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OFFSHORE PRODUCTION SHARING CONTRACT



between



THE OFFICE OF NATIONAL MINES AND STRATEGIC INDUSTRIES (OMNIS)



XXXX



and



XXX

***



Page 1



TABLE OF CONTENTS

PREAMBLE

ARTICLE 1. Definitions................................................................................................................. 6

ARTICLE 2. Object of the Contract ............................................................................................. 11

ARTICLE 3. Contract Area .......................................................................................................... 14

ARTICLE 4. Term of Contract..................................................................................................... 15

ARTICLE 5. Area Relinquishment............................................................................................... 17

ARTICLE 6. Management committee.......................................................................................... 18

ARTICLE 7. Operator .................................................................................................................. 21

ARTICLE 8. Minimum Exploration Work Obligations ............................................................... 27

ARTICLE 9. Bank Guarantee....................................................................................................... 29

ARTICLE 10. Work Programs and Budgets ................................................................................ 28

ARTICLE 11. Discovery .............................................................................................................. 32

ARTICLE 12. Development ......................................................................................................... 34

ARTICLE 13. Sole Risks.............................................................................................................. 36

ARTICLE 14. Natural Gas ........................................................................................................... 38

ARTICLE 15. Accounting and Auditing ...................................................................................... 39

ARTICLE 16. Other Obligations of the participants .................................................................... 41

ARTICLE 17. Assistance by OMNIS........................................................................................... 43

ARTICLE 18. Procurement of goods and services....................................................................... 44

ARTICLE 19. Ownership of tangible assets................................................................................ 45

ARTICLE 20. Subcontracting ...................................................................................................... 47

ARTICLE 21. Personnel and Training ......................................................................................... 47

ARTICLE 22. Royalty .................................................................................................................. 48

ARTICLE 23. Recovery of Costs ................................................................................................. 50

ARTICLE 24. Sharing of Profit Petroleum .................................................................................. 51

ARTICLE 25. Pricing of Liquid Petroleum and Measurement ................................................... 53

ARTICLE 26. Domestic Market – Sales of the Malagasy Share ................................................. 56

ARTICLE 27. Financial Provisions and Indexation ..................................................................... 58

ARTICLE 28. Customs Provisions............................................................................................... 60

ARTICLE 29. Tax Provisions....................................................................................................... 61

ARTICLE 30. Administration Fees .............................................................................................. 62

ARTICLE 31. Production Bonuses............................................................................................... 63

ARTICLE 32. Pipelines ................................................................................................................ 64

ARTICLE 33.Unitization ............................................................................................................. 66

ARTICLE 34. Decommisionning ……………………………………………………………… 67

ARTICLE 35. Insurance ............................................................................................................... 70

ARTICLE 36. Information and Confidentiality............................................................................ 71

ARTICLE 37. Environmental Protection ..................................................................................... 73

ARTICLE 38. Assignments .......................................................................................................... 74

ARTICLE 39. Force Majeure ....................................................................................................... 75

ARTICLE 40. Settlement of Disputes .......................................................................................... 76

ARTICLE 41. Expert .................................................................................................................... 78

ARTICLE 42. Applicable law ...................................................................................................... 79

ARTICLE 43. Miscellaneous Provisions...................................................................................... 80

ARTICLE 44. Notifications.......................................................................................................... 82

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ARTICLE 45. Default …………………………………………………………………………..

ARTICLE 46 Termination of the contract................................................................................... 84

ARTICLE 47. Effective Date ....................................................................................................... 85

ANNEXES



Annex “A”



Description of the Contract Area



Annex “B”



Accounting and Financial Procedure



Annex “C”



Joint Operating Agreement



Annex “D”



Form of Bank Guarantee



Annex “E”



Form of Parent Company Guarantee



Annex "F"



Data and reports



Page 3



PARTIES



This Production Sharing Contract (“PSC”) is made subject to applicable Malagasy law on the

…………day of ………………., 2006:



Between

THE OFFICE OF NATIONAL MINES AND STRATEGIC INDUSTRIES ("OMNIS") a

government entity acting for and on behalf of the Republic of Madagascar with its registered

office at 21 rue Razanakombana Ambohijatovo, Antananarivo, on one hand;

and

………………………….. a Company duly incorporate and registered in ……………… with its

headquarters in ……………… ("…"), and

…………………………………… a Company duly incorporated and registered

……………… with its headquarters in ……………… ("…."), on the other hand.



……. and ……..

shall hereinafter be referred to as "Participant" individually and "Participants" collectively.



OMNIS, ……. and ………. shall hereinafter be referred to as the "Parties".



Page 4



in



PREAMBLE



Considering Law No. 96-018 of 4 September 1996 at the Effective Date of this Contract

constitutes the Petroleum Code and its implementing texts,



Considering that applicable petroleum law provides that all Petroleum resources in the soil and

the subsoil of the land territory, in the seabed of internal waters and the territorial sea, in the

exclusive economic zone and on the continental shelf, are the property of the Republic of

Madagascar,

Considering Decree No. 96-1133 of 7 November 1996 designates OMNIS as the provisional

Technical Organism in charge of the national management of Petroleum resources,

Considering Decree N° 97-740 of 23 March 1997 relating to Mining Title for Exploration,

Exploitation and transport of Hydrocarbons,

Considering Law N° 90-033 of 21 November 1990 relating to the Environment Charter, and its

implementing texts,

Considering Law N° 2004-019 of August 19, 2004 on the implementation of the international

conventions for the protection of the marine and inshore environment against the pollution by the

discharge of Hydrocarbons, the Decree N° 2004-167 amending some provisions of the Decree

n° 99-954 of 15 December 1999 related to compatibility of the investments with the

environment, the Decree Interdepartmental N° 12032/2000 of November 6, 2000 on the

regulation of the mining sector concerning protection of the environment,

Whereas all solid, liquid or gaseous Hydrocarbon deposits subject to Malagasy law and

jurisdiction are not subject to any type of private appropriation,

Whereas no legal entity may undertake petroleum activities within Malagasy mining jurisdiction,

unless an association with OMNIS as holder of mining title has been concluded,

Whereas all hydrocarbon exploration, production, transformation and transportation operations

within Malagasy mining jurisdiction could only be undertaken by virtue of an oil contract with

OMNIS,

Whereas until the “Société Nationale“ has been established, OMNIS shall be deemed to be the

"Organisme Technique" entitled to act on behalf of the Société Nationale,



In consideration of the premises, mutual covenants and conditions stipulated in applicable

Malagasy law and herein, it is hereby agreed as follows:



Page 5



ARTICLE 1

DEFINITIONS



The words and expressions stipulated in applicable Malagasy Hydrocarbons law shall apply to

this Contract. Words and expressions used in this Contract shall have the following meaning

unless otherwise specified:

1.1



“Accounting and Financial Procedure” means the Accounting and Financial

Procedure appearing in Appendix B and forming an integral part of this Contract.



1.2



“Affiliate” means a legal entity which controls or is controlled by a Participant to

this Contract, or by a legal entity which controls or is controlled by a legal entity

which controls a Participant.



1.3



"Available Petroleum" means that portion of the Petroleum extracted from

reservoirs in the Contract Area less Royalty attributable to Madagascar, which is

available to the Participants for use in Petroleum Operations, for recovery of costs

for the Participants and collection of Profit Petroleum for the Parties.



1.4



“Appraisal Well” means a Well drilled for the purpose of evaluating the

commercial potential of a geological feature or a structure in which Petroleum have

been discovered.



1.5



“Barrel” means a barrel of 0,159 m3 brought to standard conditions of the I.S

(International System)



1.6



“Calendar Year” means a period of twelve (12) consecutive Months starting with

the first day of January until the thirty-first day of December of the same year.



1.7



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

the day of Effective Date of the Contract.



1.8



“Contract’ or "PSC" means the present Contract document including the Annexes

which are an integral part thereof.



1.9



“Contract Area” means, on the Effective Date the area described in this Contract

and thereafter the area as it may have been reduced from time to time by

relinquishment.



1.10



“Control” for purposes of this Contract means holding directly or indirectly a

majority of the voting shares or interest of the controlled legal entity exercisable at

general meetings or giving the right to appoint members of boards or other organs

of decisive authority governing the entity in question. A particular company is

indirectly controlled by a company or companies (“parent company or companies”)

if a series of companies can be specified, beginning with the parent company or

companies and ending with the particular company, so related that each company



Page 6



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

or more of the companies earlier in the series.

1.11



“Decommissioning” means to discontinue Petroleum Operations related to

particular project or area on a permanent basis and as the case may be make safe,

transfer, remove or dispose of any structures, facilities, equipment or works and

property connected to such activities.



1.12



“Delivery Point” means the location specified in the approved plan for

Development of Petroleum resources within defined Contract Area where any or

all the Petroleum taken in kind by the Parties in accordance with their respective

entitlements under this Contract in a state that enables the Parties to transport such

Petroleum in bulk and where they may transfer title to such Petroleum to third

parties.



1.13



“Development” means Petroleum Operations consisting of:



A.



The drilling of Development Wells;



B.



The design, engineering, construction, commissioning, operation and

decommissioning of installations, pipelines, equipment and systems necessary

for placing required Wells for Exploitation of Petroleum, as well as for

processing and treatment of Petroleum extracted from reservoirs within the

Exploitation Area and for the delivery of said Petroleum; and



C.



The design, engineering, construction, commissioning, operation and

decommissioning of any other, additional or necessary facility or activity for the

prudent and proper planning, preparation or conduct of the aforesaid activities

according to the approved Development plan as required by applicable Malagasy

law.



1.14



“Development Costs” means those costs and expenses incurred for the purpose of

prudent and proper Development.



1.15



“Development Well” means a Well drilled after the date of approval of the

Development Plan for the purpose of producing Petroleum, or to increase or

accelerate the extraction of same, including intake Wells and dry Wells. Any Well

drilled in a Exploitation Area during the Exploitation Period shall be considered a

“Development Well”.



1.16



“Discovery” means the demonstration of the existence of accumulation of

Petroleum by a documented Well which has penetrated Petroleum bearing horizons

not previously known to exist.



1.17



“Effective Date” means the date this Contract enters into force, which shall be on

the day OMNIS has received a Exploration Mining Title to the relevant area on the

basis of the this Contract having previously been signed by duly authorized

representatives of the Parties and having been approved by promulgation of a

Page 7



decree by the President of Madagascar.

1.18



“Exploitation” means Development and Production operations including

planning, preparations, construction, commissioning and Decommissioning of

installations, pipelines, equipment and systems in order to undertake prudent and

proper operations.



1.19



“Exploitation Area” means the portion of the Contract Area that has been

designated as an Exploitation Area in a Development plan approved according to

applicable Malagasy law and this PSC.



1.20



“Exploration Costs” means the costs and expenses incurred in order to properly

and prudently carrying out Exploration.



1.21



“Exploration” means all activities undertaken in order to detect the existence of

Petroleum, by means of geological, petrophysical, geophysical, geochemical and

geotechnical methods, drilling any Exploration Well, drilling an Appraisal Well

outside an Exploitation Area, as well as other activities carried out during the

Exploration period as stipulated in this PSC.



1.22



“Exploration Well” means a Well drilled for the purpose of confirming the

presence of Petroleum in a separate structure or geological feature in which no

Petroleum Discovery has previously been made.



1.23



“Field Exit Point” means the place where finally processed Petroleum extracted

from a reservoir within the Contract Area has reached the metering station at the

ultimate landing terminal onshore from where it may be freely traded as a

commodity or when applicable when such Petroleum is loaded onto a ship for bulk

transportation.



1.24

“LIBOR” means “London Interbank Offered Rate” the rate of interest in US

Dollar for a six months deposit and marked at ll.00 am in London by the National

Westminster Bank or any other bank accepted in writing by the Parties on the first

working-day of each month for which interest is due.

1.25 "Liquid Petroleum" means all liquid hydrocarbons existing in their natural state in the

subsoil, as well as other substances extracted in association with such hydrocarbons.

1.26



“Month” means one (1) calendar month.



1.27



“Natural Gas” means all hydrocarbons which are in a gaseous state under normal

atmospheric conditions, including wet gas, dry gas and residue gas remaining after

the extraction of liquid Hydrocarbons; including as the case may be Associated or

Non-Associated Natural Gas which constitutes a gaseous mixture of free or

dissolved hydrocarbons in liquid Petroleum and containing various portions of

non-hydrocarbon gases under reservoir conditions.



1.28



“Operator” means a legal entity executing on behalf of the Parties to this PSC the day to



Page 8



day management of the Exploration and Exploitation operations and related Petroleum

activities.



1.29



“Petroleum” means all natural, organic substances existing in their natural state in

the subsoil composed of carbon and hydrogen, as well as other substances extracted as

a consequence and in association with such hydrocarbons, including crude oil, Natural

Gas and their derivatives, as well as various portions of non-hydrocarbon elements

naturally contained in the Petroleum under reservoir conditions.



1.30



“Petroleum Code” means Law no96-018 of September 4, 1996 constituting the

Petroleum Code of the Republic of Madagascar as in effect on the Effective Date,

and its implementing texts, and as may be amended from time to time.



1.31



“Petroleum Costs” means all authorized costs related to and for the purpose of

Exploration, Development and Production, incurred in accordance with the terms

of this Contract, appropriate Management committee procedure and as further

described by Appendix B (Accounting and Financial Procedure) to this Contract.



1.32



“Petroleum Operations” means Exploration, Exploitation, transportation, and any

other activity connected with these operations, including planning and preparations

of such activities performed within the scope of applicable Malagasy Petroleum

law and this PSC. Petroleum Operations consist of:



A.



The design, engineering, commissioning maintenance and repair of pipelines,

installations, machinery and any other equipment or systems required for

Production and drilling and operations of Wells;



B.



The extraction, injection, stimulation, gathering, processing,

transportation and delivery of Petroleum to the Delivery Point;



C.



The design, engineering, construction, commissioning and decommissioning of

equipment and facilities necessary for enhanced recovery;



D.



The plugging and abandonment of Well and decommissioning of facilities,

including dismantling and removal of equipment or facilities used in Petroleum

Operations¸ and



E.



when applicable the sale of Petroleum;



1.33



storage,



“Production” means extraction of Petroleum from one or more reservoirs, drilling

Wells for the purpose of extraction, injection, improved recovery, in addition to

treatment, processing and storage for transport and landing to a commodity market

for exploitation or consumption, except transport or shipment in bulk, as well as

the construction, commissioning, operation and use of a facility, fixed or floating,

for the purpose of Production.



Page 9



1.34



“Profit Petroleum” means that portion allocated to the Parties of extracted

Petroleum as described in this PSC, less the volumes of Petroleum designated for

Royalty and recovery of Petroleum Costs pursuant to the terms and provisions of

this Contract.



1.35



“Quarter” means a period of three (3) consecutive Months starting on the first day

of January, April, July and October



1.36



“Subcontractor” means a specialized entity which has been retained by the

Operator or a properly authorised Party to carry out specific tasks relevant to

Petroleum Operations, and which operates under the supervision of and for the

account of the Operator or a Party to this PSC as the case may be.



1.37



“Well” means a borehole made in the subsoil by drilling except for shallow drilling

for seismic calibration purposes only and shall not be performed for the purpose of

penetrating Petroleum bearing strata.



Page 10



ARTICLE 2

OBJECT OF THE CONTRACT

2.1

The present Contract is a Production Sharing Contract where exclusive owner of

the natural resources within the Contract Area is the Republic of Madagascar.

The object of this PSC is to define the terms and conditions under which Operator on

behalf of the Parties shall carry out the Petroleum Operations.

Any rights and obligations pursuant to or arising out of this Contract and any Petroleum

activities planned or conducted pursuant to this PSC shall be performed in accordance with

this PSC and Malagasy law as applicable from time to time.

The PSC consists of this PSC main document and when applicable the following

Annexes, which form an integral part hereof:



Annex “A”



Map of the Contract Area



Annex “B”



Accounting and Financial Procedure



Annex “C”



Joint Operating Agreement



Annex “D”



Bank Guarantee



Annex “E”



Parent Company Guarantee



Annex “F”



Data and reports



Subject to the conclusion of the PSC, the Participants shall submit a signed Accounting

and Financial Proceedure and Joint Operating Agreement as stipulated in Annexes B

and C respectively, for which Government approval is a condition under this PSC.



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

Annexes, the PSC main document shall prevail.



2.2

Except for the rights expressly provided for in this PSC, no right is granted in

favour of any Participant to any air or surface area, water column or the subsoil, or to any

living or non-living natural or other resources.

2.3

All Petroleum Operations pursuant to this PSC shall be conducted in a prudent

manner in accordance with applicable Malagasy law and consistent with the standard of

best practice in the international petroleum industry with regard to comparable Petroleum

Operations.



Page 11



2.4

The planning and execution of Petroleum Operations shall take due account of the

safety of personnel, the environment and of the economic value of the facilities, vessels

and equipment, including operational availability. Petroleum Operations shall not

unnecessarily or to an unreasonable extent impede or obstruct shipping, fishing, aviation or

other activities, or cause damage or threat of damage to cables, pipelines or other facilities

and equipment. All reasonable precautions shall be taken by the Operator and

Subcontractors to prevent damage to flora and fauna, historical or cultural sites and relics

of the past, public or private property and shall prevent, limit and mitigate the negative

effects of pollution and littering of the territory, the subsoil, the sea and seabed, and of the

atmosphere.

2.5

In entering into this PSC, OMNIS entrusts Operator on behalf of the Parties with

the exclusive responsibility of managing or conducting all the Petroleum Operations in the

Contract Area on a day to day basis unless determined otherwise by the Management

committee as regulated in applicable Malagasy law and this PSC.

2.6

On the Effective Date of this PSC the respective Participant's interest of …………

is ………. percent (….%) and of …………………is …………….percent (…..%)

respectively. This percentage expressing the undivided interest of such Participant

(expressed as a percentage of the total interests of all Participants) in the rights and

obligations derived from the Participant’s interest in this PSC.

2.7

On Participants' request, OMNIS shall obtain the required Mining Titles related to

Exploration, Exploitation and when required transportation activities pursuant to the PSC,

including those of the Extension and Renewal Periods.

Rights and obligations pursuant to a relevant Mining Title shall without delay be

transferred to the Operator on behalf of the Participants when pursuant to applicable law

the Mining Title is delivered to OMNIS.

2.8

Operator shall be responsible for the conduct of the Petroleum Operations. All the

Operator’s activities shall be executed within the Parties’ rights and benefits subject to this

PSC. Unless otherwise specified, it is the Operator who shall act outwardly towards

regulatory authorities and other third parties on behalf of the Parties to the PSC. This

includes the Operator's rights and obligations to obtain all necessary consents, approvals

and licences, to enter into requisite agreements in the name of the PSC, and to make timely

payment of all expenses incurred from the activities in accordance with the Agreement by

the Parties to the PSC.

2.9

Natural resources other than Petroleum shall be excluded from rights awarded to

the Parties with regard to exclusive rights to the Contract Area conveyed by this PSC, even

if the Parties has discovered such other natural resources as a result of or during Petroleum

Operations.

2.10

Participants shall only recover incurred expenses and costs to the extent they

represent Petroleum Costs within the meaning of this PSC as regulated in Article 23, and

such recovery may only be made from proceeds generated from the production and sale of

Page 12



Petroleum extracted from the same Exploitation Area.

This recovery of costs shall be effectuated only within the limits of Article 23,

2.11

Available Petroleum being liquid Petroleum or available Natural Gas as described

in Article 23.2, extracted from reservoirs within the Contract Area gained from Petroleum

Operations shall be shared between the Parties, in accordance with Article 24, after

deduction of Royalty in accordance with Article 22 and recovery of Petroleum Costs in

accordance with to Article 23.

2.12

During the execution of his obligations, the Operator on behalf of the Parties shall

have the right within the limits of this PSC and applicable Malagasy law to:

a)

have access to and operate within the Contract Area, and to all materials

used in Petroleum Operations anywhere;

b)

when applicable use roads within the Contract Area or outside the Contract

Area in accordance with terms and conditions stipulated for the approved plan for

Development for production facilities including when required or , for the purpose of

pipeline construction, under Article 32 and operation to or from onshore production

facilities, as well as the use of other facilities required for the Petroleum Operations

connected to the Contract Area; and

c)



Import goods and services required for Petroleum Operations.



Page 13



ARTICLE 3

CONTRACT AREA



3.1

The initial area, regulated by this Contract, shall extend over a surface area

deemed to be about…….sq.Km2 for the purposes of this Contract, as defined by the map

and coordinates attached as Annex A.



Page 14



ARTICLE 4

TERM OF CONTRACT

4.1

This PSC includes an Exploration Period and an Exploitation Period defined as

follows:

Exploration Period

4.2

The Exploration Period shall cover a period of eight (8) Contract Years followed,

subdivided into phases as follows:

A.

B.

C.



A first Exploration phase of ……… years;

A second Exploration phase of ……… years;

A third Exploration phase of ……. years;



The Participants may only proceed to the next Exploration phase, provided to the

execution of the Participants’ obligations under applicable Malagasy petroleum law in

accordance with this PSC related to the prior phase.

4.3

If the Participants decide not to enter into the second Exploration phase or the

third Exploration phase, the Operator shall notify OMNIS at least thirty (30) days prior to

the expiry of the then current Exploration phase.

4.4

Within the stipulated time limit of applicable Malagasy law, and if the

Management committee determines that the total evaluation of the Contract Area is not

completed, the Participants may apply to OMNIS in order to obtain an extension of the

Exploration Period in order to complete this evaluation. This extension shall not exceed

two years.

4.5

If no commercial Discovery is made and notified in the Contract Area, the

Contract shall terminate at the end of the Exploration Period or any extension thereof.

Exploitation Period

4.6

In the event a Discovery of Petroleum within the Contract Area is declared to be a

commercial Discovery, the designated Exploitation Area shall be subject to a Mining Title

obtained by OMNIS.

4.7

The Exploitation Period and the corresponding Mining Title shall be for 25 years

from the notification of Decree of the said Title.

4.8

In the event of a commercial Discovery predominantly of Natural Gas, the

Exploitation Period and corresponding Mining Title shall be for 35 years.



Page 15



4.9 In the event that a commercial Production of Petroleum can be obtained within the

Exploitation Area at the end of the periods defined in Articles 4.7 and 4.8 above, and on

the Participants request, OMNIS shall do its best in order to obtain an extension of the

Exploitation Period. The request shall be made at least two years before the end of the said

period.

The term of the extension of the Exploitation Period and corresponding Mining Title, shall

be if necessary be up to:

five (05) years for liquid Petroleum; and

ten (10) years for Natural Gas.



Page 16



ARTICLE 5

AREA RELINQUISHMENT

5.1

Subject to the provisions of Article 5.2 below, the Participants shall relinquish a

portion of the Contract Area and the related rights in accordance with the provisions below:

A.



50% of the initial Contract Area as defined in Article 3 of this Contract,

excluding the Exploitation Areas, at the end of the first Exploration phase;



B.



50 % of the remaining Contract Area, excluding the Exploitation Areas, at the

end of the second Exploration phase;



C.



All of the Contract Area other than any Exploitation Areas at the end of the third

Exploration phase (including the extension)



5.2

The Participants may, relinquish all or any part of the Contract Area during the

Exploration period subject to notice delivered to OMNIS at least thirty (30) days in advance

of the relinquishment, and subject to the provisions of Article 5.3 below. Such voluntary

relinquishments during the Exploration period shall be considered as relinquishments

required by Article 5.1 of this Contract.

The Contract shall terminate if all of the Contract Area is relinquished.

5.3

No relinquishment shall exempt a Participant from its unfulfilled obligations

contractually or by applicable Malagasy law resulting or arising out of this PSC or activities

or omissions related to this PSC. In the event a Participant decides to relinquish or abandon

the Contract Area without having previously fulfilled all of its minimum work commitments

as provided by Article 8 below or any commitments made in accordance with the provisions

of Articles 10 and 11 of this PSC the Participant shall pay to OMNIS, prior to the date

proposed for the total relinquishment, the standby letter of credit pertaining to the minimum

work program for the then current Exploration phase, under Article 8.

5.4

The coordinates of the relinquished area shall be communicated to OMNIS by

Operator in accordance with the provisions of Article 4.3.

5.5

The configuration of a relinquished area shall be continuous, polygon and

composed of rectangular components denominated by degrees end minutes. Each

relinquished area shall not be smaller than thirty percent (30%) of the relinquished Contract

Area.



Page 17



ARTICLE 6

MANAGEMENT COMMITTEE

6.1

A management committee for Petroleum Operations shall be founded before

commencement of any Petroleum activities under this PSC and in no circumstances later

than thirty (30) days following the Effective Date. A Participant failing to nominate

members in order to establish a management committee within the time limit stipulated in

this Article renders this PSC null and void and no rights may be exercised or derived from

this PSC in such a situation.

6.2

The management committee shall be composed of up to three (3) members

designated by OMNIS and up to three (3) members nominated by the Participants.

Only those duly appointed by a Party and notified to the other Parties as a member of the

management committee, may cast a vote in any management committee decisions.

6.3

The required quorum for the procedure of the vote shall be at least two (2)

representative(s) of OMNIS and two (2) representative(s) of the Participants.

6.4

The Parties shall be bound by, and abide by, each decision of the management

committee duly made in accordance with this PSC and applicable Malagasy law.

6.5

Each Party shall proceed with utmost efficiency in substituting anyone of its

representative members. In such cases the substitute member shall present documentation

that he or she is appropriately authorized to act as a substitute member of the management

committee.

6.6

During meetings, each Party may bring necessary experts and invite observers.

Representatives of competent Malagasy petroleum regulatory or monitoring authorities may

participate as observers during management committee meetings provided such Malagasy

authorities they have notified the Parties of who shall be their representatives at the

meeting. All participants at management committees shall sign a standard confidentiality

declaration which may be executed under Malagasy law unless the observers are under

legal obligations to retain confidential all information obtained due to their participation at a

management committee meetings until released by law or a unanimous decision of the

management committee. Experts and observers may only speak when requested by a

unanimous management committee. The management committee may decide that experts

and observers shall not be present when a proposal is put to a vote. Observers or experts

duly appointed and notified may not be excluded from a management committee meeting as

long as the subject matter voted on is subject to their area of responsibility or jurisdiction

6.7

The management committee shall itself deliberate and take a decision on at least

the following matters:

a)



Establishing guidelines for Operator activities;



b)



approval of all work programs, budget, reports and other proposals;



Page 18



6.8



c)



approval of Operator’s statements



d)



unless governed by law approve levels of production proposed by the Operator in

accordance with applicable Malagasy law in accordance with generally accepted

best practices in the international petroleum industry



e)



appointing an external auditor and reviewing the auditing of the Operator’s

accounts



f)



approve contract strategy and terms of tenders to potential Subcontractors under

Article 20.3;



g)



reviewing and approving the Development plan and budget for each

reservoir or Field to be developed;



h)



any co-operation with companies being an Affiliate or holding other PSCs or

petroleum rights;



i)



any obstacle and/or event that significantly affects the Petroleum

Operations; and



j)



settlement of any claim or initiation of litigation in excess of an amount equivalent

to …… US Dollars and,



k)



any other issue presented by a Party.

Each member shall have one vote in the management committee.



6.9

The management committee may not deliberate or make binding decisions unless

OMNIS and the Participants are represented respectively by at least two members or its

alternate/deputy. During a meeting, the management committee shall make efforts to reach

unanimous decisions. If the management committee cannot agree during the meeting, a

second meeting shall take place within seven (7) days following this delay for the

examination of the same subject.

In the event of disagreement, the subject shall be submitted to arbitration in accordance with

Article 40 or an Expert in accordance with to Article 41.

6.10

The management committee may not take any decision which may or is likely to

afford a certain Party or others an unfair advantage to the detriment of other Parties

participating in the PSC.

6.11

The ordinary meetings of the management committee shall be held in Madagascar

or when required for special reasons in other locations agreed between Parties, at least twice

a year before the date of the first commercial Discovery and at least three times a Calendar

Year after this date.

If a Party is absent, the management committee meeting shall be delayed for a period which

shall not exceed five (5) working days. The Party able to hold the meeting shall notify the

other Party of the new date, the hour and the place for the postponed meeting.



Page 19



6.12

Any Party may with reasonable prior notice call for an extraordinary meeting of

the management committee in order to discuss any subject or development related to

Petroleum Operations.

6.13

The coordination of the management committee shall be assured by a president

chairing the management committee meeting. The presidency of the management

committee shall alternate on a biannual basis between one of the members designated by

OMNIS and one of the members designated by the Operator. The meetings of the

management committee shall be coordinated by the representative who organizes the

meeting.

6.14

A secretary of the management committee who is designated by Parties shall

cause the preparation of minutes of the management committee meeting and its decisions

which shall be subject to approval by the members of the management committee. Draft

minutes shall be circulated to the members of the management committee within fourteen

(14) working days of a management committee meeting. Members shall without undue

delays notify the secretary whether the minutes are approved or not and when appropriate

specify any corrections or additions proposed. The secretary of the management committee

shall without delay notify the President and all members of the management committee if at

all possible and at the same time of the proposed corrections or additions to the minutes. If

the secretary of the management committee has not received any comments within fourteen

(14) working days of receipt of said draft minutes then the minutes shall be deemed to have

been approved by the members. Approved minutes shall be signed by all members at the

earliest possible time and at latest at the first management committee meeting following its

approval. Each Party and each member of the management committee shall receive a copy

of the signed minutes within fourteen (14) working days after signature.

6.15

The agenda, location and time of the management committee meetings shall be

prepared by the secretary, according to the instruction of the President and the management

committee, and shall be communicated to the Parties fifteen (15) days before then date of

the management committee meeting. No later than February 1st of each Calendar Year the

president of the management committee shall forward to the Parties a proposed schedule for

management committee meetings for that Calendar Year.

6.16

The management committee may establish a technical committee or other

functional subcommittees for its assistance. The technical committee and any other sub

committee shall be composed of experts selected by OMNIS and the Participants.

6.17

Prior to a management committee meeting, the technical committee shall prepare

a statement established by the management committee regarding status of studies and

activities in order to inform the management committee.

6.18

All costs and expenses of the members of the management committee with respect

to the preparation of management committee meetings shall be charged to Petroleum Costs

and shall be recovered pursuant to Article 23.



Page 20



ARTICLE 7

OPERATOR

7.1

In entering into this PSC, OMNIS entrusts Operator on behalf of the Parties with

the exclusive responsibility of conducting all Petroleum Operations in the Contract Area

unless determined otherwise by the management committee as regulated in applicable

Malagasy law and this PSC.

7.2



………….. is appointed and has accepted to be the Operator.



7.3

The Operator shall conduct all the Petroleum Operations on behalf of the Parties

and at the sole risks and perils of the Participants in the name of OMNIS, according to

applicable Malagasy law and in accordance with the production sharing principle pursuant

to this PSC, including:

a)



Technical performance

Implement all technical means including provide when required qualified

personnel and all equipment necessary for the prudent and proper execution of

Petroleum Operations necessary to ensure activities in accordance with Malagasy

law and best Petroleum industry practices.



b)



Coordination of Exploration activities

Facilitate and coordinate all the Exploration activities as well as paying its

percentage share; and in case of commercial Discovery, facilitate and coordinate

all required activities, procure all equipment, goods and services required for the

planning, preparation and execution of Exploitation operations as well as paying

its percentage share.

The financial contribution of the Participants shall cover their entire needs for the

proper execution of all obligations under this PSC and applicable Malagasy law.



c)



Administrative performance

Implement and utilize effective and suitable methods for the management and

administration, technically and practically, of prudent Production of Petroleum

and proper and safe conduct of Petroleum Operations pursuant to this PSC and

applicable Malagasy law.



7.4

The Operator shall be responsible for the conduct of the Petroleum Operations.

All the Operator’s activities shall be executed within the Parties’ rights and benefits

subject to this PSC. Unless otherwise specified, it is the Operator who shall act outwardly



Page 21



towards regulatory authorities and other third parties on behalf of the Parties to the PSC.

This includes the Operator's rights and obligations to obtain all necessary licenses permits

approvals and consents, to enter into requisite agreements in the name of the PSC, and to

make timely payment of all expenses incurred from the activities in accordance with the

Agreement by the Parties to the PSC.

7.5

The Operator shall not enjoy any profit nor suffer any loss from the performance

of his task as Operator.



7.6

The Operator shall prepare the matters to be considered by the management

committee. The Operator shall keep the committee informed of aspects which may be of

importance to the Parties.

7.7

The Operator shall organise the activities so as to enable the management

committee and the Parties to supervise and otherwise have access in Madagascar to all

information concerning the Petroleum Operations and other necessary activities related

thereto.

7.8

The Operator shall provide the other Parties and the relevant competent Malagasy

authority with all information, reports and data pertaining to Petroleum Operations as

required by applicable Malagasy law or as defined in this PSC.

7.9

Reports and other information concerning the Petroleum Operations and other

relevant activities shall be prepared by the Operator and submitted to the management

committee as soon as such information is available, or as often as the management

committee or one Party may reasonably make a request for it. This applies for instance to:

a)



Copies of logs;



b)



Copies of records on drilling operations;



c)



Copies of test reports or reports on analyses etc.;



d)



Copies of the "final well report" with the "composite log";



e)

Copies of geological and geophysical reports, maps in connection with work

carried out by the Operator or by subcontractors engaged by the Operator. They shall

be stored by the Operator in Madagascar and made available to the Parties upon request;

f)



Field- and drill hole data, including reservoir studies and evaluations of reserves;



g)

Cores and samples of types of rock and liquids from the drill holes. Samples and

cores remaining after distribution to the Parties and to Malagasy authorities shall be

stored in Madagascar;



Page 22



h)

Copies of detailed final reports for each completed well and reports of subsequent

alterations and repairs, including the results from completed functional tests and the

"flow test";

i)

Copies of daily and periodic reports on exploration, development, maintenance,

production and other activities. The reports shall, inter alia, contain information about

problems or accidents, accompanied by a statement as to the cause and a description of

the remedial work. The reports during the development phase shall among other details

give an overview of the progress. The production reports shall, inter alia, contain

information concerning the quantity and quality of the Petroleum produced;

j)

Copies of contingency plans, safety and security manuals, safety and security

reports and accident reports;

k)

An overview of the Operator's organisation and of how the Operator, the

Subcontractors at any time have staffed their organisations with regard to activities in

accordance with this PSC;

l)

Copies of reports and evaluations of a technical, economic and other nature in

connection with the activities;

m) Copies of reports submitted to a Party or to a competent Malagasy authority by

the Operator, and copies of minutes and correspondence between the Operator and

OMNIS regarding the activities in accordance with this PSC;

n)



Periodic development and status reports.



7.10

The Operator shall make any information, offices, sites, installations or other

facilities available to the representatives of competent authorities and OMNIS, and shall

render all assistance reasonably required to enable them to perform their regulatory tasks,

and contractual rights and obligations, including transportation, room and board, under

conditions equal to those provided by the Operator to its own employees.

7.11

In conducting Petroleum Operations, the Operator is required to take all

reasonable and necessary steps to insure the health and safety of its personnel and see to

that its Subcontractors implement equivalent measures related to their employees

according applicable Malagasy law and at least to the level of generally accepted best

practices in the international petroleum industry.

These provisions shall include, but not be limited to:

(a) Ensuring systems and equipment for fire fighting and evacuation of personnel in case of

emergency, including the supplying of first aid kits, protective gear for the personnel

and relevant safety equipment in each work area,

(b) Implementing and maintaining sanitary standards to ensure a healthy working



Page 23



(c)



(d)



(e)



(f)

(g)



environment for workers;

Reporting to OMNIS within seventy-two (72) hours any injury on the job involving an

employee, as a result of which the employee is unable to return to work following the

incident;

Implementing a permit-to-work procedure based on documented qualifications

according to applicable Malagasy law or as applicable best petroleum industry practices

for hazardous areas or tasks;

Provide adequate and safe storage areas for explosives, detonators and other hazardous,

poisonous, contagious or otherwise dangerous products stored or used on during or

related to Petroleum Operations;

Supplying fire-fighting and fire protective gear and equipment in work areas; and

Take all necessary precautions to ensure sage and prudent Petroleum activities in any

location related to Petroleum Operations under this PSC in accordance with applicable

Malagasy law and when applicable generally accepted best practices in the international

petroleum industry to ensure prudent Petroleum Operations, the control of any blow out,

leak, discharge or fire which could potential or actually damage the environment,

facilities, personnel or the deposits.



7.12

The Operator may also be required to prepare amendments or supplements to the

available information.

7.13



Before plugging and abandoning a Well, the Operator shall perform tests

necessary to identify all reservoirs or formations with potential of Petroleum

according to applicable Malagasy laws and in line with best international

Petroleum industry practices.



Unless previously acceptable to OMNIS, and when justified from a safety point of view,

the Operator shall ensure that all Wells which technically are capable of Production, are

left in a state which shall permit subsequent re-entry of the Well for the purpose of

performing a Production test.

7.14

Within ninety (90) days after completing Exploration obligations or any

additional Exploration activity, the Operator shall submit to the management committee an

appraisal technical report of Petroleum relative to the Contract area as stipulated in Article

8, clauses 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7.

7.15

If any of the Parties sustains losses arising from the Operator's performance of his

task as an operator, the Operator shall only be liable if the losses were caused by wilful

misconduct or by gross negligence on the part of the management or personnel of the

Operator or any of the Operator's Affiliates.

7.16

The Operator shall under no circumstances be liable for indirect and consequential

loss to a Party including interruption and other lost production, save for the cases of wilful



Page 24



misconduct or gross negligence by the Operator, Affiliate companies or Subcontractors’

senior supervisory personnel. The Operator shall not be liable for any loss suffered by the

Parties in connection with damage inflicted on third parties and caused by discharge of

Petroleum outside the safety zone, beyond any loss suffered by the Operator as a Party.

A corresponding limitation of the liability shall apply to a Party performing the work on

behalf of one or more Party or the Operator.

7.17

The Operator may resign from his post as Operator by giving 6 months' written

notice. The management committee may, subject to the consent of OMNIS, direct the

Operator to continue until another entity is ready to take over the function as Operator.

7.18

The management committee may give notice to remove the Operator. The

management committee shall state the reasons for the removal and the removal shall be

effective unless otherwise stipulated by law with 6 months' notice.

Before a decision concerning such removal of the Operator may be made, the Operator

shall be given the opportunity to express his views in a management committee meeting

and shall be given a reasonable time to remedy the act or omission which has led to the

removal. The Operator is not entitled to vote on the issue of removal of Operator. A

decision on removal requires the unanimous vote of to the Members of the management

committee who are entitled to vote.

Subject to the approval of OMNIS, a removal of an Operator may take place with

immediate effect in the event that:

a)

someone from among the Operator's management or supervisory personnel has

inflicted an economic loss on the Parties by wilful misconduct or by gross negligence;

b)

the Operator or any of his Affiliates is declared bankrupt, applies for debt

settlement negotiations to be opened, or becomes insolvent;

c)

any of the Operator's Affiliates involved in the Petroleum Operations of this PSC

is dissolved;

d)

the Operator retains an interest less than twenty five (25%) of its participating

interest in this PSC.

7.19

The Operator shall co-operate with the new Operator on transfer of the function as

Operator. In the event of notice of removal, the Management committee shall arrange for

an audit of the joint accounts and for registration of equipment, supplies and other items

procured by the Operator for the activities of the PSC. Stored Petroleum shall also be

recorded.



Page 25



7.20

The Operator shall, not later than at the time of change of Operator and free of

charge, hand over to the new Operator:

a)

all contracts/agreements, assets, core samples, log studies, records, data etc. which

have been in his custody as Operator;

b)

all information and data necessary for accurate reporting during the period when

the change of operator is taking place;

c)

books of account, accounting records and accounts concerning the activities of the

PSC. The Operator shall, however, keep vouchers etc. for inspection by the Parties for

as long as this Agreement remains in effect and, thereafter, for any period of time

following from legislation or as required by the management committee;

d)



copies of documents retained by the Operator.



7.21

The Operator shall be liable to the other Parties for expenses pertaining to the

change of operator if the Operator has resigned in accordance with Article 7.15 or has been

removed in accordance with Article 7.16.

7.22

The management committee shall within 60 days following a notice of removal

submit a proposal for a new operator to OMNIS. Failing such notice, or if OMNIS does

not approve the proposed operator, OMNIS authority may appoint a new operator.

7.23

No change of Operator may take effect unless it has been approved in writing by

OMNIS.

7.24

Within thirty (30) days of the effective date of this PSC, the Operator shall have a

permanent office in Madagascar which is authorized and capable of independently

managing the Petroleum activities in Madagascar. This PSC shall be terminated and no

compensation shall be made to any Participant if the Operator fails this thirty (30) days

time limit. If this requirement is not met for reasons beyond the reasonable control of the

Operator then the OMNIS after having consulted the other Parties, shall determine what

extension of the time limit shall be granted.



Page 26



ARTICLE 8

MINIMUM EXPLORATION WORK

OBLIGATIONS

8.1

The Operator shall start Exploration Operations within thirty (30) days after the

approval of the corresponding work programs and budgets by the management committee

according to Article 10. Operator shall on behalf of the Parties perform the minimum

Exploration work obligation outlined below in this Article. The work must be performed in

an ongoing, prudent and proper manner during the Exploration period in accordance with

requirements stipulated in applicable Malagasy law and this PSC.

8.2

As a minimum Exploration work obligation during the first Exploration phase, the

Operator shall on behalf of the Parties perform the following activities:

a)

b)

8.3

As a minimum Exploration work obligation during the second Exploration phase,

the Operator shall on behalf of the Parties perform the following activities:

a)

b)

8.4

As a minimum Exploration work obligation during the third Exploration phase,

the Operator shall on behalf of the Parties perform the following activities:

a)

b)

8.5

It is understood that, for the accomplishment of the minimum Exploration work

obligation under Article 8.2 to 8.4 above:

a)



the activities required to be performed as a minimum Exploration work

obligation during the second Exploration phase or third Exploration phase, shall

apply as long as the Parties are holding any portion of the Contract Area



b)



each Exploration Well shall be drilled until a depth of at least 100 meters

under the principal objective duly defined above , or penetrating basement by ten

(10) meters;



c)



Further seismic work or Exploration Wells undertaken in excess of the minimum

Exploration work obligation on one Exploration phase shall be taken into account

in order to satisfy the minimum Exploration work obligation of a later Exploration

phase.



Page 27



8.6



OMNIS shall be contacted by the Operator in ample time prior to the commencement of

planned seismic surveys and shall be continuously updated on the movements of the

vessels and its call at ports. Likewise OMNIS shall be contacted by the Operator in

ample time prior to the commencement of drilling any Well.



8.7



OMNIS may stipulate terms and conditions in line with international law rules and

consistent with applicable Malagasy law for the construction, use and operation of

seismic vessels, drilling units and other facilities for the purpose of Petroleum Operations

on the territory or that part of the continental shelf appertaining to Madagascar.



8.8



The Participants may enter into Exploitation phase for a specific area within the Contract

Area and may relinquish the remaining Contract Area unless the Participants decides to

continue the Exploration and eventually Exploitation of the remaining area in accordance

with the terms and conditions applicable in the PSC and applicable law.



Page 28



ARTICLE 9

BANK GUARANTEE

9.1

In order to warrant the execution of minimum Exploration work obligation under

this PSC, each Participant shall establish an unconditional and irrevocable bank guarantee,

to be deposited within thirty (30) days following the Effective Date.

This bank guarantee shall be issued by an international bank acceptable to OMNIS, and in

accordance with the stipulations in Annex C.

9.2



The respective amounts of the bank guarantee shall be:



a)



for the first Exploration phase: ………..US Dollars;



b)



for the second Exploration phase : ……………. US Dollars; and



c)



for the third Exploration phase …………………..US Dollars



9.3

The amount of the bank guarantee stipulated above in Article 9.2 shall be released

without delay by OMNIS at the end of each Exploration phase, provided the execution of

the minimum Exploration work obligation stipulated in this PSC for the concerned

Exploration phase has been completed.

9.4

Bank guarantee is released at the end of each Exploration phase subject to the

fulfilment of the obligatory work program commitment for the respective Exploration

phase regardless of the cost incurred by commercial participant to complete said

obligatory work commitment

9.5

When the minimum Exploration work obligation of the corresponding Exploration

phase is accomplished, Operator shall present to OMNIS a signed declaration from a

duly

authorized representative of each Participant attesting that the operation in

question has been effected and request the release of the bank guarantee for the

corresponding Exploration phase.

If a Participant concludes that OMNIS’ approval has been unjustifiably delayed or if

OMNIS deems that the Participants have not accomplished the minimum Exploration

work obligation stipulated in this PSC in a manner consistent with applicable Malagasy

law and best practice in the international Petroleum industry, each Party may request the

review by an independent Expert in accordance with Article 41.



Page 29



ARTICLE 10

WORK PROGRAMS AND BUDGETS

Exploration

10.1

Within ninety (90) days after the Effective Date, the Operator shall submit to the

Management committee a work program and budget proposal pertaining to the remaining

Calendar Year.

Thereafter, during the Exploration period, Operator is required to present work program

and budget proposals for each subsequent Calendar Year to the Management committee no

later than ninety (90) days prior to the beginning of each Calendar Year.

10.2

Each work program and budget proposal shall include the following details

without limitation:

A.

B.

C.

D.



The tasks to be completed, grouped by cost centre;

The estimate quantities of goods and equipment to be acquired and listed by

category;

Estimates of services to be provided, including those to be performed by

Subcontractors or Affiliates; and

The estimates of general expenses grouped by cost centre according to the

Accounting and Financial Procedure in Annex B.



No later than thirty (30) days prior to the commencement of any activities included in

the work program, the Operator shall submit to the Parties all details necessary for

successfully completing said activity.

10.3

Any Party requesting amendments to the draft work program and budget

presented by the Operator must notify the other Parties simultaneously and as soon as

possible, but not later than thirty (30) days after having received the draft proposal for the

work program and budget. Any request for amendments to the proposal must be

accompanied by all relevant documents and data justifying the requested amendments to

the proposal.

10.4

The Operator must notify the Parties of its opinion on the required for

amendments to the draft work program and budget within fifteen (15) days from receipt of

said request for amendments.

10.5

The management committee shall meet within thirty (30) days after receipt of

Operator's proposal for the examination and approval of the annual work program and

budget.

In case of an emergency, the Operator may, within reasonable limits, incur additional

expenses not stipulated in a work program and budget necessary in order to protect the

health and safety of physical persons and to avert imminent danger or limit negative

effects or damage to the environment and facilities or equipment



Page 30



Such additional expenses shall be submitted for approval at the first meeting of the

management committee following the relevant commitment to said additional expenditure.

Exploitation

10.6

As soon as the management committee has approved the plan for Development,

the Operator shall start Development Operations in accordance with the approved plan,

with the applicable Malagasy law and when relevant be, in line with best international

Petroleum practices.

Approval of Annual Works Programs and Budget

10.7

With ninety (90) days following the approval of the Development plan, the

Operator shall prepare and submit to the Management committee for approval a work

program and budget necessary for Production Operation to be conducted during the

following Calendar Year.

In order to forecast any expenses, the work program and budget proposal shall include, but

not be limited to the following points:

-



Tasks to be completed;

Schedule and time limits;

Materials and equipments to be acquired identified by main categories;

Kind of services to be performed identifying those to be performed by Operator

distinguishing from those to be performed by Subcontractors or an Affiliate;

program and related costs for development and training of Malagasy personnel;

and

Miscellaneous categories of general and administrative expenses.



The Management committee shall approve the production forecast and work program and

budget within thirty (30) days after the date of receipt of said documents.

10.8

No later than 1 September of each Calendar Year, the Operator shall present to the

Management committee the Production operation planned work program with a budget to

be applied during the following Calendar Year.



Page 31



ARTICLE 11

DISCOVERY

11.1

If an Exploration Well results in a Discovery, the Operator shall promptly notify

the Participants and OMNIS of such Discovery.

Within thirty (30) days of notification of said Discovery, the Operator must present to the

Management committee a report including all the technical data and the Operator’s

opinion of the commercial potential of this Discovery.

Appraisal Program

11.2

If, by virtue of Article 11.1 above, the Operator has reported that the Discovery

has commercial potential, it must, within ninety (90) days after the notification of a

Discovery, present a proposal for an appraisal program to the Management committee. The

appraisal program shall be considered approved if the Management committee has not

provided Operator with an objection within thirty (30) days following receipt of the

proposed appraisal program.

The appraisal program shall cover, but shall not be limited to, the following points:

a)



Detailed work programs and corresponding budget;



b)



Schedule and time limit for completion of the activities to be performed; and



c)



The demarcation of the area to be evaluated with a surface area not exceeding the

double of the expected surface of the structure or geological feature to be

appraised.



11.3

If, after a Discovery, drilling equipment is available the Operator may accomplish

the drilling of any additional well needed by Operator, before or during the study of

technical data of the Management committee with respect to Article 11.1 or the

examination of the appraisal program. Any Well drilled for the purpose of a Discovery

shall be considered as an Exploration Well.

Appraisal Report

11.4

Within ninety (90) days after the completion of the appraisal program, the

Operator shall submit to the Management committee a detailed report on the activities

undertaken, the materials, information and results obtained.

11.5

-



The report shall include, but shall not be limited to, the following information:

Geological conditions;

Physical properties of the fluids;

Sulfur, sediment and water content in Petroleum;

Types of substances measured;

Natural Gas composition;



Page 32



-



Production forecast by Well; and

Estimate of recoverable reserves.



Declaration of a Commercial Discovery

11.6

Together with the appraisal report as described above, the Operator shall submit a

declaration to the Management committee specifying:

a)

Either that Operator has determined that the Discovery is commercially

exploitable

b)



That the Operator has determined that the Discovery is not commercially

exploitable, in which case sole risks conditions shall apply as stipulated in Article

13; or



c)



That the Operator has determined that the Discovery is an important Discovery

which could become commercially exploitable, subject to additional Exploration

or appraisal work either within or outside of the area already appraised.



11.7

In the event Operator's determination is consistent with the provisions of Article 1

1.6.c) above, Operator shall submit to the Management committee, within thirty (30) days

after Management committee having reached the conclusion that a Discovery is not, but

may become commercially exploitable, a corresponding work program and budget

together with any relevant proposal intended to increase the likelihood of the development

of the relevant Discovery.

11.8

If Operator does not present an appraisal program as stipulated by Article 11.2 or

does not develop the commercial potential of a Discovery as mentioned in Article 11.6 c)

or if Operator considers that the Discovery is not commercially exploitable, sole risks

conditions shall apply as stipulated by Article 13.



Page 33



ARTICLE 12

DEVELOPMENT

12.1

Within one hundred and eighty (180) days after a notification of a commercial

Discovery in accordance with Article 11.6 a) above, Operator shall submit a proposal for a

Development plan to the Management committee. The proposed Development plan shall

contain, but not be limited to the following points:

-



A delimitation of a Exploitation Area taking into fully account the results of the

appraisal program and its results in determining the potential of each reservoir and

when applicable the entire field to be developed.



-



The Drilling and completing of Development Wells;



-



The Drilling and completing of Wells for water or Natural Gas injection;



-



The laying of cables and pipelines;



-



The installation of any facilities required to extract Petroleum and conduct all

necessary Petroleum Operations in a prudent and safe manner;



-



The treatment and transportation of the Petroleum to the processing or storage

facilities onshore or offshore;



-



The offtake of Petroleum including the laying of pipelines inside or outside the

Contract Area to a storage facility or the Delivery Point;



-



The establishment of required Petroleum storage facilities;



-



The training requirements to accomplish the commitment in accordance with

applicable law and this Contract;



-



A comprehensive environment impact assessment which shall include an analysis

of potential negative effects to the air, land and maritime environment, local

communities and existing commercial and primary industries shall be included as

a separate document. The assessment shall also contain a proposal or program for

the mitigation of any deemed or potential negative effects on the interests referred

to arising out of or resulting from facilities and activities subject to an approved

plan for the Development of the Discovery.



-



on how any structures, installations and facilities necessary for the Development

of the commercial Discovery may be decommissioned and disposed of.



-



Any other activities not explicitly mentioned in the Contract but which are

necessary for the planned Exploitation and delivery of the Petroleum in

accordance with Malagasy law and when applicable the best practices in the

international petroleum industry.



Page 34



12.2

The plan for Development shall be considered approved by the management

committee unless rejected by the management committee, or the management committee

has requested additional information or amendments to the proposal within ninety (90)

days after the latter having received the aforesaid plan for Development

If there is no agreement within ninety (90) days on a revised proposal for a Development

plan, Parties in agreement may proceed with the Development plan on an Sole Risk basis

in accordance with this PSC provided all regulatory requirements to a Development plan

under applicable Malagasy law has been satisfied.

12.3

Unless determined otherwise by applicable Malagasy law, the Operator shall

submit to the management committee a proposal for a plan for Decommissioning a

structure, installation or facility prior to the expiry or surrender of this PSC or the use of

such structure, installation or facility is terminated permanently. The proposal shall

evaluate the possibility for continued use said structure, installation or facility for

Petroleum Operations within the scope of applicable Malagasy law from a resource

management, safety, environmental and economic perspective.

12.4

The plan for Decommissioning shall be considered approved by the management

committee unless rejected by the management committee, or the management committee

has requested additional information or amendments to the proposal within ninety (90)

days after the latter having received the aforesaid plan for Decommissioning.



Page 35



ARTICLE 13

SOLE RISKS

13.1

If one Party in accordance with this Article 13.1 considers the completion of an

additional work program during the periods of Exploration or after a Discovery has been

made, it may at anytime undertake, either through the Operator or by itself activities

subject to the rules applicable to Sole Risks.

All operations which may be carried out under this Article shall be performed at the risk

and charge (“ Sole Risk” ) of that Party .

13.2

A Sole Risk Party shall notify the Operator and the other Parties of the additional

work program:

a)



Within twenty four (24) hours after the Operator have notified the completion or

termination of drilling if the purpose of the additional work program is to deepen

or to test the well.



b)



At anytime, for drilling a well.



c)



Within thirty (30) days of the notification of a Discovery.



13.3

Any Party to this PSC may participate in the undertaken work program as Sole

Risk. In this case, that Party shall notify the Sole Risk Party, at the latest , in a time limit

which follows the notification stipulated in 13.2:

a) Within forty-eight (48) hours, if the Sole Risk activity is for the purpose of

deepening or to test a well.

b) Within thirty (30) days, if the Sole Risk activity is for the purpose of drilling an

Exploration Well.

c) Within thirty (30) days , in case of a Discovery

13.4

If the Party that has not accepted the time limit specified in article 13.3, to

participate in the additional work program according to the Sole Risks rules, it will not

have any rights on the Petroleum discovered.

13.5

If Sole Risk operations specified above result in a Discovery, a Party exercising

its rights to Sole Risk shall notify the other Parties of such Discovery. When requested and

for the purpose of evaluating the possibility of reinstating its rights a Party not having

exercised the rights of Sole Risk shall receive in accordance with the rules governing

notification of a Discovery, all information relevant thereto.

13.6



If a Party decides to participate in the additional work program stipulated in 13.3

Page 36



and to be reinstated in its rights, it will:

a) Before any Discovery, reimburse its quota of expenses due to this operation

according to its shares and shall pay to the Sole Risk Party an additional four

hundred per cent (400%) of these expenses as a premium.

b) After a Discovery reimburse the Sole Risk Party its quota of expenses due to this

operation and shall pay an additional nine hundred per cent (900%) of these

expenses as a premium.

The repayments made in accordance with this Article shall not be considered Petroleum

Costs under this Contract.



Page 37



ARTICLE 14

NATURAL GAS

Utilization for Petroleum Operations

14.1

Natural Gas extracted from reservoirs within the Contract area required for

Petroleum Operations, may be used for Production support purposes including but not

limited to power generation, pressure maintenance and recycling operations.

14.2

In particular Natural Gas shall be utilized when appropriate for the purpose of

enhancing the recovery of Liquid Petroleum, provided such activities are in accordance

with management committee approvals, applicable Malagasy law and when applicable in

line with best international Petroleum practices.

14.3

The Participants shall be responsible for investigating market opportunities and

seek to develop a market for Natural Gas produced from the Contract Area and shall sell

unless agreed in the management committee and approved by OMNIS, such Natural Gas

on a joint dedicated basis by the Operator on terms common to all the Parties to the PSC.

In applying for approval from OMNIS, the Parties represented by the Operator shall

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

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

for transporting the Natural Gas from the Delivery Point to the purchaser and having

regard to the alternative uses for such Natural Gas.

14.4

Natural Gas extracted, but not used for Petroleum Operations nor sold, at the

option of OMNIS and provided such offtake does not substantially impede Petroleum

Operations, shall be delivered to an entity designated by OMNIS at no costs to the

Government. The entity receiving such Natural Gas shall assume all related costs from the

Delivery Point or any other point agreed between the parties to off-take arrangement.

14.5

Natural Gas may only be flared to the extent necessary for safety or start up of

operations. Any operation related to the flaring will require the management committee

approvals, and will comply with applicable Malagasy law and when applicable in line with

best International Petroleum industry practices. In the event Natural Gas is not sold,

OMNIS decides not to remove the Natural Gas and the management committee deems that

re-injection of this gas is not operationally safe, technically or economically feasible the

Operator may apply for a permit to flare in line with applicable Malagasy environmental

laws. The permit shall be reviewed periodically in order to establish if an offtake solution

has materialized or may be developed.

14.6

If OMNIS finds a domestic market for Natural Gas, a Participant may elect to

participate to provide Natural Gas to this market within sixty (60) days after OMNIS has

notified the Participants of this market. In that case, the Participant taking part in the

project shall assume all related costs for the development of such market or sale, including

any costs related to the construction of facilities required, and the cost recovery will be



Page 38



agreed by mutual convention.

14.7

An extension of the Exploration period of up to five (05) year(s) may be permitted

for the purpose of allowing the Operator to carry out their feasibility study of a Discovery

of Natural Gas. The extension may only be granted on the basis of the Operator submitting

to the management committee and OMNIS a detailed explanation of its necessity with a

detailed plan including a schedule for the completion of activities necessary to finalize the

work necessary to establish the technical and commercial feasibility of Production and

offtake. The study shall contain an outline of the project including a general description of

the facilities necessary develop or alternatively identify potential third party use of

facilities and shall also include but not limited to describing the volume, quantity, price

that may be realized for the Natural Gas, what market it may be sold to as well as

transportation infrastructure requirements for the transportation of the Natural Gas to

market, including when relevant cost of transport and distribution.

The feasibility study shall take into account all relevant aspects related to the development

of a Madagascar local market in Natural Gas as a primary or secondary source of energy.

14.8

The Parties shall meet and on the basis of available and relevant data decide if the

Production and the sale of Natural Gas are possible.

14.9

If the Parties do not agree on the conditions for the Production and sale of Natural

Gas or the conditions applied to the extension period, OMNIS may save for in cases of

negative effects on health, safety and the environment or serious impediments to the

contemplated Liquid Petroleum Production, on its own or with an other Party develop the

Discovery of Natural Gas according to the Article 13.

14.10 The tax reference price or formula for fixing the Natural Gas prices shall be

established in accordance with management committee approval, applicable Malagasy law

considering the volume of Natural Gas for sale, its quality, distance to market and

transport and distribution costs from the Delivery Point to the related market.



Page 39



ARTICLE 15

ACCOUNTING AND AUDITING

15.1

All ledgers and accounts as well as any other accounting records related to

Petroleum Operations (hereinafter the “Accounts”) shall be kept at Operator’s offices in

Madagascar. The Accounts must show all the elements pertaining to the expenses incurred

in term of volume and value of the Petroleum produced.

15.2

The Accounts shall be maintained according to applicable Malagasy law in

accordance with the Accounting and Financial Procedure defined in Annex B and when

applicable to generally accepted practices and procedures used in the international

petroleum industry.

15.3

The Accounts shall be kept in French and expressed in U.S. Dollars which shall

be the reference currency for the purposes of Article 23 of this PSC.

15.4

In order to comply with the applicable legislation in Madagascar, duplicate

accounts shall also be kept in Malagasy Ariary and such Malagasy Ariary accounts shall

be certified each Calendar Year by an independent auditor agreed by both Parties.

15.5

The Operator shall submit to the Parties within sixty (60) days at the end of each

Quarter the statements and summary reports of Petroleum Cost during every quarter.

The rights of OMNIS to audit the accounts are referred to in the Accounting and Financial

Procedure defined in Annex B.

15.6

In addition to the quarterly expense’s statement referred to in Article 15.5 above,

the Operator shall provide the Participants and OMNIS the statement and reports of

volumes of Liquid Petroleum and Natural Gas extracted as referred to in the Accounting

and Financial Procedure for the time period in accordance with the schedules and formats

defined therein.



Page 40



ARTICLE 16

OTHER OBLIGATIONS OF THE

PARTICIPANTS

Representative residing in Madagascar

16.1

No later than on the date of signature of this PSC, each Participant shall notify

OMNIS and relevant Malagasy authorities the name and address of that Participant's

representative residing in Madagascar who shall be entitled to fully represent the

Participant in any matter relating to the PSC, as well as to receive all correspondence

addressed to Participant.

16.2

The Petroleum activities shall be conducted through supply bases in Madagascar.

Supply bases comprise both those bases required for air- as well as maritime activities

related to Petroleum Operations.

Conducting Petroleum Operations

16.3

The Participants shall see to that the Operator conducts the Petroleum Operations

and all obligations stipulated in this PSC in a prudent and proper continuous, diligent and

workmanlike manner consistent with applicable Malagasy law, this PSC and when

applicable the best international Petroleum industry practices and environmental standards

applicable in comparable situations.

Finance

16.4

The Participants shall provide in accordance with their percentage participation

interest any and all funds necessary for investments and operating costs related to or

arising out of Petroleum Operations, including Decommissioning, under this PSC.

Assistance to OMNIS

16.5

The Participants shall, at any time make available in Madagascar and do whatever

is necessary in order to reasonably assist the representative of any competent public

authority in Madagascar as well as representatives of OMNIS’ in their monitoring, control

and verification of Petroleum Operations, the Operator's or Subcontractors records and any

other information relevant to Petroleum Operations, at offices, sites, installations or other

facilities of the Operator involved in any part of Petroleum Operations, the planning,

preparations or support of such activities related to or arising out of this PSC.

OMNIS and any competent Malagasy authority may assign a reasonable number of

representatives to such offices, sites, installations or facilities as referred to above in order

to perform the monitoring, control and verification of activities

The representatives of competent authorities or OMNIS shall comply with the said control

Page 41



and verification activities relevant health, safety and environment regulations and shall not

unnecessarily impede Operator’s performance of Petroleum Operations unless such control

or verification is initiated due to uncovered or potential serious violations of regulatory

obligations under Malagasy law or infringement of this PSC.

Lifting Arrangements

16.6

Unless otherwise provided for in applicable Malagasy law, not later than

………..(…) days prior to the date scheduled for the commencement of commercial

production, the Parties shall establish offtake procedures covering the scheduling, storage

and lifting of Liquid Petroleum and Natural Gas



Page 42



ARTICLE 17

ASSISTANCE BY OMNIS

17.1

OMNIS shall take reasonable steps in order to assist a Participant in developing

relations with local authorities and administration and in the following areas obtaining:

a)

b)

c)



d)

e)

f)

17.2



authorizations for the use of transportation and communication;

authorizations in matters of customs or import/export;

visas, work permit or residence card, as well as any other administrative

authorization which may be required to implement this Contract for the expatriate

personnel who is required to work in Madagascar, including members of their

families;

authorizations for the sending abroad, if necessary, of documents, data or samples for

analysis or processing during the Petroleum Operations;

authorizations relative to the environment; and

any other administrative authorizations for the conduct of Petroleum Operations.

Within the scope of the services covered by this Article, all reasonable expenses

incurred by OMNIS shall be reimbursed by the Participants on a one to one basis,

and shall constitute Petroleum Costs, in accordance with applicable provisions of

the Accounting and Financial Procedure as set out in Annex B.



17.3 OMNIS will supply to the Participants of all available data and information on the

Contract Area in non discriminatory terms and conditions applicable by OMNIS for the sale of

such data or information.



Page 43



ARTICLE 18

PROCUREMENT OF GOODS AND

SERVICES

18.1

The Operator himself or through the use of Subcontractor is required to supply on

commercially competitive terms and conditions with regard to supply organization, timely

delivery, quantity and quality all required goods and services for the purpose of planning,

constructing, commissioning and operating structures, installations and other facilities

necessary for the conduct of prudent and efficient Petroleum Operations with the aim of

maximizing the depletion of one or more reservoirs with in the Contract Area.

18.2

Procurement contracts shall primarily be based on competitive bidding in

accordance with the transparent predefined procedures approved by the management

committee and invitations for tenders shall be submitted to the Parties.

18.3

The procurement, storage and utilisation of goods and services during Petroleum

Operations shall be conducted in accordance with the approved work program and budget.

18.4

The Operator shall examine with the management committee the procedure for the

procurement of goods and services relative to Petroleum Operations. Detailed, draft

provisions for procurement of goods and services, including standardized forms and terms

for purchase orders and contracts shall be submitted to the management committee for

approval. Procurement strategies and the detailed provisions shall be approved by the

management committee.

In arranging the supply calls for tenders and selecting suppliers relating to the delivery of

goods and services for Petroleum Operations pursuant to this PSC, competitive Malagasy

suppliers shall be given a genuine opportunity to secure orders.

The Operator shall submit proposals to the management committee for decision

concerning specific proposals for contracts including a bidding list in cases of

procurements with an expected contract value exceeding the equivalent of ……….. US

Dollars. A decision by the management committee shall be made within…………..

business days after the Operator has submitted his proposal to the management committee.

18.5

Priority shall be given to the utilization of goods and services produced or

delivered locally in Madagascar or by the Participants, as long as their price, quality,

suitability, and delivery terms are comparable to those potentially imported on c.i.f terms

into Madagascar.

18.6

Operator shall furnish OMNIS automatically and any Participant upon request

with copies of any Subcontractors’ Contracts.

18.7

The award of any contract, including the name of the Subcontractors, a general

description of the goods or services to be delivered and the total contract amount shall be

made publicly available in all cases where a part or the total delivery within a framework

contract exceeds the aggregate amount equivalent to ……………. US Dollars.

Page 44



ARTICLE 19

OWNERSHIP OF TANGIBLE ASSETS

Ownership

19.1

Ownership of any tangible asset whether fixed or moveable acquired or used by

the Operator and the Participants in connection with Petroleum Operations pursuant to this

PSC shall become the property of OMNIS under the following conditions:

a.



The ownership of all fixed assets is transferred to OMNIS as soon as they are

acquired or made use of by the Operator and the Participants; and



b.



The ownership of all movable assets is transferred to OMNIS:



i)

ii)



From the time of their arrival in Madagascar, if they are purchased overseas;

and

From the time of delivery either to the Contract Area, or to the offices or

facilities of the Operator, for Goods purchased in Madagascar.



The provisions of this Article are not applicable to assets leased by a Participant, an

Affiliate or the Operator.

Use of tangible assets

19.2

The Operator is entitled to the full use of all equipment and facilities described

above for the conduct of Petroleum Operations. However, such assets may also be used by

third parties designated by OMNIS provided such third party use does not unreasonably

impede Petroleum Operations under this PSC. Third parties making use of equipment,

installations or other facilities allocated to Petroleum Operations under this PSC shall

through a tariff compensate OMNIS as owner and also the Participants for any incurred

loss or required additional investment and cost of operation on the basis of nondiscrimination and documented real incurred costs.

19.3

All moveable assets may be moved from any part of a Contract Area

relinquished to portion of the Contract Area which is retained.

In the event a Participant wants to move assets acquired for the purpose or used in

connection with Petroleum Operations pursuant to this PSC to another location or make

use of said assets for the purpose of petroleum operations pursuant to another psc inside

Madagascar prior approval of the management committee and OMNIS is required. Upon



Page 45



receipt of approval by the recipient of such asset, this latter shall pay to OMNIS:

(a)



an amount equal to a transfer price mutually agreed between the Parties; or



(b)



if no transfer price has been agreed within ……. business days of request by a

Participant for an amount it shall be stipulated by an Expert which in the

assessment at least shall take into consideration the percentage of cost recovery to

date and the purchase price for the asset.



Page 46



ARTICLE 20

SUBCONTRACTING

20.1

The Operator shall ensure that its Subcontractors have verifiable and adequate

experience and professional qualifications, management systems and staff required for the

performance of their duties.

20.2

The Operator shall give priority to Malagasy Subcontractors, in competitive

terms, subject to applicable Malagasy law and the procurement procedures and conditions

stipulated in this PSC.

20.3

All contracts entered into for the purpose of Petroleum Operations pursuant to this

PSC shall be governed by Malagasy law and be based on Malagasy contract traditions,

copies of which shall be submitted to the Parties and to a competent Malagasy authority

responsible for the monitoring of the PSC.



Page 47



ARTICLE 21

PERSONNEL AND TRAINING

Personnel

21.1

The Operator and the Participants and their Subcontractors shall employ Malagasy

nationals for all positions to be filled within the scope of this PSC if they have the requisite

experience and professional qualifications required for the performance for the position to

be filled or the work performed. If Malagasy personnel are not available, the Participants

shall under the training obligation in this PSC establish a systematic program in order to

qualify Malagasy nationals for such positions to be filled.

21.2

The Operator and Participants shall facilitate secondment of OMNIS’ personnel

during any phases of Petroleum Operations. The condition of secondment of OMNIS’

personnel shall be regulated in more detail by agreement between the Parties.

21.3

The Participants and Subcontractors may hire expatriate personnel in the event

that local personnel do not have the qualifications necessary for the relevant posting. If the

expatriate personnel and/or members of their family engage in unlawful activities which

the Management committee judge not acceptable, the Participant in charge of such

personnel at the request of OMNIS, shall immediately repatriate such personnel.

21.4

Any foreign personnel participating in Petroleum Operations and working within

Madagascar's jurisdiction shall be required to be properly authorised. Such authorization

shall not be denied without reasonable and justifiable reason.

Training

21.5

The Participants shall develop and train its Malagasy personnel to the same

professional level as its expatriate personnel and with a view of Malagasy personnel being

qualified to all positions within the Malagasy subsidiary including executive and

managerial, administrative, financial, economics and technical functions. The proposed

program shall be submitted to OMNIS for approval.

21.6

The Participants and OMNIS shall on an annual basis agree to a program for

training and support in the capacity building of OMNIS’ personnel in matters relevant to

resource management and Petroleum Operational matters. For that purpose, the

Participants shall pay to OMNIS an amount of …….per annum (Contractual Year) from

the Effective Date of this PSC.

21.7

All costs and expenses incurred by a Participant with respect to this article shall

be charged to Petroleum Cost.



Page 48



ARTICLE 22

ROYALTY

22.1

In accordance with applicable Malagasy law, the Participants shall pay Royalty on

all Liquid Petroleum and Natural Gas extracted from reservoirs within the Contract Area,

save for that Petroleum which is re-injected in the same reservoir or another reservoir

within the same Contract Area provided in the latter case that the purpose of injection in

another reservoir is for the purpose of enhanced Liquid Petroleum production. But

Petroleum used otherwise for the purpose of Petroleum Operations shall be subject to

Royalty

Royalty shall be based on volumes extracted from reservoirs within the Exploitation Area

and valued at the International Market Price at the Delivery Point, when such price is

established.

22.2

Royalty may be taken in kind or in cash and shall be measured and calculated

separately for Liquid Petroleum and Natural Gas.

22.3

OMNIS shall inform the Participants three (03) months in advance whether the

royalty shall be taken in Liquid Petroleum and Natural Gas or in cash.

22.4

From the total quantity of Petroleum extracted a Participant may take a portion

thereof necessary to discharge the Participant's obligation for Royalty in kind.

22.5

The volumes of Royalty Petroleum taken in kind shall be delivered as Liquid

Petroleum and Natural Gas at the Delivery Point.

22.6

Royalty shall be based on the daily mean production of Liquid Petroleum and

Natural Gas including those volumes that are used in Petroleum Operations, lost, flared or

otherwise unusable.

22.7

Government and / or OMNIS may by six (6) months written notice given to the

Operator, require the Participant to sell on behalf of the Government and /or OMNIS

during the succeeding calendar year unless otherwise instructed the whole or any portion

of the volume of Royalty Petroleum taken in kind. The quantity of such Petroleum, which

the Government or as the case may be OMNIS, desires to sell shall be specified in said

notice. The Participant shall sell that quantity of Petroleum on the open market at the best

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

Government or as the case may be OMNIS. The Participant shall not realize any profit or

loss resulting from the selling of the Government Petroleum (taken in kind as Royalty) or

OMNIS

Petroleum.



Page 49



ARTICLE 23

RECOVERY OF COSTS

23.1

The Operator may use Petroleum extracted from reservoirs within the Contract

Area for Petroleum Operations.

23.2



Available Petroleum shall be valued at the Delivery Point.



23.3

Each Party shall take its entitlement to Petroleum Costs consistent with what is

considered best Petroleum industry practices at an approximately regular rate throughout

each calendar year.

Recovery of Petroleum Costs

23.4

With respect to the stipulations of the Accounting and Financial Procedures and

this PSC, Participants may recover the Petroleum Costs as incurred within sixty percent

(60%) of proportionally Available Liquid Petroleum and Available Natural Gas of the

Contract Area.

23.5

The pricing related to Article 25 shall apply in order to establish the value of

Liquid Petroleum or the Natural Gas of each Month in the relation to Petroleum Costs.

Expenses incurred by the Participants in order to bring Profit Petroleum to the Delivery

Point shall be considered as Petroleum Costs recovered as stipulated by Article 23.

23.6

Participants are free to export his portion of Petroleum recovered as Petroleum

Costs.



Page 50



ARTICLE 24

SHARING OF PROFIT PETROLEUM

24.1

The Profit Petroleum is the quantity of Available Liquid Petroleum and Available

Natural Gas obtained, after deduction of the quantity of Liquid Petroleum and Natural Gas

allocated to recover the Petroleum Costs, as provided in Article 23.

24.2

The Liquid Petroleum portion of Profit Petroleum shall be shared between

OMNIS and the Participants according to their share and according to the daily mean

volume calculated on a monthly basis of Liquid Petroleum extracted from the reservoirs

within the Contract Area in accordance with the table below:



less than ……………bpd

equal to or greater than

……………………….bpd

and less than

……………………….bpd

equal to or greater than

……………………bpd

and less than

………………………..bpd

Equal to or grater than

……………………bpd

and less than

………………………..bpd

Equal to or grater than

………………………..bpd



Government’s

Portion

…%

…. %



Participants’ Portion



…. %



…. %



…. %



…. %



…. %



…. %



….%

….. %



24.3

The Natural Gas portion of Profit Petroleum shall be shared between OMNIS and

the Participants according to their share and according the daily mean volume calculated

on a monthly basis of Natural Gas extracted from the reservoirs within the Contract Area

in accordance with the table below:



less than ……………..Scm

equal to or greater than

………………….Scm and

less than

………………………Scm



Government’s

Portion

…%

…. %



Page 51



Participants’ Portion

….%

….. %



equal to or greater than

…………………..Scm and

less than

……………………Scm

Equal to or grater than

………………….Scm and

less than

…………………….Scm

Equal to or grater than

…………………….Scm



…. %



…. %



…. %



…. %



…. %



…. %



24.4

Participants shall have right to take, to deliver and to export freely his part of

Profit Petroleum according to the PSC and to keep overseas his sales revenues of the

aforesaid Profit Petroleum.

24.5

The quantity of Profit Petroleum and Cost Petroleum shall be transported until the

Delivery Point, offshore and onshore, its preservation and storage shall be assured by the

Operator. Title to, risk and liability related to the said quantity of Petroleum shall be

transferred at the Delivery Point.

24.6

No later than twenty-one (21) days before the date of the start of extraction of

Petroleum from a reservoir and no later than thirty (30) days before the beginning of each

Quarter, Operator shall prepare and deliver to the Parties a Production program with a

Production estimate for the next Quarter and the evaluation of the quantities of Petroleum

returned to each Party during the same Quarter.

24.7

Operator shall within sixty (60) days following the end of each Calendar Year

submit an annual Production report to the Management committee and Malagasy

authorities designated by law or by OMNIS, listing the quantities of Liquid Petroleum and

Natural Gas delivered to each Party including overlift and underlift.



Page 52



ARTICLE 25

PRICING OF PETROLEUM AND

MEASUREMENT

Pricing

25.1

When an international market price for a quality of Liquid petroleum extracted

according to this PSC is not available, that Petroleum shall be valued for the purposes of

this PSC, and, shall, when available, be according to applicable Malagasy tax reference

prices. Such tax reference prices shall be a price Liquid Petroleum which could have been

traded for between independent parties in a free market. By independent parties is meant

buyers and sellers who have no mutual common interest which might affect the agreed

price. When a Malagasy tax reference price is not available for a particular quality of

Liquid Petroleum, then the price of such Petroleum shall be calculated at the end of each

Month, based on an international market price at the Delivery Point during the Month in

question, and when applicable less the transportation costs between the Field Exit Point

and the Delivery Point.

25.2

The international market price referred to above is the average of the FOB price

per barrel, in U.S. Dollars, at the Delivery Point, obtained from the commercial sales

between independent parties of Liquid Petroleum by the Parties during the preceding

Month. Segregation of Liquid Petroleum of different quality or grade shall be agreed

between the Parties unless regulated by applicable Malagasy law. Each grade or quality of

Liquid Petroleum produced in a Calendar Year shall contribute its proportionate share of

Royalty, Cost Petroleum and Profit Petroleum.

25.3

Notwithstanding the provisions of Article 25.2 above, if the sales between

independent parties referred to above are based on volumes of less than half of the amount

of Available Liquid Petroleum for the current Month, the applicable international market

price shall be the average of the FOB prices per barrel obtained during the current Month

on commercial sales made between independent parties on the international market of

liquid petroleum originating from other production areas which sell their petroleum in

markets, where they compete with the Liquid Petroleum produced in the Contract Area.

To this end, reference shall be made to a basket of liquid petroleum as stipulated by

competent Malagasy authorities, similar to those produced in the Contract Area, produced

and sold on the international market. The relevant prices shall be adjusted to allow for

variations in quality, such as specific gravity and sulphur content, transportation costs,

product yield, seasonal variations in price and demand, general market trends and other

terms of sale.

Natural Gas pricing

25.4

The tax reference price or formula for fixing the Natural Gas prices shall be

established according to applicable Malagasy law considering the volume of Natural Gas

sale, its quality, distance to market and transport and distribution costs from the Delivery

Point to the related market.



Page 53



25.5

When there could not be established what a true market price, the tax reference

price established would be:



(a)



in the case of sales to non-Affiliates, the weighted average price per Gigajoule of

commercial specification Natural Gas at the Delivery Point at which such Natural

Gas has been delivered by the Participants during that calendar month, shall be

the weighted average price per Gigajoule of all other commercial specification

Natural Gas delivered during the same calendar month from Malagasy reservoirs

and the weighted average of posted or publicly available prices for alternative

fuels to Natural Gas for large scale industrial consumers including power

generators in the market where such Natural Gas has been delivered to ultimate

customers.



(b)



in the case of sales to Affiliates, such price as stipulated in sub-paragraph a)

above for sales to non-Affiliates or such price agreed between OMNIS and

Participants.



25.6

In the event that the Government enters into a commercial sales agreement with a

Participant for the purchase by the Government of Natural Gas from that Participant, such

sales shall be at a price no higher than the price of Natural Gas sold to Affiliates from the

Contract Area as determined in the terms of this Article.



Accounting statement relevant to the pricing

25.7

In accordance with this Article, the Operator shall establish and submit to the

Parties a monthly statement showing the calculations of the value of the Liquid Petroleum

and Natural Gas produced at the Delivery Point(s). This statement will include:

a)

The quantities of Liquid Petroleum sold by a Participant that constitute

commercial sales on terms applied between independent parties; as well as the sales

price applied during that particular Month;

b)

The quantities of Liquid Petroleum sold by a Participant that do not fall into the

category referred to in a) above, as well as the sales price applied during that particular

Month;



Page 54



c)

The volumes of Petroleum in storage belonging to a Party at the beginning and at

the end of the Month; and

d)



The quantities of Natural Gas sold by a Party as well as the sales prices realized.



Measuring

25.8

Petroleum shall be measured only when extracted from the reservoir and delivered

at the Delivery Point. Unless otherwise agreed, Petroleum shall be delivered at the

Delivery Point in accordance with generally accepted practices in the international

petroleum industry. The measuring equipment shall be installed and managed by Operator.

Parties and competent Malagasy authorities shall be free to inspect said equipment

installed by Operator and all relevant documents and supporting information pertaining

thereto.

Operator's measuring equipment shall be subject to a periodical technical inspection

(gauging) in accordance with applicable Malagasy law and generally accepted practices in

the international petroleum industry.

25.9

If the measuring equipment is not at a required standard or defect, Operator shall

repair it within fifteen (15) days, or replace it within forty-five (45) days, from the date the

defect was detected. Such defect will be deemed to have occurred in the middle of the

period between the last gauging operation that led to normal results and the gauging

operation that showed the defect.

25.10 Any disputes arising under this Article 25.9 shall be settled by Expert

determination in accordance with Article 41 of this PSC, and shall be final and binding on

the Parties.



Page 55



ARTICLE 26

DOMESTIC MARKET – SALES OF THE

MALAGASY SHARE



Domestic Market

26.1

In accordance with the provisions of the Petroleum Code, the Participants shall,

when necessary, participate in supplying the local market with a portion of the Available

Petroleum to which it is entitled.

26.2

The quantity “Q” to be supplied by the Participants shall be calculated with the

formula hereunder:

c

Q = (a — b) x ---------c+ d



where:

a=



the volume of local consumption



b=



the volumes which cost to the Government and OMNIS concerning all

productions in Madagascar



c=



the volumes that costs to the Participants



d=



the volume that costs to the foreign contracted parties working in

Madagascar except the Participants



26.3

Save for in cases of a national emergency in which it is reasonable to expect

serious disruption to energy supplies, OMNIS must notify the Participants concerning the

supply to the local market six (6) Months in advance, specifying the volume intended to

supply the local market for the following six Months. The monthly variations of this

volume must not exceed a range of more or less than ten percent (10%).

26.4

The price applied to the sales in accordance with the present Article shall be the

International Market Price calculated in accordance with the provisions of Article 25 of

this PSC.

26.5

Any payment related to the sales of Petroleum pursuant to Participant's domestic

inland market obligation must be paid in U.S. Dollars and made by wire transfer to the



Page 56



bank account designated by that Participant.

These payments shall be effected by OMNIS within thirty (30) days after the Date of

liquid Petroleum Delivery for domestic markets.

Sales of the Government Share of Petroleum

26.6

On OMNIS’ request, with a prior notice of ninety (90) days, a Participant shall

provide on a joint dedicated basis the sale or delivery in kind an entity appointed by

OMNIS of all or part of the Governments entitlement of Petroleum extracted. Neither

benefits nor any costs shall be deemed to be realised or incurred by a Participant in order

to conclude such sales.

26.7

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

period shall be divided between the Government and the Participant selling Petroleum on

behalf of the Government, in proportions to which they had title in undivided entitlements

to the Petroleum sold.

26.8

After receipt of OMNIS’ prior notice regarding joint dedicated sale, the

Participant shall submit as soon as available information on price, potential purchasers

with all proposed terms and conditions of sales.



Page 57



ARTICLE 27

FINANCIAL PROVISIONS AND

INDEXATION

27.1

Any payment made by a Party by virtue of this PSC shall be made in U.S. Dollars

or in any other currency agreed to between the Parties, and wired to an account of a bank

designated by the creditor Party.

27.2

Any conversion provided for by this PSC shall be made at the most favourable

exchange rate available to any industrial or commercial bank in Madagascar and shall

apply to commercial transactions at the time of payment. Participants shall not realize any

gain or loss as a result of fluctuations in the exchange rate and, consequently, any gain or

loss resulting from exchange operations shall be debited or credited to the Petroleum

Costs.

27.3

Any payment due to Participants by OMNIS or by the Government shall be made

in Malagasy Ariary to a commercial bank in Madagascar designated by the Participants

except payment must be effected by OMNIS to Participants for the Petroleum sold to the

domestic market as stipulated in Article 26.5.

27.4

Participants shall have the right to convert any currency gained from Petroleum

Operations into US Dollars and transfer such funds outside Madagascar.

27.5

A Participant shall have the right to receive, retain outside Madagascar, and use

without restriction all of the proceeds from export sales of its share of Petroleum, subject

to its meeting its obligations the Government, the other Participants in this PSC, third party

liabilities and when applicable obligations to supply the local market as stipulated in

Article 26 of this PSC.

27.6

For the duration of the PSC, a Participant shall have the right to open and use one

or several bank account(s) outside Madagascar.

27.7

The Participants shall have the right to regulate freely its financial needs for the

accomplishment of Petroleum Operations in convertible currency and to convert the

currency in Madagascar, at the exchange rate in line with stipulated procedures in this

Article.

27.8

A Participant shall have the right to transfer its foreign currencies offshore

Madagascar and to dispose of:

a)



the perceived revenues in Madagascar, resulting from the sales of Petroleum,



b)

the perceived revenues from other operations and activities led in Madagascar by

virtue of this PSC.

27.9

The Participants and the Operator shall have the right to pay for their

Subcontractors and their expatriates, in currencies, either in Madagascar or abroad,



Page 58



Subcontractors and expatriates shall only transfer in Madagascar the necessary amount of

currencies for their local needs.

27.10 The Participants and Operator’ Subcontractors and their employees shall have the

same rights as a Participant and its personnel with respect to this Article.

27.11 In accordance with the applicable provisions of the Malagasy Petroleum Code, a

Participant may not have recourse to loans from Malagasy banks nor loans among

companies or concerns resident in Madagascar.

27.12 Any financial arrangement whereby a third party provides a Participant with any

influence on any aspect of Petroleum Operations or sale of Petroleum under this PSC is

prohibited unless approved by OMNIS. The same applies to any transfer or assignment of

such rights. The approval by OMNIS, the identity of the parties to such an arrangement

and the nature of the arrangement shall be subject to public disclosure.

27.13 OMNIS may consent to the mortgaging by a Participant of its participation share

in this PSC. The same applies to any transfer or assignments of such rights. The approval

by OMNIS, the identity of the parties and the nature of such an arrangement shall be

subject to public disclosure.



Page 59



ARTICLE 28

CUSTOMS PROVISIONS



Exemption during the Exploration Period

28.1

In accordance with the provisions of applicable Malagasy law goods and specific

products used directly in the Petroleum Operations shall benefit from the regime of

temporary admission and from duty exemption. Such benefits may not last beyond the

term of an Exploration Mining Title.

Exemption during the Exploitation Period

28.2

Participants may export from Madagascar the Petroleum produced in the Contract

Area, as stipulated by this PSC, exempt from custom duties.

28.3

In accordance with the Petroleum Code, the a Participant shall be exempt from the

payment of customs duties and taxes for all materials and equipment and products used in

Development Operations and the first installation of goods used in Exploitation, and

during processing and transportation of Petroleum. The Operator shall on behalf of the

Participants supply OMNIS with a list of equipment and materials used for these

operations and consult OMNIS before applying to the Minister of Finance for the

preparation of the order.

28.4

In accordance with applicable Malagasy law Participants are free to import and reexport the personal belongings including home appliances and furniture belonging to their

foreign employees and its families who reside in Madagascar. Any sale of personal

belongings and home appliances and furniture may only take place in accordance with the

relevant rules applying to such sales.



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ARTICLE 29

TAX PROVISIONS

29.1

Subject to the provisions of Article 28 above, the Participants and the entities

comprising a Participant are individually subject to the tax provisions and the payment of

Royalty applied in Madagascar.

29.2

The Parties shall be subject to the Direct Tax on Petroleum which discharges them

to taxes such as corporate income taxes, capital gains tax and forfeited taxes on transfer.

29.3

The Direct Tax on Petroleum is based on the results (i.e. Profit Petroleum) that a

Participant obtains from the Exploration and Exploitation activities of the Contract Area,

as well as on the transportation or Production activities on the territory of Madagascar.



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ARTICLE 30

ADMINISTRATION FEES



Within thirty (30) days from the Effective Date and within twenty (20) days from the

beginning of each Contract Year, the Operator, on behalf of the Participants, shall pay

OMNIS and according to their relative participation interest in the PSC the Administration

Fees as follows:

i)

ii)

iii)



US$ ……….. for the first Exploration phase

US$ ……….. for the second Exploration phase ;

US$ ……….. for the remaining years of Exploration.



Any delayed payment of administration fee payments shall result in the Participants having

their rights under the PSC suspended without resort to any extension or compensation of

any kind and shall carry an additional five per cent (5%) interest.



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ARTICLE 31

PRODUCTION BONUSES

The Operator, on behalf of the Participants, shall pay OMNIS the following production

bonuses

- ……….. US Dollars when the average production reaches ……….. boe per

day for a period of 90 consecutive days.

- ……….. US Dollars when the average production reaches ……….. boe per

day for a period of 90 consecutive days.

- ……….. US Dollars when the average production reaches ……….. boe per

day for a period of 90 consecutive days.

In case of Natural Gas Discovery, the calorific equivalence of the production mentioned

above shall be applied.



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ARTICLE 32

PIPELINES

32.1

OMNIS shall, under this PSC, for the purpose of transportation of Petroleum

produced under this PSC transfer to the Participants its right on the transportation of

Petroleum by pipeline, with respect to the Petroleum Code. The Participants shall have the

right to build, to operate and to maintain pipelines and related infrastructure for the

transportation of such Petroleum.

32.2

OMNIS shall obtain the required Mining Title for the transportation of Petroleum,

and with the assistance of the Operator obtain the permits and access rights necessary to

convey Petroleum to the designated Delivery Point.

32.3

The Operator shall submit to the management committee, before the construction

of pipeline and required infrastructure, the following information

a)

b)

c)

d)

e)

f)

g)

h)

i)



the proposed route of pipeline and the placement of related infrastructure and

equipment

forecast rate of flow and capacity

an evaluation of investments required and the operation cost of pipeline and

related infrastructure and equipment

a proposal of financing plan

a progress plan with milestone

general technical description of pipeline and related infrastructure and equipment

outline of planned of building and tests

an environmental impact assessment and proposals for mitigating measures on

environmental damages and the third parties

any other information relating to the pipeline project.



The Management committee shall examine the information here above and shall

approve the proposed project of pipeline construction with respect to the Article 6.3.

32.4

If excess of capacity of a pipeline is available, a reasonable rate shall be charged

for the use of the pipeline by a third party, which may transport petroleum by this pipeline.

32.5

The related costs to the construction of pipelines, the operations and the

maintenance of the pipeline and the related facilities shall be considered as Petroleum

Costs.

32.6

The Participants shall have the right during the term of this PSC to transport

Petroleum, as well as to operate and maintain pipelines and related equipment, for the

purpose of the PSC.

32.7

The obtained revenues from the third parties for the pipeline use shall be included

in the recovery of Petroleum Costs until the recovery of all construction costs, as well as

the operations and maintenance of pipeline and the related facilities and equipment

(including financial costs), OMNIS shall perceive the total revenues coming from the third

Page 64



parties for the pipeline use, at the end of the recovery of the said costs by the Participants.

32.8

Following the Recovery of all constructions costs, operations and maintenance of

pipeline and the related installations (including financial costs), the operation costs,

pipeline maintenance and related installations shall be supported by the Participants and

treated as Petroleum Costs.

32.9

OMNIS shall have the same rights as the Participants for the use of pipeline and

related facilities and equipment, without costs, for the transportation of its Petroleum

extracted from reservoirs within the Contract Area.



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ARTICLE 33

COORDINATED PETROLEUM ACTIVITIES AND

UNITIZATION

Unitization

33.1 The Operator shall notify the Parties in the event a reservoir within an Exploitation Area

extends beyond the Contract Area into adjacent areas where third parties have obtained a

petroleum rights for exploration and production of Petroleum.

33.2 In that case, the Parties to this PSC and the participants of such other area shall agree on a

timeline for the coordination of Petroleum Operations. When agreed between the parties of

the two areas or deemed appropriate by OMNIS cause the unitization of such a deposit;

based on the best operational and economical techniques as used by the international

petroleum industry.

33.3 OMNIS or when determined by applicable Malagasy law such designated competent

authority shall apportion the deposit if Parties can not agree on the manner in which a

reservoir extending across the geographical limitation of this PSC and into an area which is

subject to petroleum rights held by one or more persons not a Party to this PSC within

……..(…..) months after OMNIS having been notified to reservoir extending beyond the

Contract Area.

33.4 Agreements on joint or coordinated Production Operations, unitization, transportation or

Decommissioning are subject to approval by OMNIS, unless applicable Malagasy law

designates another competent authority.



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ARTICLE 34

DECOMMISIONNING



Decommissioning plan

34.1

No later than …….. months prior to the termination of production if in the

reasonable expectation of the Participants, such one or more structure, installation or facility

will cease to be used permanently under this PSC, the Operator shall submit to the

management committee, unless determined otherwise by applicable Malagasy law a

proposal for a plan to undertake the orderly Decommissioning of a structure, installation or

facility The obligation to prepare a plan for Decommissioning applies mutatis mutandis

when the PSC expires, is revoked or surrendered. The Government may exempt or modify

the obligation to prepare and submit a plan for Decommissioning to the management

committee when agreed among the Parties and warranted by law.

34.2

When a proposal for a plan for Decommissioning has been agreed between the

Parties it shall be submitted to OMNIS, for approval, at the earliest …… and not later than

……… prior to the expiry or surrender of this PSC or the use of such structure, installation

or facility is terminated permanently

34.3

The Decommissioning Plan shall be prepared in accordance with applicable law

and shall include but not be limited to:

(a)



particulars of measures to be taken, to effect decommissioning including but not

limited to:

(i)

decommissioning of equipment and installations for each Contract Area;

(ii)



timely removal of facilities and equipment not required for ongoing

Petroleum Operations in any area outside the Contract Area; and



(iii)



any other steps that may reasonably be required in order to prevent hazard

to human life, to the property of others or to the environment.



(b)



estimates of the time required to complete operations under the Decommissioning

plan including a progress plan with milestones;



(c)



a budget for operations under the Decommissionning plan, including particulars

of the costs of decommissioning facilities and equipment;



(d)



a schedule of breakdowns from the fund established for meeting

Decommissioning costs in order to meet the costs of implementing the proposed

plan; and



Page 67



(e)



such environmental, engineering and feasibility studies as may be necessary to

support the proposed plan.



34.4

The plan for Decommissioning shall be prepared in compliance with applicable

law, the provisions of this Article and shall ensure that decommissioning is conducted in a

manner which will give effect to standards generally recognized as applicable in the

international petroleum industry and when applicable the Participant’s standards for

decommissioning.

34.5

In the event that the Participants do not submit a plan for Decommissioning to

OMNIS within the time allowed by the authority a notice may be served upon the

Participants requiring the Participants to submit , within a period of ninety (90) days from

date on which the notice was served, a plan for Decommissioning. If within that period no

plan for Decommissioning is submitted, OMNIS may commission consultants of

international standing to prepare a plan for Decommissioning.

34.6

A plan for Decommissioning prepared by a consultant in accordance with

applicable law and this PSC shall be implemented by the Operator and if the Operator

fails in implementing the plan by one of the Participants in accordance with its terms as

though it were an obligation of the Participants. The cost of commissioning engineering

consultants to prepare a consultant’s proposed plan for Decommissioning plan shall be

payable by the Participants and may be recovered from the Decommissioning fund.

34.7

In the event that the Participants considers that production will cease before a plan

for Decommissioning has been prepared, Decommissioning measures for that particular

facility be prepared by the Operator in accordance with the requirement for

Decommissioning set out in this Article, and where those measures have been approved by

OMNIS shall take effect as an amendment to the plan for Development of the Exploitation

Area.

OMNIS may under applicable law waive the requirement to submit a plan for

Decommissioning.

Decommissioning funds

34.8

The Participants shall establish in a bank of its choice a separate interest bearing

account or such other currency account to be mutually agreed by the Parties in a first class

international bank in Europe or United States. The fund shall be denominated as the

Decommissioning Fund into which the Participants shall pay from time to time amounts in

order to meet the estimated costs of implementing an approved plan for Decommissioning.

34.9

Any fund allocated to cover a provisional cost related to Decommissioning of

facilities and equipment and termination of production shall be established for each

Exploitation Area, and the deposit of the said fund shall start at the latest:

i)



five (5) years before the termination of use of facilities, or



Page 68



ii)



when 50% of Petroleum reserves have been produced.

34.10 The Participants shall be jointly and severally liable for any cost related to

decommissioning and shut down as well as any removal operations and shall for this

purpose supply this bank account regularly so it will permit him to dispose sufficient fund

to cover the provisional cost of withdraw and closure.

34.11 Any amounts deposited to the fund shall be recovered as Petroleum Costs in

accordance with the provisions applicable to this PSC.

34.12 The Participants shall not withdraw money from the Decommissioning Fund save

for the purpose of covering the costs of implementing an approved plan for

Decommissioning and all statements relating to the Decommissioning Fund provided by

the bank from time to time shall be copied to OMNIS and the competent Malagasy

authority.

34.13 Costs incurred by the Participants to implement an approved plan for

Decommissioning shall unless they are recovered from the Decommissioning Fund be cost

recoverable in accordance with provisions in that regard set out in Article 23.

34.14 In the event that at the time of implementing the plan for Decommissioning, there

are insufficient funds available in the Decommissioning Fund to fund the implementation

of the plan, then that shortfall shall be paid in full by the Participants.

34.15 If the total amount of the funds exceeds the effective costs of the

Decommissioning of facilities and termination of production from the Exploitation Area,

the remaining balance including interest accrued shall be shall be treated as Profit

Petroleum and the remaining balance shall be shared in accordance with the provision of

Article 24 according to the established split between OMNIS and the Participants.

Participants' share of the proceeds shall be subject to applicable taxes on profit earned on

Petroleum activities.



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ARTICLE 35

INSURANCE

35.1

The Operator shall, within the scope of this Contract, purchase the insurance

coverage required by laws of Madagascar applicable on the Effective Date, as well as any

policies which are required by the management committee, in accordance with standard

practice in the petroleum industry.

These insurances policies shall cover, but shall not be limited to:

a) Loss and damage to installations, equipment, and materials used for Petroleum

Operations,

b) Bodily injury caused to employees or to third parties in relation to Petroleum

Operations,

c) Loss and damage to petroleum products within the Contract Area,

d) Loss and damage to pipelines or other transportation systems,

e) Damage and harm caused by the pollution of the environment and the disruption of

the ecosystem (fauna and flora),

f) Cleaning and restoration of the area damaged by Petroleum Operations.



35.2

All applicable insurance policies must name OMNIS as an additional insured

party with respect to the Petroleum Operations while precluding any possibility that

Malagasy State and OMNIS could be subrogated to the Operator’s responsibilities. Such

waiver of subrogation must be expressly stipulated in the insurance policies. Operator shall

not be responsible for carrying insurance coverage for claims arising from the negligence

of OMNIS or any employee

35.3



Operator shall furnish the Parties appropriate evidence of insurance coverage.



35.4

Each Participant shall be responsible, according to its share in this PSC, to

implement all claims related to insurers with respect to insurance arranged by each entity.

All premiums and indemnities resulting from subscribed insurance shall be treated in

accordance with the provisions of the Accounting and Financial Procedure.



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ARTICLE 36

INFORMATION AND CONFIDENTIALITY

36.1

The Operator is required to keep full records of the Petroleum Operations in

Madagascar. Also, it shall supply the Participants and OMNIS with all of the information

and data obtained, particularly those defined in Annex F.

Upon request of any Party, the Operator shall also supply the Participants with the samples

of rocks or any other tangibles extracted during the Petroleum Operations. In case of a

request by OMNIS such supply shall be at no cost to OMNIS.

36.2

The originals of reports and technical data recordings cannot be taken out of

Madagascar without the prior approval of OMNIS. However, magnetic tapes and other

data which must be analyzed, processed abroad, or stored under controlled conditions in

their original state may be shipped out of Madagascar, as long as OMNIS retains a right to

require their return.

36.3

The Participants, OMNIS and representatives of competent Malagasy authorities

shall have access, at any time, to information and data relating to the Petroleum Operations

in the Operator’s possession. It is understood that in exercising this right the entity gaining

access to said material or information shall not without due legal grounds impede or

disturb the proper performance of Participant's activities.

36.4

Operator shall furnish OMNIS of all information, reports, tapes or other data

(geological, geophysical, logs, interpretations, drilling reports, etc...) on Petroleum

Operations, including documents and justifications related to the recuperated costs by

Article 23. All the originals shall be transmitted to OMNIS at the end of the Contract.

36.5

Neither of the Parties shall disclose information related to the Petroleum

Operations to any person or organization, Affiliates; employees, professional consultants,

subcontractors, any bank or financial institution without their having previously entered

into a written confidentiality agreement undertaking to keep the information strictly

confidential unless they are required by law.

36.6

The data and information relating solely to areas surrendered shall become the

exclusive property of OMNIS who shall have the right to use them for any purpose.

36.7

The confidentiality obligation does not apply to information considered to be in

the public domain, that is already known to the entity on the date of disclosure, is received

independently from a third party that entity represents or an entity that has the right to

disseminate such information or data at the time that such information or data was

transmitted by a Party, or that is required to be disclosed under applicable law, regulation,

administrative- or court order by a governmental, judicial or regulatory body having

jurisdiction over the Party.

The confidentiality of the information shall apply to the Party and such entity gaining

Page 71



access to confidential information for the duration of the Contract. Likewise, no entity may

sell nor exchange data related to the Contract Area without the approval of OMNIS, which

approval shall not be withheld when in Participants opinion that the exchange would

benefit the Petroleum Operations. However, a Participant may disclose the information

and data to third parties who are prospective co-venturers or assignees of participating

interest in the PSC (including an entity with which Participant is conducting bona fide

negotiations directed towards a merger or consolidation) provided such a prospective coventurer executes a confidentiality agreement with substantially similar terms as set forth

in this Article 36.



Page 72



ARTICLE 37

ENVIRONMENTAL PROTECTION

37.1

In the conduct of Petroleum Operations and in accordance with the best

international petroleum industry practices and the applicable Malagasy laws , the Operator

on behalf of the Participants shall take and ensure that their personnel, their Subcontractors

and agents take necessary measures for the protection of the environment and the

prevention of pollution, safety of life, conservation of property, crops, fish, wildlife and

navigation, and safety and health of personnel , which may result from Petroleum

Operations.

37.2

If the Operator’s failure to comply with the provisions of sub-article 37.1 above

and the regulations results in pollution or damage to the environment or marine life or

otherwise, the Operator shall take all necessary measures to remedy the failure and effects

thereof. If such pollution or damage is the result of gross negligence or wilful misconduct

of the Operator, the cost of the remedy shall not be a Recoverable Costs for the purpose of

this PSC.

37.3

The Operator shall notify OMNIS and the Participants forthwith in the event of

any emergency or accident affecting the environment and shall take such action as may be

prudent and necessary in accordance with best international petroleum industry practice in

such circumstances.

37.4

Prior to each relinquishment, the Operator shall take all the necessary and

reasonable measures to clean and restore the environment to the extent possible to its

original state prior to commencement of Petroleum Operations, taking into account, safety,

the cost and feasibility of such measures. Such measures shall include, among others, the

removal or decommissioning of all facilities, material and equipment which OMNIS

declares it does not need, to the extent it is not inconsistent with applicable legislation.

37.5

Prior to any Petroleum activities, the Operator shall undertake one or more

comprehensive environmental impact assessment in accordance with relevant applicable

Malagasy law and shall get the information about national parks, reserves and other

protected areas within the Contract area, in part or in total where the Operator cannot

operate.



Natural Reserve Areas

37.6

In the event that a portion of the Contract Area is located within a natural reserve

area, the Operator shall deploy the necessary efforts in order to minimize the negative

impacts on these natural reserves, in accordance with generally accepted environmental

practices in the international petroleum industry.



Page 73



ARTICLE 38

ASSIGNMENTS

38.1

Sale, assignment or transfer of a participation interest, rights or obligations related

to such participation in this PSC or part thereof may not take place without the prior

notification or consent of OMNIS. The same applies to any direct or indirect transfer of

interest in a Participant, including assignment of shareholdings and ownership shares that

may provide decisive control of a Participant. For that purpose, OMNIS will be

automatically given the new Joint Operating Agreement which will govern the rights and

obligations of the Participants.

38.2

Notwithstanding Article 38.1 a Participant shall have the right to sell, assign,

transfer or otherwise dispose of all or part of its participation interest, rights and

obligations under this PSC to a properly qualified Affiliated Company incorporated in a

jurisdiction fully transparent to Malagasy authorities. To this effect, the Participant must

be able to demonstrate the financial and technical capabilities of this Affiliated Company.

A Participant shall notify the Parties and apply to OMNIS for consent to any assignment to

an Affiliated Company at least thirty (30) days prior to the date of such assignment.

38.3

A participant shall have the right to sell, assign, transfer or otherwise dispose of

any part or all of the rights and interests under this PSC to any non-Affiliated Company

incorporated in a jurisdiction fully transparent to Malagasy authorities and only with the

prior consent of OMNIS, which consent shall not be unreasonably withheld. A Participant

shall notify the Parties and apply for the consent of OMNIS of any assignment to a nonAffiliated Company. Any consent requested and properly documented by a Participant

shall be deemed approved sixty (60) days after notification and application unless the

Participant is notified to the contrary. The notification shall indicate a time limit if more

time is needed for reaching a final decision. Grounds shall be given if an application is

rejected.

38.4

In order for the instrument of assignment to take effect as stipulated in this Article

the following shall be notified to the Participants and OMNIS:

A.

The proposed assignee(s) shall provide tangible proof of its technical and

financial capability, and must submit appropriate financial and other guarantees equivalent

to in full or partial substitution of that of the assignor; and

B.

The assignment shall include terms and conditions acceptable to OMNIS

mentioning in particular that the assignee shall be bound to fulfil all existing obligations

under the PSC and its Annexes.

38.5

If any participation interest in this PSC or direct or indirect controlling interest in

a Participant is sold, transferred all or a part in favour of a non Affiliate Company, the

Participant shall pay OMNIS an amount of US$ within fifteen (15) days) of the date the

assignment or transfer was approved.



Page 74



ARTICLE 39

FORCE MAJEURE

39.1



Neither Party shall be liable for the non-performance, for partial or late performance of

any of its obligations shall not be considered as breach of this PSC or as an object of

litigation, if a Party is prevented by an event of Force Majeure. It is agreed that the

Party being subject to Force Majeure shall notify as soon as practically possible the

other Parties and shall take all necessary measures as soon as possible, in order to limit

and if possible mitigate negative effects, liability or damage to the Parties and as soon

as possible continue to carry out its obligations.

.

39.2



A failure to pay is never excused by an event of Force Majeure.



39.3

For purposes of this PSC, unforeseen event and irresistible and, beyond the

control of either Party shall be considered Force Majeure if they meet the conditions

without being limited to

a)



wars declared or not, guerrilla warfare, inside or outside hostility



b)



strikes, work stoppages



c)



natural catastrophe such as floods, cyclones, fires or earthquake



d)



faits de Prince.



Page 75



ARTICLE 40

SETTLEMENT OF DISPUTES

40.1

Any dispute between two or more Parties relating to or arising out of this PSC

relating to the interpretation of law or this PSC shall be resolved, if possible, by

negotiation between the Parties. A notice of the existence of a dispute shall be given by a

Party to another in accordance with the provisions of Article 44. In the event that no

agreement is reached within thirty (30) days after the date one Party notifies the other that

a dispute exists, or such longer period that is specifically provided for elsewhere in this

PSC, either Party shall have the right to have such dispute determined by arbitration or an

expert as provided for in this Article.

40.2

Save for any matter to be referred to a sole expert as provided in Article 41, the

Parties shall submit any dispute to arbitration as hereinafter provided:

(a)

all disputes referred to arbitration shall be finally settled under the

Arbitration Rules of the International Centre for the Settlement of Investment

disputes (hereinafter called the “ICSID Rules”) pursuant to the ICSID Convention

and which are in existence on the Effective Date, except as and to the extent that the

ICSID Rules may be modified by the provisions of this Article;

(b)

the seat of arbitration shall be ….. , the law of the merits of the arbitration

shall be Malagasy law and the law governing the arbitration agreement shall be

Malagasy law. The arbitration proceedings shall be conducted in the French

language. The French version of this PSC signed by the Parties shall be used as the

official translation in arbitral proceedings;

(c)

Parties;



an award by an arbitrator or arbitrators shall be final and binding on all



(d)

an award by an arbitrator or arbitrators shall be kept confidential by all

Parties unless where prohibited by law

(e)

the arbitral panel shall be composed of three (3) arbitrators to be appointed

in accordance with the ICSID Rules, provided that, upon mutual agreement of both

Parties, the arbitration may be conducted by a sole arbitrator appointed under the

ICSID Rules. Unless both Parties have agreed that the dispute shall be settled by a

sole arbitrator, the claimant Party shall nominate in the request for arbitration, and the

respondent Party shall nominate within thirty (30) days of the registration of the

Request, one (1) arbitrator pursuant to the ICSID Rules. Within a period of thirty

(30) days from the date when both arbitrators have accepted their appointments the

arbitrators so appointed shall agree on a third arbitrator, who shall act as Chairman of

the arbitral tribunal. If either Party fails to nominate an arbitrator as provided above,

or if the arbitrators nominated by the Parties fail to agree on a third arbitrator within

the period specified above, then ICSID shall make such appointments as necessary in



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accordance with the ICSID Rules. If both Parties have agreed that the dispute shall be

settled by a sole arbitrator the sole arbitrator shall be nominated by agreement

between them subject to acceptance by the nominated arbitrator; provided that if the

Parties are unable to agree on a nominee for sole arbitrator within thirty (30) days

from the date of the registration of the Request, then ICSID shall appoint the sole

arbitrator in accordance with the ICSID Rules;

(f)

insofar as practicable, the Parties shall continue to implement the terms of

this PSC notwithstanding the initiation of arbitral proceedings and any pending

disputes; and

(g)

the provisions set out in this clause 40 shall continue after the termination

of this PSC.

40.3

The Parties hereby agree not to exercise any right to institute proceedings under

any law or jurisdiction law to set aside any interim or final arbitral award made pursuant to

this Article 40.



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ARTICLE 41

EXPERT

41.1

Any matter in dispute of a technical nature not involving interpretation of law or

the application of this PSC or which is required to be referred to a sole expert for

determination under the provisions of this PSC (or with respect to any other matter which

the Parties may otherwise agree to so refer concerning Articles 6.9, 9.4, and 25.10 shall be

submitted to a sole expert by a Party by giving notice to such effect pursuant to Article 44.

Such notice shall contain a statement describing the dispute and all relevant information

associated therewith.

41.2

A sole expert shall be appointed pursuant to the mutual agreement of the Parties

and shall be an independent and impartial person of international standing with relevant

qualifications and experience. The nationality of the sole expert shall not be the same as

either of the contracting Parties nor have the same nationality as any Affiliate of any

Participant, and shall not have any economic interest or relationship with any Party to the

dispute.

41.3

Any sole expert appointed shall act as an expert and not as an arbitrator or

mediator and shall be instructed to resolve the dispute referred to him within thirty (30)

days of his appointment.

41.4

Upon the selection of the sole expert, the Party receiving the notice of referral

above shall submit its own statement containing all information it considers relevant with

respect to the matter in dispute. If the Parties are unable to agree on the appointment of a

sole expert within twenty (20) days after a Party has received a notice of referral under this

clause the sole expert shall be selected by the ICC Center for Expertise and the person so

selected shall be appointed by the Parties

41.5

The sole expert shall decide the manner in which any determination is made,

including whether the Parties shall make oral or written submissions and arguments, and

the Parties shall co-operate with the sole expert and provide such documentation and

information as the sole expert may request. All correspondence, documentation and

information provided by a Party to the sole expert shall be copied to the other Party, and

any oral submissions to the sole expert shall be made in the presence of all Parties and

each Party shall have a right of response. The sole expert may obtain any independent

professional or technical advice as the sole expert considers necessary

41.6

The French version of this PSC signed by the Parties shall be used as the official

translation in any determination by the sole expert. The fees and expenses of a sole expert

appointed shall be borne equally by the Parties.

41.7

The decision of the sole expert shall be final and binding and not subject to any

appeal, save for fraud, mistake or miscarriage of justice.



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ARTICLE 42

APPLICABLE LAW

42.1

This PSC consisting of the PSC main document and its Annexes forming an

integral part hereof, any and all activities conducted on the basis of this PSC including

Petroleum Operations, relevant subcontracts and any dispute related or arising out of such

activities or contracts, shall be governed, construed and interpreted in accordance with

Malagasy law and legal traditions.

42.2

Mandatory Malagasy law shall prevail in case of conflict with this PSC, its

Annexes to any subsequent activities, arrangements or agreement related to or arising out

of this PSC.



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ARTICLE 43

MISCELLANEOUS PROVISIONS

43.1

A Participant shall have an organization and personnel in Madagascar, which is

authorised and capable of taking relevant decisions and managing independently its

interests in this PSC including when applicable all Petroleum Operations pursuant to or

arising out of this PSC. To achieve this, the Government or an entity designated by

Government may stipulate specific requirements to in respect of governance, organization

and the capital of a Participant and the Operator.

43.2

Any modifications to this PSC must be subject to an addendum duly approved by

the Parties and which shall enter into force under the same conditions as this PSC.

Loss or Damage

43.3

The Participants are jointly and severally liable for any loss or damage caused to

third parties by employees or its Subcontractors as a result of negligence, errors or

omission of any Participant or the Operator under applicable Malagasy law and this PSC,

save for the following each of which, shall be a several obligations of the Participants:

a)



The obligation to pay taxes;



b)

The obligation to observe and abide by confidentiality rules under applicable law

or contract, save for the application of such rules to anything done by the Operator in the

capacity as Operator;

c)

The obligation to observe and abide by financial, banking and foreign exchange

rules, save for their application of such rules to the Operator in the capacity as Operator

It is understood that a Participant shall protect, defend indemnify and hold harmless

OMNIS and the Malagasy Government for any claim, demands or causes of action of

every kind and character as well as any penalty resulting from loss or damage.



Intellectual Property Rights

43.4

The Participants shall be liable for, and shall protect, defend, indemnify and hold

harmless OMNIS from any and all claims, demands or causes of action of every kind and

character arising from the infringement or alleged infringement of any intellectual property

rights related to any material or information provided in any form furnished or utilised by

Operator.



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Litigation

43.5

Each Participant shall promptly inform the Parties of any initiated or potential

litigation related to or potentially affecting the execution of this PSC.



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ARTICLE 44

NOTIFICATIONS

44.1

All notifications, correspondence and communications between the Parties under

the Contract shall be in writing and transmitted either in person or by mail, electronic mail,

telex or facsimile to the following addresses:

For OMNIS:

21 Lalana Razanakombana

B.P. 1 Bis Antananarivo (101)

Madagascar

Fax: 261 (20) 22 22985

Attention:

Monsieur le Directeur General de l’OMNIS



For …………………………………..:

XXXXXX

For …………………………………..:

XXXXXX

44.2

The authorized representative as well as the above-mentioned addresses of the

Parties may be changed upon ten (10) days prior notice to the other Parties.



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ARTICLE 45

DEFAULT OF ONE PARTICIPANT



45.1



For the case of more than one Participant, if one of the Participants does not meet

its financial obligation under this PSC, or declared bankrupt or is forced to make

restitution to its creditors, it will be forfeited to its rights pursuant to or arising out

of this PSC, subject to the following:

- from the default’s establishment, the Operator shall give notice to the defaulting

Participant, in accordance with the article 44. The forfeiture takes effect by right

to the term of a time limit which cannot go beyond thirty (30) days after

notification. The forfeiture does not extinguish the Participant's debt and does not

stop the interest from running to the rate defined below.



-



45.2



however, as long as the fixed time limit above is not expired, the defaulting

Participant has the possibility to pay the amount required raised from a LIBOR

interest plus two percent (2%) from the date to which the payment would have

must be made. The total amount will be paid to the Operator.



The other Participants shall agree on the way this PSC will be executed without

the defaulting Participant and shall ask OMNIS’ approval within thirty (30) days

after the notification has expired.



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ARTICLE 46

TERMINATION OF THE PSC

46.1

Subject to the provisions of the Article 45, OMNIS shall have the right to

terminate the PSC with respect to the Participants and to take possession of all the assets

pertaining to the Contract Area in possession of the Participants in Madagascar, in the

event of one of the following cases that Participant:

A.

B.

C.

D.



Have failed to meet financial obligations as they are provided for in the PSC or

applicable Malagasy law;

Knowingly and without cause does not satisfy any provision of Article 10 of this

Contract; and

Knowingly and without cause does not abide with an arbitration decision

rendered pursuant to the provisions of Article 40 of this Contract.

Knowingly and without cause does not abide with an Expert determination of

material importance for the proper operation of this PSC rendered pursuant to the

provisions of Article 41 of this PSC.



46.2

The Participants may terminate the PSC by relinquishing all of the Contract Area

in accordance with this PSC or applicable Malagasy law.

46.3

If one of the Parties commits a material breach of its contractual obligations,

including but not limited to the cases specified in Article 45.1 A and B or seriously or

repeatedly infringe applicable Malagasy law is declared bankrupt or is forced to make

restitution to its creditors, the other Parties shall have the right to terminate the PSC, being

understood that:

A.



The complaining Party must notify the other Party of its intention to terminate the

Contract and the reasons for such termination and ask the latter, at its discretion,

to either:

i)

ii)



B.



Remedy the deficiency within three (3) months of the notice

Provide compensation.



If, within three (3) months after issuing the notice described above, the

complaining Party, based on good and sufficient reasons, is not satisfied with the

remedy or compensation offered by the other Party, the PSC shall be terminated

unless either Party issues a notice of a dispute as provided in Article 40 of this

PSC; in such case, this PSC shall remain in full force until a final settlement of the

dispute has been reached in accordance with said Article



46.4

If OMNIS terminates the PSC, the Participants lose all their rights and interests

under this PSC.



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ARTICLE 47

EFFECTIVE DATE

This PSC shall become effective and shall bind the Parties upon signature by duly authorized

representatives of OMNIS and Participants and after promulgation of a decree by the President

of Madagascar approving the PSC, and after a decree granting the Mining Title to OMNIS.



Made in triplicate (3) .

Antananarivo, on the…………………



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