1.41 “Operator”


means such entity as may be appointed pursuant to Article 5 hereof to serve as


Operator with responsibility for carrying out Petroleum Operations in the Contract


Area subject to and under the provisions of this Agreement. If, in accordance with


the provisions of Article 5 hereof, more than one Operator exists at any time under


this Agreement, references herein to the term “Operator” shall be to each Operator


with respect to the parts of the Contract Area in which it conducts Petroleum


Operations.


1.42 “Operating Account”


means the operating account defined in the Accounting Procedure attached hereto


as Exhibit (C).


1.43 “Operator’s Management Committee”


means the committee to be appointed under Article 5.2 hereof.


1.44 “Party”


means First Party or Second Party.


1.45 “Petroleum”


means Crude Oil, Natural Gas, solid petroleum (such as asphalt, ozokerite,


petroliferous rocks and petroleum shale) and all other hydrocarbon substances that


may be found in and produced or otherwise obtained and saved from the Contract


Area.


1.46 “Petroleum Law”


means the Libyan Petroleum Law No. 25 of 1955, as it has been and may be


amended from time to time, and all regulations thereunder.























7 Area 47


1.47 “Petroleum Operations”


means any and all Exploration Operations, Appraisal Operations, Development


Operations, Exploitation Operations and Abandonment, as well as any other


operation or activity related thereto and authorized or contemplated hereunder.


1.48 “Petroleum Operations Expenditures”


means any and all costs, expenses and liabilities of or related to Petroleum


Operations hereunder. Provided, however, that, notwithstanding anything in this


Agreement to the contrary, (i) no costs, expenses or liabilities incurred prior to the


Effective Date shall constitute Petroleum Operations Expenditures and (ii) no


interest expenses or other financing charges of any nature incurred by Second Party


shall constitute Petroleum Operations Expenditures.


1.49 “Residue Gas”


means the gaseous hydrocarbons remaining after the processing of Natural Gas and


deduction therefrom of commercial substances.


1.50 “Sector”


means a subdivision of a Block covering an area of one (l) minute in latitude by (1)


one minute in longitude.


1.51 “S ignature Date’ ’


means the date on which this Agreement is signed by the Parties.


1.52 “U.S. Dollars" or MU.S.$”


means dollars of the United States of America.


1.53 “Work Program”


means a statement itemizing the Petroleum Operations to be carried out in the


Contract Area pursuant to this Agreement during any Calendar Year or part thereof.











ARTICLE 2


SCOPE





This Agreement is an exploration and production sharing arrangement with respect to the


Contract Area. The Parties recognize that this Agreement does not award ownership rights


over Petroleum "in situ" in the Contract Area, but relates to providing of: (i) technical and


financial resources for Petroleum Operations in the Contract Area, (ii) the manner in which


such Petroleum Operations are to be conducted and (iii) the allocation of Petroleum


produced and saved under this Agreement from the Contract Area.

















3 Area 47


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ARTICLE 3


TERM





3.1 Tenn of Agreement


Subject to the terms and conditions of this Agreement, the term of this Agreement,


shall be composed of the Exploration Period and the Exploitation Period. If


commercial production continues during the last three (3) years before the end of


the term, Second Party may request an extension of the term of this Agreement for


a reasonable time. First Party may, at its sole discretion, approve such a request


subject to terms and conditions to be agreed upon between the Parties.


3.2 Early T ermination





At the end of the Exploration Period, only the Exploitation Area(s) shall be retained


under this Agreement, and this Agreement shall terminate in respect of all other


parts of the Contract Area. The Exploration Period may only be extended in the


following cases:





a) If a New-Field Wildcat Well(s) is being drilled or tested at the end of the


Exploration Period, then the Exploration Period shall be extended for a period


of time, not to exceed ninety (90) days, in order to complete the drilling and


testing, if any, of such well(s).


b) If a Discovery has been made within six (6) months prior to the end of the


Exploration Period but there has not been sufficient time to conduct adequate


Appraisal Operations thereof prior to the end of the Exploration Period, then the


Exploration Period shall be extended for the Block(s) in which such Discovery


was made for a period of time, sufficient to conduct such Appraisal Operations,


not to exceed two (2) Contract Years.


c) By agreement of the Parties for an initial period of one (1) Calendar Year, if at





the end of the Exploration Period the Management Committee is still


considering declaring a Commercial Discovery and approving a Development


Plan related thereto pursuant to Article 10.1. If the Management Committee


does not adopt a Development Plan within such initial period, then such period


may be extended by agreement of the Parties for a period not exceeding three


(3) Calendar Years.


d) As per Article 13.3 herein.




















9 Area 41


3.3 Withdrawal by Second Party


3.3.1 Second Party shall have the right, upon one (1) month’s prior notice to First Party,


to withdraw from this Agreement at any time during the Exploration Period,


provided that the Exploration Program has been properly completed or Second Party


has paid to First Party the amounts specified in Article 8 hereof for the number of


kilometres of seismic survey not executed and the number of well(s) not drilled.


3.3.2 Second Party shall have the right upon one (1) year prior notice (the “Notice


Period”) to First Party to withdraw from this Agreement with respect to any


Exploitation Area at any time during the term of this Agreement. At the end of the


Notice Period, this Agreement shall terminate with respect to such Exploitation


Area and any outstanding amounts owed by Second Party with respect to such


Exploitation Area shall become immediately due and payable to First Party.


During the Notice Period, Second Party shall continue to enjoy all its rights under


this Agreement, provided that, Second Party satisfies all obligations and liabilities it


has incurred prior to its withdrawal, including, without limitation, any expenditures


budgeted and/or approved by the Management Committee prior to its notification of


withdrawal, and any liability for acts, occurrences or circumstances taking place or


existing prior to the effective date of its withdrawal. Furthermore, any liens, charges


and other encumbrances which Second Party placed on its interest prior to its


withdrawal shall be fully satisfied or released, at its expense, prior to its withdrawal.


Second Party's withdrawal shall not relieve it from liability' to First Party with


respect to any obligations or liabilities attributable to Second Party which are not


identified or identifiable for a period of time not exceeding fifteen (15) years after


withdrawal.








ARTICLE 4


MANAGEMENT COMMITTEE





4.1 Appointment of Management Committee


Petroleum Operations in the Contract Area shall be conducted under the control and





supervision of a Management Committee composed of four (4) members, two (2),


including the chairman, to be appointed by First Party, and two (2) to be appointed


by Second Party. The Management Committee shall be formed not later than one


(1) month after the Effective Date. Each Party shall notify the other of the members


of the Management Committee it appoints.

















JO Area 47


4.2 Decisions





The Management Committee shall make all important decisions relating to


Petroleum Operations, including, without limitation, the approval of Work


Programs and Budgets prepared by Operator for Petroleum Operations. Decisions


of the Management Committee shall be made by the unanimous vote of its


members. Decisions of the Management Committee may be made by


correspondence if the members of the Management Committee have indicated their


approval of a decision in such correspondence.


In case of a deadlock, the Management Committee shall refer the matter to the


senior management of Parties. In case the Parties reach an agreement, the


Management Committee shall convene and adopt such a decision.


Without prejudice to the provisions of Article 10.3 hereof, the decisions of the


Management Committee shall be final and binding on the Parties and shall be


implemented with due diligence by Operator.


4.3 Meetings


4.3.1 The Management Committee shall meet at least twice per Calendar Year upon a


call by (he chairman giving not less than twenty (20) days’ notice to the other


members, or shorter notice in a case requiring urgent action. Such call shall specify


the proposed time, place and agenda of the meeting.


Any member of the Management Committee may request an extraordinary meeting


by notice to the chairman, specifying the agenda and the time of the meeting. The


chairman shall, after consultation with the other members of the Management


Committee, call for the extraordinary meeting observing the requirements for


calling a meeting set forth above unless waived by unanimous agreement of all


members.


All meetings of the Management Committee shall require the presence of all


members in person or through a proxy. Any and all costs related to the


Management Committee meetings shall be charged to the Operator.


4.3.2 The Operator shall be generally responsible, in consultation with the chairman of


the Management Committee, for preparation of the agenda and supporting


documents for each meeting of the Management Committee and for preparing and


keeping minutes of the meetings and decisions. Copies of such minutes shall be


forwarded to each Party.














it Area 47


 4.3.3 Observers from each Parly may be invited to attend the meetings of the


Management Committee in a non-voting capacity.


4.3.4 The Parties shall have the right to inspect the records of the Management


Committee at any time.


4.4 Procedures





The Management Committee shall adopt such procedures as it deems appropriate


regarding the conduct of its meetings and the fonn of its decisions.











ARTICLE 5


OPERATOR





5.1 Operator during Exploration Period


5.1.1 Verenex is hereby appointed and agrees to serve as Operator on behalf ofthe Parties


with responsibility for carrying out Exploration and Appraisal Operations and


Abandonment related to such operations in accordance with the terms of this


Agreement under the control and supervision ofthe Management Committee. In its


capacity as Operator, Verenex shall not enjoy any profit or suffer any loss, except as


provided in Article 5.9 hereof.


5.1.2 In the event that Verenex in its capacity as Operator commits a material breach of its


duties as Operator under this Agreement during the Exploration Period (including,


without limitation, its duty to implement decisions of the Management Committee)


and fails to remedy such breach within ninety (90) days from receipt of a notice


from First Party detailing such breach, then First Party may remove the Operator


and appoint another operator to carry out Petroleum Operations under this


Agreement upon written notice to Second Party. In such case the replacement


Operator may be one of the other companies comprising Second Party, subject to


First Party approval.


5.2 Operator during Exploitation Period





5.2.1 After the first declaration of a Commercial Discovery by the Management


Committee, the Parties shall enter into a shareholders agreement substantially in the


form attached as Exhibit “G” hereto and fonn a Joint Operating Company ("JOC")


to be established in a jurisdiction to be agreed upon. The JOC shall act as Operator


for the Development Operations, Exploitation Operations and Abandonment for


■?











12 Area 47


A


and on behalf of the Parties according to an operating agreement substantially in the


form attached as Exhibit “H” hereto. The JOC shall be managed by an Operator's


Management Committee which will be entrusted with the management of the


affairs and the running of the day-to-day business of the JOC under the control and


supervision of the Management Committee. The organisation and functional


divisions of the JOC shall be agreed upon by the Parties. Each member of the


Operator’s Management Committee shall be responsible for a functional division or


more as may be agreed upon by the Parties.


Unless the Parties otherwise agree, or a substitute Operator has been appointed


under Article 5.1.2, Verenex shall continue to act as Operator for all parts of the


Contract Area which remain outside the Exploitation Area(s).


5.2.2 The Operator's Management Committee shall be composed of three (3) members,


two (2), including the chairman, to be appointed by First Party and one (1) to be


appointed by Second Party. The members of the Operator's Management


Committee may not be at the same time members of the Management Committee.


5.2.3 Any meeting of the Operator's Management Committee shall require the presence


of all members in person or through a proxy. Decisions of the Operator's


Management Committee shall be made by simple majority vote of its members.


5.2.4 The Operator's Management Committee shall adopt such procedures as it deems


appropriate regarding the conduct of its meetings and the form of its decisions and


shall keep records containing minutes of its meetings clearly stating the resolutions


and decisions adopted and the manner of the voting.


5.3 Removal of JOC


Notwithstanding the foregoing, First Party may, if warranted by general


circumstances such as regional or national planning or restructuring of petroleum


activities, decide to remove the JOC and replace it with any other related entity to


act as Operator to carry out Petroleum Operations hereunder.


5.4 Second Party rights


The removal of the Operator for all or part of the Contract Area pursuant to Article


5.1.2 or Article 5.3 shall not in any way affect the rights or obligations of Verenex


in its capacity as a company comprising Second Party under this Agreement.




















13 Area 47







5.5 Obligations of Operator





Throughout the term of this Agreement, Operator shall conduct the Petroleum


Operations diligently and continuously and shall be governed in accordance with


the applicable provisions of the Petroleum Law and all other applicable laws and


regulations of the GSPLAJ, in particular laws and regulations concerning the


protection of health, safety and environment.





In addition to all other obligations of Operator set forth elsewhere in this


Agreement, Operator shall have the following obligations:





(a) to conduct Petroleum Operations in the Contract Area in a manner consistent


with Good Oilfield Practices;





(b) to purchase or lease all material, equipment, machinery, articles and supplies


required to be purchased or leased pursuant to the Work Program, subject to


the prior consent of the Management Committee in case the aggregate value


of the purchase or lease contract exceeds the amount of








(c) to prepare and submit Work Programs to the Management Committee and to


implement the Work Programs adopted by the Management Committee, by


appropriate scientific methods and in the most efficient and economic


manner;


(d) to keep the Parties informed of the course of all Petroleum Operations under





this Agreement and to provide the Parties with progress reports on the


Petroleum Operations for each Calendar Quarter;


(e) to conduct an assessment of the impact of each planned Petroleum Operations


on the environment in the relevant part of the Contract Area and submit to the


Management Committee prior to the commencement of such Petroleum


Operations a detailed assessment report containing the measures required to


be taken to ensure that the conduct of the Petroleum Operations does not


cause damage to the environment;





(f) to permit representatives of the Parties to inspect at all reasonable times the


conduct of Petroleum Operations under this Agreement;


(g) to maintain in GSPLAJ full original records of all technical operations under





•a this Agreement and to submit to the Parties, in a format and media as may be


'.3 required by them, copies of all original geological, geophysical, cuttings,


•s?

















4





cores, magnetic tapes, drilling reports, fluid samples, well production data


and such other data and reports as it may compile or obtain during the term of


this Agreement;


(h) to keep the accounts of the Petroleum Operations hereunder in Libyan Dinars


and in U.S. Dollars and in such manner as to present a fair, clear and accurate


record of the Petroleum Operations Expenditures;


(i) to properly use Petroleum produced from the Contract Area for Petroleum


Operations; and


(j) to procure and maintain insurance satisfactory to the Management


Committee, including, without limitation, insurance against loss or damage


resulting from blowouts.


5.6 Contractors





Operator may engage contractors to carry out any part of the Petroleum Operations


authorized under this Agreement; provided, however, that


(a) Operator has obtained the approval of the Management Committee for


standard terms and conditions of contracting;


(b) Operator has obtained the specific prior written consent of the Management


Committee in any case where the total contract price for the Petroleum


Operations to be carried out by a contractor exceeds


and





(c) Operator shall at all time use Libyan contractors, provided that they are


competitive in terms of performance, price and availability.


5.7 Libyan Personnel and Training





5.7.1 Operator shall hire Libyan nationals to carry out Petroleum Operations in the


Contract Area. Except that in cases where specialized technical personnel or key


management positions are required and not available among Libyan personnel,


Operator may hire non-Libyan nationals to carry out such Petroleum Operations.


5.7.2 Operator shall prepare and submit to the Management Committee for approval an


annual training program. The objective of which is to enable Libyan personnel to


fill posts of higher responsibility and to replace any non-Libyan personnel in the


areas of specialization for which such non-Libyan personnel were hired, The annual











15 Area 47


 budget allocated for such training program shall be sufficient to cover all costs


associated with t*lc training per Calendar Year


during the Exploration Period and shall not be less the


manpower cost during each year of the Exploitation Period. For the purpose of this


Article, manpower costs means the total direct and indirect costs associated with


the Operator’s employees.





5.8 Priority to Local Work


Operator shall at all times give priority for use of local supplies, equipment and


services, provided that they are competitive in terms of performance, price and


availability.





5.9 Liability


Operator shall not be liable to the Parties for loss, damages or claims of any kind


except in the event of gross negligence or wilful misconduct, provided that in no


event shall Operator be liable for any indirect or consequential loss or damage.








ARTICLE 6


COMMENCEMENT OF PETROLEUM OPERATIONS





Operator, shall commence Exploration Operations hereunder not later than six (6) months


from the Effective Date.








ARTICLE 7


WORK PROGRAMS AND BUDGETS


7.1 Preparation by Operator and Approval by Management Committee


As soon as possible after the Effective Date as regards the remaining portion of the


relevant Calendar Year and, thereafter, at least two (2) months prior to the


beginning of each succeeding Calendar Year, Operator shall prepare and submit to


the Management Committee for approval a Work Program and Budget for the


Contract Area and a tentative Work Program and Budget for the ensuing two (2)


Calendar Years during the Exploration Period and the ensuing four (4) Calendar


Years during the Exploitation Period, setting forth the Petroleum Operations which


Operator plans to carry out during such Calendar Years. The Management


Committee may make such modifications in each such Work Program or Budget as







it deems appropriate, and shall notify the Operator and the Parties of each Work %


Program and Budget as so modified and approved.





7.2 Expenditures by Operator





Operator shall carry out each Work Program approved by the Management


Committee within the limits of the Budget approved therefor and shall not


undertake any operations not included in an approved Work Program or make any


expenditures not budgeted in an approved Budget, except as follows:








(a) Operator is authorized to make such excess expenditures, provided, however,


that the aggregate amount of such excess expenditures shall not exceed i








in any Calendar Year; and provided, further, that


such excess expenditures shall be reported promptly by Operator to the


Management Committee for approval.





(b) Operator is authorized to make expenditures for Petroleum Operations not


included in an approved Work Program and not provided for in an approved


Budget, up to but not exceeding


however, that such expenditures sKal


reported promptly to the Management Committee by Operator.





(c) In case of emergency, Operator may make such immediate expenditures as it


deems necessary for the protection of life, environment and property. Such


emergency expenditures shall be reported promptly to the Management


Committee by Operator and shall be considered as legitimate costs as if they


had been approved by the Management Committee.











ARTICLE 8


SECOND PARTY'S MINIMUM EXPLORATION COMMITMENT


Second Party undertakes, as a minimum exploration commitment, to complete the





Exploration Program in accordance with Good Oil Field Practices. In the event that


Second Party has not completed the Exploration Program by the earlier of (i) the


end of the Exploration Period or (ii) the date of any temiination of this Agreement,


then Second Party shall pay to First Party, not later than thirty (30) days after such


























17 Area 47


(a) the number of kilometres of


two dimensional (2D) seismic survey not completed; and


the number of square


kilometres of three dimensional (3D) seismic survey not completed; and





times the number of wells not


drilled.





If Second Party fails to pay, when due, any amount owed to First Party under this


Article 8, then (in addition to all other rights, powers and remedies provided to First


Party hereunder or otherwise) interest shall accrue on such unpaid amount at the


rate annum, payable on demand.











ARTICLE 9


APPRAISAL





Appraisal Operations and Preliminary Appraisal Report by Operator


Not later thanjttMpg^gttWpfter making a Discovery of Crude Oil, Operator


shall submit to the ManagemenfCommittee a preliminary report containing:





a) the results of the drilling of the Discovery well; and


b) a proposed appraisal program, together with the time frame for the conduct





thereof.


As soon as possible after the approval of the appraisal program, Operator shall


commence the corresponding Appraisal Operations.





Final Appraisal Report





fter the completion of the appraisal program, Operator shall


prepare and submit a final appraisal report to the Management Committee


containing:





(a) the relevant technical data pertaining to the Field where the Discovery was


made, including, but not limited to: topographical, geological, geophysical and


soil test information; the thickness of the producing zones; the depths of the


 different gas and/or fluids contacts; the petrophysical properties of reservoir


rocks; a PVT data analysis of reservoir and separator fluids and gases; the


characteristics and relevant analysis of the Petroleum discovered; and depth,


pressure and other characteristics of the reservoir and the fluids contained


therein;


(b) an estimate of the original hydrocarbons in place and the ultimate recovery


from the reservoir;


(c) the forecasted MER of the individual wells and the reservoir;





(d) a feasibility study for the development of the Field where the Discovery was


made, which shall include an economic analysis based (generally, among other


factors) on reasonable forecasts, year-by-year, of production profile,


investments required, revenues and operating costs, a gas utilization scheme for


the Associated Gas which includes i) use in Petroleum Operations, ii)


commercialisation of the Excess Associated Gas; and iii) storage or disposal of


the Excess Associated Gas according to the laws and regulations;


(e) any opinions expressed by third party experts entrusted to perform operational,


technical and economic studies relating to the Discovery; and


(f) any other relevant facts relied upon by the Operator and conclusions drawn


therefrom.











ARTICLE 10


DECLARATION OF COMMERCIAL DISCOVERY OF CRUDE OIL


AND SOLE RISK


10.1 Review by Management Committee and Declaration of Commercial Discovery.


Pne Management Committee shall examine the final appraisal report provided for


in Article 9.2 and any other data it may obtain within a hundred and eighty (180)


days and extensions the Management Committee may agree upon to determine


whether to proceed with the development of the Field where a Discovery has


occurred. The Management Committee shall be entitled to obtain opinions, reports


and studies, including a feasibility study, from independent third parties. If the


results of the final appraisal report or the independent third parties opinion shows


that:














19 Area 47


 ✓








i) the proceeds from the sales of the quantities of Crude Oil forecasted to be


produced are sufficient to recover the Petroleum Operations Expenditures,


royalty, taxes and allow for a reasonable return on investment; and





ii) the gas utilization scheme is in conformity with the laws and regulations,





then such Discovery shall be considered commercial. In such an event, unless the


Second Party decides to withdraw from the Agreement with respect to such


Discovery, the Management Committee shall declare a Commercial Discovery and


adopt a Development Plan with respect to such Field, and immediately notify the


Parties thereof. The JOC shall implement the approved Development Plan without


unreasonable delay.


10.2 Subsequent Development Plan





The Management Committee may from time to time adopt subsequent


Development Plan(s) with respect to a Commercial Discovery. The Operator shall


prepare and submit to the Management Committee a subsequent Development Plan


which shall be sufficiently detailed and comprehensive in scope to provide a basis


for calculating Development Expenditures and determining Work Program and


Budget requirements. The subsequent Development Plan should demonstrate that


the proceeds from the sales of the quantities of Crude Oil forecasted to be produced


is sufficient to recover the Petroleum Operations Expenditures, royalty and, tax and


allow for a reasonable return on investment. If such subsequent Development Plan


is approved by the Management Committee, Operator shall implement such


subsequent Development Plan without unreasonable delay.


10.3 Sole Risk


10.3.1 Sole Risk by First Party








If the Management Committee members representing Second Party vote against


any subsequent Development Plan for a Commercial Discovery presented by the


Operator to enhance or maintain reservoir performance and/or reserves, First Party


shall have the right, upon thirty (30) days notice served after the date of the


Management Committee meeting in which the Second Party voted against the


adoption of such subsequent Development Plan, to begin implementing, through


Operator the said subsequent Development Plan at its sole cost and for its sole


benefit. As of the date of start up of regular production from such subsequent


Development Plan as notified by First Party, Second Party shall:


a


a) cease to have any interest or receive any benefit from the respective Field;














20 Area 47


b) cease to participate in any Management Committee or Operator Management


Committee meetings with respect to such Field; and


c) Continue to receive ail technical and financial reports produced by the Operator


for a period of time not exceeding one (1) year as stipulated in Article 10.3.2.


10.3.2 Rejoining by Second Party


Second Party shall have the option to rejoin in such subsequent Development Plan


to be exercised not later than one (1) year from the date of start up of regular


production from such subsequent Development Plan. The rejoining shall become


effective upon, a) giving notice to that effect to First Party, and b) payment to First


Party of an amount equal to Second Party’s share of Development Expenditures


(determined as per the terms of this Agreement) related to such subsequent


Development Plan plus interest to be calculated at the rate of Libor plus five (5%)


percentage points. It is understood that such interest shall not be considered as


Petroleum Operations Expenditures for Second Party and shall not be recovered


under this Agreement. Second Party shall be deemed to have forfeited its share of


production for the period prior to its rejoining becoming effective.











ARTICLE 11


PRODUCTION PROGRAMS - LIFTING- MAKE-UP OF UNDERLIFTINGS





11.1 Production Programs


Six (6) months prior to the first Commercial Production Start Date of Crude Oil and


Liquid Hydrocarbon By-Products, Operator shall present to the Management


Committee for its consideration and approval a production program stating the


quantities of Crude Oil and Liquid Hydrocarbon By-Products which Operator


estimates will be produced and delivered to the Parties during the period from the


anticipated Commercial Production Start Date to the end of the relevant Calendar


Year. Thereafter and so long as the Agreement remains in effect, Operator shall,


not later than six (6) months before the end of each Calendar Year, present a similar


production program for the following year to the Management Committee for its


consideration and approval. Each production program shall be suitably detailed and


divided into such periods as may be requested by the Management Committee. The


Management Committee shall promptly inform the Parties of each approved


production program.


 *


&


#













11.2 Lifting








First Party and each company comprising Second Party shall have the right and


obligation to take in kind and separately sell or otherwise dispose of its total share





of Crude Oil and Liquid Hydrocarbon By-Products in accordance with Article 12.


After a Commercial Discovery has been declared by the Management Committee,


the Parties and the Operator shall meet as soon as practicable to agree upon and


enter into a separate detailed agreement governing the nomination of tankers and


lifting of Crude Oil and Liquid Hydrocarbon By-Products produced hereunder.


Such agreement shall include, inter alia, the following:





(a) an obligation of First Party and each company comprising Second Party to lift


its share of Crude Oil and Liquid Hydrocarbon By-Products produced


hereunder regularly throughout each Calendar Year;





(b) notification procedure by Operator to First Party and each company comprising


Second Party concerning availability of Crude Oil and Liquid Hydrocarbon By-


Products for lifting by each Party during each lifting period;








(c) procedures for nomination of tankers by First Party and each company


comprising Second Party for the lifting of all or part of its share of the available


Crude Oil and Liquid Hydrocarbon By-Products in each lifting period; and





(d) the right of First Party and each company comprising Second Party to lift any


available Crude Oil and Liquid Hydrocarbon By-Products not scheduled for


lifting and/or not lifted by the other Party during each lifting period, subject to


Article 11.3 hereof.





11.3 Underlifting





In tire event that during any given Calendar Quarter the quantity of Crude Oil and


Liquid Hydrocarbon By-Products offtaken by either Party is less than the quantity


of Crude Oil and Liquid Hydrocarbon By-Products such Party (referred to in this


Article 11.3 as the "Underlifting Party") is entitled to offtake under Article 12 (the


difference between such quantities being referred to in this Article 11.3 as the


"Shortfall1’) and the Shortfall exceeds five hundred thousand (500,000) Barrels,


then the Underlifting Party shall make up the Shortfall by offtaking over and above


its share of Crude Oil and Liquid Hydrocarbon By-Products produced, ten percent





(10%) of the Shortfall per month during each of the succeeding ten (10) months out


of the other Party's share of Crude Oil and Liquid Hydrocarbon By-Products


produced. Provided, however, that such other Party shall not, in any month, suffer


under this provision a reduction of its share of Crude Oil and Liquid Hydrocarbon














22 Area 47


 By-Products produced in such month, exceeding twenty percent (20%) of such


share. Any quantity not made up pursuant to the above provisions of this Article


11.3 shall be treated in a manner to be agreed upon by the Parties.








ARTICLE 12


SHARING PETROLEUM PRODUCTION





12.1 Allocation of Crude Oil and Liquid Hydrocarbon By-Products and Natural Gas


For any Calendar Year or part thereof; Crude Oil, Liquid Hydrocarbon By-Products


and Natural Gas produced under this Agreement (“Production”) shall be allocated


to the Parties as follows:


12.1.1 First Party Allocation


100% of Production less Second Party allocation according to Article 12.1.2 below


shall be allocated to First Party.


12.1.2 Second Parly Allocation


a) thirteen point seven percent (13.7%) of Production shall be allocated to Second


Party for cost recovery until the cumulative value (determined in accordance


with Article 12.3) of such allocation equals the cumulative Petroleum


Operations Expenditures incurred by Second Party including its share of the


Petroleum Operations Expenditures of such Calendar Year. Thereafter any


excess of such allocation to Second Party, hereinafter referred to as "Excess


Petroleum", shall be allocated as provided in Article 12.1.2(b).


b) Second Party's allocation of Excess Petroleum shall be determined by applying


the following formula:


“Base Factor” multiplied by “A Factor” multiplied by “Excess Petroleum”


where


(i) the Base Factor at the indicated levels of the average total daily production of


Crude Oil and Liquid Hydrocarbon by-Product, in Barrels, for the relevant


Calendar Year shall be:




















23 Area 47


 G


&











i





Portion of average total daily production Base Factor f


(Barrels per day)




















The Base Factor for Natural Gas shall always be equal to one (1).


(ii) the A Factor at the indicated ratios of the cumulative value (determined in


accordance with Article 12.3) of Production received by Second Party over the


cumulative Petroleum Operations Expenditures incurred by Second Party shall


be;





Ratio A Factor





less than or equal tojBMP


more than •Pmt less than or equal to


more than|Bphit less than or equal to


more than





For purposes of this Article 12.1.2(b) (ii), the ratio applied to each Calendar


Year shall be the ratio prevailing as of December 31 of the immediately


preceding Calendar Year. Liiii ..............ii i............ ............... mm





c) Allocations made under a) and b) above shall be revised and adjusted each


Calendar Quarter during the current Calendar Year on the basis of the actual


relevant data pertaining to the preceding Calendar Quarter.





12.2 Accounts


Operating Account records shall be maintained in Libyan Dinars and in U.S.


Dollars. For purposes of this Article 12, Petroleum Operations Expenditures


incurred by Second Party shall be determined according to that part of tire


Operating Account records which is maintained in U.S. Dollars and shall refer only


to the actual costs and expenses paid by Second Party (determined on cash rather


than an accrual basis, except for the Abandonment provisions).























24 Area 47


J.





12.3 Valuation





12.3.1 For the purposes of determining the value of Crude Oil received by Second Party,


the monthly weighted arithmetic average of the market price realized by the First


Party on the world market (in arms' length trading between non-Affiliates) for the


same Crude Oil or similar crude shall be applied.


Where the Crude Oil produced from Contract Area is of insufficient quantities and


therefore is blended with other Crude Oil(s) to comprise blended stocks which do


have a market price(s), then such market price(s) of the blended stock shall be


applied.


12.3.2 For the purpose of determining the value of Natural Gas received by Second Party,


the actual selling price according to the gas sales agreement shall be used.


12.3.3 For the purpose of determining the values of the Liquid Hydrocarbon By-Products,


received by Second Party, the valuation shall be in accordance with the following:


(a) Propane shall be valued at the monthly average of high/low spot Prices FOB X-


REF/STOR. W.MED as published in Platt's LPG Gaswire.


(b) Butane shall be valued at the monthly average of high/low spot prices, FOB X-


REF/STOR. W.MED as published in Platt's LPG Gaswire.


(c) C5+ stabilized condensates shall be valued as “Naphta” FOB MED basis Italy


monthly average (Platt's) high/low quotations as published in Platt's European


Marketscan.


12.4 Illustration


For illustrative purposes a sample allocation determined in accordance with this


Article 12 is attached to this Agreement as Exhibit "E" and made a part hereof.


12.5 Taking in Kind


a) First Party and each company comprising Second Party shall be entitled to


take, receive, export and dispose of its respective portion of Production in kind;


provided that, First Party shall have the first right of refusal to purchase all or


part of the Second Party’s share of Production under this Agreement which is


traded on the world market, subject to the Parties mutually agreeing in advance


on prices and procedures applicable thereto.














25 Area 47


b) First Party and each company comprising Second Party shall take and receive


its respective share of Production hereunder at the delivery point to the


transportation system or at such other point as the Parties may agree.


12.6 Production Rate


The production rate shall be set by the regulatory body in GSPLAJ. In the event


that the production rate is set below the MER of the individual wells and the


reservoir, any reduction shall be allocated amongst the producing companies then


operating in GSPLAJ prorata according to their respective production rates, and the


Parties shall consider an extension of the term of this Agreement for a reasonable


period of time not to exceed five (5) Contract Years.








ARTICLE 13


NATURAL GAS





13.1 General


The provisions of this Agreement applicable to Crude Oil shall apply “mutatis


mutandis” to Natural Gas unless otherwise specified herein.


13.2 Excess Associated Gas


13.2.1 If the proposed Development Plan submitted to the Management Committee


provides for the commercialization of Excess Associated Gas, then upon approval


of such Development Plan:


(a) The Parties (as sellers) shall endeavour to conclude with buyers a long-term gas


sales agreement(s) incorporating the principles set forth in Article 13.4.


(b) When such gas sales agreement(s) is concluded, Operator shall commence


implementation of the Development Plan and construct the necessary facilities,


such as, but not limited to, the gathering, treating, compressing, transporting


and processing facilities required for the production and delivery to the delivery


point of Excess Associated Gas as specified in the Development Plan or as may


be otherwise agreed to in the gas sales agreement(s).


13.2.2 If the Management Committee does not declare a Commercial Discovery for a


Discover)' of Crude Oil containing Excess Associated Gas due to lack of a gas


utilization scheme, then First Party shall have the option to take the Excess


Associated Gas, free of charge, at the delivery point which is immediately after the














26 Area 47


gas oil separation plant(s). If the Management Committee then declares a


Commercial Discovery: a) Operator shall operate the separation facilities which


will permit the delivery as aforesaid; b) Costs of such operation shall be considered


Exploitation Operations Expenditures; and c) First Party shall be responsible for the


gathering at the delivery point specified in this Article 13.2.2, compressing and


transporting of said Excess Associated Gas and shall bear all costs related thereto.


Any receipt and disposition of such Excess Associated Gas by First Party shall be


carried out in accordance with Good Oilfield Practices in a maimer which will not


unreasonably interfere with the Petroleum Operations regarding the said


Commercial Discovery.


If First Party does not exercise the aforesaid option, the Parties shall meet to


discuss an appropriate alternative.


13.3 Non-associated Gas


13.3.1 In the event of a Discovery of Non-Associated Gas, Operator shall prepare and


submit to the Management Committee an appraisal program for review and


approval.


13.3.2 If the Management Committee decides not to proceed with Appraisal Operations,


then the Exploration Period shall be extended with respect to such Discovery for a


period of five (5) Contract Years, provided that Second Party shall submit to the


Management Committee a bi-yearly assessment for a gas exploitation scheme.


After such extension, this Agreement shall terminate with respect to such


Discovery unless an appraisal program is approved by the Management


Committee.


13.3.3 If the Management Committee decides to proceed with Appraisal Operations,


Operator shall without delay implement the appraisal program as approved by the


Management Committee and prepare and submit to the Management Committee


the final appraisal report according to Article 9.2, taking into consideration Article


13.4 below.


(a) The Management Committee shall review the proposed Development Plan


according to Article 10.1 and decide whether the development and production


of the Non-associated Gas is feasible.


(b) If the Management Committee decides that development and production of the


Non-associated Gas is not feasible or Second Party decides not to proceed with


the Development Plan, then this Agreement shall terminate with respect to such


Discovery.


(c) If the Management Committee decides that development and production of the


Non-associated Gas is feasible, then it shall declare a Commercial Discovery


and adopt a Development Plan. The Parties shall then execute the gas sales


agreement pursuant to Article 13.4 below. Operator shall not commence


Development Operations under the adopted Development Plan until such time


as a gas sales agreement(s) has been executed.


13.3.4 If Second Party approves a Development Plan for a Discovery of Non-associated


Gas but First Party does not approve such Development Plan, then this Agreement


shall remain in force for the remaining term of this Agreement with respect to the


Exploitation Area as identified in the proposed Development Plan.


13.4 Gas Sales Agreement


In ease of a Discovery of Non-Associated Gas and/or availability of Excess


Associated Gas, the Parties shall negotiate a gas sales agreement with buyer(s).


The disposition of Natural Gas under a long-term gas sales agreement between the


Parties (as sellers) and buyer(s) of such Natural Gas shall, unless otherwise agreed


by the Parties incorporate the following principles:


13.4.1 The Parties (as sellers) shall have the obligation to deliver the Natural Gas to the


delivery point specified in the gas sales agreement, where the Natural Gas shall be


metered.


13.4.2 The commencement of Natural Gas deliveries and the date by which buyer’s


facilities will be ready to accept deliveries of Natural Gas shall be specified in the


gas sales agreement.


13.4.3 Pricing provisions shall be no less favorable than those applicable to gas sales into


the same market and originating from competing sources, including, without


limitation:


(a) base price reflecting the value of competing fuels in the marketplace which


shall be in line with the level prevailing in the region for similar sales, hiking


into account appropriate location differential;


(b) an adjustment formula based on acceptable indicators of competing energy


fuels in the market place and/or other appropriate indices such as inflation;




















28 Area 4?


 (c) an acceptable combination of a floor price and a “Take-or-Pay” commitment V


from buyer so as to ensure the economic viability of the Development Plan;


and


(d) a price revision clause to provide for regular review of the pricing provisions to





ensure that the resulting contractual price remains competitive in the


marketplace.





13.4.4 If the Natural Gas is marketed pursuant to Article 13.5, the ‘Take-or-Pay”


provision shall at least be applicable until the ratio for determining the “A-Factor”


according to Article 12.1.2(b) (ii) ’|p'. f


13.4.5 Payment for Natural Gas shall be made by the buyer(s) at intervals provided for in


the relevant gas sales agreement and shall provide for bank or other appropriate


guarantees of amounts owed to the Parties hereunder.


13.5 Natural Gas for Domestic Use


13.5.1 The Parties agree to give priority to supply the domestic market in GSPLAJ from


all or part of the Natural Gas produced under this Agreement.


13.5.2 The Parties (as sellers) and First Party or another local buyer ("local buyer") shall





proceed in good faith to negotiate a gas sales agreement incorporating the principles


set forth in Article 13.4 and the price shall be stipulated in accordance with Article


13.4.3 lessj





For the purpose of determining the values of fuel oils referred to in the gas sales


agreement for local market, the following shall be used:


(a) low sulphur fuel oil (1% sulphur) shall be valued as cargo CIF MED, basis


Genova-Lavera monthly average (Platt’s) high/low quotations as published in


Platt’s Oilgram;


(b) high sulphur fuel oil (3.5% sulphur) shall be valued as cargo CIF MED, basis


Genova-Lavera monthly average (Platt’s) high/low quotations as published in


Platt’s Oilgram; and


(c) gas oil (0.2% sulphur) shall be valued as cargo CIF MED, basis Genova-


Lavera monthly average (Platt’s) high/low quotations as published in Platt’s


Oilgram.














29 Area 47


If Platt’s as defined in Articles 12.3.3 and 13.5 ceases to be published or


substantially changes the basis for pricing the products referred to in such Articles,


either Party' may request changes of the pricing quotes referred to in such Articles.


Second Party’s share of the Natural Gas sold under the agreement referred to in


Article 13.5.2 shall be paid by the local buyer in U.S. Dollars or other freely


convertible currency or in kind from crude(s) and/or Liquid Hydrocarbon by¬


products.


13.6 Transportation and Processing Agreement


The Parties shall enter into Natural Gas transportation and processing agreements


with the owners of pipelines and, if necessary, processing facilities. First Party shall


warrant that the terms and conditions of such agreement, to the extent such


facilities are owned or controlled by First Party, shall not be less favorable than


those granted to other shippers or users of the processing facilities, if any,


according to the Petroleum Law'.











ARTICLE 14


COSTS AND EXPENSES





14.1 Costs and Expenses of Petroleum Operations


14.1.1 All Exploration and Appraisal Expenditures shall be bome by Second Party.


14.1.2 All costs, expenses and liabilities incurred for Abandonment, Development


Expenditures and Exploitation Capital Expenditures shall be shared between the


Parties, fifty percent (50%) by First Party and fifty percent (50%) by Second Party.


14.1.3 Exploitation Operations Expenditures shall be shared between the Parties, eighty


six point three percent (86.3%) by First Party and thirteen point seven percent


(13.7%) by Second Party.


14.1.4 Costs, expenses and liabilities incurred for Petroleum Operations, other than costs,


expenses and liabilities of Exploration and Appraisal Expenditures, Development


Expenditures, Exploitation Capital Expenditures and Exploitation Operations


Expenditures, shall be shared between the Parties eighty six point three percent


(86.3%) by First Party and thirteen point seven percent (13.7%) by Second Party.

















30 Area 4?


 %


%








\








14.2 Determination of Costs and Apportionment by Management Committee





Costs, expenses and liabilities incurred for Petroleum Operations shall be


determined in accordance with the Accounting Procedure attached hereto as Exhibit


"C". Costs, expenses and liabilities incurred for Petroleum Operations but not


directly attributable to Abandonment, Exploration Operations, Appraisal


Operations or Development Operations, shall be apportioned by the Management


Committee among the Fields and/or among the various operations and/or classes of


costs in accordance with generally accepted accounting principles.





14.3 Head Office Overhead Charges


Head office overhead may be charged by the Second Party to the Operator;





provided, however, that:





(i) the allocation method for such overhead charges is the same as that used for the


parent company’s global operations and such allocation method is certified by


the parent company's external auditor to be accurate and according to generally


accepted accounting principles; and





(ii) such charges do not in any Calendar Year exceed the lesser of a)<


JMfeof the Petroleum Operations Expenditures of the Operator for such


Calendar Year or b) the sum of j





14.4 Calls for Funds





After the declaration of a Commercial Discovery, Operator shall be entitled to


make to First Party and each company comprising Second Party calls for the funds


{“Cash Calls”) to be contributed by such Party according to the Budget approved


by the Management Committee and pursuant to the provisions of this Article 14,


and First Party and each company comprising Second Parly shall pay to Operator


its share of the funds called as specified in the Accounting Procedure attached


hereto as Exhibit “C”.





14.5 Default in Contribution of Funds





If First Party or any company comprising Second Party fails to pay its share of any


Cash Call, when due, such Party shall be in default and Operator shall notify the


Parties thereof. The non-defaulting Party(ies) shall have the right to advance to


Operator any and all amounts the defaulting Party has not paid. Any such advance


shall be considered as a loan by the non-defaulting Party(ies) to the defaulting Party


and shall bear interest at the rate per annum equal to

















31 Area 47


 'per annum from the date such advance is received by the Operator


in addition to any actual handling costs.





In the event that the defaulting Party does not repay all such amounts to the


non-defaulting Party(ies), together with interest accrued thereon, within ninety (90)


days from the date on which such amounts were advanced by the non-defaulting


Party(ies), the non-defaulting Party(ies) shall have the right to offtake and own the


defaulting Party's share of production from the Contract Area up to the time when


such offtaken production, valued at the market price prevailing on the date of lifting


by the non-defaulting Party(ies), equals the aggregate of such amounts, together


with interest accrued thereon.











ARTICLE 15


BONUSES AND MANNER OF PAYMENTS





15.1 Bonuses


15.1.1 Signature Bonus


(a) Second Party shall pay to First Party, within forty five (45) days after the





Effective Date of this Agreement, as a signature bonus, a lump sum amount of








(b) Such signature bonus shall not be considered as Petroleum Operation


Expenditures and shall not be recovered under this Agreement.


15.1.2 Production Bonus


Second Party shall pay to First Party a production bonus as follows:


a) an amount of 'oe paid in respect of


each Commercial Discovery within sixty (60) days after Commercial Production


Start Date of such Commercial Discovery; and








cumulative Barrels of oil


equivalent from each Commercial Discoveiy and thereafter, an amount oftf^pR


achieving each additional thirty


million (30,000,000) barrels of oil equivalent.

















32 Area 47


All payments under this Article 15.1.2b) shall be made within forty five (45) days


alter the date of achieving the relevant cumulative production.


The production bonus shall not be considered as Petroleum Operation Expenditures


and shall not be recovered under this Agreement.


15.2 Manner of Payments to First Party


All payments due to First Party under this Agreement shall be made in U.S. Dollars


or any freely convertible currency as requested by First Party or in Libyan Dinars


converted at the official buying rate of exchange for such currency issued by the


Central Bank of GSPLAJ on the day on which such payments are paid. Such


payments shall be made without setoff, counterclaim, or deduction of any nature.











ARTICLE 16


TITLE I'd PURCHASED ITEMS





Material, equipment, machinery, articles and supplies ("Material") purchased by


Operator during the Exploration Period shall become the property of First Party


when first actually used in Petroleum Operations. Operator shall have the right to


use such Material for Petroleum Operations under this Agreement free of charge.


Material not used in Petroleum Operations by the end of the Exploration Period


shall remain the property of the Second Party and shall only be charged as


Petroleum Operations Expenditures when used during Exploitation Period, subject


to Article 3.2 of Exhibit "C".


Material purchased by Operator during the Exploitation Period shall become the


property of First Party (a) immediately after purchase if purchased within GSPLAJ


and (b) when landed at Libyan ports of import if purchased outside GSPLAJ.


Income from the sale or use by a third party of Material which becomes the





property of First Party according to this Article, shall belong exclusively to First


Party.


 ARTICLE 17


TECHNICAL ASSISTANCE ANT) SERVICES


BY THE PARTIES AND AFFILIATES





First Party and each company comprising Second Party shall furnish, and shall


cause their Affiliates to furnish, all assistance, including technical assistance,


personnel (subject to the provisions of Articles 5.6 and 5.7 hereof), training and


services, as may be requested by the Operator in connection with Petroleum


Operations hereunder. All technical assistance and service contracts or


arrangements of any nature shall be subject to the approval of the Management


Committee.








ARTICLE 18


DATA





18.1 Use of Data


Second Party shall have the right to use and have access to all geological,


geophysical, drilling, well production, well location maps and other information


held by First Party related to the Contract Area, free of charge, and areas adjacent


to the Contract Area, in consideration of the payment of fees as declared by NOC


from time to time.


18.2 Title to Data


First Party shall have title to all original data resulting from Petroleum Operations


under this Agreement, including, but not limited to: geological, geophysical,


petrophysical and engineering data; well logs and completion status reports; and


any other data Operator may compile or obtain during the term of this Agreement.


Second Party is entitled to retain and use a copy of all such data, subject to Article


18.3.


18.3 Confidentiality


Second Party acknowledges the proprietary rights of First Party in all data referred


to in this Article 18 and agrees to treat all such data as confidential.


Each company comprising Second Party may disclose any such information to its





employees to the extent required for efficient conduct of Petroleum Operations,


provided such individuals have signed an undertaking relating to the confidentiality


of the information as part of their employment contract or to Affiliates and














34 Aren 47


 %


\








\








consultants, or to bona fide prospective assignees of rights under this Agreement or


to banks or financial institutions from which finance is sought, provided that such


company comprising Second Part)' obtains from such entities prior to disclosure a


written confidentiality undertaking. In the case of disclosure to prospective


assignees, any disclosure of such information shall require the prior written consent


of First Party, which consent shall not be unreasonably withheld.





Each company comprising Second Party may disclose information as and to the


extent required by a regulatory or judicial authority having proper jurisdiction over


such company comprising Second Party, provided that First Part)' is notified of


such disclosure and the information disclosed.





Each company’s comprising Second Party obligation of confidentiality under this


Article 18.3 shall be of a continuing nature and shall not be canceled by the


expiration, suspension or termination of this Agreement.











ARTICLE 19


RENTS. ROYALTY AND INCOME TAXES





19.1 Royalties and Taxes





19.1.1 Each company comprising Second Party shall be subject to royalty and corporate


income tax imposed by the Petroleum Law under this Agreement.


19.1.2 First Party agrees to meet and discharge any royalty and corporate income tax





obligations relating to each company’s comprising Second Part)' share of


production as imposed by the Petroleum Law.


Each company comprising Second Party shall prepare die corporate income tax


declaration as required by the Petroleum Law' and submit same to First Party for


review and audit one month prior to the due date for submitting the declaration to


the relevant tax authority. First Party shall notify such company comprising Second


Party of any comments thereon, in which event such company comprising Second


Party shall prepare a revised corporate income tax declaration incorporating such


comments and submit same to First Part)' prior to the due date mentioned above.


First Party shall process the tax declaration and obtain a tax certificate from the


competent tax authority in the name of each company comprising Second Party,


substantially in the form attached hereof as Exhibit “F”. Such certificate shall


promptly be delivered to each company comprising Second Party




















35 Area 4?


 & r f

















For the purpose of corporate income tax and royalty calculations, the official


selling price of GSPLAJ shall be used for calculating the revenue derived from


disposal of Crude Oil, the actual selling price according to the gas sales


agreement(s) shall be used for calculating the revenue derived from disposal of the





Natural Gas and for calculating the revenue derived from disposal of Liquid !


Hydrocarbon by-Products, the prices referred to in Article 12.3.3 shall be used.





t


19,2 Customs Duties





Second Party shall be exempt from customs duties according to the Petroleum Law.





19.3 Rentals and Fees





Second Party shall be exempt from payment of rentals and fees with respect to the


Contract Area.





19.4 Other Income


For purposes of determining Libyan taxes and other Libyan Governmental charges





due from Second Party, Second Party shall not be allowed to charge costs incurred


under this Agreement against income realized under other agreements; nor shall


income under this Agreement be consolidated with income from other activities.











ARTICLE 20


BOOKS. ACCOUNTS AND AUDITS





20.1 Operator's Responsibility for Books and Accounts





Operator shall be responsible for keeping complete books and accounts reflecting


costs, expenses and liabilities of Petroleum Operations under this Agreement, n


consistent with Good Oilfield Practices as described in the Accounting Procedure


attached hereto as Exhibit "C".





20.2 Audits i








Each Party shall have the right to inspect and audit, at its own cost, Operator’s


books and accounts relating to this Agreement for any Calendar Year within the


period of three (3) years following the date of submission of the annual account


related to such Calendar Year. Any such audit shall be completed within twelve


(12) months from its commencement, and any exceptions shall be made in writing m


E3














30 Area 47





JL


 %





-ft RSS


-ft





\











within ninety (90) days following the end of such audit. Failure to give such written


exceptions within such time shall establish the correctness of Operator’s books and


accounts, except in the case of manifest error.











ARTICLE 21


GOVERNING LAW


This Agreement shall be governed by and interpreted in accordance with the laws


and regulations of GSPLAJ, including, without limitation, the Petroleum Law.








ARTICLE 22


FORCE MAJEURB





22.1 Excuse of Obligations





Any failure or delay on the part of a Party in the performance of its obligations or


duties hereunder shall be excused to the extent attributable to force majeure. Force


majeure shall include, without limitation: Acts of God; insurrection; riots; war; and


any unforeseen circumstances and acts beyond the control of such Party which


render the performance of its obligations impossible.


22.2 Notification





The Party whose ability to perform its obligations is affected by force majeure shall


notify the other Party thereof in writing within thirty (30) days after date of


occurrence of the force majeure event, stating the cause.


22.3 Extension of Term; Termination





If operations are delayed, curtailed or prevented by force majeure, and the time for


carrying out obligations under this Agreement is thereby affected, the term of this


Agreement and all rights and obligations hereunder shall be extended for a period


equal to the period thus involved.


The Parties shall meet as soon as possible after notification of force majeure with a


view to mitigating the effects thereof. Failing to reach an agreeable arrangement,


this Agreement shall terminate if force majeure continues for a period of two (2)


years from the date of notification pursuant to Article 22.2 hereinabove.














37 Area 47


 >s 0s


ARTICLE 23


SETTLEMENT OF DIFFERENCES - ARBITRATION





23.1 Amicable settlement !





The Parties shall make every effort to settle amicably any dispute arising under this


Agreement.





23.2 Arbitration


Any controversy or claim arising out of or relating to this Agreement, or breach


thereof, shall be finally settled by arbitration, in accordance with the Rules of


Arbitration of the International Chamber of Commerce, in Paris, France, in Arabic


or English as the Parties may agree, by three (3) arbitrators. Each Party shall


appoint one arbitrator, and the International Chamber of Commerce shall appoint


the third arbitrator who must be in no way related to either Party and who will be


the Chairman of the arbitration body. The Parties agree that, in the event that an


arbitration is commenced under the Guarantee attached hereto as Exhibit "D"


involving the same subject matter as an arbitration commenced hereunder, the


arbitrations shall be consolidated and treated as one arbitration, with the arbitral


body being the tribunal appointed pursuant to the foregoing provision of this


Article 23.











ARTICLE 24


ASSIGNMENT rn


24.1 Assignment by First Party








First Party may freely assign this Agreement or any of its rights or obligations


hereunder upon written notice to Second Party.





24.2 Assignment by Second Party





Any company comprising Second Party may not assign this Agreement or any of its


rights or obligations hereunder without the prior written consent of First Party.


No assignment by any company comprising Second Party shall be allowed before








Mi.,

















!


 \










Notwithstanding any assignment by any company comprising Second Party in -ft


accordance with the provisions of this Article 24.2, the assignor shall be jointly and


severally liable with its assignee for all of its obligations hereunder, unles.s the assignee


has provided First Party with a guarantee covering its share of the commitment during


the Exploration Period similar to the guarantee provided by the parent company of the


assignor, or First Party, during the Exploitation Period, has provided a waiver to the


joint liability condition. In the event that the company comprising Second Party


appointed as Operator assigns its interest, it shall continue to act as Operator except to


the extent that a new Operator has been appointed pursuant to Article 5.1 hereof.


















































ARTICLE 25


TERMINATION





25.1 Right of Termination


First Party shall have the right (in addition to all other rights, powers and remedies





provided to First Party hereunder or otherwise) to tenninate the Agreement upon


thirty (30) days’ notice to Second Party in the event that:





25.1.1 Where any company comprising Second Party:





(a) fails to make any payment (or any part thereof) required to be made by it to


First Party under this Agreement when and as the same shall become due and


payable (whether by acceleration or otherwise);














39 Area 47


 (b) is in material breach of any of its other obligations under this Agreement;





In either case, First Party shall give notice to the relevant company comprising


Second Party, specifying the breach, and demanding that the relevant company


comprising Second Party remedy same. If, within ninety (90) days after the receipt


of such notice, the relevant company comprising Second Party does not remedy the


breach or is not in tire process of diligently proceeding to remedy the breach, First


Party may terminate this Agreement in respect to such company comprising Second


Party.


25.1.2 Where any company comprising Second Party and/or its Guarantor under Exhibit


“D” hereto:


(a) shall institute proceedings to be adjudged bankrupt or insolvent, consent to or


suffer the institution of any such proceedings against it, seek or suffer


reorganization under court order, seek the benefit of any law for the relief of


debtors, make an assignment for the benefit of creditors, admit in writing its


inability to pay its debts generally as they become due, or perform any other


generally recognized act of insolvency or bankruptcy, or the general financial


responsibility or condition of any company comprising Second Party or its


Guarantor under Exhibit ’fD” hereto shall otherwise become impaired or


changed so as to affect adversely its ability to perform its respective obligations


under this Agreement or the Guarantee set forth in Exhibit "D" hereto; or


(b) shall without the written consent of First Party (which shall not be


unreasonably withheld), merge into or consolidate with any other entity, or a


controlling voting block of the voting securities or other ownership interest in


any company comprising Second Party or its Guarantor shall be acquired after


the date hereof by one person or entity or by more than one person or entity


acting as a group, or


(c) fail to provide any funds (or any pan thereof) required to be provided by it for


Petroleum Operations under this Agreement when and as the same become due


and payable in accordance with the Accounting Procedure attached hereto as


Exhibit "C", and such default shall continue for a period of six (6) months.


In the event that any company comprising Second Party and/or its Guarantor is


affected by any of the events under (a) and (b) such company comprising Second


Party, and/or its Guarantor shall notify First Party of such an event within thirty


(30) days from its occurrence.


25.1.3 If less than all the companies comprising Second Party are affected by any of the


circumstances described in Articles 25.1.2(a) or 25.1.2(b) or 25.1.2(c) above, then


First Party shall terminate this Agreement only with respect to the affected


company(ies) and the non-affected company(ies) may elect to take over the affected


company(ies) interests and assume all its liabilities and obligations by giving First


Party' notice within sixty (60) days from the date of First Party’s notice of


termination.


25.2 Acceleration


In the event of any termination of this Agreement by First Party pursuant to this


Article 25 or any other provision of this Agreement, all amounts of whatever nature


owed by the affected company(ies) comprising Second Party to First Party under


this Agreement shall become immediately due and payable.








ARTICLE 26


ABANDONMENT


26.1 All costs, expenses and liabilities for Abandonment related to Exploration


Operations and Appraisal Operations shall be considered Exploration and Appraisal


Expenditures.


26.2 Each Party shall bear and finance fifty' percent (50%) of the costs, expenses and


liabilities for Abandonment which may be incurred as a result of Development


Operations and Exploitation Operations.


26.3 Without prejudice to Article 26,8, Abandonment provisions shall be calculated in


accordance with Article 26.6 and shall be included in the Petroleum Operations


Expenditures for each Field in the Contract Area. Second Party’s share of such


Abandonment provisions shall be recovered as per the terms of this Agreement.


26.4 As soon as the ratio indicated in Article 12.1.2 (b) (ii) for the Contract Area equals


or exceeds one (1.0), the Operator shall submit to the Management Committee for


approval, plans and cost estimates for the Abandonment operations for each Field


in the Contract Area. Such cost estimates shall be updated each Calendar Year.


26.5 Once Abandonment cost estimates are approved, Operator shall amend the current


Budget to include an Abandonment provision for each Field for that current


Calendar Year and shall thereafter include in the annual Budget of each Calendar


Year an updated Abandonment provision for each Field.


 26.6 Annual Abandonment provisions (“AP”) for each Field shall be determined for


each Calendar Year on the basis of the following formula:





AP = (UE - AA) X PR / RRR


Where:


UE: is the Abandonment cost estimate for the relevant Field as updated for the


current Calendar Year pursuant to Article 26.5.





A A: is the accumulated amounts of the Abandonment provisions budgeted as per


Article 26.5 for the relevant Field for previous years plus any accumulated


interest as per Article 26.7 below.


PR: is the anticipated annual production for the relevant Calendar Year from the


relevant Field.


RRR: is the estimate of remaining recoverable reserves for the remaining term of


this Agreement for the relevant Field.


26.7 Operator shall make a monthly special Cash Call to Second Party only for Second


Party’s share of the Abandonment provisions budgeted for the relevant Calendar


Year. Operator shall deposit such amounts in a special interest bearing bank


account established by First Party and dedicated to fund Abandonment operations


in the Contract Area.


Second Party shall be relieved from any liability related to Abandonment


operations in the Contract Area to the extent of the accumulated amounts paid by


Second Party in the said account.


26.8 If production terminates within the term of this Agreement or both Parties decide to


abandon a Field before the end of the term of this Agreement, Operator shall


proceed with the Abandonment operations and shall make Cash Calls to the First


Party to cover the Abandonment costs. Any un-abandoned fixed assets shall be left


in a safe condition.


Notwithstanding the provisions of Article 26.2, in the event that Second Party’s





share of the actual Abandonment costs exceeds the accumulated Abandonment


provisions paid by it, Second Party shall be liable for and pay its share of the


balance to the Operator.


If, at the end of this Agreement, First Party decides to continue the Petroleum


'1TV "IK Operations, Second Party shall be discharged from any costs of Abandonment


related to future Petroleum Operations, which shall be borne by First Party alone, it fts-














42 Area 4?


 %





%


%


X


being understood that Second Party shall have no claims with respect to any


Abandonment provisions deposited by it under 26.7. \





First Party shall indemnify and hold Second Party harmless against any claim


relating to such future Petroleum Operations carried, out in the Contract Area.


Provided that Second Party shall indemnify and hold First Party harmless against


any claim arising from previous joint Petroleum Operations to the extent of its


share under the Agreement for a period of time not exceeding fifteen (15) years.





26.9 The provisions of Article 26.8 shall also apply in case of withdrawal by Second


Parly pursuant to Article 3.3.2; in case the sole risk option becomes final and


effective pursuant to Article 10.3; and in case of termination of this Agreement


pursuant to Article 22.3.








ARTICLE 27


MISCELLANEOUS





27.1 Notices


All notices, proposals and other communications to a Party provided for in this








Agreement shall be in writing and shall be deemed to have been properly given and


received when delivered during regular business hours at the office of such Party or


sent by registered mail.





All such notices shall be addressed to:








NATIONAL OIL CORPORATION


Bashir Sadawi Street


P.O. Box 2655


Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN: Secretary of the People’s Committee


Verenex Energy Area 47 Libya Limited














Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN:-























43 Area 47


 Medeo International Ventures Limited








Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN:-








First Party and any company comprising Second Party may substitute or change its


address stated above to another address in the Great Socialist People's Libyan Arab


Jamahiriya upon written notice thereof to the other Party(ies).


27.2 No Waiver; Cumulative Remedies


No failure of either Party to exercise, nor any delay in exercising, any right, power


or remedy under this Agreement shall operate as a waiver thereof; nor shall any


single or partial exercise of any such right, power or remedy preclude any other or


further exercise thereof or the exercise of any other right, power or remedy.


Without prejudice to Article 23 hereof, all rights, powers and remedies provided


hereunder are (whether or not expressly so stated elsewhere in this Agreement with


respect to any particular right, power or remedy) cumulative and not exclusive of


any other rights, powers and remedies provided by law or otherwise.


27.3 Amendments


This Agreement shall not be amended or modified in any respect except by the





mutual consent in writing of the Parties executed and approved in the same manner


as this Agreement.





27.4 Satisfactory Documentation


27.4.1 On or prior to the Signature Date, each company comprising the Second Party shall


furnish to First Party:


(a) a list of those individuals authorized to represent each company comprising





Second Party in its dealings with First Party;


(b) a certificate of the Secretary or other similar officer of each company


comprising Second Party certifying as to the authority and incumbency of each


person named in clause (a) above and the person(s) executing this Agreement














44 Area 47


on behalf of such company comprising Second Party, and a certificate of the


Secretary or other similar officer of the Guarantor under Exhibit "D" hereto


certifying as to the authority and incumbency of the person(s) executing the


Guarantee set forth in said Exhibit "D";


(c) such other documentation, including, without limitation, a special or general


power of attorney empowering the person(s) executing this Agreement on


behalf of each company comprising Second Party and the person(s) executing


the Guarantee set forth in Exhibit "D" hereto on behalf of the Guarantor therein


to act in such capacity, as may reasonably be requested by First Party;


(d) updated copies of the Charter and By-laws of each company comprising Second


Party and of its Guarantor under Exhibit "D" hereto, certified by the respective


Secretary or other similar officer thereof;


(e) an updated balance sheet and income statement of each company comprising


Second Party which participated in winning bid and of its Guarantor under


Exhibit "D" hereto, certified by independent public accountants satisfactory to


First Party.


27,4.2 Each company comprising Second Party shall at all times keep current the


information required to be given to First Party under Article 27.4.1 above, shall


provide First Party with each subsequent balance sheet and income statement of


each company comprising Second Party and of its Guarantor under Exhibit "D”


hereto (certified as above provided), and shall furnish to First Party such other


information and documentation concerning the financial and corporate status of


each company comprising Second Party and said Guarantor as may from time to


time reasonably be requested by First Party.


27.5 Entirety of Agreement


Tills Agreement constitutes the entire agreement of the Parties and supersedes any


and all prior understandings or agreements in respect of the subject matter of this


Agreement.


27.6 No Third Party Beneficiaries


Nothing in this Agreement is intended or shall be construed to confer upon or give


to any person or entity any rights as a third party beneficiary of this Agreement or


any part hereof.


27.7 Conflict in Terms


In the event of a conflict between the terms and conditions of the main Agreement


and its Exhibits, the first shall prevail.





27.8 Language


This Agreement is made in six (6) originals, three (3) in the Arabic language and


three (3) in the English language, all having equal validity.


27.9 Headings





The Article headings used in this Agreement are included herein for convenience of


reference only and shall not constitute a part of this Agreement for any other


purpose or in any way effect the construction of this Agreement.


27.10 Indemnity


Second Party hereby agrees to indemnify First Party against all claims, losses or


damage caused by or resulting from any operations conducted by it under or in


connection with this Agreement during the Exploration Period (except to the extent


that such claims, losses and damage resulted from an action taken upon written


instruction of First Party), provided that the First Party shall notify and consult with


the Second Party as regards the conduct of any proceedings relating to any such


claim, losses or damage and shall not oppose the joinder of the Second Party as a


third party to any such proceedings.


27.11 Effective Date





This Agreement shall become effective on the Effective Date. First Party shall


notify Second Party of the approval of this Agreement by tire General People's


Committee of GSPLAJ.


























m














46 Area 47


 \


IN WITNESS WHEREOF, the Parties have executed this Agreement in Tripoli, Great


Socialist People's Libyan Arab Jamahiriya, on the date first above written.











NATIONAL OIL CORPORATION














Abdulla Salem El Badri Robert Anthony Christensen


Secretary of Management Committee Director








Medco International Ventures Limited

























































































47 Area 47


 EXHIBIT "A”











Attached to and made a part of the Exploration and Production Sharing Agreement


between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya


Limited and Medco International Ventures Limited dated the day of Safar,


1373, corresponding to the twelfth day of March, 2005.














“CONTRACT AREA”




















































































































j\ ] Area 47





A


 National Oil Corporation








Area: 047 Number of Blocks: 4


Open Acreage: 6,182 sq. km








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A2 Area 47


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Area: 047 - Description











Block: 1





Starting at the intersection of 31° 00’00” Latitude


and 11° 00' QQ”Longitude


Thence East till 11° 30' G0"Longitude


« North 31° 30' 00”Latitude


«


West 11° 00'00” Longitude


tc South Point of Origin








Excluded Area (NC118)





Starting at the intersection of 31° 00'00” Latitude


and 11° 00' G0”Longitude


Thence East till 11° 30’ 00”Longitude


u North a 31° 25' 00”Latitude


«« West “ 11° 00'00” Longitude


u South Point Of Origin











Block : 2


Starting at the intersection of 31° 00’00” Latitude


and 11° 30' 00”Longitude





Thence East till 12° 00! 00”Longitude


it North “ 31° 30' 00”Latitude


« West “ 11° 30' 00” Longitude


South Point Of Origin








Block: 3





Starting at the intersection of 31° 30'00” Latitude


and 11° 00' OOXongitude


Thence East till 11° 30' 00”Longitude


North “ 32° 00’ 00”Latitude


« “


West 11° 00' 00” Longitude


“ South “ Point Of Origin























A3 Area 47


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Excluding (NC2)


Starting at the intersection of 31° 50'00” Latitude


and 11° 00' 00”Longitude





Thence East till 11° 10’ 00”Longitude


it South «c 31° 45’ 00”Latitude


tc East 44 11° 20’ 00” Longitude


u South il 31° 35' 00”Latitude


It East “ 11° 30’00” Longitude


ct South £1 31° 30’ 00”Latitude


tc West 44 11° 00’00” Longitude


44 North Point of Origin











Block : 4


Starting at the intersection of 31° 30’00” Latitude


and 11° 30’ 00”Longitude


Thence East till 12° 00' 00”Longitude


it North <4 32° 00’ 00”Latitude


44 U


West 11° 30' 00” Longitude


u South u Point of Origin








Excluding (NC143)


Starting at the intersection of 31° 30’00” Latitude


and 11° 50’ 00’Xongitude





Thence East till 12° 00' Q0”Longitude


“ North ci 32° 00’ 00”Latitude


it West cc 11° 50’ 00” Longitude


it South “ Point Of Origin








Excluding (NC2)


Starting at the intersection of 31° 30’00” Latitude j





and 11° 30’ OO’Xongitude f


Thence East till 11° 40’00”Longitude :


£< North 44 31° 35’ 00”Latitude


£4 West 44 11° 30’ 00” Longitude


44 South 44 Point of Origin. ?




















A4 Area 47


 EXHIBIT "B





Attached to and made a part of the Exploration and Production Sharing Agreement


between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya


Limited and Medco International Ventures Limited dated the_day of Safar,


1373, corresponding to the twelfth day of March, 2005.





EXPLORATION PROGRAM





During the Exploration Period, Second Party shall, as a minimum, carry out


the following Exploration Program with respect to the entire Contract Area:


1. conduct such number of seismic crew-months as may be necessary to survey


one thousand (1000) kilometres of two dimensional (2D) seismic lines; and


2. conduct such number of seismic crew-months as may be necessary to survey two


hundred square (200) kilometres of three dimensional (3D) seismic lines; and


3. conduct such number of rig-months as may be necessary to complete the


drilling of three (3) New-Field Wildcat Well.


 EXHIBIT "C





Attached to and made a part of the Exploration and Production Sharing Agreement


between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya


Limited and Medco International Ventures Limited dated the__day of Safar,


1373, corresponding to the twelfth day of March, 2005.








ACCOUNTING PROCEDURE





1. General Provisions


1.1 Definitions


All terms used in this Accounting Procedure and defined in Article 1 of the


Agreement shall have herein the meaning ascribed to them in said Article 1. In


addition, the following terms shall have the following meaning:


(a) “Advance” shall mean payment of cash required to be made by the


Parties pursuant to a Cash Call.


(b) “Cash Call” shall mean any request for funds made by the Operator to


the Parties in accordance with the Agreement.


(c) “Controllable Material” shall mean Material which is ordinarily subject


to record, control and inventory in accordance with Good Oilfield


Practice.


(d) “Material” shall mean and include any and ail materials, equipment,


machinery, articles and supplies acquired and held for use in Petroleum


Operations.


(e) “Operating Account” shall mean the account or set of accounts


maintained by Operator to record all charges and credits related to


Petroleum Operations Expenditures.


 f





l .2 Purpose and intent of Accounting Procedure


l .2.1 The purpose of this Accounting Procedure is to establish methods and rules of


accounting for the Petroleum Operations under the Agreement.





1.2.2 Any procedure established herein may be modified by mutual agreement of


the Parties.


1.2.3 No charge shall be made to the Operating Account unless from such charge


some direct or indirect benefit is derived for the Petroleum Operations covered


by the Agreement.


1.3 Operating Account Records


1.3.1 Operator shall open and maintain all accounts and records necessary to record





in reasonable detail and in separate accounts the transactions relating to


Exploration Operations, Appraisals, Development Operations and other


Petroleum Operations, in accordance with generally accepted and recognized


accounting principles consistent with Good Oilfield Practice, all in accordance


with and subject to the provisions of the Agreement.


1.3.2 Operator shall maintain appropriate cost control records as required to meet


1 requirements and obligations under fee Agreement.





1.3.3 Production records shall be maintained as may be required by the laws and


regulations of the GSPLAJ, but further supplementary records may also be


maintained.


1.3.4 The Operating Account shall be maintained in Libyan Dinars and in U.S.


Dollars on Operator's premises in the GSPLAJ, using the exchange rate


prevailing on the date of payment.


1.4 Advances and Cash Requirements





1.4.1 After a Commercial Discovery is made, Operator shall be entitled to make to


each Party monthly Cash Calls covering estimated future expenditures in


respect of costs, expenses and liabilities to be incurred for Petroleum


Operations related to such Commercial Discovery, all in accordance with and


subject to the terms of the Agreement. f.r-


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C2 Area 47


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1.4.2 At least thirty (30) days prior to the beginning of each month, Operator shall,


on the basis of the annual Work Program and Budget (broken down by





quarters) approved by the Management Committee pursuant to the Agreement,


transmit to each Party a statement of the aforesaid estimated expenditures to


be made in respect of each of the succeeding three (3) months for Petroleum


Operations other than Exploration Operations and Appraisals.








1.4.3 For purposes of this paragraph, the estimated expenditure to be made in each


month is the estimated cash outlay for such month, including any payment for


liabilities accrued during previous months. The estimate for the first such


month shall, at Operator's option, constitute a Cash Call. The estimates for the


second and third succeeding months shall be tentative only and may be revised


in subsequent submittals.





1.4.4 Operator may use its discretion in dividing the approved Budget among the


months of a Calendar Year based on its estimated cash requirements for the


respective months. The aforesaid statement shall indicate the currencies in


which sums are needed for Petroleum Operations other than Exploration


Operations and Appraisals, as well as the place designated by Operator for


payments.





1.4.5 Each Party shall pay its Cash Calls in full on or before the due date in


accordance with the terms of the Agreement and in such currency, as


requested by Operator, within fifteen (15) days after receipt of such request or i


LM on the first day of the month for which the Advances are required, whichever i


is later. If payments of Advances are not so paid, the unpaid balance shall t-


carry interest for each month or pro-rata portion thereof, in accordance with r


Article 14.5 of the Agreement.





1.4.6 In case Advances for a given month are not sufficient to cover the cash


requirements (within the limits of the approved Budget or authorized overrun), f


Operator shall transmit to each Party a supplementary Cash Call showing such


additional amounts to be Advanced by each Party, and the date the funds are


required.





1.4.7 Each Party shall furnish to Operator on the date requested its share of


Advances indicated in each supplementary Cash Call, provided at least ten


(10) days’ notice is given by Operator. Operator shall keep records of


Advances and payments in all currencies and submit a statement to each Party


showing such Advances and payments in each currency. Adjustments for over


and under-calls shall be settled for each currency separately according to the


provisions of Article 1.6 of this Accounting Procedure. is


JiliaJL

















C3 Aren 4?


The Operator shall open and maintain for the Petroleum Operations separate interest


bearing bank accounts in such currencies as Advances are requested. Such interest


shall be credited to the Operating Account.


1.5 Statements and Reports


Within thirty (30) days after the end of each month, Operator shall submit to


each Party a statement of the costs, income, expenses and liabilities incurred in


such month for the year to date and inception to date figures for Exploration


Operations, Appraisals, Development Operations and Exploitation Operations.


The monthly statements shall include all balance sheet accounts.


Such statements shall be in Libyan Dinars and U.S. Dollars and shall consist


of a statement of the charges and credits to the Operating Account properly


summarized by nature and in such a way as to permit a comparison between


the costs, expenses and liabilities incurred and the budgeted amounts. The


amount billed to each Party shall be on the basis of the provisions of the


Agreement. A detailed description shall be given of unusual charges and


credits. At the time of submission of each monthly statement, Operator shall


indicate adjustments to the statement which will be necessary to account for


cash expenditures incurred during the month for which such statement is


submitted.


Within sixty (60) days from the end of each Calendar Year, Operator shall


submit to each Party a statement of the final costs, expenses and liabilities


incurred during such Calendar Year for all operations under the Agreement


such as Exploration Operations, Appraisals, Development Operations and


other Petroleum Operations, shown separately together with statements of the


Operating Account including all balance sheet items.


1 -6 Settlement of Overpayments and Underpayments


If Advances by a Party for a given month are not sufficient to cover the


Party’s share of the monthly costs provided in this Accounting Procedure,


such Party shall pay the difference together with the payment of the next


succeeding Cash Call.


If Advances by a Party for a given month are in excess of said Party’s share of


the monthly costs, the difference shall be deducted from the amount due by


said Party at the next succeeding Cash Call, provided that if the amount to be


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deducted is larger than the next succeeding Advance, Operator shall promptly


reimburse the excess amount to said Party.





1.7 Adjustments


Payments of any Advance shall not prejudice the right of any Party to protest





or question the correctness of any amount included in a billing statement. All


Statements rendered to a Party by Operator during any Calendar Year shall be


presumed to be true and correct, except in the case of manifest error, after


three (3) Calendar Years following the end of any such Calendar Year unless


within the said three (3) Calendar Years period such Party takes written


exception thereto and makes claim on Operator for adjustment or unless such


Party carries out an audit and submits an exception within the period provided


in Article 20.2 of the Agreement. Failure on the part of a Party to make claim


on Operator for adjustment within the applicable period shall establish the


correctness thereof and preclude the filing of exceptions thereto or the making


of claims for adjustment thereon, except in the case of manifest error.


1.8 Audits





Each Party, upon written notice to Operator, shall have the right, at its sole


cost, to audit Operator's accounts and records relating to the accounting


hereunder for any Calendar Year within a three (3) Calendar Year period


following the date on which Operator submitted the annual account related to


such Calendar Year and submit a report covering the exceptions within the


period provided in Article 20.2 of the Agreement. Each Party shall make every


reasonable effort to conduct audits in a manner which will result in a


minimum of inconvenience to Operator. The audit report will be submitted to


the Operator within ninety (90) days of completing the audit.


The Operator shall give a written reply to the report within three (3) months of





receipt of the report.


All agreed adjustments resulting from an audit shall be made promptly in the


Operating Account by the Operator and reported to each Party.





Any unresolved disputes arising in connection with an audit shall be referred


to the Management Committee for settlement.

















C5 Area 47


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4








2. Petroleum Operations Charges


Subject to the provisions of the Agreement and of this Accounting Procedure,


Operator shall charge the Operating Account with all costs and expenses


incurred in connection with the Petroleum Operations carried out under the


Agreement. In respect of Exploitation Operations Expenditures relating to


production of Liquid Hydrocarbon By-Products together with Natural Gas,


such Exploitation Operations Expenditures shall be allocated pro-rata to


barrels of oil equivalent. Such costs and expenses shall include, but shall not


be limited to, the following items:


2.1 Labor


2.1.1 Salaries and wages of Operator’s employees engaged for the benefit of the





Petroleum Operations under the Agreement, whether temporarily or


permanently assigned, in accordance with the relevant employment contract


agreement. Salaries and wages shall include gross pay to employees as


reflected on Operator's payrolls.





To the extent not included in salaries and wages, the Operating Account shall


also be charged with overtime, rest, holiday, vacation pay and vacation travel


pay, sickness and disability benefits, accommodation costs, bonuses and other


customary allowances applicable to the salaries and wages as well as costs to


Operator for employee benefits and all costs incidental to the employment of


personnel.





2.1.2 Expenditures or contributions made pursuant to assessments imposed by


Libyan authorities which are applicable to Operator's labor costs or salaries


and wages.


2.1.3 Costs of a Party’s personnel who are seconded or assigned to Operator. These


costs shall be established by the terms and conditions of the service contract.


2.1.4 For personnel not assigned exclusi vely to the Petroleum Operations carried out


under the Agreement, the amounts referred to above shall be charged to the


Operating Account according to the procedure defined in Article 2.11 (i)


below.























C6 Area 47


2.2 Material


Material purchased for or furnished to the Petroleum Operations shall be


charged in accordance with Article 3 hereinunder. All such Material shall be


stored in a separate warehouse and separate stock accounts shall be maintained


therefor.


2.3 Transportation


2.3.1 Transportation of Material necessary for the performance of Petroleum


Operations, including costs of packaging, brokerage, insurance and other


related costs.


2.3.2 Employee transportation costs, to the extent covered by the established policy


of Operator, shall include travel expenses for employees and their families to


and from the employees' points of origin at the time employment commences,


at the time of final departure and for vacations, as well as travel expenses in


the GSPLAJ for employees and their families incurred as a result of transfers


from one location to another, and travel expenses relating to the periodical


recuperation leaves of personnel.


2.4 Buildings


Building costs, maintenance and related costs and rents paid for all offices,


houses, warehouses and other types of buildings and cost of equipment,


furniture, fixtures and supplies necessary for the operation of such buildings


and facilities, all in the GSPLAJ.


2.5 Services


2.5.1 The service of consultants, contract services, utilities and other services


procured from outside sources, rentals or compensation paid or incurred for


the use of any equipment and facilities. The aforesaid services shall be


charged to the Operating Account at the price paid by Operator.


2.5.2 Use of equipment and facilities of Operator or Parties as provided in Article


3.4 hereof.


2.5.3 Services rendered by Second Party or their Affiliates shall be charged to the


Operating Account in accordance with the provisions of a Service Contract


 between Operator and the Parties or their Affiliate as approved by the


Management Committee,





2.5.4 Per diem at a rate per day as approved by the Management Committee, plus


travel expenses, living and accommodation expenses for expert employees of


Operator or a Party or its Affiliate called on from areas other than the GSPLAJ


for periods of short duration.


2.6 Damages and Losses


All costs or expenses necessary to replace or repair damages or losses not


recovered from insurance incurred by fire, flood, storm, theft, accident, or any


other cause not within the control of Operator or not within Operator’s liability








the same has been received by Operator.


2.7 Legal Expenses


All costs and expenses of litigation, or legal services otherwise necessary or


expedient for the protection of the joint interests, of the Parties in and under


the Agreement, including attorneys’ fees and expenses, as hereinafter


provided, together with all judgments obtained against the Parties or any of


them on account of the operations under the Agreement, and actual expenses


incurred with the prior consent of the Parties by any Party hereto in securing


evidence for the puipose of defending against any action or claim prosecuted


or urged against the operations hereunder. In the event that actions or claims


affecting the joint interests hereunder shall be handled by the legal staff of one


or more of the Parties hereto, a charge commensurate with the cost of


providing and furnishing such services may be made to the Operating


Account. Any settlement of claims or litigation above U.S Dollars


shall be subject to the approval of the


Management Committee.





2-8 Taxes








Subject to the provisions of the Agreement, all Libyan taxes of every kind,


levies, duties, imposts or any other such charges assessed or levied upon or in

















C8 Area 47


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connection with the Petroleum Operations and which taxes have been paid by


Operator for the benefit of the Parties hereto.


2.9 Insurance and Claims





2.9.1 Premiums paid for insurance required by law or authorized by the


Management Committee for Petroleum Operations, it being understood that,


for those insurances subscribed by Operator at a world level (if permitted


under Libyan law), a share of premiums proportional to Petroleum Operations


carried out under the Agreement shall be charged to the Operating Account.





2.9.2 All actual expenditures incurred and paid by Operator in settlement of any and


all losses, claims, damages and judgments and any other expenses, including


legal services, shall be charged to the Operating Account. The Operating


Account shall be credited with all settlements received from insurance carriers


or others.


2.10 Currency Exchange





The gain or loss, if any, through currency conversion or exchange.





2.11 General and Administrative Expenses


Operator shall charge the Operating Account with the costs of the personnel,


and related office costs, performing administrative, legal, accounting,


purchasing, treasury, employee relations, computer services and other similar


functions in Operator's offices in the GSPLAJ not charged under the preceding


provisions of this Accounting Procedure. In the event such personnel and


office costs are not fully attributable to the Petroleum Operations carried out


under the Agreement, the charge shall be as follows:





(i) Personnel costs to be charged to the Operating Account shall be


determined according to the actual time spent by the personnel for


Petroleum Operations as evidenced by the summary of the "time sheets"


adopted by the Operator's organization in the GSPLAJ.


(ii) Other office costs will be charged to the Operating Account pro rata to the





direct costs of personnel as determined pursuant to clause (i) above. The


system of allocation of expenses above provided for may be amended from














C9 Area 47


 time to time by the Parties if, in practice, it is found to be inaccurate or


inequitable.





2.12 Head Office Overhead


The head office overhead will be charged to the Operating Account in


accordance with Article 14.3 of the Agreement.


2.13 Other Expenditures





Any other legitimate expenditures, other than expenditures which are covered


by the foregoing provisions of this Article 2, incurred by Operator for the


performance of Petroleum Operations under the Agreement.


2.14 Currency of Operating Account


Operating Account records shall be maintained in Libyan Dinars and in U.S.





Dollars on the Operator's premises in the GSPLAJ. Conversion of Libyan


Dinars into U.S Dollars and vice versa shall be at the rate of exchange fixed by


the Central Bank of the GSPLAJ from time to time.


Costs and expenditures incurred as well as Advances made in currencies other





than Libyan Dinars and U.S. Dollars shall be converted into Libyan Dinars


and U.S. Dollars at the monthly average of the buying and selling official rate m :i


quoted by the Central Bank of the GSPLAJ, for the currency in question in the


month in which such costs and expenditures were incurred or Advances made.


Any gain or loss resulting from the application of the aforesaid conversions


shall be credited or debited as the case may be to the respective cost centers of


the Operating Account as a non-cash cost. It is understood that none of the


Parties shall experience a gain or loss at the expense of or to the benefit of the


oilier Parties due to exchange or conversion of currencies.


3. Basis Of Charges To Operating Account





3.1 Purchases


Material purchased from third parties shall be charged at cost price paid by





Operator after deduction of all discounts actually received, plus actual costs


including duties to deliver the materials to areas covered by the Agreement.

















CIO Area 47


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3.2 Materials Furnished by Parties





Material required for Petroleum Operations shall be purchased for direct


charge to the Operating Account whenever practicable, except that the Parties


may furnish such Material from their stock under the following conditions:


(a) New Material





New Material transferred from a Party's warehouse or other properties


shall be priced at new price. New price, as used herein, shall mean the cost


price as per the stock ledger of such Party maintained in the GSPLAJ


provided that the cost of Material so transferred is not higher than


international prices plus all delivery costs for Material of similar quality


supplied on similar terms, prevailing at the time such Material was


transferred.


(b) Used Material





The price charged for used Material will be new price, as hereinabove


defined, discounted by a percentage representing the Material utilization.


Technicians according to the condition of the Material shall assess such


percentage.


It is understood, however, that Material purchased for use in the Petroleum


Operations shall be stored in a separate warehouse and that such Material


should satisfy normal requirements for the Petroleum Operations.


3.3 Warranty of Material Furnished by Parties





The Party furnishing the new Material does not warrant the Material furnished


beyond the dealer's or manufacturer's guarantee, and in case of defective


Material, credit shall not be passed until adjustment has been received by said


Party furnishing Material hereunder from manufacturers or their agents.


3.4 Use of Parties’ Exclusively Owned Equipment and Facilities





For the use of any such wholly owned equipment, the Operating Account shall


be charged a rental commensurate with the cost of ownership and operation.


The rental rates, which will not include any profit element, will be approved


by the Management Committee each Calendar Year. Such rates should not











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exceed rates obtainable from other contractors in the area, unless otherwise


agreed between the Parties.


3.5 Distribution of Petroleum Operations Expenditures


For the purpose of this Accounting Procedure, the Petroleum Operations


Expenditures shall be distributed between the Crude Oil, Natural Gas and


Liquid Hydrocarbon By-Products streams prorata to their respective


production volumes.


For the purpose of cost recovery calculations, the Second Party excess profit


shall be distributed among the Production streams, prorata to their respective


values as stipulated in Exhibit “E”.


3.6 Services Rendered by Affiliates of the Parties





Technical and professional services, including, but not limited to, laboratory


analysis, drafting, geophysical and geological interpretation, engineering, and


related data processing, performed by the Parties or by any of their Affiliates


for the benefit of the Petroleum Operations shall be charged at cost determined


according to the cost accounting of such Party or its Affiliate, as the case may


be.


4. Inventories





4.1 Periodic Inventories, Notice and Representation


At reasonable intervals, at least once annually, inventories shall be taken by


Operator of all Controllable Material and physical assets entered into the


Operating Account. Written notice of intention to take inventory shall be given


by Operator at least ninety (90) days before any inventory is to begin so that


the Parties may be represented when any inventory is taken. Failure of the


Parties to be represented at an inventory shall bind the Parties to accept the


inventory taken by Operator, who shall in that event furnish the Parties with a


copy thereof.


4.2 Reconciliation and Adjustment oflnventories





Reconciliation of inventory with the Operating Account shall be made and a (S3


list of overages and shortages shall be furnished to the Parties. Inventory














02 Area 47


 x>








adjustments shall be made by Operator to the Operating Account if required


;tment over a value of U.S, Dollars


shall be subject to the approval of


the Management Committee.


4.3 Special Inventories


Whenever there is a sale or change of participating interest in the Agreement, a


special inventory may be taken by the Operator. The seller and/or purchaser of


such participating interest shall bear all of the expense thereof. In such case,


both the seller and the purchaser shall be entitled to be represented and shall be


bound by the inventory so taken, whether represented or not.


5. Assets Register





Operator shall maintain an asset register showing the cost of assets purchased


or installed or constructed, location of such assets, and assets disposed of or


scrapped.


6. Disposal of Material and/or Assets





Operator shall inform the Management Committee of any surplus of


disposable Material and/or assets and shall act with respect to such Material


and/or assets according to the instructions of the Management Committee.


Any proceeds of disposal of such material and/or assets by Operator with the


authorization of the Management Committee shall be credited to the


appropriate accounts in accordance with the provisions of Article 16 of the


Agreement.


7. Sums Received From Third Parties





Without prejudice to Article 16 of the Agreement, all sums received from any


third party, in compensation for the use by them of Material held and facilities


built for Petroleum Operations shall be credited to the Operating Account.


8• Special Abandonment Account





Subject to Article 26 of the Agreement, First Party shall establish a special


account for the sole purpose of depositing such abandonment provisions to be


designated as the “Abandonment Fund”.














C13 Area 47


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All amounts received from Second Party based on a Cash Call raised by


Operator against the abandonment provisions, as per Article 26 of the


Agreement and shall be deposited in the Abandonment Fund and recorded in


the Operating Account. The Abandonment Fund shall be adjusted according to


the actual expenditures of the Abandonment cost.





Second Party shall pay any short fall for its share of the Abandonment costs


and Operator shall raise any Cash Call required for such expenditures. Any


remaining amounts in the Abandonment Fund shall be credited to First Party


account.






































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EXHIBIT "P"



































GUARANTEE

















VEBENEX ENERGY Inc,



















































































Arcs 4?


 EXHIBIT "D"


GUARANTEE








THIS GUARANTEE is made in Tripoli, Socialist People's Libyan Arab Jamahiriya, on


this_ day of Safar,1373, corresponding to the twelfth day of March, 2005, by


Verenex Energy Inc., a corporation duly constituted and existing under the laws of


Alberta, Canada, having its principal office at Calgary, Canada (hereinafter referred to


as the "Guarantor"), to NATIONAL OIL CORPORATION, a corporation duly


constituted and existing under the laws of the Socialist People's Libyan .Arab


Jamahiriya, and having its principal office in Tripoli, Great Socialist People's Libyan


Arab Jamahiriya (hereinafter referred to as "NOC").


WHEREAS, the Guarantor is the parent entity of Verenex Energy' Area 47 Libya


Limited, a Corporation duly constituted and existing under the law?s of the Jersey, with


a branch in the Socialist People's Libyan Arab Jamahiriya, registered in the


Commercial Register of Tripoli under No._(hereinafter referred to as "


Verenex”); and


WHEREAS, the Guarantor desires to furnish this Guarantee as contemplated by the


Exploration and Production Sharing Agreement ("EPSA") to which this Guarantee is


attached, as an inducement to NOC to enter into the EPSA and in consideration of the


rights and benefits inuring to Verenex under the EPSA.








NOW, THEREFORE, the Guarantor hereby agrees as follows:





Scope of Guarantee





The Guarantor hereby guarantees to NOC the timely payment and performance of any


and all indebtedness and obligations whatsoever of Verenex to NOC arising under or


relating to the EPSA, including, without limitation, the payment of any amounts


required to be paid by Verenex to NOC under the EPSA when and as the same shall


become due and payable; provided, however, that the liability of the Guarantor to NOC


hereunder shall not exceed.


[during the Exploration Period.





Waiver of Notice. Agreement to All Modifications





The Guarantor hereby waives notice of the acceptance of this Guarantee and of the


state of indebtedness of Verenex at any time, and expressly agrees to any extensions,











Dl Area 47


renewals, modifications or acceleration of sums due to NOC under the EPSA or any of


the terms thereof, all without relieving the Guarantor of any liability under this


Guarantee.


Absolute and Unconditional Guarantee





The obligations of the Guarantor hereunder shall be an absolute, unconditional, and


(except as provided herein) unlimited guarantee of payment and performance to be


performed strictly in accordance with the terms hereof, and without respect to such


defences as might be available to Verenex.


No Discharge of Guarantor


The obligations of the Guarantor hereunder shall not in any way be released or


otherwise affected by any release or surrender by NOC of any collateral or other


security it may hold or hereafter acquire for the payment of any obligation hereby


guaranteed; by any change, exchange or alteration of such collateral or other security;


by the taking of or the failure to take any action with respect thereto either for or


against the Guarantor; or by any other circumstance which might otherwise constitute a


legal or equitable discharge or defence of a guarantor.


No Prior Action Required


NOC shall not be required to make demand for payment or performance first against


Verenex or any other person, firm or corporation or to proceed against any collateral or


other security which may be held by NOC or otherwise to take any action before


resorting to the Guarantor hereunder.


Cumulative Rights





All rights, powers and remedies of NOC hereunder shall be cumulative and not


alternative, and shall be in addition to all rights, powers and remedies given to NOC by


law or otherwise.


Continuing Guarantee


This Guarantee is intended to be and shall be construed as a continuing guarantee of


payment and performance and shall remain in full force and effect for so long as there


is any commitment during the Exploration Period to be fulfilled or there exists any


liability of Verenex relating to the Exploration Period to NOC thereunder.


 8. Notice of Demand


Upon default in the performance of any of the obligations of Verenex guaranteed





hereunder, NOC or its duly authorized attorney may give written notice to the


guarantor at its principal office in Suite 3050 400-4,h Avenue SW Calgary, AB T2P0J4


Canada of the amount due, and the Guarantor, within a period of ten (10) business


days, will make, or cause to be made, payment of such amount as noticed, in U.S.


Dollars, in Tripoli, Socialist People's Libyan Arab Jamahiriya, at such bank or other


place as NOC shall designate and without setoff or reduction whatsoever of such


payment in respect of any claim the Guarantor or Verenex may then have or thereafter


might have.


9. Assignment





The Guarantor shall not in any way effect, or cause or permit to be effected, the


assignment or transfer of any of its obligations hereunder without the express written


consent of NOC. This Guarantee and every part hereof shall inure to the benefit of the


successors and assigns of NOC. U


10. Subrogation


Until all indebtedness hereby guaranteed has been paid in full, the Guarantor shall have


no right of subrogation to any security, collateral or other rights which may be held by








11. Payment of Expenses


The Guarantor shall pay to NOC all reasonable costs and expenses, including


attorney’s fees, incurred by it in collecting or compromising any indebtedness hereby


guaranteed or in enforcing the EPSA or this Guarantee.


12. Governing Law and Arbitration





This Guarantee shall be governed by and interpreted in accordance with the laws of the


Socialist People's Libyan Arab Jamahiriya.


Ail disputes or claims arising out of or relating to this Guarantee shall be finally settled


by arbitration, in accordance with the Rules of Conciliation and Arbitration of the


International Chamber of Commerce, in Paris, France, by three arbitrators. Each party


shall appoint one arbitrator, and the International Chamber of Commerce shall appoint


the third arbitrator who must be in no way related to either party and who will be the











D3 Area 47








r


Chairman of the arbitral body; provided, however, that in the event that an arbitration


involving obligations hereby guaranteed has also been commenced under the EPSA,


the arbitration hereunder shall be consolidated with such arbitration under the EPSA


and the arbitral body shall be the first appointed arbitral body appointed pursuant to the


EPSA or the Guarantee.


13. Severability of Provisions


Any provision hereof which may, for any reason, prove illegal, unenforceable or


invalid shall not affect the validity or enforceability of other provisions hereof.


14. Confidentiality


The Guarantor agrees to treat this Guarantee and the EPSA to which it is attached as


confidential and shall not disclose the terms and conditions hereof or thereof, willingly


or unwillingly, to any third party without the prior written consent of NOC, except to


the extent required by law.


IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed on the


date first above written.








Tames d. McFarland


President and CEO





Accepted by














Secretary of Management Committee


 GUARANTEE
































PX Medco Knerei Intemasional Tbk


 Accepted by








NATIONAL OIL CORPORATION











Abdulla Salem ETBadri


Secretary of the management Committee























D4 Area 47


 X





%





%














EXHIBIT UE”





Attached to and made a part of the Exploration and Production Sharing Agreement


between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya


Limited and Medeo International Ventures Limited dated the_day of Safar,


1373, corresponding to the twelfth day of March, 2005.








EXAMPLE CALCULATION to DETERMINE


EACH PARTY'S SHARE of PETROLEUM


(Numbers for illustration only)


 Area 47


£3





HL.;:*
































E4 A rat 47


 vCl.














F \











%








EXHIBIT “F”








RECEIPT OF TAX PAYMENT (EXAMPLE)











Great Socialist People’s Libyan Arab Jamahiriya











RECEIPT OF TAX PAYMENT
























































Name:


Title: -


Date: -










































































p ] Area 47





V


 EXHIBIT “G”























SHAREHOLDERS AGREEMENT


 SHAREHOLDERS AGREEMENT





BETWEEN











NATIONAL OIL CORPORATION


and


Verenex Energy Area 47 Libya Limited








and


Medco International Ventures Limited























Area 47


THIS AGREEMENT is made and entered into the.....day of............., corresponding to


the......day of............., by and between:


(1) NATIONAL OIL CORPORATION ("NOC") or (“First Party”) a corporation


established by Law No 24 of 1970 as amended and reorganised under Decision No


10/1979 of the General Secretariat of the General People’s Congress of the Great


Socialist People's Libyan Arab Jamahiriya ("GSPLAJ"); and


(2) Verenex Energy Area 47 Libya Limited ("Verenex"), a Corporation established under


the laws of Jersey, having its registered office at Templar House, Don Road, St. Helier,


Jersey JE4 8WH and shall have a branch office in Tripoli, GSPLAJ.


(3) Medco International Ventures Limited ("MIV"), a company established under the laws


of Labuan, Malaysia, having its registered office in Jalan Bahasa, 8700 Labuan FT,


Malaysia and shall have a branch office in Tripoli. GSPLAJ.


Both Verenex and MIV hereinafter collectively referred to as Second Party


NOC, Verenex and MTV are referred to individually as "Party" and collectively as "the


Parties",





WHEREAS:


(A) NOC, Verenex and MIV entered into an Exploration and Production Sharing


Agreement dated ............. ("EPSA") to carry out Petroleum Operations in the


Contract Area; and


(B) A Commercial Discovery has been declared by the Management Committee in the


Contract Area; and


(C) The EPSA contemplates that the Parties set up a joint operating company (the


“Company”) upon declaring the first Commercial Discovery thereunder to act as


Operator under the EPSA according to an operating agreement to be entered into


between the Parties and the Company; and


(D) NOC, Verenex and MIV wish to regulate the principles governing their relations in the


Company and lay down the basic rules of its structure and organisation.


NOW THEREFORE it is hereby agreed as follows:

















G! Area 47


 X





\











1. DEFINITIONS





Words and expressions defined in the EPSA when used in this Operating Agreement shall


have the meanings ascribed to them in EPSA unless the context otherwise requires. For the


purpose of this Agreement the following terms shall have the following meaning:





1.1 "Board"


means the board of directors of the Company;





1.2 "Branch"


means the branch of the Company referred to in Article 8 hereinafter;


1.3 "Shareholder”


means any holder of Shares and "Shareholders" means all holders of Shares;


1.4 "Shares"


means shares of capital stock of the Company;


2. THE COMPANY





2.1 A joint stock company (the "Company") shall be incorporated under the laws of


..............(the ’’Jurisdiction” ).





2.2 The name of the Company shall be...............................


3. LEGAL STRUCTURE





Memorandum and articles of association of the Company shall be prepared according to


the requirements of the Jurisdiction and shall incorporate, to the extent legally possible, the


principles set forth in this Agreement.


4. CAPITAL


The authorized and issued capital of the Company shall be ............ US Dollars





(............... US$) all paid by and upon incorporation by the respective Shareholder


according to their share holding percentage set forth below.





5. SHAREHOLDING


5.1 NOC and Second Party as Shareholders shall each subscribe to the following number


of shares of the authorised and issued capital of the Company:

















A G2 Area 47





NOC : fifty one percent (51 %)


Second Party : forty nine percent (49%)


5.2 The Shares of the Company shall only be transferable to Affiliates of the Shareholders


or their assignor, if any. The Shareholders shall cause the directors of the Company to


adopt a resolution to the effect that this limitation on transferability be properly


embodied in all issued Share certificates.


6. MANAGEMENT


6.1 The Company shall be managed by the Board of Directors consisting of four (4)


members who shall be the same members of the Management Committee appointed


under the EPSA.


6.2 A quorum of three (3) directors present and in attendance shall be required for the


validity of any Board meeting; and all resolutions and decisions to be taken by the


Board shall require a unanimous vote of die directors present and in attendance.


6.3 In the absence of a quorum at any meeting duly convened by a resolution of the Board


or by notice served to all directors not less than (10) calendar days before such


meeting, the director(s) in attendance may without further notice adjourn such meeting


to the seventh following calendar day, at the same time and venue as originally


convened. The quorum required for the validity of such adjourned Board meeting shall


be one (1) director from NOC and one (1) director from Second Party present and in


attendance.


6.4 The Shareholders shall cause the chairman of the Company to be one of the directors


designated by NOC; and the treasurer to be the director designated by Second Party.


7. CONDUCT OF BUSINESS


7.1 The undertaking by the Company of any activities, other than the carrying out through


the Branch and as Operator of Petroleum Operations related to the EPSA, shall require


the previous consent in writing of the Shareholders.


7.2 Insofar as the activities of the Company shall remain within the limits herein above


defined, it is the intent of the Shareholders that the Branch be managed and operated


on a strict no profit -no loss basis.




















03 Area 47


 8. BRANCH





8.1 The Company shall register and properly establish a branch in GSPLAJ ("Branch").


8.2 The Branch is structured so as to be able to carry out such Petroleum Operations as


may be entrusted to the Company.








9. ORGANISATION OF THE BRANCH





9.1 The business and affairs of the Branch of in its capacity as


Operator for the conduct of Petroleum Operations shall be managed by a committee,


"Operator's Management Committee" consisting of three (3) members, two of whom,


including the chairman, shall be designated by NOC and the other one shall be


designated by Second Party.





9.2 The basic organisation and structure of the Branch shall be in accordance with the


standard principles usually adopted in the international oil industry.


9.3 Each member of the Operator's Management Committee shall be vested with





executive duties and responsibilities and shall supervise operating division(s) and


department(s) of the Branch ("Operating Divisions").


9.4 The Operating Division to be entrusted to each member of the Operator’s Management


®rm .............................. ............ ......... an Committee shall be consistent with the basic organisation chart which shall be


approved by the Management Committee.


9.5 The activities and functions of the Operator's Management Committee shall in all


cases be subject to the overall guidance and direction of the Management Committee.





10. OPERATOR'S MANAGEMENT COMMITTEE i


i





10.1 The Operator’s Management Committee shall be responsible for the ordinary





organisation and structure of the Branch and the performance in GSPLAJ of such


Petroleum Operations as may be entrusted to the Company, both in accordance with


the standard principles usually adopted in the international oil industry. The Operator's j


Management Committee shall further have the task to secure the necessary i


coordination among the Operating Divisions and therefore the overall management of


the Branch, and will exercise such other powers as may be conferred upon it by the


Board. I

















G4 Area 47


~L


10.2 The duties of the Operator’s Management Committee shall in particular include the


preparation and review the policies for the administrative, financial and technical


affairs of the Branch, the policies to be implemented for a proper establishment of its


organisation and structure, and the policies concerning training and qualification


programs for Libyan nationals in order to enable them to gradually assume positions at


all levels; all in accordance with the relevant terms of the EPSA and Operating


Agreement.


10.3 All decisions made by the Operator's Management Committee shall be taken by


simple majority vote of its Members.





11. DELEGATION OF AUTHORITY





'Hie Board shall delegate to the chairman of the Operator's Management Committee such


powers of attorney as are required in order for him to validly represent and bind the Branch


vis-a-vis third parties to the extent necessary for the conduct of Petroleum Operations


entrusted to the Branch by the Management Committee. Such powers of attorney shall be


granted by the Board to the chairman of the Operator’s Management Committee as soon as


he is duly and properly appointed.





12. TERM





This Agreement shall remain in full force and effect as long as the EPSA is in effect


unless terminated by an instrument in writing by NOC and Second Party and shall not be


amended or modified in any respect, except by the mutual consent in writing of the Parties


hereto.


13. WAIVER


The failure of any Party hereto to enforce at any time any of the provisions of this


Agreement shall in no way be construed to be a waiver of any such provision, or of the


right of any Party thereafter to enforce each and every such provision. No waiver of any


breach of this Agreement shall be held to be a waiver of any other or subsequent breach.


14. GOVERNING LAW AND ARBITRATION


The Governing Law and Arbitration provisions of the EPSA shall apply to this


Shareholders Agreement.























G5 Area 47


 %





\











\





\


%








IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and





year first above written.











NATIONAL OIL CORPORATION Verenex Energy Area 47 Libya Limited














By: By:





Title: Title:














Medco International Ventures Limited














By: ..





Title:




























































































G6 Area 47


OPERATING AGREEMENT


































































































Area ‘17


 \





\


%


%








OPERATING AGREEMENT





Between











NATIONAL OIL COPOPRATION





and





Verenex Energy Area 47 Libya Limited


and





Medco International Ventures Limited





and


(.....................................................)














Area 47


 <0


&


<0*


a? THIS OPERATING AGREEMENT is made and entered into in Tripoli, the Great


Socialist People's Libyan Arab Jamahiriya ("GSPLAJ"), the ......... day of





...................., corresponding to the........day of.............., by and among.





NATIONAL Oil CORPORATION ("NOC") , a corporation established by law No.24


of 1970 as amended and reorganised under Decision No. 1011979 of the General


Secretariat of the General People's Congress of the ("GSPLAJ”), having its principal


office at Bashir Sadawi Street, Tripoli, GSPLAJ; hereinafter referred to as ’NOC" or





"First Party.





and








(2) Verenex Energy Area 47 Libya Limited ("Verenex"), a Corporation established


under the laws of Jersey, having its registered office at Templar House, Don Road,


St, Helier, Jersey JE4 8WII and shall have a branch office in Tripoli, GSPLAJ.





(3) Medco International Ventures Limited ("MIV”), a company established under the


laws of Labuan, Malaysia having its registered office in Jalan Bahasa, 8700 Labuan


FT, Malaysia and shall have a branch office in Tripoli, GSPLAJ.


Both Verenex and MIV hereinafter collectively referred to as Second Party





NOC, Verenex and MIV are referred to individually as "Party" and collectively as "the





Parties",


and





...................................... (hereinafter referred to as "___"or


“Operator”) a company established under the laws of___and having a branch


registered in the Commercial Register of Tripoli, GSPLAJ, under No.


_____with an office at__GSPLAJ.





WHEREAS:





A) NOC and Second Party entered into an Exploration and Production Sharing


Agreement ( “EPSA” ) dated..............; and





B) A joint stock company (.................................) has been established to act as


Operator under the EPSA upon and subject to the terms and conditions hereinafter


Ml-i :ii contained; and

















HI Area 47


C) The Parties have resolved to appoint ................................... as Operator to


carry out Petroleum Operations on behalf of the Parties in the Contract Area; and


D) The Parties hereto deem it convenient to establish in this Operating Agreement


certain uniform operating procedures for the conduct of Petroleum Operations


under the EPSA.


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


hereinafter contained, the Parties hereby agree as follows:


1. DEFINITIONS


Words and expressions defined in the EPSA when used in this Operating Agreement


shall have the same meanings ascribed to them in the EPSA unless the context


otherwise requires.


2. SCOPE


The purpose of this Operating Agreement is to establish the respective rights and


obligations of the Parties and Operator with regard to the conduct of Petroleum


Operations under the EPSA.


3. OPERATIONS:


3-1 Appointment of Operator


Subject to the supervision and direction of the Management Committee,


................ is hereby appointed, and hereby agrees to serve as Operator to


conduct Petroleum Operations with respect to the EPSA in accordance with the


terms and conditions of this Agreement...........................shall not resign as


Operator without the prior written consent of the Parties and, in the absence of


such consent, shall continue to act as Operator during the term of this Operating


Agreement, except to the extent that the Parties appoint a new Operator.


3-2 Conduct of Operations


3.2.1 The Operator shall conduct all Petroleum Operations and in particular implement


the Development Plan on behalf of the Parties in accordance with this Operating


Agreement, the EPSA, the decisions of the Management Committee, and the


Petroleum Law.


3.2.2 Immediately upon the Effective Date of this Operating Agreement, the Operator


shall prepare a policy and procedures manual regulating the technical, financial,


contracting and other rules and procedures for the carrying out of Petroleum


 &


&











Operations under the EPSA and shall submit the same for approval to the


Management Committee within three(3) months from the date hereof. The


Operator shall strictly comply with such manual, when so approved, in the


performance of its duties hereunder.





3.3 Certain Duties of the Operator








Throughout the term of this Agreement, Operator shall conduct the Petroleum


Operations diligently and continuously and shall be governed in accordance with


the applicable provisions of the Petroleum Law and all other applicable laws and


regulations of the GSPLAJ, in particular laws and regulations concerning the


protection of health, safety and environment.





In addition to all other obligations of Operator set forth elsewhere in this


Operating Agreement, Operator shall have the following obligations:





3.3.1 to carry out all of its other duties set forth in this Operating Agreement and the


EPSA and promptly implement all decisions of the Management Committee;


and





3.3.2 to conduct Petroleum Operations other than Exploration Operations and


Appraisal Operations in the Contract Area in a manner consistent with Good


Oilfield Practices; and





3.3.3 to prepare the Development Plan in accordance with provisions of the EPSA


and submit Work Programs to the Management Committee and to implement


the Development Plan and Work Programs adopted by the Management


Committee, by appropriate scientific methods and in the most efficient and


economic manner; and





3.3.4 to prepare and furnish to the Parties all relevant reports and information for


technical meetings as provided for in clause 12.6 of this Operating Agreement


at least fifteen (15) days before such meetings; and.





3.3.5 to purchase or lease all material, equipment, machinery, articles and supplies


required to be purchased or leased pursuant to the Work Program, subject to


the prior consent of the Management Committee in case the aggregate value of


the purchase or lease contract exceeds the amount oi


and





3.3.6 to pay all costs and expenses incurred by it in respect of Petroleum Operations


under this Operating Agreement when due and payable from bank accounts


maintained by the Operator for that purpose and pay to the appropriate














H3 Area 47


 authorities within the periods prescribed by the applicable law and regulations


all taxes and duties that are applicable to the activities of the Operator; and





3.3.7 Salvage and dispose of all economically recoverable material, equipment and


supplies, which have become obsolete, surplus, or junk, in accordance with the


procedure approved by Management Committee and the applicable


regulations, and credit the proceeds in accordance with the provisions of the


Accounting Procedure; and


3.3.8 to keep the Parties informed of the course of all Petroleum Operations under


this Agreement and to provide the Parties with progress reports on the


Petroleum Operations for each Calendar Quarter; and


3.3.9 to promptly notify the Management Committee of claims and litigation relating


to operations under this Operating Agreement and prosecute, defend or settle


such claims and litigation; provided, however, that the Operator shall notify the














3.310 to conduct an assessment of the impact of each planned Petroleum Operations


on the environment in the relevant part of the Contract Area and submit to the


Management Committee prior to the commencement of such Petroleum


Operations a detailed assessment report containing the measures required to be


taken to ensure that the conduct of the Petroleum Operations does not cause


damage to the environment; and


3.3.11 to permit representatives of the Parties to inspect at all reasonable times the


conduct of Petroleum Operations under this Agreement; and


3.3.12 to maintain in GSPLAJ full original records of all technical operations under


this Agreement and to submit to the Parties, in a format and media as may be


required by them, copies of all original geological, geophysical, cuttings, cores,


magnetic tapes drilling reports, fluid samples, well production data and such


other data and reports as it may compile or obtain during the term of this


Agreement; and


»


3.3.p to keep the accpjjnts of the Petroleum Operations hereunder in Libyan Dinars


and in U.S. Dollars and in such manner as to present a fair, clear and accurate


record of the Petroleum Operations Expenditures; and





3.3.14 to properly use Petroleum produced from the Contract Area for Petroleum


Operations; and











H4 Area 47


 «?p”


St*














3.3.15 to procure and maintain insurance satisfactory to the Management Committee


including without limitation insurance against loss or damage resulting from


blowouts.


4. LIBYAN PERSONNEL AND TRAINING


4.1 Operator shall hire Libyan nationals to carry out Petroleum Operations in the


Contract Area. Except that in cases where specialized technical personnel or key


management positions are required and not available among Libyan personnel,


Operator may hire non-Libyan nationals to cany' out such Petroleum Operations.


4.2 Operator shall prepare and submit to the Management Committee for approval an


annual training program. The objective of which is to enable Libyan personnel to


fill posts of higher responsibility and to replace any non-Libyan personnel in the


areas of specialization for which such non-Libyan personnel were hired. The


annual budget allocated for such training program shall be sufficient to cover all


costs for training per Calendar Year di iring the Exploration Period and shall not be


less than the manpower cost during each year of the


Exploitation Period. For the purpose of this Article, manpower costs means the


total direct and indirect costs associated of the Operator’s employees.


5. OTHER PETROLEUM OPERATIONS





The Operator may not enter into an operating agreement with any third party without


the prior approval of the Parties.


6. WORK PROGRAMS AND BUDGETS





6.1 Preparation by the Operator





The Operator shall prepare and submit to Management Committee programs itemising


the Petroleum Operations to be carried out under tire EPSA and detailed programs for


the implementation of the Development Plan including, without limitation, the


installation and operation of the relevant plants and facilities, as well as Budgets with


respect thereto which shall contain sufficient details of all costs, expenses and


advances to be made in respect of such program. The Work Programs and Budgets


shall separately identify Development Expenditures and Exploitation Operating


Expenses as defined in the EPSA.


6.2 Procedures


6.2.1 As soon as possible after the Effective Date of this Operating Agreement as





regards the remaining portion of the relevant Calendar Year and, thereafter, at











H5 Area 47


least two (2) months prior to the beginning of each succeeding Calendar Year,


Operator shall prepare and submit to the Management Committee, a Work


Program and Budget for each of the next four (4) Calendar Years, which shall


include:


a) A program for the implementation of the Development Plan and a program


for the operation of petroleum reservoirs and production forecasts, (with


alternate programs where appropriate), providing for the wells, gathering


systems, pipelines, terminals and other facilities.


b) An estimate of manpower and general costs associated with or incidental to


the above programs.


c) A training program for Libyan nationals, and


d) An estimate of capital and operating costs of each of the above programs


with proper justification when appropriate.


6.2.2 The programs and budgets so adopted by the Management Committee shall


constitute the approved Work Program and Budget for the first year and tentative


Work Program and Budget for the following four (4) years, and shall be


implemented by the Operator.


6.3 Expenditures bv the Operator


Notwithstanding anything to the contrary' contained in the EPSA, the Operator shall


cany' out each Work Program approved by the Management Committee within the


limits of the Budget approved therefor and shall not undertake any operation not


included in an approved Work Program or make any expenditures not budgeted in an


approved Budget, except as follows:


6.3.1 Operator is authorized to make such excess expenditures, provided, however,








excess expenditures shall be reported promptly by Operator to the Management


Committee for approval.


6.3.2 Operator is authorized to make expenditures for Petroleum Operations not

















H6 Area 47


 fST











6.3.3 In case of emergency, Operator may make such immediate expenditures as it


deems necessary for the protection of life and/or property. Such emergency


expenditures shall be reported promptly to the Management Committee by


Operator and shall be considered as legitimate costs as if they had been approved


by the Management Committee.


6.4 Priority To Local Work


Operator shall at all times give priority for use of local supplies, equipment and


services, provided that they are competitive in terms of performance, price and


availability.


7. COSTS AND EXPENSES


7-1 Costs and Expenses


All costs and expenses attributable to Petroleum Operations being conducted by die


Operator under this Operating Agreement and the EPSA shall be allocated between the


Parties, as set forth in the EPSA.


7.2 Call for Funds


7.2.1 Each month the Operator shall estimate the payments required for Petroleum


Operations under the EPSA for the following month on the basis of outstanding


invoices and any additional payments envisaged under the annual Work Program


and Budget therefor, approved by the Management Committee pursuant to this


Operating Agreement, and shall notify the First Party and each company


comprising Second Party thereof, twenty (20) days prior to the beginning of such


following month of the call for funds ("Cash Call"). The aforesaid Cash Call


shall indicate the currencies in which sums are needed for Petroleum Operations


as well as the place designated by the Operator for payment.


7.2.2 First Party and each company comprising Second Party, undertake to, and shall


pay to the Operator their respective shares according to the EPSA, of such Cash


Calls in the currencies requested, within fifteen (15) days from the date of


receipt of the notification from the Operator, or on the first day of such


following month, whichever is later.


7.2.3 The Operator shall keep records of funds advanced, expended and held in each


currency as well as the dates when the funds are credited into Operator's bank


account(s).

















H7 Area 47


7.3 Defaults





If First Party or any company comprising Second Party fails to pay its share of


any Cash Call, when due, such Party shall be in default and Operator shall


notify the Parties thereof. The non-defaulting Party(ies) shall have the right to


advance to Operator any and all amounts the defaulting Party has not paid. Any


such advance shall be considered as a loan by the non-defaulting Party(ies) to


the defaulting Party and shall bear interest at the rate per annum equal tdVHjU


). Bper annum from fie date such advance is


received by the Operator in addition to any actual handling costs.





In the event that the defaulting Party does not repay all such amounts to the


non-defaulting Party(ies), together with interest accrued thereon, within ninety


(90) days from the date on which such amounts were advanced by the


non-defaulting Party(ies), the non-defaulting Party(ies) shall have the right to


offtake and own the defaulting Party's share of production from the Contract


Area up to the time when such offtaken production, valued at the market price


prevailing on the date such amounts were advanced by the non-defaulting


Party(ies), equals the aggregate of such amounts, together with interest accrued


thereon.





8. BOOKS ACCOUNTS AND AUDITS


8.1 Operator’s responsibility for Books and Accounts





The Operator shall maintain complete books and accounts for the EPSA in


accordance with the Accounting Procedure, reflecting costs, expenses and


liabilities of Petroleum Operations, itemised in accordance with the approved


Budget, as well as all amounts received from the Parties pursuant to clause 7.2


hereof.





8.2 Audits





Each Party shall have the right to inspect and audit, at its own cost, Operator's


books and accounts relating to this Agreement for any Calendar Year within the


period of three (3) Calendar Years following the date of submission of the annual


account related to such Calendar Year. Any such audit shall be completed within


twelve (12) months after its commencement, and any exceptions must be made in


writing within ninety (90) days following the end of such audit. Failure to give


such written exceptions within such time shall establish the correctness of


Operator’s books and accounts, except in the case of manifest error.


8.3 Conflict in Terms





In the event of a conflict between the terms and conditions of this Operating


Agreement and Exhibit “C” of the Agreement, the terms and conditions of the


main body of the Agreement shall prevail followed by this Operating Agreement.


9. JOINT LIABILITY OF THE PARTIES


NOC and Second Party shall indemnify and hold harmless the Operator against any


loss, damage or claim asserted by any third party and NOC and Second Party shall


each share such losses, damages or claims in the proportions set forth in Article 14 of


the EPSA.


10. SETTLEMENT OF DIFFERENCES


All disputes between the Operator and any of the Parties arising in connection with


this Operating Agreement shall be referred to the Management Committee, which


shall make its best endeavours to settle the matter amicably.


11. GOVERNING LAW


This Operating Agreement shall be governed by and interpreted in accordance with


the laws of GSPLAJ.


12. MISCELLANEOUS


12.1 Effective Date


This Operating Agreement shall become effective on the date first written


above.


12.2 Term





Without prejudice to the provisions of Article 12.1 hereof, this Operating


Agreement shall remain in force and effect for as long as the EPSA is in effect


unless the Parties otherwise agree.


12.3 Notices





All notices, proposals and other communications to a Party and/or Operator


provided for in this Operating Agreement shall be in writing and shall be


deemed to have been properly given and received when delivered during


Tegular business hours at the office of such Party or sent by registered mail.


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All such notices shall be addressed to:





NATIONAL OIL CORPORATION


Bashir Sadawi Street


P.O. Box 2655


Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN: Secretary of the People’s Committee


Verenex Energy Area 47 Libya Limited











Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN:_


Medco International Ventures Limited














Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN: _








Operator








Tripoli, Great Socialist People's Libyan Arab Jamahiriya


ATTN:_





Either Party may substitute or change its address stated above to another


address in the Great Socialist People's Libyan Arab Jamahiriya upon written


notice thereof to the other Party.


12.4 Amendments








This Operating Agreement shall riot be amended or modified in any respect.


12.5 Assignment








Operator may not assign any of its rights or obligations under this Operating


Agreement without prior written consent of NOC and Second Party.


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12.6 Technical Meetings l





Operator shall organize technical meetings which shall be held at least twice a


year to discuss technical and operational matters among First Party, Second


Party and Operator.


The Operator shall furnish the First Party and Second Party with the relevant


technical reports and information at least fifteen (15) days before the date of


such meetings in order to allow them to duly consider the Operator's proposals


in respect of such matters.





12.7 Service Agreement


'Hie Operator may enter into service agreement(s) with the Parties and/or their





Affiliates, provided such service agreement(s) is approved by the Management


Committee.





17.8 Originals


This Operating Agreement is made in eight (8) originals, four (4) in the Arabic


language and four (4) in the English language, all having equal validity.





12.9 Headings


The headings used in this Operating Agreement are included herein for


convenience of reference only and shall not constitute a part of this Operating


Agreement for any other purpose or in any way affect the construction of this


Operating Agreement.
































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Hll Area 47


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IN WITNESS WHEREOF, the Parties hereto have caused this Operating Agreement X> |


to be executed as of the day and year first above written.








NATIONAL OIL CORPORATION Verenex Energy Area 47 Libya Limited








By:....................................... By:..


Title:..................................... Title:











OPERATOR Medeo International Ventures Limited





By:....................................... By:.........................................





Title:..................................... Title:.......................................
























































X H12 Area 4?