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MODEL PRODUCTION SHARING AGREEMENT

BETWEEN

THE GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA

AND

TANZANIA PETROLEUM DEVELOPMENT CORPORATION

AND

ABC LTD

FOR ANY AREA

2013



TABLE OF CONTENTS

PRODUCTION SHARING AGREEMENT ....................................................................................................................... 1

WITNESSETH

.............................................................................................................................................................. 2

PREAMBLE

.............................................................................................................................................................. 2

ARTICLE 1:

DEFINITIONS...................................................................................................................................... 3

ARTICLE 2:

AGREEMENT.................................................................................................................................... 10

ARTICLE 3:

RESPONSIBILITIES AND GRANT OF RIGHTS............................................................................ 11

ARTICLE 4:

TERM AND TERMINATION ........................................................................................................... 16

ARTICLE 5:

EXPLORATION PROGRAMME ...................................................................................................... 19

ARTICLE 6:

RELINQUISHMENT OF CONTRACT AREA ................................................................................. 22

ARTICLE 7:

ANNUAL WORK PROGRAMMES AND BUDGET ....................................................................... 23

ARTICLE 8:

ADVISORY COMMITTEE ............................................................................................................... 24

ARTICLE 9:

DISCOVERY, APPRAISAL AND DEVELOPMENT ...................................................................... 27

ARTICLE 10:

JOINT OPERATIONS........................................................................................................................ 34

ARTICLE 11:

PAYMENT AND ANNUAL CHARGES .......................................................................................... 37

ARTICLE 12:

RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING .............................. 38

ARTICLE 13:

VALUATION OF PETROLEUM ...................................................................................................... 43

ARTICLE 14:

MEASUREMENT OF PETROLEUM ............................................................................................... 46

ARTICLE 15:

NATURAL GAS ................................................................................................................................ 47

ARTICLE 16:

TAXATION AND ROYALTY .......................................................................................................... 49

ARTICLE 17:

ADDITIONAL PROFITS TAX.......................................................................................................... 50

ARTICLE 18:

ESTABLISHMENT OF OFFICE, REPORTING, INTERNAL CONTROL, SUPERVISION AND

CONFIDENTIALITY......................................................................................................................... 52

ARTICLE 19:

LIFTING, MARKETING AND DOMESTIC SUPPLY OBLIGATION ........................................... 55

ARTICLE 20:

LOCAL CONTENT............................................................................................................................ 57

ARTICLE 21:

EMPLOYMENT, TRAINING AND TRANSFER OF TECHNOLOGY .......................................... 59

ARTICLE 22:

TITLE TO ASSETS, INSURANCE, SITE CLEAN UP, DECOMMISSIONINGAND

ABANDONMENT ............................................................................................................................. 61

ARTICLE 23:

IMPORT DUTIES .............................................................................................................................. 65

ARTICLE 24:

ACCOUNTING AND AUDIT ........................................................................................................... 66

ARTICLE 25:

HEALTH SAFETY AND ENVIRONMENT..................................................................................... 67

ARTICLE 26:

FORCE MAJEURE EVENT .............................................................................................................. 71

ARTICLE 27:

ASSIGNMENT AND TRANSFER OF RIGHTS .............................................................................. 74

ARTICLE 28:

CONSULTATION AND ARBITRATION ........................................................................................ 77

ARTICLE 29:

APPLICABLE LAW .......................................................................................................................... 79

ARTICLE 30:

WORKING LANGUAGE .................................................................................................................. 80

ARTICLE 31:

THIRD PARTY ACCESS TO PETROLEUM FACILITIES ............................................................. 81

ARTICLE 32:

COORDINATION AND UNITISATION OF PETROLEUM OPERATIONS ................................. 82

ARTICLE 33:

FOREIGN EXCHANGE AND CURRENCY .................................................................................... 83

ARTICLE 34:

ANTI-CORRUPTION ........................................................................................................................ 84

ARTICLE 35:

MODIFICATIONS AND HEADINGS .............................................................................................. 85

ARTICLE 36:

NOTICES ........................................................................................................................................... 86

ANNEX "A": DESCRIPTION OF EXPLORATION LICENCE AREA .................................................................. 88

ANNEX "B": MAP OF EXPLORATION LICENCE AREA ................................................................................... 89

ANNEX "C": DRAFT EXPLORATION LICENCE................................................................................................. 90

ANNEX "D": ACCOUNTING PROCEDURE ......................................................................................................... 94

ANNEX "E": APT SAMPLE CALCULATION METHODOLOGY ..................................................................... 118

ANNEX "F": PARENT COMPANY GUARANTEE............................................................................................. 119



i



PRODUCTION SHARING AGREEMENT

This Production Sharing Agreement (the “Agreement”) is made on the_________day of

__________________ , 20[xx] and constitutes the agreement between:

The Government of the United Republic of Tanzania (hereinafter referred to as the “Government”)

represented by the Minister for Energy and Minerals (hereinafter referred to as “Minister;

The Tanzania Petroleum Development Corporation a statutory Corporation established under the

Laws of the United Republic of Tanzania (hereinafter referred to as (“TPDC”), represented by its

Managing Director;

(all hereinafter called collectively “First Party”); and

ABC Ltd, a company existing under the Laws of the United Republic of Tanzania, with office and

legal representative in the United Republic of Tanzania, hereinafter referred to as “ABC” or

“Contractor” or “Second Party” represented by its Chief Executive Officer , which expressions

shall, where the context so admits, include its successors-in-title and assigns.



1



WITNESSETH

PREAMBLE

WHEREAS, Petroleum in or under any land in, or under the jurisdiction of the United Republic of

Tanzania, or to which the United Republic of Tanzania is entitled under international

law, including Petroleum underlying the area described in Annex “A” hereof, is vested

entirely and solely in the United Republic of Tanzania; and

WHEREAS, TPDC has been established by law for the purpose (inter alia)of promoting the

development of the Petroleum industry and the production of Petroleum; and

WHEREAS, the Act as defined in Article 1 below makes provision with respect to exploring for and

producing Petroleum and, for that purpose subject to certain limitations and

conditions, authorises the Minister to grant Exploration Licences and Development

Licences; and

WHEREAS, TPDC intends to apply for an Exploration Licence over the area described in Annex

“A” and shown on the map in Annex “B” hereof and the Minister intends to grant the

said Licence; and

WHEREAS, TPDC with the approval of the Minister, wishes to engage the Contractor to carry out

on its behalf Petroleum Operations in the area of the said Licence and in the area of

any Development Licence(s) granted to TPDC hereunder; and

WHEREAS, ABC is willing on certain terms and conditions to undertake the Petroleum Operations

aforesaid and has for that purpose the necessary competence, capacity and capability

including adequate financial capacity, technical competence, sufficient experience,

history of compliance, and professional skill.

WHEREAS, the Parties are committed to ensure that Petroleum Operations shall be managed in

compliance with the Law and in an ethical, efficient, safe, transparent and accountable

manner on the basis of the best international environmental, social and economic

sustainability principles in order to achieve optimal long-term Petroleum resource

exploitation for maximum value creation for equitable benefit and welfare of the

people of the United Republic of Tanzania.

WHEREAS, the Contractor is willing on certain terms and conditions to undertake Petroleum

Operations aforesaid and has for that purpose the necessary financial capacity,

technical competence and professional skill.

NOW THEREFORE, in consideration of the premises and mutual covenants herein reserved and

contained, IT IS HEREBY AGREED as follows:



2



ARTICLE 1:



DEFINITIONS



The words and terms used in this Agreement shall have the following meanings unless specified

otherwise.

(a) “Act” means the Petroleum (Exploration and Production) Act, CAP. 328 R.E. 2002as

amended, repealed or replaced from time to time.

(b) “Abandonment” means decommissioning, removal and/or disposal of structures, facilities

and installations including pipeline equipment and other property used in Petroleum

Operations in an area, cleaning up of the area, plugging and secure of Wells, restoration of

land, safety clearance of an area, in connection with cessation or partial cessation of

Petroleum Operations in an area or part of an area;

(c) Affiliate Company” or “Affiliate” means any company holding directly or indirectly a

majority of shares in any company which is controlled directly or indirectly by any such

aforesaid company.

For the purpose of the foregoing definitions:

(i)



a company is directly controlled by another company or companies holding shares

carrying in the aggregate the majority of votes exercised at general meetings;



(ii)



a particular company is indirectly controlled by a company or companies (thereafter

called “the parent company or companies”) if a series of companies can be specified,

beginning with the parent company, are so related that each company of the series,

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

earlier in the series.



(d) “Adjoining Block” shall have the meaning ascribed to it by the Act.

(e) “Agreement” or “the Agreement” means this Production Sharing Agreement executed

among the Government, TPDC and the Contractor, including its Annexes.

(f) “Appraisal”means the activities to be carried out after a discovery of Petroleum with the

aim to better define the parameters of the Petroleum and the reservoir to which the discovery

relates and determine its commerciality and include but is not limited to:

(i)



drilling of Wells and running productivity tests;



(ii)



collecting special geological samples and reservoir fluids; and



(iii)



conducting supplementary studies and acquisition of geophysical and other data, as

well as the processing of same data.



(g) “Appraisal Programme” means an approved work programme and budgetprepared for the

purpose of Appraisal;



3



(h) “Appraisal Well” means any well drilled following a discovery of Petroleum in the

Contract Area for the purpose of ascertaining the quantity and areal extent of Petroleum in

the Petroleum reservoir to which that discovery relates;

(i) "Arm’s Length" means the relationship that exists between two or more entities, where

neither of such entities exerts or is in position to exert significant influence of any of the

other entities having regard to all relevant factors;

(j) “Associated Natural Gas” or “Associated Gas” means Natural Gas which exists in a

reservoir in solution with Crude Oil and includes what is commonly known asgas cap gas

which overlies and is in contact with Crude Oil;

(k) “Barrel” means a unit of measure for liquids corresponding to forty-two (42) United States

gallons of Crude Oil net of basic sediment and water, corrected to a temperature of sixty

degrees Fahrenheit (60°F) and under one (1) atmospheric pressure;

(l) “Block” shall have the meaning ascribed to it by the Act;

(m) “Business Day’’ means a day excluding a Saturday or Sunday or public holiday on which

banks in the United Republic of Tanzania are open for business;

(n) ‘Btu’’ (British thermal unit) means an energy unit; the quantity of heat necessary to raise

the temperature of one pound-mass of water one degree Fahrenheit from 58.5°F to 59.5°F

under a standard pressure of 30 inches of mercury at 32°F;

(o) “Calendar Year” or “Year” means a period of twelve (12) consecutive months according to

the Gregorian calendar beginning on January 1 and ending on December 31;

(p) “Casing Head Gas” means Natural Gas which existed or exists in a reservoir in solution

with Crude Oil, or as free gas cap gas, and is or could be produced with Crude Oil from a

well; the predominant production of which is or would be Crude Oil;

(q) “Contract Area” means on the Effective Datethe area described in Annex “A” and shown

on map in Annex “B”, and thereafter, in accordance with Article 3(b) the whole or any part

of such area in respect of which Contractor continues to have rights and obligations under

this Agreement;

(r) “Contract Expenses” means expenses incurred in relation to the Petroleum Operations, as

more fully set forth in Annex “D”;

(s) “Contract Year” means the period, and successive periods, of twelve (12) consecutive

Months according to the Gregorian calendar beginning on the Effective Dateof this

Agreement;

(t) “Contractor” means Second Party as well as any entity to which any interest may be

transferred in application of the provisions of Articles 10 or 27;



4



(u) “Contractor’s Joint Operating Agreement” means the Petroleum Joint Operations Agreement

in respect of which two or more parties constituting Contractor have elected to enter in order

to contribute expenses in accordance with Article 3(d).

(v) "Cost Gas" shall have the meaning ascribed to it in Article 12 of this Agreement;

(w)"CostOil” shall have the meaning ascribed to it inArticle12ofthis Agreement;

(x) “Crude Oil” means a mixture of liquid hydrocarbons produced from the contract area which

is in a liquid state at the well head or in the separator under normal conditions of pressure

and temperature, including distillate and condensates, as well as liquids extracted from

natural gas "Cost Oil" shall be as defined in Article 12 of this Agreement.

(y) "Crude Oil Operations" means Petroleum Operations carried out in respect of Crude Oil;

(z)



“Day” is a period of twenty-four (24) hours starting at midnight;



(aa)



"Delivery Point" means a point specified in the approved Development Plan within or

outside of the Contract Area;



(bb) “Development Area” shall have the meaning ascribed to it by the Act;

(cc)



“Development Expenses” means those expenses as so categorized in Annex “D”, the

Accounting Procedure;



(dd) “Development Licence” shall have the meaning ascribed to it by the Act;

(ee)



“Development Operations,” means operations for or in connection with the production

of Petroleum and shall include the activity carried out to prepare the Development Plan

and the activity carried out after the grant of the development licence in the respective

Development Area. Such activity shall include, but not be limited to:

(i) reservoir, geological and geophysical studies and surveys;

(ii) drilling of producing and injection Wells;

(iii) design, construction, installation, connection and initial testing of equipment,

pipelines, systems, facilities, plants, and related activities necessary to produce

and operate said Wells, to take, save, treat, handle, store, transport and deliver

Petroleum, and to undertake re-pressuring, recycling and other secondary or

tertiary recovery projects;



(ff)



“Development Plan” means the proposals accompanying an application for a

Development Licence pursuant to the Act and this Agreement;



(jj)



“Development Well” means a Well drilled for the purpose of producing or enhancing

production of Petroleum from a commercial discovery, and includes the Appraisal wells

completed as producing or injection wells;

5



(kk) “Discovery Block” shall have the meaning ascribed to it by the Act;

(ll)



“Effective Date” means the date on which,this Agreement is signed by the Parties and the

Exploration Licence is simultaneously granted by the Minister;



(mm) “Expatriate Employee” means any professional employee from abroad who is working

for the Contractor in relation to this Agreement in the United Republic of Tanzania;

(nn) “Exploration Expenses” means those expenses as so categorized in Annex “D”, the

Accounting Procedure;

(oo) “Exploration License” shall have the meaning ascribed to it by the Act;

(pp) “Exploration Licence Area”means the Contract Area or a sub-division thereof as

specified in Annex “A”;

(qq) "Exploration Operations” means operations for or in connection with the exploration for

petroleum and shall include, but not be limited to, such geological and geophysical

surveys and studies, aerial surveys and others as may be included in approved Work

Programme and Budgets, and the drilling of such shot holes, core holes, stratigraphic

tests, Exploration Wells, and other related holes and Wells, and the purchase or

acquisition of such supplies, materials and equipment which may be included in approved

Work Programme and Budgets;

(rr)



“Exploration Period” means a time period granted for the performance of Exploration

Operations as referred to in Article 5;



(ss)



“Exploration Well” means a Well drilled in the course of Exploration Operations

conducted hereunder but does not include an Appraisal Well, and whose purpose at

commencement of drilling is to explore for an accumulation of petroleum whose

existence was at that time unproven by drilling;



(tt)



"GasPlant” means a plant for the treatment, conditioning, synthesizing, refining,

processing, separation or conversion of NaturalGas;



(uu) “General and Administrative Costs” means those costs as so categorized in Annex “D”,

the Accounting Procedures;

(vv) “Government” means the Government of the United Republic of Tanzania;

(ww) “Gross Negligence/ Willful Misconduct” means an intentional and conscious or reckless

act or failure to act, by any person or entity, which was in reckless disregard of or wanton

indifference to harmful consequences such person knew or should have known such act or

failure to act has or would have caused to the safety or property of any person or entity,

but shall not include any act, omission, error of judgment or mistake made in good faith in

the exercise of any function, authority or discretion arising out of or in connection with

the Petroleum Operations.

6



(xx) “Joint Operating Agreement” shall mean the agreement entered into between the parties

constituting Contractor, and TPDC where applicable.

(yy) “Joint Operations” means the Petroleum Operations in respect of which TPDC has

elected to contribute expenses or has been carried by the Contractor pursuant to Article 10.

(zz) “Law” means the legislation; regulations; rules; guidelines; Government Orders, Notices

and Directives, precedents and principles in force from time to time in the United Republic

of Tanzania;

(aaa)

“LIBOR” is the London Inter-Bank Offered Rate for one month deposits of U.S.

Dollars displayed on page ‘LIBOR01’ of the Reuters Money Rates Service (or any

otherpagethatreplaces page ‘LIBOR01’ for the purposes of displaying the British Bankers

Association (BBA) interest settlement rates for such deposits of U. S. Dollars in the London

Interbank market) on the date of determination, or in the event the Reuters Money Rates

Service , or a successor thereto, no longer provides such information, such other service as

may be agreed by the Parties that provides the BBA interest statement rates for such

deposits of U. S. Dollars in the London Interbank market and any required information

previously provided on page ‘LIBOR01’;

(bbb)“Local Content” means the quantum of composite value added to, or created in, the

economy in Tanzania through the deliberate utilization of Tanzanian human and material

resources and services in the Petroleum Operations in order to stimulate the development of

capabilities indigenous to Tanzania and to encourage foreign investment and participation,

without compromising quality, health, safety and environmental standards;



(ccc) “Location” shall have the meaning ascribed to it by the Act;

(ddd) “Minister” shall have the meaning ascribed to it by the Act;

(eee) “Month” means a calendar month pursuant to the Gregorian Calendar;

(fff)



“MMscf” means a million standard cubic feet of Natural Gas;



(ggg)“Natural Gas” means any hydrocarbons produced from the Contract Area which at a

pressure of 1 atmosphere and a temperature of sixty degrees Fahrenheit (60ºF) are in a

gaseous state at the wellhead, and includes both associated as and Non- Associated Natural

Gas, and all of its constituent elements produced from any Well in the Contract Area and all

non-hydrocarbon substances therein. Such term shall include residue gas after the extraction

of liquid hydrocarbons therefrom;

(hhh) "Natural Gas Operations" means Petroleum Operations carried out in respect of

Natural Gas;

(iii) “Non-Associated Gas” means Natural Gas other than Casing Head Gas;



7



(jjj) “Operating Expenses” means those expenses as so categorized in Annex “D”, the

Accounting Procedure;

(kkk)“Operator” means the person designated as the Operator under a Joint Operating

Agreement executed by the persons constituting the Contractorpursuant to Article 3or the

operating agreement executed by TPDC and Contractor pursuant to Article 10;

(lll) “Parties” means the Government, TPDCand Contractor as Parties to this Agreement,

including any permitted successors and assignee;

(mmm) “Party” means the Government, TPDCor Contractor as a Party to this Agreement,

including any permitted successors and assignees;

(nnn)“Participating Interest” means the proportion of production costs each party will bear

and the proportion of production each party will receive, as set out in Article 10(b) (i);

(ooo)“Person” means any individual, corporation, company, co-operative, partnership, joint

venture, association, trust, estate, public body, unincorporated organization of government

or any agency or political subdivision thereof;

(ppp)“Petroleum” shall have the meaning ascribed to it bythe Act;

(qqq)“Petroleum Operations” means any and all operations and activities in connection with

Exploration Operations, Appraisal Operations, Development Operations, and Production

Operations, including all the Abandonment activities as required under Article 21;

(rrr) “Production Operations” shall include, but not be limited to, the running, servicing,

maintenance and repair of completed Wells and of the equipment, pipelines, systems,

facilities and plants completed during Development. It shall also include all activities

related to planning, scheduling, controlling, measuring, testing and carrying out the flow,

gathering, treating, transporting, storing and dispatching of Petroleum from the

underground Petroleum reservoirs to the Delivery Point, and all other operations necessary

for the production and marketing of Petroleum. Production Operations shall further include

the acquisition of assets and facilities required for the production of Petroleum hereunder

and Petroleum field Abandonment operations;

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

January, April, July or October of each Calendar Year;

(ttt) “Recoverable Contract Expenses” shall have the meaning ascribed in Article 12 and as

categorized in Annex “D”, the Accounting Procedure;

(uuu)“Regulations” means any regulations made from time to time under the Act;

(vvv)“Service Costs” means those costs as so categorized in Annex “D”,the Accounting

Procedure;



8



(www) “Subcontractor” shall mean any business entity hired by Contractor to carry out all

or a portion of Petroleum Operations as approved by Contractor under the terms of this

Agreement;

(xxx)“Well” shall have the meaning ascribed to it by the Act;

(yyy)“Work Programme and Budgets” means a statement itemizing the Petroleum

Operations to be carried out pursuant to this Agreement during any calendar year or part

thereof and the estimate of the costs of all such items included.



9



ARTICLE 2:



AGREEMENT



This Agreement constitutes an agreement made under Section 14 of the Act.



10



ARTICLE 3: RESPONSIBILITIES AND GRANT OF RIGHTS

(a)



As soon as possible, but in any event no later than thirty (30) days, before the signing of this

Agreement, TPDC will apply for and the Minister will, under and in accordance with the Act,

grant to TPDC an Exploration Licence over the Contract Area. Subject to the provisions of

the Act, such licence will be substantially in the form of the draft set out in Annex “C”

hereof.



(b)



Subject to Article6 and sub-article (e) of Article 9, the areas which at any particular time are

subject to the said Exploration Licence or subject to any Development Licence granted to

TPDC for which application was made by TPDC at the request of the Contractor hereunder

constitute for the purpose of this Agreement the Contract Area.



(c)



Save where Joint Operations have been established pursuant to Article 10, the Contractor

shall, in accordance with the Act and as otherwise agreed in this Agreement, have the

exclusive right to conduct, on behalf of TPDC as licence holder, Petroleum Operations in the

Contract Area.



(d)



Where the Contractor is constituted by more than one party, the parties constituting the

Contractor shall enter into a Contractor’s Joint Operating Agreement. The Minister and

TPDC shall be entitled to attend the meetings of the committees pursuant to the Joint

Operating Agreement as observers in a non-voting capacity. Government and TPDC shall be

entitled to receive any information that is relevant for the activities under the Joint Operating

Agreement. Members and observors attending a meeting pursuant to the Joint Operating

Agreement may be accompanied by advisers and experts to the extent reasonably necessary

to assist with the conduct of such meeting. Such advisers and experts shall not vote, but may

contribute in a non-binding way to discussions and debates of the Advisory Committee.The

Contractor shall provide the Minister with the Joint Operating Agreement for prior approval.

The Minister may require alterations in the Joint Operating Agreement. Any amendments to

the Joint Operating Agreement after the Effective Date are subject to the prior approval of the

Minister.



(e)



The responsibility and liability for duties and obligations of the parties constituting

Contractor under this Agreement shall be joint and several.The parties constituting Contractor

under this Agreement shall not be jointly responsible or liable for payment of corporate taxes



(f)



The Contractor shall nominate, and the Minister may approve, an Operator. The Operator

shall execute the Petroleum Operations on behalf of the Contractor Party. No change in

Operatorship shall take effect unless it has been approved by the Minister.



11



(g)



The Contractor shall:

(i)



provide particulars of the technical and industrial qualifications of key employees,

particulars of the technical and industrial resources available and particulars of the

kind of financial resources available as provided in the Act;



(ii)



carry out the Petroleum Operations in the Contract Area diligently, in accordance

with the Applicable Laws, with due regard to Best International Petroleum Industry

Practices and in such manner as to ensure that in respect of matters which are the

responsibility of the Contractor hereunder TPDC is not in default;



(iii)



furnish TPDC with such information, reports, records and accounts relating to the

Petroleum Operations in the Contract Area as may be necessary to enable TPDC to

meet its obligations under the Act;

if the Contractor has requested TPDC to apply for any extension of the said

Exploration Licence, the Contractor shall in consultation with TPDC, select the

relevant area for which an application for an extension shall be made in accordance

with the requirements of this Agreement and the Act;



(iv)



(v)



pay for copying and shipping of geological and geophysical data relating to the

Contract Area;



(vi)



subject to Article 11, reimburse TPDC within thirty (30) days from the date of

payment thereof, for the annual charges in respect of the said Exploration Licence or

any Development Licence granted to TPDC following the request of the Contractor

hereunder, payable by TPDC pursuant to the Act;



(vii)



notify the Minister and TPDC promptly of any change in the Contractor’s

circumstances, or those of any Affiliate or subcontractor upon whom it is dependent

for efficient execution of its Petroleum Operations, which has or is likely to have an

adverse impact upon its ability to meet its obligations under this Agreement;



(viii)



within thirty (30) days after the Effective Date, designate a representative residing in

the United Republic of Tanzania who shall have full authority to represent Contractor

in respect of matters related to the Agreement and to receive notices addressed to

Contractor;



(ix)



prior to commencement of Petroleum Operations, maintain an office in the United

Republic of Tanzania with the adequate personnel, management and representatives

who shall have the necessary competence, capacity and capability to follow up the

Petroleum Operations and related matters, and maintain the necessary representatives

in charge of the office with full authority to act and to enter into binding

commitments on behalf of the Contractor; and



(x)



Comply with the legal requirements for local content in effect from time to time. In

performing Petroleum Operations under the Agreement, Contractor shall provide for

the maximum utilization of goods, services and materials available in the United

Republic of Tanzania in accordance with the provisions of Article 20. Contractor shall

12



give priority in employment of nationals indigenous to Tanzania in all aspects of

Petroleum Operations and shall undertake the training and development of such

personnel in accordance with the provisions of Article 21 The Work Programmes and

Budgets submitted and reported pursuant to Articles 6 shall include Contractor’s

estimate of the local content component of on-going and planned Petroleum

Operations.

(xi)



Guarantee Obligations

a. On the Effective Date, upon commencement of each subsequent term of the

Exploration Period and upon the approval being granted for an Exploration Work

Programme or for any Appraisal Work Programme, Contractor shall provide the

Minister with an unconditional, irrevocable on-demand guarantees from a bank

acceptable to the Minister in the form and content acceptable to Minister for an

amount equal to:

A. value of the minimum expenditure committed for the relevant Work

Programme or period;

B. sum of Four Hundred Thousand United States Dollars (USD400,000)

for the performance of any obligation under the Contract other than

those covered by the guarantees under (A) above.

Such guarantees shall be in a form and content acceptable to Minister.

b. The respective amounts of the guarantees for obligations arising out of Work

Programmes shall be:

A. For the Initial Exploration Period _____United States Dollars (USD )

B. For the First Extension Exploration Period _____United States Dollars

(USD )

C. For Second Extension Exploration Period _____United States Dollars

(USD).

c. Upon delivery to the issuing guarantor of a certificate from Contractor

countersigned by TPDC on behalf of the Minister that the corresponding

minimum expenditure that have been completed in accordance with the Contract

and that all technical data related thereto have been delivered to TPDC, the

guarantee(s) shall be reduced by the value of the minimum expenditures that were

committed to the applicable phase or programme.



d. Where Contractor has failed to perform in accordance with this Contract all or any

part of accrued Work Programmes:

A. at the end of any phase of the Exploration Period;



13



B. at the end of an approved period in respect of a retained Exploration

area;

C. at the end of an approved period in respect of an Appraisal Work

Programme or;

D. upon termination of this Contract,

Contractor or its guarantor shall on demand, paythe Minister the entire amount of

such outstanding guarantee or guarantees within fifteen (15) days of receipt of a

written notice from Minister indicating the amount due to be paid.

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

Contractor, the Minister may require that, each of the Persons constituting the

Contractor shall upon the Effective Date, deliver to Minister in a form acceptable

to Minister, an unconditional and irrevocable performance guarantee in

substantially the form as prescribed in Annex [F] ,from a financially, technically

and legally competent parent company to each of the Persons constituting

Contractor, guaranteeing for the performance of the Contractor under this

Agreement including an undertaking that that such parent company shall provide

all technical and financial resources that the Contractor may require to meet on a

timely basis Contractor's obligations under this Agreement.

(h)



TPDC:(i)



(ii)



will, as licence holder, take such steps as may be necessary from time to time to

ensure that in respect of the Contract Area it is not in default under the Act and will

not in the Contract Area, without the prior consent in writing of the Contractor,

surrender any Block or Blocks, make any request that any Block or Blocks be

declared a Location, or apply for Development Licence; and

if the Contractor so requests, will:

(a)



apply for such extensions of the said Exploration Licence as the Act may

permit;



(b)



when any application is made for an extension of the said Exploration Licence,

relinquish to meet the requirements of the Act only Blocks selected for that

purpose by the Contractor;



(c)



pursuant to the Act, request that a Discovery Block within the Contract Area

and such Adjoining Blocks selected by the Contractor be declared by the

Minister to be a Location;



(d)



apply for a Development Licence or Licences over such Block or Blocks

within the Contract Area as the Contractor may specify for that purpose; and



14



(e)



(i)



make such other applications, requests, or representations in respect of the

Contract Area which the Act may require or permit to be made by a licence

holder.



The Government:(i)



will take all such actions as may be necessary from time to time to ensure that TPDC

carries out its obligations hereunder and will not without the consent of the Contractor

seek or acquiesce in any waiver by TPDC in respect of the Contract Area of its rights

as licence holder under the Act;



(ii)



undertakes that, where in the case of discovery of Petroleum referred to in Section 29

(1) of the Act, TPDC makes an application for further extension of the said

Exploration Licence, the Minister will, in respect of any block to which paragraph (b)

of subsection (1) of that Section applies, grant an extension for such period not

exceeding three (3) years in the case of Crude Oil and four (4) years in the case of

Natural Gas as may be required for Appraisal of the discovery;



(iii)



subject to sub-article (f) (vi) of this Article, will at the Contractor’s expense make

available to the Contractor geological and geophysical data referred to in the said subarticle (f) (vi) in the possession or under the control of Government resulting from

petroleum exploration by any other company in the Contract Area and the Contractor

shall treat such data as confidential;



(iv)



subject to any requirement in the Law and respect by the Contractor for the rights of

the others, will permit the Contractor, its Affiliates, employees and agents to have at

all times access to the Contract Area for the purpose of carrying on the Petroleum

Operations hereunder and for such purpose to move freely therein.



15



ARTICLE 4: TERM AND TERMINATION

(a) This Agreement shall continue to be in force in accordance with Section 42 of the Act,

whose provisions regulate the terms of any Development Licence, and in case no

Development Licence is granted, until the end of the last extension of the Exploration

Period.

(b) Contractor may propose to TPDC to apply for an extension of the Development Licence in

accordance with the Act. In such case, Contractor shall provide to TPDC all relevant

information for the application.

(c) An application for an extension of the Development Licence pursuant to sub-article (b) shall

be accompanied with a proposal for terms for an extension of this Agreement or a proposal

for a new Agreement.

(d) The Minister may grant an extension of the Development Licence on terms in accordance

with the Act and enter into an agreement in accordance with Section 14 of the Act.

(e) This Agreement shall come to an end where the Contractor:

(i)



subject to the Act and this Agreement, surrenders its rights in respect of the whole

of the Contract Area pursuant to Article 6;



(ii)



interrupts Production for a period of more than ninety (90) days with no cause or

justification acceptable under normal international petroleum industry practice;



(iii) continuously refuses with no justification to comply with the Law;

(iv) intentionally submits false information to the Government or to TPDC;

(v)



assigns or transfers any part of its interests, rights or obligations hereunder in

breach of the rules provided for in Article 27 including where the majority of the

share capital of any entity constituting Contractor Party is transferred to a nonAffiliate third party without having obtained the prior required authorization from

TPDC and the Government.



(vi) becomes insolvent or is declared bankrupt by a court of competent jurisdiction;

(vii) does not comply with any final decision resulting from an arbitration process

conducted under the terms of the Agreement, after all adequate appeals are

exhausted;

(viii) does not fulfill a substantial part of its duties and obligations resulting from the

Law and from this Agreement;

(ix) intentionally extracts or produces any mineral which is not covered by the object

16



of this Agreement, unless such extraction or production is expressly authorized or

unavoidable as a result of operations carried out in accordance with accepted

international petroleum industry practice.

(x)



where the Contractor is In Default, the Government may by notice in writing

served on the Contractor terminate this Agreement. In this Article “In Default” in

relation to the Contractor means a material breach of any provision of this

Agreement or the Act or licence granted and includes any act or omission by the

Contractor in respect of matters that are the responsibility of the Contractor

hereunder that would cause TPDC to be in breach of any provision of the Act or of

any condition of the licence granted hereunder.



(xi) TPDC may terminate this Agreement if the majority of the share capital of any

entity constituting Contractor Party is transferred to a non-Affiliate third party

without having obtained the prior required authorization from TPDC and the

Government.

(f) Minister may terminate this Agreement where the Contractor does not have the necessary

technical competence or financial capacity or proffesional skill to adequately perform the

Contractor’s duties and obligations under the Act and this Agreement.

(g) The Government shall not terminate the Agreement on the grounds aforementioned in sub

article (e)(f), unless:

(i)



it has, by notice in writing served on the Contractor, given not less than thirty (30)

days’ notice of its intention to so terminate this Agreement;



(ii)



it has, in the notice, specified a date before which the Contractor may, in writing,

submit any matter which the Contractor wishes the Government to consider; and



(iii) it has taken into account any action taken by the Contractor to remove that ground

or to prevent the recurrence of similar grounds; and any matters submitted to it by

the Contractor .

(h) The Government shall not, under sub-article (b) of this Article, terminate this Agreement on

the ground of any default in the payment of any amount payable under this Agreement if,

before the date specified in a notice referred to in sub-article (c) of this Article, the

Contractor pays the amount of money concerned together with any interest payable under

the Act or this Agreement.

(i) The Government may, by notice in writing served on the Contractor, terminate this

Agreement if an order is made or a resolution is passed winding up the affairs of the

Contractor, unless the winding up is for the purpose of amalgamation and the Government

has consented to the amalgamation, or is for the purpose of reconstruction and the

Government has been given notice of the reconstruction.



17



(j)



Where two or more persons constitute the Contractor, the Government shall not, under this

Article, terminate the Agreement on the occurrence, in relation to one or some only of the

persons constituting the Contractor, of an event entitling the Government to so terminate

this Agreement, if any other person or persons constituting the Contractor satisfies or

satisfy the Government that the person or those persons, as the case may be, is or are

willing and would be able to carry out the duties and obligations of the Contractor.On the

termination of this Agreement, the rights of the Contractor hereunder shall cease, but the

termination shall not affect any liability incurred prior to the termination including

Abandonment liabilities. All obligations that are expressly stated to survive such expiration

or termination pursuant to this Agreement or any legal proceedings that might have been

commenced or continued against the former Contractor may be commenced or continued

against it.



(k) Upon expiration or termination of this Agreement the Parties shall have no further

obligations hereunder except for the obligations that arose prior to such expiration or

termination and obligations that are expressly stated to survive such expiration or

termination pursuant to this Agreement.



18



ARTICLE 5: EXPLORATION PROGRAMME

(a)



(b)



Subject to the provisions of the Act and thisArticle, in discharging of its obligation to carry

out Exploration Operations in the Contract Area, the Contractor shall, during the periods into

which Exploration Operations are divided hereunder, carry out the minimum work described

and spend not less than the total minimum expenditure, if any, specified in subarticle (b) of

this Article. The fulfillment of any work obligation shall relieve Contractor of the

corresponding minimum expenditure obligation, but the fulfillment of any minimum

expenditure obligation shall not relieve Contractor of the corresponding work obligation.

(i) The Initial Exploration Period

Shall commence on the Effective Date and shall terminate on the fourth (4th) anniversary of

that date.

Description of minimum work programme:

Contractor shall commence Exploration Operations hereunder within ninety (90) days after

the Effective Date. Such Exploration Operations shall be diligently and continuously carried

out in accordance with the Best International Petroleum Industry Practices.

During the Initial Exploration Period, which shall be subdivided into two sub-periods, the

Contractor shall carry out the following Minimum Exploration Work Programme including:

First 2-year sub-period.

(A) Geological:

Evaluate, integrate and map all data related to the Contract Area.

(B) Geophysical:

(i) Acquire and process to industry standards at least [..] kilometres of [..] seismic

with shooting to commence within fifteen (15) months after the Effective

Date.

(ii) Evaluate, integrate and map all seismic data related to the Contract Area.

(C) Geochemical

If present, locate any hydrocarbon seeps, map seeps to relate them to subsurface

prospects, characterize the petroleum type and undertake basin analysis for

source maturity modeling



Second 2-Year Sub-period

(D) Drilling:

Drilling of at least [..] Exploration Wells, to depths of at least [...] meters, true

vertical depth with spudding of the first such well to be not later than thirty (30)

Months after the Effective Date.

19



Minimum Expenditure for Initial Period .......... United States dollars.

(ii) The First Extension Period

Shall commence On the day on which a first extension of the Licence granted is issued to

TPDC pursuant to the Act takes effect and shall terminate latest on the 4thanniversaryof that

date.

Description of minimum work programme:



Conduct geological, geochemical and geophysical studies (US$______)



Acquisition of ______square kilometres of 3D seismic or ______ line kilometres. of

2D or



Commensurate mix of both; (US$)

Drill at least […..] well (US$)

Minimum Expenditure for 1st Extension Period: US$ ............ million

(iii) The Second Extension Period

Shall commence on the day on which a second extension of the licence granted to TPDC

pursuant to the Act takes effect and shall terminate on the third (3rd) anniversary of that date.

Description of minimum work programme:

 [Conduct geology, geochemical and geophysical studies (US$_____)

 Acquisition of _____ square kilometres of [….] seismic or ______ line kilometres. of

[..] or

commensurate mix of both; (US$______)

 Drill at least [….] well (US$

)]

Minimum Expenditure for 2nd Extension Period: US$ .......... million

(c)



No Exploration Well drilled by the Contractor shall be treated as discharging any obligation

of the Contractor to drill Exploration Wells hereunder unless it has been drilled to the depth

or stratigraphic level agreed with the Minister, or before reaching such depth or stratigraphic

level:

(i)

(ii)



the economic basement is encountered or

insurmountable technical problems are encountered which, in accordance with Best

International Petroleum Industry Practices, make further drilling unsafe or

impractical; provided that if the said well is abandoned owing to the said problems

before reaching the economic basement, the Contractor shall drill a substitute

Exploration Well in the Contract Area to the same minimum depth as aforesaid.



For the purpose of this sub-article “economic basement” means any stratum in and below

which the geological structure or physical characteristics of the rock sequence do not have the

properties necessary for the accumulation of petroleum in commercial quantities and which

reflects the maximum depth at which any such accumulation can be reasonably expected.

20



(d)



Where in any Exploration Period, the Contractor has carried out more than the minimum

technical work obligations specified in sub-article (b) of this Article, for that period the

Contractor shall be permitted to credit such excess work obligation as satisfying work

obligations specified in that sub-article for the next succeeding Exploration Period.



(e)



The Exploration Licence issued to TPDC, pursuant to Article 3 and any extension thereof,

shall be on terms and conditions relating to Work Programmes and Minimum Expenditure

which correspond to the obligation of the Contractor under this Article. Accordingly, it is

understood and agreed that discharge by the Contractor of its obligations under this Article

in respect of any Exploration Period will discharge for that period the obligations of TPDC

relating to the Work Programme and Minimum Expenditure in respect of the licence issued

pursuant to Article 3, and the terms and conditions of the licence aforesaid and any extension

thereof shall be drawn up accordingly.



(f)



The minimum expenditure for each period specified in sub-article (b) of this Article shall not

have been satisfied unless the total expenditure attributable to the work described in subarticle (b) equals or exceeds the same mentioned in the said sub-article; provided that for this

purpose all such attributable actual expenditures shall be adjusted, commencing from the

Effective Date, by dividing each of them by the following factor I, where: I = A/B. Save that

if B is less than A factor I shall be taken to be one (1) and where:

A



is the United States Industrial Goods Producer Price Index (USIGPPI) as reported for

the first time in the monthly publication “International Financial Statistics” of the

International Monetary Fund (IMF) in the section “Prices, Production, Employment”

for the Month of the Effective Date.



B



is the USIGPPI as reported for the first time in the aforesaid IMF publication for the

month of the expenditure in question.



(g)



For the purpose of this Article, no Appraisal Wells drilled or seismic surveys carried out by

Contractor as part of an Appraisal Programme and no expenditure incurred by Contractor in

carrying out such Appraisal Programme shall be treated as discharging the minimum work

obligations under sub article (b) of this Article.



(i)



During the Exploration Period, the Contractor shall deliver to TPDC and the Minister,

reports on Exploration Operations conducted during each Quarter within fifteen [15] days

following the end of that Quarter. Further requests for information by the Minister under the

Act and this Agreement shall be complied with within a reasonable time and copies of

documents and other material containing such information shall be provided to TPDC.



21



ARTICLE 6: RELINQUISHMENT OF CONTRACT AREA

(a) If the Contractor has requested TPDC to apply for any extension of the Exploration Licence,

the Contractor in consultation with TPDC shall select such parts of the Contract Area to be

relinquished by TPDC, and TPDC shall in accordance with the Act relinquish said parts of

the Contract Area as follows:

i.



On or before the end of the Initial Exploration Period TPDC shall relinquish such

parts of the Contract Area corresponding to at least fifty per cent (50%) of the

original Contract Area.



ii.



On or before the end of the First Extension Period TPDC shall relinquish at least fifty

per cent (50%) of the remaining Contract Area.



iii.



At the end of the Exploration Period, TPDC shall relinquish the remainder of the

Contract Area which is not a Development Area.



The area to be relinquished shall be contiguous and compact and of the size and shape that

will permit the effective conduct Petroleum Operations in the relinquished area.

(b) No relinquishment shall relieve Contractor of accrued, but unfulfilled obligations under the

Agreement. In the event the Contractor desires to relinquish its rights hereunder in the whole

of the Contract Area without having fulfilled all accrued Minimum Exploration Work

Programme under Article5, it shall pay to TPDC, prior to the date of such proposed total

relinquishment, the sum equal to the remaining amount of the non-discharged guarantees

corresponding to such accrued, but unfulfilled work obligations.

(c) The provisions of this Article shall not be read or construed as requiring Contractor to select

and TPDC to relinquish any part of the Contract Area which constitutes or forms part of

either a Location or a Development Area provided, however that if at the end of the first

Sub-period, Second Sub-period, First Extension Period or Second Extension Period as the

case may be, Contractor elects not to enter the ensuing period, Contractor shall relinquish the

entire Contract Area except for any Development Area.

(d) Contractor shall have the right at any time to request TPDC to relinquish all or part of the

Contract Area provided it has undertaken the work obligations of the relevant Exploration

Period during which such relinquishment is made.



22



ARTICLE 7: ANNUAL WORK PROGRAMMES AND BUDGET

(a)



Within thirty (30) days of the Effective Date, the Contractor shall prepare and submit to

TPDC a detailed Work Programme and Budget setting forth the Exploration Operations

which Contractor proposes to carry out in the Calendar Year in which the Exploration

Licence is first issued to TPDC hereunder.



(b)



So long as the Exploration Licence issued to TPDC hereunder remains in force and at least

three (3) months prior to the beginning of each subsequent Calendar Year, Contractor shall

prepare and submit to TPDC a detailed Work Programme and Budget setting forth the

Exploration Operations which Contractor propose to carry out in that Calendar Year and the

estimated cost thereof.



(c)



Every Work Programme and Budget submitted to TPDC pursuant to this Article and every

revision or amendment thereof shall be consistent with the requirements set out in Article 5

relating to work and expenditure for the Exploration Period and sub-period within which the

Work Programme and Budget will fall.



(d)



Every Work Programme and Budget and, as the case may be, the Appraisal Programme

referred to in Article 9(l) submitted by Contractor to TPDC shall be reviewed by a joint

Advisory Committee to be established by TPDC and Contractor pursuant to Article 8. Should

TPDC wish to propose a revision of the proposed Work Programme and Budget or Appraisal

Programme, as the case may be, TPDC shall, within three (3) weeks after receipt thereof, so

notify the Contractor specifying in reasonable detail its reasons and the proposed changes it

seeks to introduce. Promptly thereafter, the parties will meet and endeavor to agree upon the

revisions proposed by TPDC. Following review by the Advisory Committee, Contractor shall

make such revisions as it deems appropriate and submit the Work Programme and Budget or,

without prejudice to Article 9(l), appraisal program, as appropriate, to TPDC.



(e)



Subject to Article 5, upon giving notice to TPDC, Contractor may amend any Work

Programme or Budget or any revised Work Programme or Budget submitted to TPDC, but,

subject to any such amendment, Contractor shall carry out the Exploration Operations set

forth in the Work Programme or revised Work Programme and spend not less than the sum

provided for in the Budget or revised Budget. In the case of an appraisal program, any

amendment thereto proposed to TPDC by Contractor will be subject to section 32(2) of the

Act; where an Appraisal programme has been agreed by the Advisory Committee as referred

to in Article 9(l), no amendment shall be made without the approval of the Advisory

Committee. A notice under this sub-article shall state the reasons why, in the opinion of

Contractor, an amendment is necessary or desirable.



23



ARTICLE 8: ADVISORY COMMITTEE

(a) The Advisory Committee shall be composed of four (4) members, two (2) of whom shall be

appointed by TPDC and the other two (2) by Contractor. The Minister shall be entitled to

attend the Advisory Committee meetings as an observer in a non-voting capacity. The

Government shall be entitled to receive any information that is relevant for the Advisory

Committee. The Advisory Committee meetings cannot take place unless at least three (3) of

its members are present.

(b) The Advisory Committee shall meet from time to time as may be convened by the Chairman.

(c) The Advisory Committee shall perform the following functions:

(i)



Approval of the proposed annual work programme and budget and any amendment

thereof



(ii)



approval of a the proposed exploration work plans and budgets and any amendments

thereof;



(iii)



approval of the proposed appraisal work programme and any amendment thereof;



(iv)



approval of the proposed Development Plan and any amendment thereof;



(v)



approval of the production plan and any amendment thereof;;



(vi)



approval of the lifting schedule and amendment thereof;



(vii)



review of expenditures and compliance with the operating and accounting records

with the rules established herein and in the applicable Law; and



(viii) any other matter as may be directed by the Parties

(d) The Advisory Committee shall be headed by a Chairperson who shall be appointed by TPDC

from among its representatives and who shall be responsible for the following functions:

(ix)



to coordinate all the Advisory Committee's activities;



(x)



to chair the meetings and to notify the Contractor and TPDC of the timing and

location of such meetings, it being understood that the Advisory Committee shall

meet at least once every Calendar year or whenever requested by Contractor and/or

TPDC;



24



(xi)



to establish the agenda of the meetings, which shall include all matters which the

Parties have asked to be discussed;



(xii)



to convey to the Parties all decisions of the Advisory Committee, within five (5)

working days after the meetings;



(xiii) to request from Contractor any information and to make recommendations that have

been requested by any member of the Advisory Committee, as well as to request from

Contractor any advice and studies whose execution has been approved by the

Advisory Committee;

(xiv) to request from the technical and other committees of the Advisory Committee any

information, recommendations and studies that he has been asked to obtain by any

member of the Advisory Committee; and

(xv)



to convey to the Parties all information and data provided to him by the Contractor for

the Parties.



(e) In the case of an impediment to the Chairperson of the Advisory Committee, the work of any

meeting will be chaired by the other member appointed by TPDC.

(f) At the request of TPDC and/or Contractor, the Advisory Committee shall establish and

approve its internal regulations, which shall comply with the procedures established in this

Agreement.

(g) Each member of the Advisory Committee shall have one (1) vote. The Chairman shall in

addition have a casting vote. The decisions of the Advisory Committee shall be taken by

simple majority of the votes present or represented, it being understood that any member

may be represented by written and duly signed proxy held by another member.

(h) Furthermore, if such majority is not achieved, the proposal under decision shall be reviewed

and re-submitted to the Advisory Committee in no more than fifteen (15) days.

(i) Members or observors attending a meeting of the Advisory Committee may be accompanied

by advisers and experts to the extent reasonably necessary to assist with the conduct of such

meeting. Such advisers and experts shall not vote, but may contribute in a non-binding way

to discussions and debates of the Advisory Committee.

(j) The Contractor shall appoint the Secretary to the Advisory Committee from among its

representatives.

(k) The responsibilities of the Secretary are to see to it that:

(i)



the minutes of every meeting of the Advisory Committee are recorded;



(ii)



the minutes are written in the appropriate record book and signed on behalf of TPDC

25



and the Contractor; and

(iii)



the draft of the minutes are prepared, if possible, on the day that the meeting is held

and copies of it are sent to TPDC and the Contractor within the following five (5)

working days, and their approval shall be deemed granted if no objection is raised

within ten (10) working days of the date of receipt of the draft minutes.



26



ARTICLE 9: DISCOVERY, APPRAISAL AND DEVELOPMENT

(a)



If Petroleum is discovered in the Contract Area, Contractor shall:

(i)



prior to notification to any third party forthwith notify TPDC which will thereafter

notify the Commissioner;



(ii)



within thirty (30) days after the date of such discovery provide TPDC and the

Minister with all available information regarding the discovery, including a

preliminary classification of the discovery as Crude Oil or Natural Gas to meet the

requirements of Section 31(1) and 31(2) of the Act;



(iii)



within ninety (90) days after the date of such discovery provide TPDC and the

Minister with all information to ascertain the chemical composition, physical

properties and quantitytomeettherequirementsofSection32oftheAct;



(iv)



within one hundred and twenty (120) days from the date of such discovery, also

notify in writing to TPDC and the Minister whether or not it considers the discovery

of Crude Oil or Natural Gas is of potential commercial interest;



a. if the Contractor notifies TPDC that the discovery is of potential commercial

interest, the Contractor shall at the same time notify TPDC whether the discovery

is of eventual commercial interest ("Eventual Interest') or of present commercial

interest ("Present Interest");

b. if Contractor informs TPDC that, in its opinion, utilizing Best International

Petroleum Industry Practices, the discovery is not of potential commercial

interest as a standalone or as part of an aggregated production, then the

Contractor shall relinquish the said discovery comprising the geological feature

(as outlined by the relevant seismic data) in which the discovery islocated;



(v)



if Contractor informs TPDC that, in its opinion, utilizing Best International

Petroleum Industry Practices, the discovery is of eventual commercial interest

orpresent commercial interest, the Contractor shall submit to TPDC an application to

the Minister for declaration of a Location to meet the requirement of Section 33, and

the Minister shall declare a Location within thirty (30) days from the date of such

application. The Minister shall be advised to agree to declare for a Location to allow

the Contractor to retain the Discovery Block and not more than eight (8) adjoining

blocks within the exploration area



(vi)



If no application for a Location is made within one hundred and twenty days (120)



27



days, the Contractor shall be deemed to have surrendered the discovery to TPDC.

(vii)



within one hundred and eighty (180) days from the date of such discovery submit to

the TPDC the Appraisal Programme and budget for the determination of the

Advisory Committee to meet the requirements of Section 34 of the Act.



(viii) within thirty (30) days following its submission of the Appraisal Program, the

Advisory Committee shall convene to discuss and approve the Appraisal Programme;

(ix)



(b)



(c)



where a Location has been declared by the Minister and in accordance to Section 34

of the Act, the Appraisal period shall be within three (3) years in the case of Crude

Oil and four (4) years in the case of Natural Gas to ensure that the Appraisal

Programme can be carried out and the results thereof assessed to enable an

application to be made by TPDC for a Development Licence within the same period.



Contractor shall conduct the approved Appraisal Programme immediately after being

granted a Location.

Contractor shall reassess and inform TPDC and the Minister in accordance to Section 34(3)

of the Act the commerciality of the discovery every one (1) year from the date of notification

that the discovery is of Eventual Interest based on the same economic criteria as set out in

Article 9(a)(iv)(a); in case of further discoveries that could be tied and developed together in

order to make economies of scale.



(d)



During the conduct of the Appraisal Programme, the Contractor shall provide TPDC with

all information enabling it to make a detailed examination of the data relating to the

discovery so as to make an ongoing assessment in full understanding of the facts as to

whether or not the discovery is likely to be capable of being commercially exploited. This

information shall be provided promptly but in any case no more than thirty (30) days prior

to the expiry of each year during the execution of the Appraisal Programme.



(e)



If the results of Contractor's Appraisal Programme determine that the discovery is no longer

of potential commercial interest, the provisions of sub article (j) and (p) of this Article shall

apply.



(f)



Within ninety (90) days from the date on which the said Appraisal Programme related to the

discovery is completed, the Contractor shall prepare and submit to TPDC a report containing

the results of the Appraisal Programme for consideration by the Advisory Committee. The

Appraisal Programme report shall include all available technical and economic data relevant

to a determination of commerciality, including but not limited to, geological and geophysical

conditions, such as structural configuration, physical properties and the extent of reservoir

rocks, areas, thickness and depth of pay zones, pressure, volume and temperature analysis of

the reservoir fluids; preliminary estimates of Crude Oil and Natural Gas reserves; recovery

drive characteristics; anticipated production performance per reservoir and per well; fluid

characteristics, including gravity, sulphur percentage, sediment and water percentage and

28



refinery assay pattern. The report shall also include, technical and economic feasibility

studies relating to processing and transport of petroleum from the Location.

(g)



If the results of Contractor's re-assessment determine that the discovery has become of

Present Interest, the provisions of sub articles (k), to (o) of this Article shall apply.



(h)



If, upon the expiry of three (3) years in the case of Crude Oil and four (4) years in the case

of Natural Gas from the date of notification that the discovery is of Eventual Interest, the

results of Contractor's reassessment determine that the discovery is still of Eventual Interest

and TPDC does not agree with such determination, TPDC may, at any time prior to the

expiry of the three (3) years for the case of Crude Oil and four (4) years for the case of

Natural Gas dispute the results of the Contractor's reassessment. If TPDC and the

Contractor cannot resolve such dispute within sixty (60) days of the date on which TPDC

informed the Contractor of its opinion, then the matter shall be referred to the Technical

Expert and the Technical Expert shall determine whether the discovery is of (a) Present

Interest; or (b) Eventual Interest. Determination of the commerciality of the discovery shall

be carried out within one hundred and eighty (180) days. The Technical Expert shall notify

TPDC and the Contractor of its findings and:

A. wheretheTechnicalExpertdeterminesthatthediscoveryisnolongerofpotentialcomm

ercialinterestthe provisions of sub-article (o) and (p) of this Article shall apply;

B. where the Technical Expert determines that the discovery is of Present Interest

and the Contractor agrees with such determination, the provisions of sub-articles

(j) to (l) of this Article shall apply;



C. where the Technical Expert determines that the discovery is of Present Interest

and the Contractor disagrees with such determination, then the Contractor shall

relinquish said discovery comprising the geological feature (as outlined by the

relevant seismic data in which the discovery is located; or

D. where the Technical Expert determines that the discovery is still of Eventual

Interest, the Contractor may retain the discovery for the remainder of the

Exploration Term.

(i)



Where the Contractor has relinquished a discovery pursuant to sub article (h) (C) of this

Article and TPDC decides to appraise and develop such discovery, the Parties will meet and

discuss in good faith the development of said discovery such that it does not impact the

exploration, appraisal and development of the remainder of the Contract Area.



(j)



Where, Contractor (a) pursuant to sub article (a) of this Article, has informed TPDC that, in

its opinion the discovery is of present commercial interest, or (b) pursuant to sub article

(h)(B) of this Article the Contractor agrees with the determination of the Technical Expert



29



that the discovery is of present commercial interest, Contractor shall:

(i) Within one hundred and eighty (180) days after the declaration of commerciality

pursuant to sub-article (j), draw up a proposal for a Development Plan in

consultation with TPDC which shall accompany the application for a Development

Licence per the requirements of Section 35(1) of the Act

(ii)

(iii) be designed to ensure the recovery of the maximum quantity of Petroleum from the

proposed Development Area which the economics of the Development shall justify

and it shall be designed in compliance with best international petroleum industry

practices;

(iv) contain detailed information on matters of economic, financial, geological, reserves,

technical, operational, health, safety and environment in accordance to Section 36 of

the Act, including:

(a) a description of development strategy and concept;

(b) an economic assessment of the different development methods, estimated

investments , operational costs and selection criteria;

(c) a plan covering the total development to the extent possible where the

development is proposed in two or more phases;

(d) an assessment of capacities of facilities;

(e) assessment of possibilities for tie-ins, third party access and unitization;

(f) area studies for the possibility of co-ordination of Petroleum Operations;

(g) proposed drilling and well completion plans;

(h) geological parameters and reservoir engineering methodology;

(i) facilities for production, storage, transportation and delivery of Petroleum;

(j) information on facilities for utilisation or processing of Petroleum;

(k) the relevant Delivery Point(s);

(l) an assessment and presentation of the possible outlets for Natural Gas

from the discovery in question, both on the local market and for export,

together with an evaluation of the necessary means for its marketing, with

due consideration to the sale and marketing of the Government’s Profit

Gas;

(m) a development schedule;



30



(n) a long term production schedule;

(o) a description of technical solutions including possible solutions for

enhanced recovery of petroleum;

(p) solutions aimed at efficient use of energy, and the prevention and

minimisation of environmentally harmful discharges, flaring and

emissions;

(q) a method for disposal and use of associated gas where applicable;

(r) information on systems for ensuring compliance, including information on

the planning, organization and implementation of the development;

(s) information on operation and maintenance;

(t) a financing plan for the development;

(u) a description of fiscal metering systems;

(v) Petroleum marketing plan;

(w) a health and safety compliance system and plan;

(x) an emergency preparedness and environmental risk management plan;

(y) information on site-clean up, abandonment, decommissioning and

disposal of facilities; a decommissioning plan in such detail as the

Minister requires, including a calculation of the decommissioning costs,

the annual amount in the decommissioning fund, and the proposal for

financing of the decommissioning obligation;

(z) information on any applications for permits and licenses required pursuant

to applicable legislation in connection with Petroleum Operations related

to the Development Plan;

(aa) a local content compliance system and plan including an employment and

recruitment programme and a technology and know-how transfer plan;

(bb) a security management system and plan for protection against deliberate

attack; and

(cc) any other matter which the Minister may direct to be included in the

Development Plan

(v)



TPDC may within ninety (90) days of receipt of the Contractor's Development

Programme, make proposals or amendments on the Contractor's Development

programme to the extent that the Development programme meet the requirements of

Section 36 of the Act;

31



(k)



WhenanapplicationforaDevelopmentLicenceinrespectofaLocationismadeinaccordancewith

the Act then, unless the Contractor is In Default at the time of such application, within sixty

(60) days the Minister shall grant pursuant to Section 37(1)(a) of the Act, on such conditions

as are necessary for theDevelopment Licence.



(l)



The Development Licence so granted pursuant to Section 37(1)(a) of theAct, shall, be infull

satisfaction of the requirements of Section 40(1) and (2)of the Act, incorporate by reference

the obligations of the Contractor as set out in Article 18 (“Lifting, Marketing and

Domestic Supply Obligation”) of the PSA.The provisions of Article 18 of the PSA shall

apply to both Crude Oil and Natural Gas.

In circumstances where the Parties determine to undertake the gas commercialization

project in accordance with the terms and conditions set out in this Agreement, the

Contractor in consultation with TPDC shall, in respect of the domestic market obligation

and Section 40(2) of the Act, employ a suitably qualified international independent

consultant(s) to prepare a reserve assessment report to determine the:

(i) Proven and certified gas reserves in the Block (“ProvenReserves”);

(ii) The minimum amount of gas required for a gas commercialization project; and

(iii) The amount of Proven Reserves that are to be dedicated for the domestic market.

Following receipt of such report, the consultant shall notify the Contractor and TPDC in

writing of the Proven Reserves that are to be dedicated for supply to the gas

commercialization project from the Block (the“AccessibleProvenReserves”) and the

amount of Proven Reserves that are to be dedicated for the domestic market (the "Domestic

Market Quantity").



(m)



Contractor shall respectively provide TPDC with at least 90 days prior written notice before

dedicating to a third party available capacity in the Pipeline or Gas Processing Plant that

would have the effect of reducing or excluding TPDC’s ability to transport and process all or

any portion of the daily maximum quantity volume through the Pipeline and the Gas

Processing Plant. TPDC will consider the effect of such an action to the domestic daily

maximum deliverable volume prior to approval.



(n)



Natural Gas for the Domestic Market Quantity and Natural Gas for the Accessible Proven

Reserves for the gas commercialization project shall be lifted at the Delivery Point

proportionately, subject to normal operational requirements, it being understood that lifting

shall be consistent with the Natural Gas lifting schedule for the gas commercialization

project and domestic market and shall take into account the delivery obligations of both the

gas commercialization project and domestic market.



(o)



If Contractor informs TPDC that in its opinion the discovery is not of potential commercial

interest then the Contractor shall surrender forthwith its rights and be relieved of its

32



obligations in respect of the Block or Blocks comprising the geological feature (as outlined

by the relevant seismic data) in which the discovery is located.

(p)



Where pursuant to sub-article (o) of this Article, Contractor has surrendered its rights and

been relieved of its obligations in respect of any Block or Blocks in which the discovery is

located, notwithstanding that the said Block or Blocks continue to be subject to the

Exploration Licence referred to in sub-article (b) of Article 3, the said Block or Blocks shall

not for the purpose of this Agreement, constitute part of the Contract Area.



(q)



The Contractor shall not perform any Petroleum Operations with reference to the proposed

Development prior to approval of the Development Plan upon granting of the Development

Licence, save where the Minister has granted an express permission to enter into specific

activities.



(r)



The Contractor shall, together with the Development Plan accompanying the application for

the Development License, submit evidence that the Contractor has undertaken a prior social

and environmental impact assessment study relevant for the proposed Development and a

copy of the social and environmental impact assessments study. In addition, the Contractor

shall submit the necessary environmental authorisations pursuant to the Law



(s)



Any deviations or alterations to the Development Plan or significant alterations to the

Development facilities shall require the prior written approval of the Minister. The

Contractor shall promptly notify the Minister and TPDC of any significant deviation from

the assumptions and preconditions on which the Development Licence with the

Development Plan has been submitted or approved. The Ministers may propose changes or

modifications to the Development Plan.



(t)



The Minister may set conditions for approval of the Development Licence as accompanied

with the Development Plan, including that Petroleum shall be transported in specified

transportation systems and shall be landed at specific locations

.



33



ARTICLE 10: JOINT OPERATIONS

(a)



Save as provided in sub-article (b) and sub-article (c) (iii) of this Article, Contractor shall

bear and pay all Contract Expenses incurred in carrying out Petroleum Operations

hereunder, and Contractor shall recover such expenses only from the Petroleum to which it

is entitled as hereinafter provided in Article 12.



(b)



Participating Interest by TPDC:

OIL or GAS

(i)



TPDC may at any time, by notice in writing to Contractor, elect to contribute in

Participating Interest of not less than twenty five percent (25%) of Contract Expenses

other than Exploration Expenses (such Exploration Expenses to include expenses in

respect of Appraisal Programme) incurred in the first and every subsequent Development

Area from the date such notice is rendered.



(ii) Where TPDC does elect to participate in the Development of a discovery, TPDC shall pay

its share of Contract Expenses.

(iii) If TPDC fails to pay its share of Contract Expenses and such failure is not rectified within

a period of thirty (30) days after receipt of a written notice of such failure from the

Contractor, the Contractor shall advance by way of loan up to 100% of unpaid amount of

TPDC’s share of Contract Expenses. Such Contract Expenses shall bear interest at a rate

of LIBOR plus one percent (1%) for the period that such amount remained unpaid and

will be recovered from TPDC’s Cost Oil[and/or Cost Gas] as defined in Article 12.

(c)



Joint operations shall be conducted hereunder in accordance with the terms and conditions

of a mutually acceptable form of Operating Agreement to be concluded between TPDC and

the Contractor immediately following the first notice given to Contractor by TPDC,

pursuant to sub-paragraph (i) of this sub-Article. The Operating Agreement aforesaid will

include provisions to give effect to the following principles:



(i)



The Operator shall carry out all operations pursuant to work programmes and

budgets approved by a Joint Operating Committee. The parties may review at any

time the Operatorship of the Joint Operations.



(ii)



A Joint Operating Committee shall be established in which TPDC and Contractor

shall be equally represented. The Ministershall be entitled to attend the meetings of

the committees pursuant to the Operating Agreement in a non-voting capacity as

observer. The Minister shall be entitled to receive any information that is relevant for

34



the activities under the Operating Agreement. Members and observors attending a

meeting pursuant to the Operating Agreement may be accompanied by advisers and

experts to the extent reasonably necessary to assist with the conduct of such meeting.

Such advisers and experts shall not vote, but may contribute in a non-binding way to

discussions and debates of the Advisory Committee.The representatives aforesaid

shall have voting rights proportional to the participating interests of each Contractor

entity on the Joint Operating Committee on all matters. Except as otherwise expressly

provided for in this Agreement, all decisions, approvals and other actions of the Joint

Operating Committee on all proposals coming before it shall be decided by

affirmative vote of two (2) or more non-Affiliated Parties holding an aggregate not

less than [sixty five percent (65%)] of all Participating Interests (“Pass Mark Vote”);

except for decisions relating to TPDC participation in any exploration and appraisal

cash calls as a co-venture as per Article 10(b) and 10(c)(iii). In case of disagreement,

a third party expert, who shall be mutually agreed upon and selected, will resolve the

disagreement and his decision shall be final and binding on the parties to the

disagreement.

(iii)



TPDC shall be liable to contribute the Participating Interests (as contained in Article

10(b) (i)) of the Contract Expenses other than Exploration Expenses (such Exploration

Expenses to include expenses in respect of an Appraisal Programme) of Joint

Operations in all Development Areas in respect of which TPDC has elected to

participate. The balance of such expenses shall be contributed by the Contractor.



(iv)



The contributions aforesaid shall be in such major convertible currencies as may be

required from time to time by the Operator for the Joint Operations approved by the

Joint Operating Committee but (if there exist expenditures in Tanzanian Shillings),

TPDC shall have preference for payment in such Tanzanian Shillings and such

amounts will count towards the total contribution which TPDC is obliged to make in

respect of its share in Joint Operations.



(v)



Failure by TPDC to meet calls for funds within the time limits agreed shall result in

liability for interest on the unpaid amounts for the period that such amounts remain

unpaid at LIBOR + 1%.



(vi)



If, after the election allowed in sub-article 10(b), TPDC fails to pay its share of

Development and/or Production Expenditures and such failure is not rectified within a

period of thirty (30) days after receipt of written notice thereof from the Operator,

TPDC shall be deemed to have elected on the date of receipt of the notice to have

agreed with the Contractor entities that they shall carry TPDC´s share of such

expenditures, and the Contractor entities shall pay any of TPDC´s unpaid

expenditures before the date of the deemed election and also TPDC´s share of any

expenditures incurred after the date of the deemed election recovering such

expenditures in accordance with Article 10(c)(v). Notwithstanding the above

procedure, if, during the above mentioned thirty (30) days period to rectify the failure

to pay, TPDC notifies the Operator that it has provided to rectify such failure to pay in

35



a period not greater than thirty (30) days from such TPDC's notification to Operator,

then, the carry from Contractor's entities shall not be triggered unless such notification

is not done during this thirty (30) days period. For avoidance of doubt any amounts

not remedied other than by the carry procedure herein established are subject to

paragraph (iv) above from the date of failure to pay until the date such failure to pay is

finally rectified. The Contractor entities shall have the right to recover such

expenditures out of the TPDC’s Cost Oil[and/or Cost Gas] as defined in Article 12



36



ARTICLE 11: PAYMENT AND ANNUAL CHARGES

(a)



The annual charge in respect of which the Contractor is obliged to disburse to TPDC,

pursuant to Article 3(g) (vii) hereof in respect of the said Exploration Licence, shall be an

equivalent amount in Tanzania shillings calculated by charging the following amounts for

every square kilometer of the Contract Area retained:

Period



US $/sq. km



Initial Exploration Period

First Extension Period

Second Extension Period



50

100

200



The annual charge in respect of a Development Licence granted to TPDC, for which

application was made at the request of the Contractor, shall be US$ 500 per sq. km.

(b)



The sum in United States dollars referred to in paragraph (a) above shall be adjusted

annually by dividing the sum by the following factor I, where:

I = C/D and where

C



is the United States Industrial Goods Producer Price Index (USIGPPI) as reported for

the first time in monthly publication “International Financial Statistics” of the

International Monetary Fund (IMF) in the section “Prices, Production, Employment”

for the Month during which the Exploration Licence is first issued to TPDC

hereunder.



D



is the USIGPPI as reported for the first time in the aforesaid IMF publication for the

Month in which the first and any subsequent anniversary of the date on which the

Exploration Licence was first issued falls.



For the purpose of this Article 11, and Articles 5(f) and 16(b) and (c), in the event that the

USIGPPI ceases to be published the Parties to this agreement shall agree on an appropriate

replacement index.

(c)



Contractor's financial obligations to the Government, which it shall satisfy at its own

expense, shall consist of the following payments:

(i) Signature Bonus: A payment of not less than two million five hundred United States

Dollars (USD 2,500,000) on signing of this Agreement.

(ii) Production bonuses payable on commencement of production and shall be not less than

five million United States Dollars (USD 5,000,000)

(iii) For subsequent development license in the contract area, the production bonuses

payable shall be not less than five million United States Dollars (USD 5,000,000)



37



ARTICLE 12: RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING

(a)



Subject to sub-article (d) and (g) of this Article and Article 15, all Recoverable Contract

Expenses incurred by the Contractor and, where Joint Operations have been established, by

both TPDC and the Contractor shall be recovered by freely taking and disposing from a

volume of Crude Oil and/or Natural Gas produced and saved from the Contract Area and not

used in Petroleum Operations (hereinafter referred to as “Cost Oil” and/or “Cost Gas”).

Recoverable Contract Expenses shall be limited in any Calendar Year to an amount not

exceeding fifty per cent (50%) in case of onshore/shelf areas and offshore areas and Lake

Tanganyika of the total Crude Oil or Natural Gas production from the Contract Area net of

Royalty. For the purposes of this Article onshore areas include shelf up to water depths of

500 meters and offshore areas include water depths beyond 500 meters.



(b)



Recoverable Contract Expenses may be recovered as from the date they have been prudently

incurred. To the extent that, in any Calendar Year, the Recoverable Contract Expenses exceed

the Cost Oil and/or Cost Gas available in each Calendar Year under Article 12 (a), the

unrecovered excess shall be carried forward for recovery in the next succeeding Calendar

Year and, to the extent not then recovered, in the subsequent Year or Years until fully

recovered or until the termination of the Agreement, where such termination occurs earlier,

whatever the reason thereof. No unrecovered cost can be recovered by the Contractor or, as

the case may be, TPDC, after such termination.



(c)



There shall be ring fencing based on Exploration Licence or Development Licence.



(d)



Where a company holds Exploration Licence or more than one Development Licence within

a Contract Area (prior to any relinquishments) recoverable Contract Expenses in Licence

Areas or Block(s) within the Contract Area (prior to any relinquishments) may only be

recoverable from petroleum revenues from such Development Area to the extent that were

incurred prior to commencement of Petroleum production from such Development Area.



(e)



Royalty as provided for in Article 16(c) shall have a first charge on gross production from the

Contract Area. The Royalty shall be reckoned at the Delivery Point before recovery of costs.

(i)

The available Cost Oil and/or Cost Gas shall be applied first to recover Operating

Expenses, and the Contractor and TPDC shall be entitled to recover such Expenses in

proportion to their individual cumulative unrecovered Operating Expenses.

(ii) After recovery of Operating Expenses any excess Cost Oil and/or Cost Gas available

for distribution shall be applied to recover Exploration Expenses.

(iii) After recovery of Operating Expenses and Exploration Expenses any excess Cost Oil

and/or Cost Gas available for distribution shall be applied, and the Contractor and

TPDC shall be entitled to recover such expenses in proportion to their individual

cumulative unrecovered Development Expenses.

(iv) Any un-recovered Recoverable Contract Expenses shall be recovered out of the Cost

Oil and/or Cost Gas available in the next succeeding Calendar Year or Years in the



38



same manner as set out herein in sub-article (b) above.

(f)



Subject to the limitations set out in sub-article (a) and (b) of this Article, the quantity of Cost

Oil and/or Cost Gas which the Contractor and, if Joint Operations have been established,

TPDC actually acquire shall be entitled to in any Calendar Year will be established on the

basis of the average fair market price per barrel determined in accordance with Article 13

herein



(g)



(i)(a) Sharing of Profit Oil: The remaining Crude Oil production available in any Calendar

Year after Recoverable Contract Expenses have been recovered to the extent and in

the manner aforesaid (hereinafter referred to as “Profit Oil”), total Crude Oil

production from the Contract Area shall be shared between the Contractor and TPDC

based on the following tranches:

Tranches of daily total production rates (barrels of oil per day, BOPD) in the

Contract Area in the onshore and shelf areas

BOPD

0

12,500

25,000

50,000

100,000



-



12,499

24,999

49,999

99,999

and above



Tranches of daily total production rates (barrels of oil per day, BOPD) in the

Contract Area for the deep water areas

BOPD

-



0

50,000

100,000

150,000

200,000



49,999

99,999

149,999

199,999

and above



(i)(b) Sharing of Profit Gas: The remaining balance of Natural Gas production available in

any Calendar] Year after Recoverable Contract Expenses have been recovered to the

extent and in the manner aforesaid (hereinafter referred to as “Profit Gas”), total

Natural Gas production from the Contract Area shall be shared between the

Contractor and TPDC based on the following tranches:



39



Tranches of daily total production rates (million standard cubic feet) of gas per day in the

Contract Area in the onshore and shelf areas



0

20

40

60

80



MMSCFD

-



19.99

39.99

59.99

79.99

and above



Tranches of daily total production rates (million standard cubic feet) of gas per day in the

Contract Area in the deep water areas



0

150

300

450

600

750



(h)



MMSCFD

149.999

299.999

449.999

599.999

749.999

and above



(ii)



The tranches of daily total production referred to in this Article 12 and also in Article

10 herein shall be specified in terms of average daily total production rates. The

average daily production rates shall be determined for each Calendar Quarter and

shall be calculated by dividing the total quantity of Crude Oil and/or Natural Gas

produced and saved from the Contract Area during any Quarter by the total number

of days during which Crude Oil and/or Natural Gas was produced in such Quarter.



(iii)



The quantity of Cost Oil and/or Cost Gas required to cover Recoverable Contract

Expenses in any Calendar Year shall be allocated to each of the applicable tranches

of daily total production in the same proportion as the total production in each

tranche of daily total production bears to total production from the Contract Area.



(i)



If there are no Joint Operations, after allocation of Recoverable Contract Expenses in

accordance with sub-article (f) (iii) of this Article, the resulting Profit Oil in each

tranche of daily total production shall be shared as follows:



40



(ii)



Tranches of daily total

Production (BOPD) rates in

the Contract Area for

onshore and shelf areas

012,499

12,50024,999

25,00049,999

50,00099,999

100,000- and above



TPDC Share

of Profit Oil



ABC Share

Contractor of

Profit Oil



70%

75%

80%

85%

90%



30%

25%

20%

15%

10%



Tranches of daily total

Production(BOPD) rates in

the Contract Area for deep

waters and Lake Tanganyika

North

049,999

50,00099,999

100,000149,999

150,000199,999

200,000- and above



TPDC Share

of Profit Oil



ABC

Contractor

Share of

Profit Oil



65%

70%

75%

80%

85%



35%

30%

25%

20%

15%



If there are no Joint Operations, after allocation of Recoverable Contract Expenses in

accordance with sub-article (f) (iii) of this Article, the resulting Profit Gas in each tranche of

daily total production shall be shared as follows:



Tranches of daily total

Production (MMSCFD)

rates in the Contract Area

for onshore and shelf areas

0

19.99

20

39.99

40

59.99

60

79.99

80

and above



TPDC share of

Profit Gas



ABC Contractor

Share of Profit

Gas



60%

65%

70%

75%

80%



40%

35%

30%

25%

20%



41



Tranches of daily total

Production (MMSCFD)

rates in the Contract for

deep water Areas and

Lake Tanganyika North

0

149.999

150

299.999

300

449.999

450

599.999

600

749.999

750

and above



TPDC share of

Profit Gas



ABC Contractor

Share of Profit

Gas



60%

65%

70%

75%

80%

85%



40%

35%

30%

25%

20%

15%



(i)



If there are Joint Operations in all Development Areas, TPDC’s share of Profit Oil/Gas indicated in

sub-article (h) of this Article relative to each tranche of daily total production shall be increased by

the number of percentage points obtained by multiplying TPDC’s working interest of not less than

twenty five (25%) per cent in accordance with Article 10 (b) by the share of the Contractor’s Profit

Oil/Gas indicated in sub-article (h) (i) and (ii) respectively of this Article relative to such increment

of Profit Oil/Gas, and the Contractor’s share shall be reduced accordingly. However, where TPDC

has elected pursuant to Article 10 (b) not to participate in Joint Operations in all Development

Areas, the increase in TPDC’s share of Profit Oil/Gas shall be the result of the above calculation

multiplied by the ratio of total production from Joint Operations in which TPDC participates

over total production in the Contract Area during each Year.



(i)

(j)



With respect to this Article 12, Cost Oil and/or Cost Gas and Profit Oil and/or Profit Gas

calculations shall be done for each Calendar Quarter and the Crude Oil/Natural Gas provisionally

shared accordingly. To the extent that actual quantities, expenses and prices are not known,

provisional estimates of such data based on the approved Work Program, budget and any other

relevant documentation or information shall be used. Within sixty (60) days of the end of each

Calendar Year a final calculation of Cost Oil and/or Cost Gas and Profit Oil and/or Profit Gas

based on actual Crude Oil/Natural Gas quantities, prices and recoverable costs and expenses in

respect of that Calendar Year shall be prepared and any necessary adjustments to the Crude

Oil/Natural Gas sharing shall be agreed upon between the Contractor and TPDC and made as soon

as is practicable.



42



ARTICLE 13: VALUATION OF PETROLEUM

(a) The parties hereby agree that Tanzanian Crude Oil produced and saved from the Contract

Area shall be sold or otherwise disposed of at competitive international market prices. The

average fair market price of Tanzanian Crude Oil marketed in any Calendar Quarter shall,

for the purpose of giving effect to this Agreement, be determined as follows:

1.



as soon as possible after the end of each Calendar Quarter in which Crude Oil has been

produced from any Development Area pursuant to this Agreement an average price (in

terms of US$ per barrel FOB the Contractor’s actual loading point for export from the

United Republic of Tanzania) for each separate volume of Crude Oil of the same

gravity, sulphur and metal content, pour point, product yield and other relevant

characteristics (“quality”) shall be determined in respect of production during that

Calendar Quarter. It is understood that production from different Development Areas

may be of differing quality and that separate average prices may accordingly be

appropriate for any Calendar Quarter in respect of production for each Area, in which

event the overall price applicable to production from the Contract Area shall be

determined by taking the arithmetic weighted average (weighted by volume) of all such

prices separately determined;



2.



the prices aforesaid shall be determined on the basis of international fair market value as

follows:

(i).



in the event that 50% or more of the total volume of sales made by the

Contractor during the Calendar Quarter of Crude Oil of a given quality

produced and saved hereunder have been third party arm’s length sales

transacted in foreign exchange (hereinafter referred to as “Third Party Sales”),

the fair market valuation for all Crude Oil of that quality will be taken to be

the simple arithmetic average price actually realized in such Third Party Sales.

This will be calculated by dividing the total receipts from all Third Party Sales

by the total number of Barrels of Crude Oil sold in such sales;



(ii).



subject to sub-paragraph (3) below, in the event that less than 50% of the total

volume of sales made by the Contractor during the Calendar Quarter of Crude

Oil of a given quality produced and saved hereunder have been Third Party

Sales, the fair market valuation for all Crude Oil of that quality will be

determined by the arithmetic weighted average of:

(A) the simple arithmetic average price actually realized in the Third Party

Sales during the Calendar Quarter of such Crude Oil produced and saved

hereunder, if any, calculated by dividing the total receipts from all Third

Party Sales by the total number of Barrels of Crude Oil sold in such

sales;

43



and

(B) the simple arithmetic average price per Barrel at which a selection of

major competitive crude oils of generally similar quality to that of

Tanzanian Crude Oil produced hereunder and crude of sufficient

liquidity daily traded in sufficient quantities (above 0.1 million barrels a

day) which are listed and published in Platt Oilgram) were sold in

international markets during the same period; the prices of the crude oils

used for reference will be adjusted for differences in quality, quantity,

transportation costs, delivery time, payment and other contract terms.

The selected crude oils will be agreed between the Contractor and

TPDC, in consultation with the Government in advance for each

Calendar year and in making the selection preference will be given to

those crude oils of similar quality to Tanzanian Crude Oil which are

produced in Africa or the Middle East and are regularly sold in the same

markets as Tanzanian Crude Oil is normally sold.

The arithmetic weighted average aforesaid will be determined by the

percentage volume of sales of Tanzanian Crude Oil by Contractor that

are, (A), and that are not, (B) as the case may be, Third Party Sales

during the Calendar Quarter in question.



3.



(iii).



all such prices will be adjusted to FOB the Contractor’s actual loading point

for export from the United Republic of Tanzania;



(iv).



for the purposes of this Article, Third Party Sales of Crude Oil made by the

Contractor shall include any third party arm’s length sales made by the

Contractor on Government’s behalf pursuant to Article 18 herein but shall

exclude:

(A)



Sales, whether direct or indirect through brokers or otherwise, of any

seller to any Affiliate of such seller.



(B)



Crude Oil exchanges, barter deals or restricted or distress transactions,

and more generally any Crude Oil transaction which is motivated in

whole or in part by considerations other than the usual economic

incentives for commercial arm’s length crude oil sales.



In the event that less than 50% of the total volume of sales by the Contractor during the

Calendar Quarter of Crude Oil/Natural Gas of a given quality produced and saved

hereunder have been Third Party Sales, the Contractor shall promptly notify

Government and TPDC of the applicable percentage and respective volumes and prices

realized. Government and TPDC shall have the right to elect for the fair market

valuation for all Crude Oil/Natural Gas of that quality to be determined for that Quarter

44



in accordance with sub-article (a) 2 (i) of this Article. If Government and TPDC so

elect, they will notify the Contractor in writing within 14 days of receipt of the original

notification from the Contractor, and the fair market valuation of the aforesaid Crude

Oil shall be determined accordingly. If Government and TPDC do not so elect then the

fair market valuation shall be determined in accordance with sub-article (a) (2) (ii) of

this Article.

(b) The Contractor shall be responsible for establishing the relevant average prices for Crude Oil

in accordance with this Article 13, and such prices shall be subject to agreement by TPDC

before they shall be accepted as having been finally determined. The Contractor shall

provide TPDC with all relevant material in order that it can satisfy itself that the average

price determined by the Contractor is fair. If the parties fail to agree on the average price for

any Calendar Quarter within thirty (30) days following the end of such Quarter then the

calculation of the relevant average price shall be referred to a sole expert appointed pursuant

to sub-article (d) of this Article. The sole expert’s determination shall be final and binding.

(c) During the Calendar Year in which production from the Contract Area commences, the

Parties will meet in order to establish a provisional selection of the major competitive crude

oils and an appropriate mechanism for the purposes of giving effect to sub-article (a) (1) and

(2)(ii) (B) of this Article. The selection of crude oils will be reviewed annually and modified

if necessary.

(d) In the event of any difference or dispute between the Contractor and Government or TPDC

concerning selection of the major competitive crude oils, or more generally about the manner

in which the prices are determined according to the provisions of this Article13, the matter or

matters in issue shall finally be resolved by a sole expert appointed by agreement between

the parties or, in the absence of such agreement, by the British Energy Institute (formerly

British Institute of Petroleum). The costs of the expert shall be shared equally between the

Contractor on the one hand and the Government and TPDC on the other hand.

(e) The fair market valueof Natural Gas determined at the Delivery Point shall be the price in

United States dollars at which an independent third party would be prepared to buy at the

particular time such Natural Gas, on an Arm’s Length basis, taking into account the quality,

volume, cost of transportation, possible cost of liquefaction and regasification,terms of

payment, and any other relevant conditions, including the then prevailing market conditions

for Natural Gas at the final sales destination and shall be based on the higher of actual

realized prices or the prices calculated under the marketing arrangements for Natural Gas

approved by Minister.



(f) For Natural Gas sales transactions to Affiliates, the value of Natural Gas shall be determined

as stipulated in sub-article (e) above.



45



ARTICLE 14: MEASUREMENT OF PETROLEUM

(a)



All Petroleum produced, saved and not used in Petroleum Operations shall be measured at

the Measurement Points approved in the Development Plan.



(b)



The Measurement Points shall be at the end of the facilities for which the cost is included as

a recoverable cost of Petroleum Operations under the Contract.



(c)



The Production shall be measured in accordance with the standards set by the Weights and

Measures Act CAP 340 and

Best International Petroleum Industry Practices. All

measurement equipment shall be installed, maintained and operated by Contractor. TPDC

shall have the right to inspect the measuring equipment installed by Contractor and all charts

and other measurement or test data at all reasonable times. The accuracy of Contractor's

measuring equipment shall be verified by tests at regular intervals and upon the request of

TPDC, using sound and current means and methods in accordance with the Weights and

Measures Act and Best International Petroleum Industry Practices.



(d)



Upon discovery of a meter malfunction, Contractor shall immediately have the meter

repaired, adjusted and corrected and following such repairs, adjustment or correction shall

have it tested or calibrated to establish its accuracy. Upon the discovery of a metering error,

Contractor Shall have the meter tested immediately and shall take the necessary steps to

correct any error that may be discovered.



(e)



In the event a measuring error is discovered, Contractor shall use its best efforts to determine

the correct Production figures for

the period during which there was a measuring error

and the corrected figures shall be used. In determining the correction, Contractor shall use,

where required, the information from other measurements made inside or outside the

Production Area. Contractor shall submit for TPDC's approval a report detailing the source

and nature of the measuring error and the corrections to be applied. If it proves impossible to

determine when the measuring error first occurred, the commencement of the error shall be

deemed to be that point in time halfway between the date of the last previous test and the

date on which the existence of the measuring error was first discovered.



(f)



All measurements for all purposes in this Contract shall be adjusted to standard conditions of

pressure and temperature sixty (60) degrees Fahrenheit and 14.7 psia.



46



ARTICLE 15: NATURAL GAS

(a) Where Contractor has informed TPDC that Non-Associated Natural Gas discovered in the

Contract Area is of potential commercial interest, the Contractor shall, as soon as possible

but in any case not exceeding thirty days (30) submit to TPDC, for the consideration of the

Advisory Committee, its proposals for an appraisal programme as provided in the Act. After

completion by the Contractor of an appraisal program, the parties shall meet together with a

view to reaching an agreement on the development, production, processing and sale of such

gas.

For the purpose of the aforesaid, the parties undertake to negotiate in good faith and in doing

so will seek to give effect to the following principles:

(i)



all Contract Expenses directly attributed to the discovery and production of such gas

shall be recovered from part thereof and the remainder of the gas shared between the

Contractor and TPDC as far as possible in accordance with the scheme for cost

recovery and sharing of Profit Oil/Gas set out in Article 12; and



(ii)



to the extent that market conditions permit, gas will be valued for cost recovery and

sold for processing or export at prices which will give to the Contractor a fair return

on its investment.



(b) Where:(i)



Non-Associated Natural Gas has been discovered in the Contract Area, and



(ii)



a Location has been declared in respect of a Block or Blocks in which such discovery

is located, and



(iii)



the parties agree that the Non-Associated Gas discovered by the Contractor exists in

the Contract Area in quantities sufficient to justify consideration of an export

scheme,



the Minister will, in accordance with the Act, if TPDC at the request of the Contractor

applies in that behalf, extend for a reasonable time, not to exceed three (3) years, the period

within which TPDC may apply for a Development Licence over a Block or Blocks within

that Location.

(c) Subject to the provisions of the Act, Natural Gas associated with Crude Oil and not used in

Petroleum Operations may be flared only if the use thereof is uneconomic. However, TPDC

may elect to off take, free of charge, at the wellhead or gas oil separator and use for domestic

requirements such Natural Gas that would otherwise be flared, provided that all costs

associated with TPDC’s utilization of the Natural Gas be borne by TPDC. It is understood

that such off take should not be detrimental to the prompt conduct of oil field operations

47



according to Best International Petroleum Industry Practices.



48



ARTICLE 16: TAXATION AND ROYALTY

(a) The Contractor shall be subject to Tanzanian taxes on income derived from Petroleum

Operations hereunder, as provided for under the provisions of the Law.

(b) In addition to taxes paid in accordance with sub-article (a) above the Contractor or its

shareholders in respect of income derived from Petroleum Operations hereunder or in respect

of any property held or thing done for any purpose authorized or contemplated hereunder

shall be further taxed as follows:

(i)



subject to the provisions of Article 23, import duties at the rates specified from time

to time in the First Schedule to the East African Customs Union Protocol;



(ii)



taxes, duties, fees or other imposts for specific services rendered on request or to the

public or commercial enterprises generally and rent due to the Government in respect

of any land rights granted or assigned to the Contractor;



(iii)



local Government rates or taxes not in excess of those generally applicable in the

United Republic of Tanzania; and



(iv)



stamp duties, registration fees, licence fees and any other tax, duty, fee or other

impost of a minor nature.



(c) TPDC on behalf of itself and the Contractor shall discharge the obligation to pay Royalty

under the Act in respect of petroleum obtained from the Contract Area, by delivering to the

Government 12.5% for onshore/shelf areas and 7.5% for offshore of total Crude Oil/Natural

Gas production (prior to Cost Oil and/or Cost Gas recovery) at such location as the Minister

may direct and the Government may require TPDC to dispose of such royalty otherwise to

be delivered to the Government in such manner as the Government may direct. For the

purposes of this Article onshore areas include shelf up to water depths of 500 meters and

offshore areas include water depths beyond 500 meters.



49



ARTICLE 17: ADDITIONAL PROFITS TAX

(a) Contractor shall be subject to an Additional Profits Tax (hereinafter referred to as "APT")

that shall be calculated on a Development Area basis in accordance with the provisions of

this Article 17. APT will be calculated for each Calendar Year and will vary with the real

rate of return earned by Contractor on the net cash flow from the Development Area in

question. If, for any Development Area, either:

(i)



the "first accumulated net cash position" (as calculated in the manner set out hereafter

and a sample calculation methodology shown in Annex "E" and hereinafter referred

to as the "FANCP");



or

(ii)



each of the FANCP and the "second accumulated net cash position" (as calculated in

the manner set out hereafter and a sample hereinafter and referred to as the

"SANCP").



is a positive amount, then the APT from the Development Area in question for any Calendar

Year shall be either, in case (i): twenty five percent (25%) of the FANCP for that Year, or in

case (ii): the aggregate of twenty five percent (25%) of the FANCP for that Year and thirty

five percent (35%) of the SANCP for that Year. If in any Year the FANCP or the SANCP is

a negative amount then no APT shall be due with reference to that FANCP or SANCP.

(b) The FANCP on any Development Area for any Calendar Year shall be calculated according

to the following formula:

FANCP = A (100%+B) +C where:

"A"



equals the FANCP denominated in US dollars at the end of the Calendar Year

preceding the Calendar Year for which the calculation is being made



"B"



equals twenty percent (20%) plus the percentage change, for the Calendar Year for

which the calculation is being made, in the annual average level of the United Stated

Industrial Goods Producer Price Index (USIGPPI) as reported for the first time in the

monthly publication "International Financial Statistics" of the International Monetary

Fund (IMF) in the section "Prices, Production, Employment".



"C"



equals the net cash position denominated in US dollars (which may be a positive or

negative amount) for the Calendar Year for which the calculation is being made,

calculated as follows:



(i).



Contractor's share of Cost Oil and Profit Oil for that Calendar Year valued in

accordance with Article 12 hereof and allocated to the Development Area in question

in accordance with the provisions of Annex " D" to this Agreement

50



plus

(ii).



Contractor's share of all credits to the accounts under this Agreement in respect of the

Calendar Year, calculated and allocated to the Development Area in question in

accordance with the provisions of Annex “D" to this Agreement



minus

(iii).



Contractor's share of all charges to the accounts under this Agreement in respect of

that Calendar Year, calculated and allocated to the Development Area in question in

accordance with the provisions of Annex "D" to this Agreement, except that for this

purpose Contractor's share of charges shall not include any amounts in respect of

interest on loans obtained for the purpose of carrying out Petroleum Operations.



(c) The SANCP on any Development Area for any Calendar Year shall be calculated according

to the same formula given under sub-article (b) above except that:

"A"



equals the SANCP denominated in US dollars at the end of the Calendar Year

preceding the Calendar Year for which the calculation is being made,



"B"



equals thirty percent (30%) plus the percentage change, for the Calendar Year for

which the calculation is being made, in the annual average level the USIGPPI as

reported for the first time in the monthly publication "International Financial

Statistics" of the IMF .in the section "Prices, Production, Employment".



To the amount calculated under (iii) in the definition of "C" is sub-article (b) above shall be

added any Additional Profits Tax which would be payable from the Development Area if

reference were made hereunder only to the FANCP.

(d) If for any Calendar Year the FANCP is positive amount, the FANCP at the end of that

Calendar year shall be deemed to be zero for the purpose of calculating the FANCP for the

subsequent Calendar Year.

(e) If for any Calendar Year the SANCP is a positive amount, the SANCP at the end of that

Calendar Year shall be deemed to be zero for the purpose of calculating the SANCP for the

subsequent Calendar Year.

(f) Contractor shall maintain proper records and books of accounts in accordance with the

provisions of Annex "D" enabling the calculations described in this Article 17 to be

performed. From the Effective Date Contractor shall maintain and submit to the Government

annually, or more frequently if so requested, a statement of the FANCP and SANCP.

Within thirty (30) days after the end of each Quarter, the Contractor shall submit to TPDC

statement showing the position on additional profit tax

(g) The APT due, if any, shall be paid in cash at such time and in such manner as the

Commissioner of Income Tax may reasonably require.



51



ARTICLE 18: ESTABLISHMENT OF OFFICE, REPORTING, INTERNAL CONTROL,

SUPERVISION AND CONFIDENTIALITY

(a) Data and information obtained following Petroleum Operations under this Agreement shall

be the property of the Government. Such data and information pursuant to the foregoing

shall include but shall not be limited to; the geological, geophysical, technical, financial and

economic reports, studies, interpretations and analyses prepared by or on behalf of the

Contractor, the Government or the TPDC.

(b) Within thirty (30) days, after the Effective Date Contractor shall establish and maintain an

office in the United Republic of Tanzania with sufficient competence and capacity to

conduct and perform Petroleum Operations in accordance with the terms of this Agreement

(c) Within thirty (30) days after the effective date Contractor shall designate a representative

residing in the United Republic of Tanzania who shall have full authority to represent it in

respect of matters related to the Agreement and to receive notices addressed to Contractor

(d) The Contractor shall at all times prepare and maintain accurate records of its operations in

the Contract Area and shall keep all information of technical, economic, accounting or any

other nature developed for the conduct of Petroleum Operations. Such records shall be

organized and kept in such a way as to allow for the prompt and complete ascertainment of

costs and expenditures.

(e) The records and information referred to in the sub-article (a) of this Article shall be kept at

the Operator’s office in the United Republic of Tanzania.

(f) The Contractor shall save and keep for a reasonable period of time and in the best condition

possible a representative portion of each sample of cores, cuttings and fluids taken from

drilling wells, to be disposed of or forwarded to the Government or its representative in a

manner directed by TPDC. All samples acquired by the Contractor for its own purpose shall

be considered available for inspection at any reasonable time by the Government or its

representative. Any such samples which the Contractor has kept for a period of forty - eight

(48) months with the full knowledge of TPDC without receipt of instruction to forward the

same to TPDC, Government or its representative, the samples may be disposed of by the

Contractor at its discretion, provided TPDC has been given prior notice of not less than

ninety (90) days of the Contractor’s intention to do so and given the opportunity to take such

samples.

(g) Notwithstanding sub-article (b) of this Article, the Contractor shall be freely permitted to

export samples for purposes of investigation in laboratories abroad, provided that the

Contractor submits samples equivalent in size and quality to TPDC. Originals of records and

data may be exported only with the permission of TPDC and provided at least one

comparable copy of such records and data has been submitted to TPDC. Such exports shall

be repatriated to Tanzania without undue delay and on the understanding that they belong to



52



the Government.

(h) The Contractor is obliged to comply with the Act, Regulations and individual administrative

decisions issued there under through the implementation of necessary systematic measures.

(i) The Contractor, through the implementation of necessary systematic measures for internal

control and supervision of its operations develop adequate management systems in

compliance with the Act, regulations and individual administrative decisions issued

thereunder.

(j) The Contractor shall ensure that anyone performing work for him, either personally through

employees or subcontractors shall comply with the health, safety and environmental

requirements under the Laws and in this Agreement.

(k) The Government and TPDC, through their duly authorized representatives and employees,

shall have full and free access to the Contract Area at all convenient times and be entitled to

monitor the Petroleum Operations conducted by the Contractor hereunder and at all

reasonable times to inspect all assets, material, records, books and data kept by the

Contractor relating to such operations. Contractor shall grant to the said representatives and

employees the same facilities in the camp as those afforded to its own employees of similar

professional rank. The Contractor shall provide TPDC promptly with copies of any and all

data (including, but not limited to geological and geophysical reports, logs and well

surveys), information and interpretations of such data and information obtained by the

Contractor in the course of carrying out Petroleum Operations hereunder. All such data,

information and interpretations, as well as cores and cuttings taken from drilling wells, shall

be the property of Government and, save as provided in this Article, the same may not be

published, reproduced or otherwise dealt with by the Contractor without the prior written

consent of Government or TPDC, which consent shall not be unreasonably withheld or

delayed.

(l) The Government and TPDC, through their duly authorized representatives and employees,

shall have full and free access to the Contract Area at all convenient times and be entitled to

monitor the Petroleum Operations conducted by the Contractor hereunder and at all

reasonable times to inspect all assets, material, records, books and data kept by the

Contractor relating to such operations. Contractor shall grant to the said representatives and

employees the same facilities in the camp as those afforded to its own employees of similar

professional rank. For the purposes of permitting the exercise of the inspection rights, the

Contractor shall provide such representatives and employees with reasonable assistance

regarding transportation and accommodation.

(m)All data and information and every interpretation thereof provided by the Contractor to

TPDC shall, so long as it relates to an area which is a part of the Contract Area, be treated

as confidential and each of the Parties hereto undertakes not to disclose the same to any

other person without the prior written consent of the other Parties. However, such data,

information and interpretations may be disclosed to Affiliate companies or contractors

53



carrying out any part of the Petroleum Operations and to advisers of TPDC and Government

who will treat as confidential all that is disclosed to them and undertake not to disclose the

same to any other person without the written consent of the Contractor and TPDC.

Notwithstanding what is provided in this sub-article (m) of this Article, the Minister may,

using such data, information and reports supplied by the Contractor, publish summaries of

data, information and reports from geophysical surveys and exploration wells, including

lithological groups, classification boundaries and hydrocarbon zones:

(n) The Contractor undertakes not to disclose to third parties any data, information or any

interpretation thereof which relates to an area which has ceased to be part of the Contract

Area for a period of four (4) years from the date on which the area to which such data,

information or any interpretation thereof relates ceased to be part of the Contract Area or

from the date on which this Agreement expires or is terminated, whichever occurs first.

However, where during the aforesaid period the Contractor carries on Petroleum Operations

in the Contract Area, such data, information and interpretations may be disclosed by

Contractor to:

(i) Subcontractors, Affiliates, assignees, auditors, financial consultants or legal advisers,

provided that such disclosures are required for effective performances of the

aforementioned recipients’ duties related to Petroleum Operations;

(ii) comply with statutory obligation or the requirements of any governmental agency or

the rules of a stock exchange on which a Party’s stock is publicly traded in which

case the disclosing Party will notify the other Parties of any information so disclosed

prior to such disclosure;

(iii) financial institutions involved in the provision of finance for the Petroleum

Operations hereunder provided, in all such cases, that the recipients of such data and

information agree in writing to keep such data and the information strictly

confidential; and

(iv) a third party for the purpose of negotiating an assignment of interest hereunder

provided such third party executes an undertaking to keep the information disclosed

confidential.

(o) Any public disclosure regarding the interpretation of information acquired in Petroleum

Operations shall not be made without the Minister’s consent.



54



ARTICLE 19: LIFTING, MARKETING AND DOMESTIC SUPPLY OBLIGATION

(a) The quantity of production to which TPDC is entitled, pursuant to Article 12 herein, shall be

delivered to TPDC or its nominee at the Delivery Point, at which title in production will pass

to TPDC or its nominee subject to the terms of the agreement referred to in sub-article (b) of

this Article. TPDC shall be responsible for costs associated with its lifting entitlement after

the Delivery Point. Where there is no Joint Operations the Contractor, shall be responsible

for all costs prior to the Delivery Point. In the event of Joint Operations both the Contractor

and TPDC shall be responsible for all costs prior to the Delivery Point.

(b) Within six months after the Minister’s approval of a Development Plan, the Contractor shall

propose to TPDC an off take procedure to govern the method whereby the parties will

nominate and lift their respective shares of Crude Oil/Natural Gas. The details of such

procedure shall be discussed and agreed upon between TPDC and the Contractor for the

Minister’s approval. The major principles of such procedure shall include the following:

(i)



lifting by the parties shall be carried out so as to avoid interference with Petroleum

Operations;



(ii)



lifting rights and schedules will be subject to operations tolerances and constraints so

that each party shall be entitled to lift full cargo loads;



(iii)



within reasonable limits and subject to future correction of imbalances, each party

may lift more or less than its lifting entitlement so as to allow the lifting of full cargo

loads; and



(iv)



in general, priority for lifting shall be given to the party having the greatest unlifted

lifting entitlement.



(c) The Contractor shall, if requested by TPDC with at least three (3) months advance notice,

market abroad on competitive terms all or part of TPDC’s lifting entitlement subject to

payment by TPDC of direct costs normally borne by a seller in such transactions as may be

agreed by TPDC but excluding any commission or marketing fee in respect of such service.

(d) TPDC and the Contractor shall have the obligation to satisfy the domestic market in

Tanzania from their proportional share of production. The domestic Natural Gas price shall

be determined based on the strategic nature of the project to be undertaken by the

Government. The volume of the Crude Oil/Natural Gas which TPDC and the Contractor may

be required to supply to meet domestic market obligation shall be determined by the Parties

by mutual agreement and shall be on pro rata basis with other producers in the United

Republic of Tanzania. TPDC shall give the Contractor at least one (1) month notice in

advance of said requirements and the term of the supply will be on an annual basis. The

volume of Crude Oil/Natural Gas which shall be required to sell to meet the requirements of



55



the domestic market shall not exceed TPDC and Contractor’s share of Profit Oil/Gas.

(e) Crude Oil/Natural Gas sold pursuant to sub-article (d) above shall be paid for in foreign

exchange or its equivalentat a price determined in accordance with Article 13 and 15 of this

Agreement.



56



ARTICLE 20: LOCAL CONTENT

The Contractor shall:

(a) Comply with the Government’s Local Content Policy in force and as modified from time to

time

(b) purchase Tanzanian goods, services and materials provided such goods and materials are of

certified standard and quality in accordance with Tanzania authorities namely Tanzania

Bureau of Standards, Tanzania Foods and Drugs Authority or any other relevant authority

established and operating under the Law;

(c) give assurance to Local Enterprises in respect of prompt payment for goods and services

actually provided for Contractor and its Sub Contractors both foreign and Local;

(d) make use of Tanzanian service companies and contractors, where services of certified

standards are available from such contractors at competitive prices and on competitive terms;

(e) Upon purchase of goods, services or materials, follow an efficient, open, transparent, nondiscriminatory and competitive purchasing and award procedure in accordance with the Law

and Best International Petroleum Industry Practices and submit the relevant procurement

plan to TPDC for review;

(f) Ensure that the unskilled manpower requirement is reserved for Tanzanian nationals only.

(g) ensure that provisions in terms of sub-articles (a) to (f) of this Article are contained in

contracts between Contractor and its subcontractors;

(h) employ United Republic of Tanzania nationals in order to give effect to Section 37(b) of the

Act; and

(i) ensure that sub-contracts are scoped, as far as it is economically feasible and practical to

match the capability (time, finance and manpower) of Local Enterprises and shall manage

the risk to allow their participation.



(j) Employ Tanzanian nationals in order to give effect to the Law and ensure that opportunities

are given for the employment of nationals of the Tanzanian.

(k) The contractor shall also :

i.



provide to TPDC together with the annual work programme and budgets required

under Articles 5 and 7 a list of all projects to be undertaken as well as all goods and

services that are required for the conduct of Petroleum Operations;

57



ii.



TPDC and Contractor shall agree on a list of those projects and goods and services

which shall be published in at least two local newspapers and on the TPDC’s

website; and



iii.



the Contractor shall in collaboration with TPDC invite qualified suppliers and

contractors to bid for the supply or execution of the projects as the case may be.



(l) All tenders are to be advertised, evaluated and awarded in the United Republic of Tanzania.

Contractor shall apply to TPDC for prior approval where the circumstances warrant that any

part of the tender process be conducted outside of United Republic of Tanzania.

(m)give preference to Tanzania companies and by ensuring access to all tender invitations and

by including high weighting on local value added in the tender evaluation criteria.

(n) In order to give effect to this Article, the Contractor shall collaborate with TPDC and or any

public authority responsible for local content promotion or other public body to identify a list

of Tanzanian services and goods suppliers and contractors.

(o) Contractor shall ensure the development of its employees by imparting to nationals

technology and business expertise in all activities in the Petroleum Operations including but

not limited to:

(i). fabrication;

(ii). information technology support, including seismic data acquisition, processing and

interpretation support;

(iii). operations and maintenance support;

(iv). maritime services;

(v). business support services, including accounting and auditing, human resource

services, consulting, marketing and contract negotiations;

(vi). financing; and

(vii). trading.

(p) For the purposes of this Article,

(i). “Tanzanian goods", means goods manufactured, obtained or produced in the United

Republic of Tanzania; "Tanzania Services" means services provided by Tanzanians

or Tanzanian companies; and "Tanzanian Materials "means materials obtained,

produced or manufactured in the United Republic of Tanzania;

(ii). “Tanzanian Companies” means companies incorporated in the United Republic of

Tanzania and whose shares are wholly or at least 51% owned by in Tanzanian

nationals.



58



ARTICLE 21: EMPLOYMENT, TRAINING AND TRANSFER OF TECHNOLOGY

(a) Subject to the requirement of the law relating to immigration, TPDC shall advice the

Government on the provision of necessary work permits and other approvals required for the

employment of expatriate personnel by the Contractor in the United Republic of Tanzania

for the purposes of this Agreement. (b) Without prejudice to Article 20), in the conduct of

the Petroleum Operations, the Contractor shall employ Tanzanian citizens having

appropriate qualifications to the maximum extent possible. In this connection the Contractor

shall, in consultation with Government and TPDC, propose and carry out an effective

training and employment programme for Tanzanian employees in each phase and level of

operations, taking into account the requirements and need to maintain reasonable

international standards of efficiency in the conduct of the Petroleum Operations. Such

employees may be trained in the United Republic of Tanzania or abroad as required by the

training programme prepared by the Contractor.

(b) During each year of the term of the Exploration Licence and Development Licence or any

renewal thereof the Contractor shall spend a minimum sum of four hundred thousand United

States dollars (US$ 500,000) adjusted by dividing by the factor I as defined in Article 5 (e)

herein, for one or more of the following purposes:

(i)



to provide a mutually agreed number of Government and TPDC personnel with on the

-job training in the Contractor operations in the United Republic of Tanzania and

overseas, and/or training at institutions abroad or the United Republic of Tanzania,

including natural earth sciences, engineering, technology, petroleum accounting and

economics, economic analysis, contract administration and law as related to the fields

of oil and gas exploration and production;



(ii) to send suitable Tanzanian personnel selected by the Government and by TPDC on

courses at universities, colleges or other training institutions mutually selected by the

Contractor, the Government and TPDC;

(iii) to send Tanzanian personnel selected by the Government and by TPDC to

conferences workshops and seminars related to the petroleum industry; and

(iv) to purchase for the Government and TPDC advanced technical books, professional

publications, technical software, scientific instruments, technical software or other

equipment required by the Government and TPDC.

(c) Not later than six (6) months after the grant of a Development Licence, the Contractor shall,

in consultation with TPDC, implement the programme proposed in the Development Plan as

approved by the Government for training and employment of Tanzanian nationals in each

phase and level of Petroleum Operations and for the transfer of management and technical

skills for the safe and efficient conduct of Petroleum Operations. In any case the Contractor



59



shall ensure the transfer of management and operation functions to Tanzanian nationals

within a period not exceeding five (5) years from the commencement of commercial

operations.

(d) In addition to the requirements in sub article (e) of this Article Contractor shall ensure that

the development of people in key areas allows nationals to participate in value-adding,

analytical and management areas of:

(i) of a technical or professional nature including general management, design

engineering, project management, seismic data processing, human resource

development, legal; and

(ii) Business strategic skills including leadership, business development, executive

management, commercial, analytical, negotiating, strategy development and trading

know how and acumen.

(e) The provisions of the Vocational Education and Training Act 1994 (Cap 82) shall apply to

the employment of any expatriate employee of the Contractor, including any expatriate

employee of any non-resident contractor, during the several periods into which Exploration

Operations hereunder are divided.

(f) The Contractor shall prepare an annual local content plan which shall accompany the annual

work program and budget for Petroleum Operations in the Contract Area and which shall

include but not limited to:

(i) procurement of Tanzanian goods, material and services;

(ii) a detailed plan and programme for Tanzanian recruitment, employment and training,

including post-graduate training and scholarships; and

(iii) a plan for the transfer of skills, knowledge, competence and know-how.

(g) The Contractor shall, together with the annual report on Petroleum Operations in the

Contract Area, submit and publish an annual report, which shall be verified by a competent

and independent third party, describing the Contractor’s activities and results on Tanzanian

content and the local value adding other than the production sharing and fiscal obligations.



60



ARTICLE 22: TITLE TO ASSETS, INSURANCE, SITE CLEAN UP,

DECOMMISSIONINGAND ABANDONMENT

(a) All fixed assets, owned by Contractor in connection with the Petroleum Operations

carried out by Contractor hereunder shall become the property of TPDC at the option of

TPDC after this Agreement expires or is terminated or at the time when full costs of the

acquisition of the asset in question have been recovered by Contractor out of Cost Oil

and/or Cost Gas, whichever occurs first.

(b) TPDC’s aforesaid option in sub-article (a) shall be exercised by written notice to the

Contractor:

(i)



in the case of expiry of this Agreement, of not less than 30 days prior to such

expiry;



(ii)



in the case of termination of this Agreement of not more than 30 days after such

termination; and



(iii)



in the case of full recovery of costs of the acquisition of the assets in question not

later than ninety (90) days after such cost recovery. Such fixed assets shall include

but not be limited to buildings, piers, harbors, pipelines, wellheads, separators,

compressors, pumps, power lines, telephone lines etc.



(c) Subject to this Article, all movable assets in connection with the Petroleum Operations

carried out by the Contractor shall remain TPDC’s property on expiration or termination

of this Agreement.

(d) If TPDC elects to participate in Joint Operations, then title to any assets acquired

pursuant to a Development Plan shall be held jointly by the Contractor and TPDC

according to their respective interest in Joint Operations. Any such asset shall become

completely owned by TPDC as soon as this Agreement expires or is terminated or, at the

time, the Contractor’s portion of the full costs of the acquisition of the asset in question

has been recovered by the Contractor out of Cost Oil and/or Cost Gas, whichever occurs

first. TPDC’s aforesaid option shall be exercised by written notice to the Contractor:

(i)

(ii)

(iii)



in the case of expiry of this Agreement, of not less than 30 days prior to such

expiry;

in the case of termination of this Agreement of not more than 30 days after such

termination; and

in the case of full recovery of the Contractor’s portion of the costs of the

acquisition of assets in question not later than 30 days after such cost recovery.



(e) Notwithstanding what is provided for under Sub-articles 22 (a) and 22(c), So long as this

Agreement remains in force, Contractor shall have, free of any charge, for the purpose of

61



carrying on Petroleum Operations hereunder, the right of use of assets which have

become the property of TPDC, pursuant to sub-articles (a), (b) or (c) above. Contractor

shall be liable of maintenance, insurance, decommissioning and site-cleaning and other

costs associated with the use and shall keep the assets in reasonably good repair and

working order, fair wear and tear excepted, and any maintenance expenses shall be

recovered in accordance with the terms hereof.

(f) Where the cost of a physical asset has been recovered for more than 50% in accordance

with the terms of this Agreement, TPDC may elect to have the title to the asset

transferred from the Contractor to the TPDC upon payment by the TPDC of the

unrecovered portion of the cost of the asset.

(g) Unless otherwise agreed to by the Minister in writing, any lien, charge or encumbrance

on an asset shall lapse upon the transfer of that asset from Contractor to Government or

TPDC under this Article. However, the rights of use established with the consent of the

Minister shall remain in force.

(h) A physical asset that is used by the Contractor in Petroleum Operations as a capital or

financial lease shall be treated as a purchased asset in accordance with sub-article (a)-(h)

of this Article. A Contractor shall not be required under this Article to transfer to the

Government or the TPDC other assets rented or leased by the Contractor for use in

Petroleum Operations and which are of the type customarily leased for use in accordance

with.

(i) Subject to the provisions of sub article (a) and (b) of this Article, Contractor shall give

TPDC the opportunity to buy, upon such commercially reasonable terms as may be

mutually agreed upon, any item imported duty free under Article 21(a) which Contractor

intends to dispose of or sell.

(j) Contractor shall effect and, at all times during the terms of this Agreement, maintain for

Petroleum Operations hereunder insurance of such type and in such amount as is

customary in accordance with the Insurance Act 2009 and Best International Petroleum

Industry Practices and/or as required by TPDC in accordance with their minimum

insurance guidelines/requirements. The said insurances shall be taken out with Tanzanian

registered insurance company(s) approved by TPDC, in accordance with the Insurance

Act 2009 and Regulations made thereunder,, and where required be reinsured into

International reinsurance markets with minimum Standard and Poor’s ‘A-‘ rating or the

equivalent. All insurances must be approved by TPDC and as appropriate include TPDC

as a Named Insured and include a waiver of subrogation against TPDC. The said

insurance shall, without prejudice to the generality of the foregoing, cover:

(i)



any loss or damage to all assets used in Petroleum Operations;



62



(ii)



operators extra expenses (OEE) coverage in respect of all wells drilled during

Petroleum Operations whether drilling, producing, shut-in or work-over;



(iii)



pollution caused in the course of Petroleum Operations for which Contractor,

Operator, Government or TPDC may be held responsible;



(iv)



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

of Petroleum Operations for which Contractor, Operator, Government or TPDC

may be liable or Contractor may be liable to indemnify the Government and

TPDC;



(v)



the cost of removing wrecks and cleaning up operations following an accident in

the course of petroleum Operations; and



(vi)



Contractor’s and/or Operator’s liability to its employees engaged in the Petroleum

Operations.



(k) All insurance policies taken out pursuant to this Article shall be made available to TPDC

for review and approval prior to operations commencing.

(l) Contractor shall require its sub-contractors to carry insurance of such type and in such

amount as is customary applicable in accordance with Best International Petroleum

Industry Practices and/or as required by TPDC in accordance with their minimum

insurance guidelines/requirements. The said insurances shall be taken out with Tanzanian

registered company(s) approved by TDPC in accordance with Tanzanian Insurance Law

and as applicable include TPDC as named insured and waive rights of subrogation

against TPDC.

(m) Contractor shall not self-insure or insure through Affiliates.

(n) Prior to relinquishment of any area, Contractor shall perform all necessary

abandonment, decommissioning and site clean-up activities to restore the area as nearly

as possible, to the condition in which it existed on the Effective Date including removal

of such facilities, equipment or installations as Minister may instruct, and shall take

action necessary to prevent hazards to human life, property and the environment which

may be caused by its facilities, equipment or installations. In carrying such abandonment,

decommissioning and site clean-up activities the Contractor shall observe the

Environmental Management Act, 2004 and generally Best International Petroleum

Industry Practices

(o) In order to discharge its obligations for site cleaning, decommissioning and

abandonment, the Contractor, Government and TPDC shall, within two (2) years of the

commencement of commercial production, enter into an agreement to establish an a Site

Clean-Up, Decommissioning and Abandonment Cost Reserve Fund (Decommissioning

Fund). Such agreement shall address the administration and utilization of funds deducted

63



from Cost Oil and/or Cost Gas in accordance with the following:

(i) For the purpose of the Decommissioning Fund, TPDC and Contractor shall upon

verification of a qualified independent third party, estimate the cost for site

cleaning, decommissioningand abandonment in good faith, on the basis of

industry average costs in accordance with the Environmental Management Act,

2004 and generally Best International Petroleum Industry Practices

(ii) The payments deposited into the Decommissioning Fund shall be placed in a U.S.

Dollar, long term, interest bearing account in a commercial bank located within

the United Republic of Tanzania to be designated by TPDC and Contractor.

(iii)If, upon expiration or other termination of this Agreement, TPDC determines to

conduct the site cleanup, decommissioning and abandonment operations, such

funds, plus all accrued interest, shall be paid to TPDC whereupon Contractor shall

be released from any further obligation and liability with respect to such site

cleanup and abandonment.

(iv)If, within sixty (60) days prior to the expiration or other termination of this

Agreement, TPDC has failed to advise Contractor of TPDC’s determination to

conduct the site cleanup, decommissioning and abandonment operations, such

funds, plus all accrued interest, shall be paid to Contractor and Contractor shall

thereupon conduct all such operations in accordance with the Environmental

Management Act, 2004 and generally Accepted International Petroleum Industry

Best Practices.

(v) If the Decommissioning Fund above is insufficient to pay the costs of cleanup,

decommissioning and abandonment, such shortfall shall be paid by Contractor.

Where the Decommissioning Fund exceeds the costs incurred such excess shall

revert back to TPDC.

(vi)The Contractor’s obligation to undertake decommissioning, abandonment and

site-clean-up pursuant to this Article shall continue after the termination of this

Agreement.



64



ARTICLE 23: IMPORT DUTIES

(a) The Contractor and its sub-contractors engaged in Petroleum Operations hereunder and

TPDC in respect of Joint Operations established pursuant to Article 10 shall be permitted,

subject to the limitations and conditions set out in the Law to import, free of duty or other

taxes on imports, machinery, equipment, materials, supplies, consumable items (other

than foodstuffs cosmetics, personal effects, and alcoholic beverages) and moveable

property, where imports in any of the said categories have been certified by a responsible

representative of TPDC to be for use solely in carrying out operations under this

Agreement.

(b) Subject to sub-article (a) above, any of the items imported into the United Republic of

Tanzania may, if no longer required for the operations hereunder, be freely exported at

any time by the importing party without the payment of any export duty provided

however that, on the sale or transfer by the importer of any such items to any person in

the United Republic of Tanzania, import duty shall be payable by the importer on the

value thereof at the date of such sale or transfer.



65



ARTICLE 24: ACCOUNTING AND AUDIT

(a) The Contractor shall maintain at its business office in the United Republic of Tanzania

accounting records relating to Petroleum Operations under this Agreement in accordance

with the Accounting Procedure set out in Annex “D” of this Agreement.

(b) TPDC shall have the right to audit Contractor’s accounting records in accordance with

Annex “D”, the Accounting Procedure.

(c) Nothing in this Article shall be construed as limiting the right of the Government and or

its agents pursuant to any statutory power to audit or cause to be audited the books of

accounts of the Contractor.



66



ARTICLE 25: HEALTH SAFETY AND ENVIRONMENT

(a) The Contractor shall comply with the Occupational Health and Safety Act 2003, Atomic

Energy Act 2003, The Pharmaceuticals and Poisons Act 1978 CAP 219, , the Regulations

and individual administrative decisions issued by virtue of the Law, all other legislation

at any time in force in the United Republic of Tanzania as well as Best International

Petroleum Industry Practices, through the implementation of necessary systematic

measures.

(b) The Contractor shall establish, follow up and further develop a management system

designed to ensure compliance with the health, safety and environment requirements in

accordance with the Best International Petroleum Industry Practices.

(c) The Contractor shall ensure that the management of health, safety and the environment

comprises the activities, resources, processes and organisation necessary to ensure

prudent Petroleum Operations.

(d) When entering into a contract, the Contractor shall ensure that the sub-contractors and

suppliers are qualified to fulfill the regulatory requirements relating to health, safety and

the environment. Furthermore, the Contractor shall follow up to ensure that the

participants comply with the requirements while performing the assignment in the

activities covered by these regulations.

(e) The responsible party shall stipulate and further develop objectives and strategies to

improve health, safety and the environment.

(f) The Contractor shall ensure agreement between short-term and long-term objectives in

various areas, at various levels and between various participants in the activities. A yearly

health and safety plan shall be established for the activities required to meet the long term

and short-term objectives.

(g) The objectives shall be expressed so that the degree of achievement can be assessed.

(h) The Contractor shall carry out risk analyses that provide a balanced and most

comprehensive possible picture of the risk associated with the activities. The analyses

shall be appropriate as regards providing support for decisions related to the upcoming

operation or phase. Risk analyses shall be carried out to identify and assess contributions

to major accident and environmental risk, as well as ascertain the effectsof various

operations and modifications will have on major accident and environmental risk.

Necessary assessments shall be carried out of sensitivity and uncertainty.

(i) In order to achieve a high level of safety, international standards like International

Organisation for Standardizations (ISO), International Maritime Organization (IMO),

International Electrotechnical Commission(IEC)and International Petroleum Industry

67



Environmental Conservation Association (IPIECA), shall be used. When the responsible

party makes use of a relevant international standard or other standard referred to in the

regulation, the responsible party can normally assume that the regulatory requirements

have been met.

(j) When other solutions than those recommended above are used, the Contractor shall be

able to document that the chosen solution fulfills the regulatory requirements.

Combinations of parts of standards shall be avoided.

(k) The Contractor shall ensure that hazard and accident situations that have occurred and

that may lead to or have led to acute pollution or other harm, are dully recorded and

examined in order to prevent recurrence. The Contractor shall ensure that potential

hazard or accident situations that occur frequently or that have great actual or potential

consequences shall be investigated.

(l) The Contractor shall carry out necessary analyses to ensure a sound working environment

and provide support in the choice of technical, operational and organizational solutions.

The analyses shall e.g. contribute to improving the employees' health, welfare and safety

and to prevent personal injuries, fatalities and work-related illness.

(m) The Contractor shall ensure that the persons engaged in Petroleum Operations shall at all

times possess the necessary competence and qualifications to carry out the activities in a

prudent manner.

(n) The Contractor shall put in place programmes to deal with awareness and control of

HIV/AIDS malaria and other epidemic outbreaks in the Contract Area, the areas around

the Contract Area and other areas around Petroleum Operations. .

(o) In furtherance of the Law or as the Government may otherwise require that from time to

time, the Contractor shall take necessary and adequate steps to:

(i) conduct its Petroleum Operations in a manner that will protect the environment

including human communities and settlements, flora and fauna and including but

not limited to natural resources, including the living resources of the land, air, sea

and lakes of the United Republic of Tanzania;

(ii) employ the best available techniques in accordance with Best International

Petroleum Industry Practices for the prevention of environmental damage to

which its Petroleum Operations might contribute and for the minimization of the

effect of such operations on adjoining or neighbouring lands, air, sea and lakes;

(iii)implement its Development Plan regarding the prevention of pollution, the

treatment of wastes, the safeguarding of natural resources and the progressive

reclamation and rehabilitation of lands disturbed by Petroleum Operations;

68



(iv)prevent and minimize pollution; and

(v) ensure prompt, fair and adequate compensation for injury or loss to persons, loss

or damage of property caused by the effects of Petroleum Operations.

(p) If Contractor’s failure to comply with the provisions of sub-article (a) (i) of this Article

and the Law results in pollution or damage to the environment or marine life or

otherwise, the Contractor shall promptly take all necessary and adequate measures to

remedy the failure and effects thereof. If such pollution or damage is the result of gross

negligence or willful misconduct of the Contractor, the cost of the remedy shall not be a

Recoverable Contract Expense for the purpose of Article 12 and Annex “D”.

(q) The Contractor shall notify the Minister and TPDC forthwith in the event of any

emergency or accident that may affect the environment, health or safety and shall take

such action as may be prudent and necessary in accordance with the Environmental

Management Act, 2004 and Best International Petroleum Industry Practices in such

circumstances. The costs of such action shall be recoverable costs provided that such

emergency or accident is not the result of Gross Negligence or Willful Misconduct of

Contractor for the purpose of Article 12 and Annex “D”.

(r) If the Contractor does not act promptly so as to control a hazard situation or clean up any

pollution or make good any damage or loss caused, TPDC may, after giving the

Contractor reasonable notice in the circumstances, take any actions which are necessary

in accordance with the Environmental Management Act, 2004 and Best International

Petroleum Industry Practices, and the reasonable costs and expenses of such actions shall

be borne by the Contractor.

(s) The Contractor shall undertake at its expense (but as a legitimate recoverable cost) social

and environmental impact assessment studies prior to, during and after any major

Petroleum Operations. Notwithstanding the generality of the foregoing, the Contractor

shall undertake a comprehensive Social and Environmental Impact Assessment prior to

conducting the following activities:

(i)

(ii)



reconnaissance and seismic activities;

exploration drilling;



(iii)



development and production;



(iv)



construction of a system for transportation, treatment and storage;



(v)



decommissioning; and



(vi)



in any other case in which Petroleum Operations are likely to have a

significant social or environmental impact.

69



The Contractor shall undertake the social and environmental impact assessment in

conformity with the Law and best international petroleum industry practice.

(t) The Contractor shall not flare or vent Petroleum without an authorisation from the

Government.

(u) The Minister may grant the Contractor an authorisation to flare or vent Petroleum, where

it is necessary in the interests of normal operational safety of the Petroleum Operations

and in accordance with best international petroleum industry practice.

(v) In case of an emergency, and where there is insufficient time to request an authorisation

from the Minister, the Contractor may vent or flare without the prior consent of the

Minister but shall ensure that the venting or flaring is done in accordance with a

prescribed procedure and best international petroleum industry practice, and shall be at

the lowest possible level. Where petroleum has been flared or vented in an emergency,

the Contractor shall immediately inform the TPDC of the event.

(w)The Contractor shall, in consultation with TPDC and upon the Minister’s approval,

established a safety zone surrounding each petroleum facility, well or transportation

system including abandoned facilities, or parts of these facilities.

(x) The Contractor shall prepare an emergency response plan to deal with such emergencies

including but not limited to blowouts, fire, storms, petroleum spills, floods and lightning.

The Contractor shall cooperate with the security authorities of the United Republic of

Tanzania that are mandated to protect petroleum operations in the Contract Area. The

Contractor shall be liable for pollution damage, injury or loss caused by or resulting from

the Petroleum Operations without regard to fault or negligence.

(y) The Contractor may be required to contribute to a Petroleum Spill Reserve Fund for

clean-up and rehabilitation of the environment after a petroleum spill if such fund is

established in the United Republic of Tanzania. If the reserve funds in the Petroleum

Spill Reserve Fund are insufficient to pay the costs of clean-up and rehabilitation, such

shortfall shall be paid by the Contractor.



70



ARTICLE 26: FORCE MAJEURE EVENT

(a) A “Force Majeure Event” shall mean any event or circumstance or combination of events

or circumstances beyond the reasonable control of a Party occurring on or after the

Effective Datethat materially and adversely affects the performance by such affected

Party of its obligations under or pursuant to this Agreement; provided, however, that such

material and adverse effect could not have been prevented, overcome or remedied by the

affected Party through the exercise of diligence and reasonable care. “Force Majeure

Events” shall include the following events and circumstances, but only to the extent that

they satisfy the above requirements:

(i)



any act of war (whether declared or undeclared), invasion, armed conflict or act of

foreign enemy, blockade, embargo, revolution, riot, insurrection, civil commotion, or

act of terrorism;



(ii) lightning, earthquake, tsunami, flood, storm, cyclone, typhoon, or tornado; epidemic

or plague; explosion, fire, blowout or chemical contamination; mechanical failure;

down hole blockage; and

(iii) strikes, works-to-rule, go-slows or other labour disputes, unless such strikes, works-torule, go-slows or labour disputes were provoked by the unreasonable action of the

management of the affected Party or were, in the reasonable judgment of the affected

Party, capable of being resolved in a manner not contrary to such Party’s commercial

interests.

(b) Force Majeure Events shall expressly not include the following conditions, except and to

the extent that they result directly from force majeure: a delay in the performance of any

contractor, including late delivery of machinery or materials; and normal wear and tear.

(c) Nothing in this Article shall relieve a Party of the obligations which arose prior to

occurrence of a force majeure event.

(d) Notification Obligations

If by reason of a Force Majeure Event a Party is wholly or partially unable to carry out its

obligations under this Agreement, then the affected Party shall:

(i)



give the other Parties notice of the Force Majeure Event(s) as soon as practicable,

but in any event, not later than the later of 48 hours after the affected Party

becomes aware of the Force Majeure Event(s) or six hours after the resumption of

any means of providing notice; and



(ii)



give the other Parties a second notice, describing the Force Majeure Event(s) in

reasonable detail and, to the extent that such information can reasonably be

determined at the time of the second notice, providing a preliminary evaluation of

71



the obligations affected and a preliminary estimate of the period of time that the

affected Party will be unable to perform such obligations and other relevant

matters as soon as practicable, but in any event, not later than seven days after the

initial notice of the occurrence of the Force Majeure Event(s) is given by the

affected Party. When appropriate or when reasonably requested to do so by

another Party, the affected Party shall provide further notices to such other Party

more fully describing the Force Majeure Event(s) and the cause(s) therefore and

providing or updating information relating to the efforts of the affected Party to

avoid and/or to mitigate the effect(s) thereof and estimates, to the extent

practicable, of the time that the affected Party reasonably expects it will be unable

to carry out any of its affected obligations due to the Force Majeure Event(s).

(e) The affected Party shall provide notice to the other Parties as soon as possible, but not

later than seven days following:

(i)



the cessation of the Force Majeure Event; or



(ii)



its ability to recommence performance of its obligations under this

Agreement by reason of the cessation of the Force Majeure Event.



(f) Failure by the affected Party to give written notice of a Force Majeure Event to the other

Parties within the 48-hour or six-hour period required by this Article shall not prevent the

affected Party from giving such notice at a later time; provided, however, that in such

case the affected Party shall not be excused pursuant to this Article for any failure or

delay in complying with its obligations under or pursuant to this Agreement until such

notice has been given. If such notice is given within the 48-hour or six-hour period

required by this Article, the affected Party shall be excused for such failure or delay

pursuant to this Article from the date of commencement of the relevant Force Majeure

Event.

(g) Duty to Mitigate

The affected Party shall use all reasonable efforts to mitigate the effects of a Force

Majeure Event, including the payment of reasonable sums of money, in light of the likely

efficacy of the mitigation measures; provided, however, that the affected Party shall not

be required to settle any labour dispute or litigation on terms that, in the reasonable

judgment of the affected Party, are contrary to its commercial interests.

(h) Delay Caused by Force Majeure

So long as the affected Party has at all times since the occurrence of the Force Majeure

Event complied with the obligations of this Article and continues to so comply then:

(i)



the affected Party shall not be liable for any failure or delay in performing

its obligations (other than the obligation to make any payment otherwise

72



due hereunder) under or pursuant to this Agreement for so long as and to

the extent that the performance of such obligations are affected by the

Force Majeure Event; and

(ii)



any performance deadline that the affected Party is obligated to meet

under this Agreement shall be extended; provided, however, that no relief,

including the extension of performance deadlines, shall be granted to the

affected Party pursuant to this Article to the extent that such failure or

delay would have nevertheless been experienced by the affected Party had

the Force Majeure Event not occurred. A Party shall not bear any liability

for any Loss suffered by the affected Party as a result of a Force Majeure

Event.



(i) Contract Termination Due to a Force Majeure Event

Contractor may terminate this Contract upon a three (3) month written notice to Minister

if the fulfillment of the obligation of either Party under this Contract is affected by a

Force Majeure Event during the Exploration Period or any extension thereof for a

continuous period exceeding two (2) years without further obligation and liabilities of

any kind. Nothing in this Article shall relieve a Party of the obligations which arose prior

to occurrence of a force majeure event.



73



ARTICLE 27: ASSIGNMENT AND TRANSFER OF RIGHTS

(a) The Contractor may not assign or transfer, directly or indirectly, to any third party

including an Affiliate, in whole or in part, any of its rights, privileges, duties or

obligations under this Agreement without the prior written consent of the Minister.

(b) The Contractor shall demonstrate to Minister's satisfaction that the third party to whom

the assignment or transfer is proposed to be made is qualified with respect to its technical

competence and financial capacity and the assignment or transfer will not adversely

affect the performance of the obligations under this Agreement.

(c) In the event that the Contractor wishes to assign in whole or in part any of its rights,

privileges, duties or obligations hereunder as aforesaid, the written consent thereto of the

Government, if required under this Article, shall not be unreasonably withheld or

delayed.

(d) Any assignment made pursuant to this Article to a non-Affiliated person, firm or

company shall bind the assignee to all the terms and conditions hereof, and, as a

condition to any assignment, the Contractor shall provide an unconditional undertaking

by the assignee to assume all obligations by the Contractor under the Agreement.

(e) In case of an assignment, the Contractor shall provide the Government with a Deed of

Assignment in which the main conditions and liabilities assumed by the assignee are set

out and a copy of the assignment agreement or transfer agreements as well as any other

document relevant to the assignment or transfer Furthermore, the assignor or transferor

shall submit an evaluation by an independent expert and all material terms of the

assignment.

(f) Where the Contractor is more than one person the Government will be provided with

copies of all assignments and agreements made between them with respect to Petroleum

Operations and will be classified as confidential.

(g) Where the Contractor is more than one person the Contractor shall provide the

Government with the following information regarding each agreement executed between

them, with respect to Petroleum Operations and as required in the Petroleum Act:

(i)



details of the technical and industrial qualifications of the companies and

their employees;



(ii)



details of the technical and industrial resources available to the

Companies; and



(iii)



details of the kinds of financial resources available to the companies,

74



including capital, credit facilities and guarantees available.

(h) For each assignment or Transfer made to a non-Affiliate. by any entity or entities

comprising Contractor, shall attract a transfer or assignment fee which will be payable to

the Government atthe following rates to the corresponding amounts or value of the

consideration:



(i)



For every dollar of the first US$100 million: 1%.



(ii)



For every dollar of the next US$100 million: 1.5%



(iii)



For every dollar thereafter: 2%



(i) The Minister reserves the right to employ the services of an independent consultant, at

the cost of Contractor or any of the entities comprising Contractor, to be mutually agreed

by the Minister and such entity>

(i)



to carry out an independent valuation of the transaction. The final

determination of the valuation shall remain with the Minister and will be

subject to the applicable rates stated in sub article (h) of this Article; and



(ii)



to carry out an independent due diligence of the assignment or transaction

including an evaluation of the technical competence and financial capacity

of the assignee or transferee.



(j) No assignment or Transfer amount payable under Sub-Article 27 (h) shall be chargeable

on any assignment or transfer made under this Article where stamp duty on such

assignment or transfer is paid by any entity comprising Contractor. If an amount paid on

an assignment or transfer subsequently becomes subject to stamp duty, such amount shall

be refunded.

(k) Should an assignment or Transfer referred to under this Article occur without such entity

first obtaining the required consent of the Minister; such a transfer shall be null and void.

(l) No assignment or transfer shall in any way absolve the assignor from the obligations

undertaken by it under the Agreement except to the extent such obligations are in fact

assigned to the assignee or transferree.

(m)Any entity or entities comprising Contractor shall apply for consent, at least ninety (90)

calendar days before the proposed effective date of the Transfer; which application shall

include evidence to the Minister of the financial and technical competence of the

Transferee together with a valuation and all material terms of the Transfer.

(n) Any assignment or transfer under this Article shall be subject to the relevant tax law,

75



including capital gain tax.

(o) TPDC has the right of first refusal to acquire the participating interest that any member of

Contractor Party intends to assign to a non-Affiliate, which right should be exercised

pursuant to the following procedures:

(i)



the assignor company shall notify TPDC of the price and other

essential terms and conditions of the proposed assignment and the

identity of the prospective assignee;



(ii)



within sixty (60) days after receipt of the notification referred to in the

preceding subparagraph, TPDC shall notify the assigning company

whether TPDC elects to exercise the right of first refusal;



(iii)



if TPDC does not exercise the right of first refusal by failing to give

the notification referred to in the preceding subparagraph, then TPDC

shall be deemed to have waived the right of first refusal in respect of

such assignment;



(iv)



if TPDC exercises the right of first refusal by giving the notification

referred to in paragraph (o) (ii) of this Article, then TPDC and the

assignor company shall execute the assignment under the terms and

conditions contained in the notification referred to in paragraph (o) (i)

of this Article.



(p) In the event of TPDC not exercising the right of first refusal referred to in the preceding

paragraph, such right shall pass to any Affiliate of TPDC.

(q) Where the Contractor assigns or transfers the participating interest under this Agreement,

the Contractor shall have a secondary liability for financial obligations for the cost of

implementing site clean-up, decommissioning and abandonment. Such financial

obligation shall be limited to possible costs related to installations, sites, petroleum

facilities and wells, which existed at the time of the assignment, and is limited to a share

of the costs calculated on the basis of the size of the participating interest assigned. The

Contractor shall put in place an adequate security for such secondary liability.



76



ARTICLE 28: CONSULTATION AND ARBITRATION

(a) TPDC and the Contractor shall periodically meet to discuss the conduct of the operations

envisaged under this Agreement and shall make every effort to settle amicably any

problem arising therefrom.

(b) If any dispute or difference in relation to or in connection with or arising out of any of the

terms and conditions of this Agreement should arise, the same shall be resolved by

negotiations between the parties. In the event of no agreement being reached, either party

shall, except in the case of a dispute or difference as provided in sub-article 9(h), 13(b)

and 13(d), have the right to have such dispute or difference settled through arbitration as

provided for herein below.

(c) If, after completion of the above procedure, disagreement remains between the Parties,

the dispute shall be settled by arbitration in accordance with the provisions of this Article.

Nevertheless, for differences of a technical nature and prior to the arbitration procedure,

the Parties may resort to the opinion of a mutually agreed expert. This expert shall notify

his opinion to the Parties within thirty (30) Days following the date on which he was

designated by the Parties.

(d) If, particularly following completion of the procedure set forth in this Article 28(c), any

disputes still exist between the Parties in connection with the application of the

provisions of this Agreement or regarding the obligations resulting therefrom, such

disputes shall be resolved in accordance with the International Chamber of Commerce

Rules of Conciliation and Arbitration, subject to the specific provisions set out below.

The arbitration procedure shall be commenced by request addressed by the applicant

Party to the Secretariat of the Court of Arbitration. The starting point of proceedings shall

be the date of receipt of that request by the Secretariat of the Court of Arbitration.

In the context of the procedure set out in this Article 28(c), the arbitration procedure shall

commence within sixty (60) Days following expiry of the thirty (30) Day period defined

in Article 28(c) plus, if applicable, any additional time provided in the same paragraph.

Each Party shall designate its arbitrator and notify the other Party and the Court of

Arbitration of that designation within thirty (30) Days after the start of the arbitration

proceedings as defined above. If the applicant Party has not designated its arbitrator

within that thirty (30) Day period, it shall be deemed to have abandoned its application. If

the defending Party has not designated its arbitrator within thirty (30) Days following

receipt of notice in accordance with this paragraph, the other Party may directly inform

the International Chamber of Commerce Rules of Conciliation and Arbitration, and

request that it makes such designation within the shortest possible time.

77



The arbitrators shall not be of the same nationality as either of the Parties.

Within forty-five (45) Days after the date of designation of the last of them, the

arbitrators thus designated shall select, by mutual agreement, a third arbitrator, who shall

become the President of the Court of Arbitration. Failing agreement, the International

Chamber of Commerce Rules of Conciliation and Arbitration shall be requested by the

most diligent Party to designate this third arbitrator within the shortest possible time.

The arbitrators are free to choose the procedure they intend to apply. The decision of the

arbitrators is final; it is binding on the Parties and will be enforceable under the United

Republic of Tanzania laws.

(e) The place of arbitration shall be Dar es Salaam, in the United Republic of Tanzania. The

Language used shall be English, the applicable law shall be the law of the United

Republic of Tanzania and the provisions of this Agreement shall be interpreted in

accordance with that law.

(f) The Parties will bear the expenses and fees of Arbitration equally. These costs are not

cost recoverable.

(g) The arbitration procedure shall not cause the performance of the Parties’ contractual

obligations to be suspended during the progress of the arbitration.



78



ARTICLE 29: APPLICABLE LAW

This Agreement shall be governed by, interpreted and construed in accordance with the Laws of

the United Republic of Tanzania.



79



ARTICLE 30: WORKING LANGUAGE

The Contractor shall use the English language or the Kiswahili language, in all Petroleum

Operations including its business operations, correspondence and the fulfillment of its regulatory

requirements.



80



ARTICLE 31: THIRD PARTY ACCESS TO PETROLEUM FACILITIES

(a)



The Contractor, [and TPDC where TPDC is party to joint operations pursuant to Article

[9]] shall provide access to third parties for use of its petroleum facilities in the Contract

Area for conduct of petroleum operations where such access will not be to an

unreasonable detriment of the petroleum operations of the Contractor or other users who

have already been granted a right of use. The Contractor shall provide such third party

access on reasonable terms and conditions.



(b)



An agreement on access to petroleum facilities shall be submitted to the Minister for

approval unless the Minister decides otherwise. The Minister may, as a condition for

approval of the agreement, modify the tariffs and other terms and conditions agreed

between the parties to the access agreement.



(c)



Where no agreement for access to petroleum facilities is reached within 180 days from

the time of the third party request to the Contractor, the Minister may stipulate the tariffs

and other conditions for such third party access.



(d)



Where the Minister decides to stipulate, modify or alter or set terms and conditions for

third party access to petroleum facilities pursuant to this Article (b)-(c), the Minister

shall stipulate such reasonable terms and conditions for such third party access in

accordance with generally Accepted International Petroleum Industry Practices having

due regard to good resource management considerations and a reasonable profit for the

Contractor taking into account, among other, the Contractor’s investments and risks,

financial and commercial viability of third party access and availability of capacity at the

petroleum facilities.



(e)



The Contractor shall promptly provide the Minister through TPDC upon receipt of any

technical, commercial, financial or other information that is relevant for negotiations

with third parties on access to petroleum facilities. Such information shall include, but is

not limited to copies of the requests for use, updated information on capacity on the

petroleum facilities, any draft agreements and schedules for negotiations.



(f)



The Contractor’s obligation to grant third party access pursuant to this Article shall

apply correspondingly for the use of petroleum facilities where the Contractor has a

leasing right for use in Petroleum Operations. The Contractor shall not restrict the third

party’s right for access to the leased facilities through any agreement with the holder of

the title to the petroleum facility or the leaser.



(g)



The Minister may appoint representatives who shall be entitled to participate with an

observer status at any meeting on negotiations pursuant to this Article. The Contractor

shall ensure that the observer who is appointed by the Minister promptly receives any

relevant information for the purpose of efficient representation of the Minister at the

meetings.

81



ARTICLE 32: COORDINATION AND UNITISATION OF PETROLEUM

OPERATIONS

(a) Where a Petroleum accumulation in the Contract Area extends beyond the

boundaries of the Contract Area into another contract area or a licence area, the

Contractor shall not develop such petroleum accumulation without seeking an

agreement with the contractor or the licensee in the other area. An agreement on the

development of the petroleum accumulation to be carried out as single unit shall be

submitted to the Minister for approval. In case no such agreement is submitted, the

Minister may direct the relevant parties to enter into an agreement to this effect in

accordance with Section 46 of the Act.

(b) Subsequent to the Minister’s approval of an agreement in accordance with sub-article

(a), a collective proposal for a common Development Plan of the deposit of

Petroleum in accordance with Article 9, shall be submitted by the Contractor and

such other entity or entities through to the Minister for approval.

(c) Where a petroleum accumulation in the Contract Area extends beyond the

boundaries of the Contract Area into an area not covered by a petroleum agreement

or a petroleum licence, the Minister may grant TPDC a licence to develop and

produce the petroleum accumulation, and may require the petroleum accumulation to

be developed as a single unit. Sub-Article (b) above shall apply accordingly.

(d) Where a petroleum accumulation in the Contract Area is in proximity to another

petroleum accumulation in another area the Minister may, in order to ensure efficient

petroleum operations, require the petroleum accumulations to be developed and

produced in a coordinated manner in order to ensure optimum petroleum recovery

and optimum use of the relevant petroleum infrastructure.

(e) The Contractor shall forthwith notify the Minister and TPDC where the Contractor

discovers that a Petroleum accumulation straddles between an international boundary

of the United Republic of Tanzania and an international boundary of another

sovereign state.

(f) The Contractor shall inform the Minister and TPDC where the Contractor, within the

scope of this Agreement, assesses that there may be a potential need for assessing a

potential for unitisation or coordination of Petroleum Operations for Petroleum

accumulations straddling between- or in proximity with- the international boundary

of the United Republic of Tanzania and an international boundary of another

sovereign state.

82



ARTICLE 33: FOREIGN EXCHANGE AND CURRENCY

(a) The Contractor shall at all times comply with the procedures and formalities relating to



dealings in foreign exchange which may be in force in the Republic of Tanzania from

time to time.

(b) The Contractor shall, in accordance with the Foreign Exchange Act ( CAP 271)



the



Law and this Contract, have the right:

(i)



to open and keep one or more accounts denominated Tanzanian currency or United

States Dollars, or other currency as duly authorised, with banks in the United

Republic of Tanzania.



(ii)



to purchase Tanzanian currency and United States Dollars, or other currency as duly

authorised, from any bank in the United Republic of Tanzania or other financial

institutions, authorised for this purpose by the Central Bank of Tanzania.



(iii)



Without prejudice to withholding tax due, all non-resident subcontractors if duly

authorized by the relevant authorities in Tanzania and all the expatriate personnel

shall be entitled to receive in any currency the whole or any part of their

remunerations outside the Republic of Tanzania. All payments to resident

subcontractors shall be made exclusively in Tanzania.



(iv)



Subject to withholding tax due, the Contractor shall have the right to freely declare

and pay dividends to their shareholders and to remit the same to a place outside

Tanzania, under the terms of the Law.



(v)



The Contractor has the obligation to inform the Central Bank of Tanzania the number

of the account(s), bank details and other currency deposition and exchange dealings

with other financial institutions without undue delay upon the occurrence. In addition,

the Contractor shall deliver appropriate information and monthly periodic reports to

the Central Bank of Tanzania and the Minister and as otherwise required by the

authorities in accordance with the Law. The Central Bank of Tanzania shall be

entitled to require audit to such accounts. Amounts spent on any such audits shall be

cost recoverable paid by the Contractor. The Contractor shall waive banking

confidentiality rights in benefit to the Government of Tanzania in respect of such

information and accounts in order to facilitate any such audits.



83



ARTICLE 34: ANTI-CORRUPTION

(a) The Contractor and TPDC shall in accordance with the Prevention and Combating of



Corruption Act, CAP. 329, establish and implement anti-bribery and anti-corruption

policies and measures that are consistent with the requirements in Law, the provisions of

this Contract and complementary to any other relevant anti-corruption laws and

obligations.

(b) The Contractor shall implement necessary systematic measures in order to ensure that



any person who undertakes activities that are relevant to this Agreement including work,

services or delivering goods will not make, offer, or authorize, any payment, gift, promise

or other advantage, whether directly or through any other person or entity, to or for the

use or benefit of any public official, any political party, political party official, or

candidate for office, or any other individual or entity, where such payment, gift, promise

or advantage would violate the Law and other anti-corruption laws and obligations

applicable to the Contractor.

(c) The Contractor shall comply with the Law and other anti-corruption laws and obligations



applicable to Contractor

(d) The Contractor shall ensure that its Affiliates and its respective directors, officers,



employees and personnel comply with the Law and other anti-corruption laws and

obligations applicable to Contractor.

(e) Each Party shall as soon as possible notify and keep informed the other Parties of any



investigation or proceeding initiated by a governmental authority relating to an alleged

violation of the Law and other applicable anti-corruption laws and obligations to such

Party.



84



ARTICLE 35: MODIFICATIONS AND HEADINGS

(a) This Agreement shall not be amended or modified in any respect except by the mutual

consent in writing of the parties hereto.

(b) The Headings of this Agreement are for convenience only and shall not be taken into

account in interpreting the terms of this Agreement.



85



ARTICLE 36: NOTICES

A notice shall be deemed duly delivered:i.



if presented personally;



ii.



if received on a Business Day for the receiving Party, when transmitted by facsimile to the

receiving Party’s facsimile number specified in this Article 32 and, if received on a day

that is not a Business Day for the receiving Party, on the first business Day following the

date transmitted by facsimile to the receiving Party’s facsimile number; And



iii.



one Business Day after being deposited in a regular maintained postal service, postage

prepaid, registered, or certified mail addressed to the receiving Party;



Change of address shall be effective from seventh Business Day after giving a notice of change

of address.

If to the Government:

The Permanent Secretary

Ministry of Energy and Minerals

P.O. Box 2000

DAR ES SALAAM

Telephone:

255-222 117 156-9

Fax:

255-222 116 719

E-mail:

psmem@mem.go.tz

If to TPDC:

The Managing Director

Tanzania Petroleum Development Corporation

P.O. Box 2774

DAR ES SALAAM

Telephone:

255-222 200 103/4

Fax:

255-222 200 113

Email:

tpdcmd@tpdc-tz.com

If to: ABC LTD, TANZANIA

The Director,

ABC Ltd, Tanzania

DAR ES SALAAM

TANZANIA



86



IN WITNESS whereof this Agreement has been duly executed by the Parties, the day and year

first hereinbefore written.



Signed for and on behalf of the Government of the United Republic of Tanzania



By:_____________________________ Name:

Title: Minister for Energy and Minerals



Witnessed by



Signed for and on behalf of the Tanzania Petroleum

Development Corporation



By:__________________________

Name:

Title: Managing Director



_________________

Name

Title:



Signed for and on behalf of ABC Limited



By: ___________________________

Name:

Chief Executive Officer



________________

Witnessed by

Title: ABC



87



ANNEX "A":



DESCRIPTION OF EXPLORATION LICENCE AREA



The application area is described as totaling (…) square kilometers as per the TPDC Map in

Annex B.

Point



Longitudes Latitudes



Remarks



A

B



Due (west, east, south north) B



88



ANNEX "B":



MAP OF EXPLORATION LICENCE AREA



Total Number of Blocks = [ ]

Total area amounts to [ ] sq. km.



89



ANNEX "C":



DRAFT EXPLORATION LICENCE



WHEREAS, pursuant to Article 3(a) of the Agreement TPDC has applied for an Exploration

Licence in respect of the area described in Annex “A” to the Agreement and shown on the map

in Annex “B” thereof respectively:

I,_______________________________Minister for Energy and Minerals pursuant to the powers

conferred upon me by Section 21 of the Petroleum (Exploration and Production) Act, 1980

hereby grant TPDC for a period of four (4) years from the date hereof this Exploration Licence

over the exploration area described in the First Schedule hereto conferring on TPDC the

exclusive right to explore in the said exploration area for petroleum and to carry out such

operations and execute such works as are necessary for that purpose.

The Exploration Licence is granted subject to the following conditions:

1. (a) During the period of four (4) years commencing from the date hereof and terminating

on the fourth anniversary of the date, TPDC shall in the said exploration area:

(i) Reprocess existing seismic data.

(ii) Acquire minimum (…) kilometres of 2D and or (…) square kilometres of 3D

seismic data

(iii) Drill at least (…) exploration wells; and carry out geological and geophysical

surveys and related actives in the area; and

(iv) spend a sum which, when adjusted in accordance with the formula set out in sub

article (e) of Article 5 of the Agreement, equals or exceeds (…) million United

States dollars

(b) Subject to any amendment or revision thereof made pursuant to Article 7 of the

Agreement, TPDC shall conduct exploration operations under this licence during the

year ending 31 December, 20.... in accordance with the detailed Work Programme

and Budget set out in the Second Schedule hereto and will spend the sum specified

in the said budget.

2. Where during any period covered by the Licence the obligations of TPDC under this

Licence have been suspended by reason of Force Majeure pursuant to Article 25 of the

Agreement, the period for which this Licence has been granted

shall be extended for

a period equal to the period during which the obligations of TPDC were so suspended.

In this licence “the Agreement” means the Agreement made on ____day of_____

between the Government of the United Republic of Tanzania, the Tanzania Petroleum

90



Development Corporation and ABC Limited.

Unless the context otherwise requires words and phrases in this Licence shall have the

same meaning as those used in the Petroleum (Exploration and Production) Act, 1980.



IN WITNESS WHEREOF, I have granted the Licence aforesaid and set out my hand and seal

this___________ day of______________ 20....

Minister for Energy and

Minerals



91



ANNEX “C”•1:



FIRST SCHEDULE



Coordinates of the corner-points of Exploration Licence Area

Point Longitudes Latitudes



92



Remarks



ANNEX “C”•2:



SECOND SCHEDULE



[Set out here for the Calendar Year in which this License is first issued the detailed Work

Program and Budget submitted by ABC to TPDC pursuant to Article 7(a) of the Agreement].



93



ANNEX "D":



ACCOUNTING PROCEDURE



This Annex is made a part of the Production Sharing Agreement (hereinafter referred to as the

“Agreement”) between the Government of the United Republic of Tanzania and Tanzania

Petroleum Development Corporation and Contractor made on the (…) day of (…), 20(…)

SECTION 1: GENERAL PROVISIONS

1.1



Definitions

For the purpose of this Accounting Procedure the terms used herein which are defined in

the Agreement shall have the same meaning when used in this Accounting Procedure.



1.2



Purpose

The purpose of this Accounting Procedure is to set out principles and procedures of

accounting which will enable the Government and TPDC to monitor the costs,

expenditures, production and receipts so that both TPDC’s entitlement to Profit Oil/Gas

and Government’s revenues can be accurately determined on the basis of the Agreement.



1.3



Documentation Required to be Submitted by Contractor

(a) Within thirty (30) days of the Effective Date, the Contractor shall submit to and

discuss with the Minister and TPDC a proposed outline of charts of accounts,

operating records and reports, which outline shall reflect each of the categories and

sub-categories of costs and expenditures specified in Sections 2 and 3 below and shall

be in accordance with generally accepted and recognized accounting systems and

consistent with normal practice for joint venture operations of the international

petroleum industry and the National Board of Accountants and Auditors. Within

ninety (90) days of receiving the above submission the Minister in consultation with

TPDC shall either indicate approval of the proposal or request revisions to the

proposal. Within one hundred and eighty (180) days after the Effective Date Effective

Date, the Contractor and the Minister in consultation with TPDC shall agree on the

outline of charts of accounts, operating records and reports which shall describe the

basis of the accounting system and procedures to be developed and used under the

Agreement. Following such agreement the Contractor shall expeditiously prepare and

provide the Minister and TPDC with formal copies of the comprehensive charts of

accounts related to the accounting, recording and reporting functions, and allows the

Minister and TPDC to examine the manuals and to review procedures which are, and

shall be, observed under the Agreement.

(b) Notwithstanding the generality of the foregoing, the Contractor shall make regular

Statements to the Minister and TPDC relating to the Petroleum Operations. These

94



Statements include:

(i) Production Statement (see Section 5 of this Annex).

(ii) Value of Production, Pricing and Royalty payable Statement (see

Section 6 of this Annex).

(iii)Statement of Receipts and Expenditures (see Section 7 of this Annex)

(iv)Cost Recovery Statement (see Section 8 of this Annex)

(v) APT Statement (see Section 9 of this Annex)

(iv) End-of-Year-Statement (see Section 10 of this Annex).

(v) Budget Statement (see Section 11 of this Annex).

(c) All reports and Statements shall be prepared in accordance with the Agreement, the

laws of Tanzania and, where there are no relevant provisions in either of these, in

accordance with the normal practice of the international petroleum industry.

1.4 Language, Units of Account and Exchange Rates

(a) The Contractor shall maintain accounts in Tanzanian shillings and United States

dollars; however, the United States dollar accounts will prevail in case of conflict.

Metric units and barrels, British thermal units (Btu) shall be employed for

measurements required under the Agreement and this Annex. The language employed

shall be English.

(b) It is the intent of this Accounting Procedure that neither the Government nor TPDC

nor the Contractor should experience an exchange gain or loss at the expense of, or to

any of the benefit of, any of the other parties. However, should there be any gain or

loss from exchange of currency, it will be credited or charged to the accounts under

the Agreement.

(c)



(i) Amounts received and costs and expenditures made in Tanzanian shillings or in

United States dollars shall be converted from Tanzanian shillings into United

States dollars or from United States dollars into Tanzanian shillings on the

basis of the monthly average of the mean of the daily official buying and

selling exchange rates between the currencies in question as published by the

Bank of Tanzania or failing such publication, any other publication as agreed

by the parties for the Month in which the relevant transaction occurred.

(ii) Notwithstanding the general policy described in the preceding sub-paragraph,

all transactions in excess of the equivalent of two hundred and fifty thousand

United States dollars (US$ 250,000) shall be converted at the mean of the

buying and selling exchange rates published by the Bank of Tanzania on the

day the transaction occurred.

95



(iii) Amounts received and expenditures made in currencies other than United

States dollars and Tanzanian shillings shall be converted into United States

dollars or Tanzanian shillings on the basis of the monthly average of the mean

of the daily buying and selling exchange rates between the currencies in

question as published by the Bank of Tanzania or, failing such publication, as

published in the Financial Times (London edition) for the Month in which the

relevant transaction occurred.

(iv) The average monthly exchange rate calculated in accordance with sub-section

1.4 (c) (i) above and, where relevant, the exchange rates employed pursuant to

sub-sections 1.4 (c) (ii) and (iii) above, shall be identified in the relevant

Statements required under sub-section 1.3 (b) of this Annex.

1.5



Payments

(a) Subject to Article 11 (c) (iii) of the Agreement, all payments between the parties

shall, unless otherwise agreed, be in United States dollars and through a bank

designated by each receiving party no later than the 1st day of each Quarter for

which development costs have been budgeted.

(b) Discharge of the Contractor’s obligation with respect to TPDC’s share of Profit

Oil/Gas shall be made in accordance with the Agreement.

(c) All sums due from one party to the other under the Agreement during any

Calendar `quarter shall, for each day such sums are overdue during such quarter,

bear interest compounded daily at an annual rate equal to the average London

Interbank Offer Rate (LIBOR) for six (6) months US dollars as quoted at 11.00

a.m. London time on the first business day of such Quarter by the London office of

National Westminster Bank, or such other bank as the parties may agree, plus one

(1) percentage point.



1.6



Audit and Inspection Rights of Government

(a) Without prejudice to statutory rights, TPDC shall have the right to cause to audit to

each Calendar year within two (2), years (or such longer period as may be required

in exceptional circumstances) from the end of each such year. Notice of any

exception to the accounts for any Calendar Year shall be submitted to the

Contractor within ninety (90) days of receipt by TPDC of the report of its auditors.

For purposes of auditing, TPDC may examine and verify, at reasonable times, all

charges and credits relating to the Contractor’s activities under the Agreement and

all books of account, accounting entries, material records and inventories,

vouchers, payrolls, invoices and any other documents, correspondence and records

necessary to audit and verify the charges and credits. Furthermore, the auditors

shall have the right in connection with such audit to visit and inspect at reasonable

times all sites, plants, facilities, warehouses and offices of the Contractor directly

96



or indirectly serving its activities under the Agreement and to visit and inquire

from personnel associated with those activities. Where TPDC requires verification

of charges made by an Affiliate Company it shall have the right to obtain an audit

certificate from a recognized firm of public accountants acceptable to both TPDC

and the Contractor.

(b) The Contractor shall answer any notice of exception under subsection 1.6 (a)

(c) Within sixty (60) days of its receipt of such notice, where the Contractor has after

the said sixty days’ period failed to answer a notice of exception made by TPDC,

TPDC’s exception shall be deemed as accepted by Contractor and the accounts

shall be adjusted accordingly.



97



SECTION 2: CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND

EXPENDITURES

Expenditures shall be segregated in accordance with the objectives for which such expenditure

was made. The objectives which shall qualify are those which have been approved and included

in the approved Work Program and Budget for the Year in which the expenditure is made and

other items which have been agreed by the parties from time to time. All expenditures allowable

under Section 3 relating to Petroleum Operations shall be classified, defined and allocated as set

out herein below. In the event of a discovery, expenditure records shall be maintained in

expenditures to each Development Area.

2.1 Exploration Expenses are all direct and allocated indirect expenditures incurred in the

search for Petroleum in an area which is or was, at the time when such expenses were

incurred, part of the Contract Area including:



2.2



(a)



aerial, geophysical, geochemical, palaeontological, geological, topographical and

seismic surveys and studies and their interpretation;



(b)



Deep well and core hole drilling and water well drilling;



(c)



labour, materials and services used in drilling wells with the object of finding new

Petroleum Reservoirs, or for the purposes of appraising the extent of Petroleum

provided such wells are not completed as producing wells;



(d)



facilities used solely in support of the purposes described (a), (b) and



(e)



above including access roads, fixed assets and purchased geological and

geophysical, all identified separately;



(f)



any General and Administrative Costs and Service Costs directly incurred on

Exploration Operations and identifiable as such; and a portion of the remaining

General and Administrative Costs and Service Costs allocated to the Exploration

Operations, determined by the proportionate share of total Contract Expenses

(excluding unallocated General and Administrative Costs and Service Costs)

represented by all other Exploration Expenses;



(g)



any other Contract Expenses specifically incurred in the search for Petroleum

after the Effective Date and not covered under sub-section 2.2, 2.3, 2.4 and 2.5.



Development Expenses shall consist of all expenditures incurred in:

(a)



studies of the subsurface for the purpose of determining the best manner of

recovering hydrocarbons, which include geological and geophysical surveys,

production geology, modeling and simulation of reservoir as an integral part of

economic reservoir exploitation and conservation;

98



2.3



(b)



drilling wells which are completed as producing wells and drilling wells for

purposes of producing from a Petroleum Reservoir already discovered whether

these wells are dry or producing, and drilling wells for the injection of water or

gas to enhance recovery of Petroleum;



(c)



completing wells by way of installation of casing or equipment or otherwise, after

a well has been drilled for the purpose of bringing the well into use as a producing

well, or as a well for the injection of water or gas to enhance recovery of

Petroleum;



(d)



the cost of petroleum production, storage and transport facilities such as pipelines,

flow lines, production and treatment units, wellhead equipment, subsurface

equipment, enhanced recovery systems, offshore platforms, petroleum storage

facilities and access roads for production activities;



(e)



the costs of engineering and design studies for facilities referred to in subsection

2.2. (d);



(f)



any General and Administrative Costs and Service Costs directly incurred on

development activities and identifiable as such; and a portion of the remaining

General and Administrative Costs and Service Costs allocated to development

activities, determined by the proportionate share of total Contract Expenses

(excluding unallocated General and Administrative Costs and Service Costs)

represented by all other Development Expenses.



Operating Expenses are all expenditures incurred in the Petroleum Operations after the

start of commercial production which are other than Exploration Expenses, Development

Expenses, General and Administrative Costs and Service Costs directly incurred on

operating activities and identifiable as such, as well as the balance of General and

Administrative Costs and Service Costs. General and Administrative Costs and Service

Costs not allocated to Exploration Expenses or Development Expenses shall be allocated

to Operating Expenses.



2.4 Service Costs are direct and indirect expenditures in support of the Petroleum Operations

including warehouses, export terminals, harbors, piers, marine vessels, vehicles,

motorized rolling equipment, aircraft, fire and security stations, workshops, water and

sewage plants, power plants, housing, community and recreational facilities and furniture,

tools and equipment used in these activities. Service Costs in any Calendar Year shall

include costs incurred in such Year to purchase and/or construct said facilities as well as

the annual costs to maintain and operate the same, each to be identified separately. All

Service Costs shall be regularly allocated as specified in sub-sections 2.1(e), 2.2(e) and

2.3 to Exploration Expenses, Development Expenses and Operating Expenses and shall be

separately shown under each of these categories.



99



2.5



General and Administrative Costs are:

(a)



all main office, field office and general administrative expenses in the United

Republic of Tanzania including but not limited to supervisory, accounting and

employee relations services, but excluding commissions paid to intermediaries by

the Contractor;



(b)



an annual overhead charge for services rendered outside the United Republic of

Tanzania and not otherwise charged under this Accounting Procedure, for

managing the Petroleum Operations and for staff advice and assistance including

financial, legal, accounting and employee relations services. For the period from

the Effective Date Effective Date until the date on which the first Development

License under the Agreement is granted by the Minister this annual charge shall

be itemized and verifiable costs but in no event greater than one percent (1%) of

the Contract Expenses; including those covered in sub-section 2.5(a) incurred

during the Calendar Year. From the date of grant of the Development License the

charge shall be at an amount or rate to be agreed between the parties and stated in

the Development Plan approved with the grant of the said License. The annual

overhead charge shall be separately identified in all reports to the Government

and TPDC;



(c)



all General and Administrative Costs will be regularly allocated as specified in

subsections 2.1(e), 2.2. (e) and 2.3. to Exploration Expenses, Development

Expenses and Operating Expenses and shall be separately shown under each of

these categories.



100



SECTION 3: COSTS, EXPENSES, EXPENDITURES AND CREDITS OF THE

CONTRACTOR

3.1



Recoverable Costs

Subject to the provisions of the Agreement, the Contractor shall bear and pay all costs and

expenses in respect of Petroleum Operations. These costs and expenses will be classified

under the headings referred to in Section 2. The following costs and expenses are

recoverable out of Cost Oil and/or Cost Gas by the Contractor under the Agreement:



(a)



Labour and Associated Costs

(i)



Gross salaries and wages of the Contractor’s employees directly and

necessarily engaged in the Petroleum Operations in Tanzania, it being

understood that in case of those personnel only a portion of whose time is

wholly dedicated to Petroleum Operations, only that pro-rata portion of

applicable wages and salaries will be charged. For purposes of cost

recovery, gross salaries and wages for the Contractor’s employees shall not

exceed commercial obtainable salaries and wages in Tanzania and shall be

reviewed and approved by TPDC on annual basis.



(ii)



Cost to the Contractor of established plans for employees’ group life

insurance, hospitalization, company pension, retirement and other benefits

of a like nature customarily granted to the employees and the costs

regarding holiday, vacation, sickness and disability payments applicable to

the salaries and wages chargeable under subsection (i) above shall be

allowed at actual cost, provided however that such total costs shall not

exceed twenty-five per-cent (25%) of the total labor costs under subsection

(i) above.



(iii)



Expenses or contributions made pursuant to assessments or obligations

imposed under the laws of the United Republic of Tanzania which are

applicable to the cost of salaries and wages chargeable under (i) above.



(iv)



Reasonable travel and personal expenses of employees of the Contractor

including those made for travel and relocation of the expatriate employees

assigned to the United Republic of Tanzania all of which shall be in

accordance with the normal practice.



(v)



Any personal income taxes of the United Republic of Tanzania incurred

by employees of the Contractor and paid or reimbursed by the Contractor.



(vi)

101



(b)



Transportation

The cost of transportation of; employees, equipment, materials and supplies necessary for

the conduct of the Petroleum Operations and not provided for elsewhere.



(c)



Charges for Services

(i) Third Party Contracts

The actual costs of contracts, for technical and other services entered into by the

Contractor for Petroleum Operations, made with third parties other than Affiliate

Companies are recoverable; provided that the costs paid by the Contractor are no

higher than those generally charged by other international or domestic suppliers

for comparable work and services.

(ii) Affiliate Companies

Without prejudice to the charges to be made in accordance with sub-section 2.5,

in the case of general services, advice and assistance rendered to the Petroleum

Operations by any Company, the charges will be based on actual costs without

profits and will be competitive. The charges will be no higher than the most

favorable prices charged by the Affiliate Company to third parties for comparable

services under similar terms and conditions elsewhere. The Contractor will, if

requested by TPDC, specify the amount of charges which constitutes an allocated

proportion of the general material, management, technical and other costs of the

Affiliate Company, and the amount which is the direct cost of providing the

services concerned. If necessary, certified evidence regarding the basis of prices

charged may be obtained from the recognized auditors of the Affiliate Company.

(iii). In the event that the prices and charges referred to in sub-paragraphs (i) and (ii)

above are shown to be uncompetitive then TPDC will have the right to disallow

that portion as it deems fit for cost recovery purposes.



(d)



Exclusively Owned Property

For services rendered to Petroleum Operations through the use of property exclusively

owned by the Contractor, the accounts shall be charged at rates, not exceeding those

prevailing in the region, which reflect the cost of ownership and operation of such

property, or at rates to be agreed.



(e)



Material and Equipment

(i) General

So far as is practicable and consistent with efficient economical operation, only

such material shall be purchased or furnished by the Contractor for use in the

Petroleum Operations as may be required for use in the reasonably foreseeable

102



future and the accumulation of surplus stocks shall be avoided.

(ii) Warranty of Material

The Contractor does not warrant material beyond the supplier’s or manufacturer’s

guarantee and, in case of defective material or equipment, any adjustment

received by Contractor from the suppliers/manufacturers or their agents will be

credited to the accounts under the Agreement.

(f)



Value of Material Charged to the Accounts under the Agreement

(a)



Except as otherwise provided in (b) below, material purchased by the Contractor

for use in Petroleum Operations shall be valued to include invoice price less trade

and cash discounts (if any), purchase and procurement fees plus freight and

forwarding charges between point of supply and point of shipment, freight to port

of destination, insurance, taxes, custom duties consular fees, other items

chargeable against imported material and, where applicable, handing and

transportation expenses from point of importation to warehouse or operating site,

and its costs shall not exceed those currently prevailing in normal arm’s length

transactions on the open market.



(b)



Material purchased from or sold to Affiliate Companies or transferred to or from

activities of the Contractor, other than Petroleum Operations under this

Agreement, shall be priced and charged or credited at the prices specified in (1)

and (2) below:

(1) New Material (Condition “A”) shall be valued the current international price

which shall not exceed price prevailing in normal arm’s length transactions on

the open market.

(2) Used Material (Conditions “B” and “C”)

(i) Material which is in sound and serviceable condition and is suitable for reuse without reconditioning shall be classified as Condition “B” and priced

at not more than seventy-five percent (75%) of the current price of new

materials defined in (1) above.

(ii) Material which cannot be classified as Condition “B” but which:



(a)



after reconditioning will be further serviceable for original function

as good second hand material Condition ’B”, or



(b)



is serviceable for original function but substantially not suitable for

reconditioning, shall classified as Condition “C” and priced at not

103



more than fifty percent (50%) of the current price of new

material(Condition “A”) as defined in (1) above. The cost of

reconditioning shall be charged to reconditioned material provided

that the Condition “C” material value plus the cost or

reconditioning does not exceed the value of Condition “B” material.

(iii)Material which cannot be classified as Condition “B” or Condition “C”

shall be priced at a value to be agreed between TPDC and the Contractor.

(iv)Material involving erection costs shall be charged at applicable condition

percentage of the current knocked-down price of new material as defined

in (1) above.

(v) When the use of material is temporary and its service to Petroleum

Operations does not justify the reduction in prices as provided for in subparagraph (2) (ii) above,

such material shall be priced on a basis that

will result in a net charge to the accounts under the Agreement consistent

with the value of the service rendered.

(g)



Rentals, Duties and Other Assessments

All rentals, taxes (other than income tax, withholding tax, remittance tax and Additional

Profits Tax), levies, charges, fees, contributions and any other assessments and charges

levied by the Government in connection with Petroleum Operations and paid directly by

the Contractor. For the avoidance of doubt annual charges for licenses shall not be

recovered.



(h)



Insurance and Loses

Insurance premiums and the costs incurred for insurance pursuant to and in accordance

with Article 21 shall be recoverable provided they are incurred in accordance with

TPDC approved process and losses incurred as a consequence of events which are, and

in so far as, not made good by insurance are recoverable unless such costs have resulted

from the Contractor’s failure to follow the terms, clauses, conditions or warranties of the

insurance policy(s) and/or the Contractor negligence and/or the gross negligence of the

Contractor or sub-contractors.



(i)



Legal Expenses

All reasonable costs and expenses of litigation and legal or related services necessary or

expedient for the procuring, perfecting, retention and protection of the Contract Area,

and in defending or prosecuting lawsuits involving the Area or any third party claim

arising out of activities under the Agreement, or sums paid in respect of legal services

necessary or expedient for the protection of the joint interest of Government, TPDC and

the Contractor are recoverable. Where legal services are rendered in such matters by

salaried or regularly retained lawyers of the Contractor or an Affiliate Company, such

104



compensation shall be included instead under sub-section 3.1(b) or 3.1(d) above as

applicable.

(j)



Training Costs

All costs and expenses incurred by the Contractor in training of Tanzanian employees

engaged in Petroleum Operations and such other training as is required under Article 21

of the Agreement.



(k)



General and Administrative Costs

The costs described in sub-section 2.5(a) and the charge described in sub-section 2.5(b).



3.2



Costs not Recoverable under the Agreement

The following costs shall not be recoverable for the purposes of Profit Oil/Gas sharing:

(a) Annual charges: This covers all direct costs attributable to the acquisition,

renewal, or relinquishment of surface rights acquired and maintained in force for

the purposes of this Agreement.

(b) all costs incurred before the Effective Date including charges incurred by

Contractor for copying and shipping of data relating to the Contract Area;

(c) petroleum marketing or transportation costs of Petroleum beyond the Delivery

Point;

(d) the costs of any bank guarantee or letter of guarantee required under the

agreement (and any other amounts spent on indemnities with regard to nonfulfillment of contractual obligations);

(e) costs of arbitration and the sole expert in respect of any dispute under the

Agreement;

(f) fines and penalties imposed by courts of law in the United Republic of Tanzania;

(g) costs incurred as a result of willful misconduct or negligence of the Contractor;

(h) donations and contributions made by the Contractor;

(i) Signature bonus and production bonus;

(j) any costs which, by reference to the Best International Petroleum Industry

Practices, can be shown to be excessive;

(k) expenditure on fundamental research into development of new equipment,

materials and techniques for use in search for, developing and producing

petroleum except to the extent that such research and development is directly

carried out in support of Petroleum Operations in the United Republic of Tanzania

105



whereby such a research is conducted in collaboration with TPDC; and

(l) interest and financial charges paid to the creditors of the Contractor,

(m)bonuses paid to employees and directors.

3.3



Other costs and Expenses

Any other costs and expenses not covered or dealt with in the foregoing provisions of this

Section 3 and which are incurred by Contractor for the necessary and proper conduct of

Petroleum Operations are recoverable only with the prior approval in writing of TPDC.



3.4



Credits under the Agreement

The net proceeds received from Petroleum Operations (other than the proceeds from the

sale of Crude Oil and Natural Gas), including but not limited to the transactions listed

below, will be credited to the accounts under the Agreement. For Profit Oil/Gas sharing

purposes such credits shall be offset against Recoverable Contract Expenses:

(a)



the net proceeds of any insurance or claim in connection with Petroleum

Operations or any assets charged to the accounts under the Agreement when such

operations or assets were insured and the premiums charged to the accounts under

the Agreement;



(b)



legal expenses charged to the accounts under Section 3.1 (i) and subsequently

recovered by the Contractor;



(c)



revenue received from third parties including Affiliate Companies for the use of

property or assets charged to the accounts under the Agreement;



(d)



any adjustment received by the Contractor from the suppliers manufacturers or

their agents in connection with defective material, the cost of which was

previously charged by the Contractor to the accounts under the Agreement;



(e)



rentals, refunds or other credits received by the Contractor which apply to any

charge which has been made to the accounts under the Agreement but excluding

any award granted to the Contractor under arbitration or sole expert proceedings;



(f)



the net proceeds for material originally charged to the accounts under the

Agreement and subsequently exported from the United Republic of Tanzania

without being used in Petroleum Operations;



(g)



the net proceeds from the sale or exchange by the Contractor of materials,

equipment, plant or facilities, the acquisition costs of which have been charged to

the accounts under the Agreement;

106



3.5



(h)



the proceeds from the sale of any petroleum information which relates to the

Contract Area provided that the acquisition costs of such rights and information

have been charged to the accounts under the Agreement;



(i)



the proceeds derived from the sale or license of any intellectual property the

development costs of which were incurred under this Agreement.



Duplication of Charges and Credits

Notwithstanding any provision to the contrary in this Accounting procedure, it is agreed

that there shall be no duplication of charges or credits to the accounts under the

Agreement.



107



SECTION 4: RECORDS AND VALUATION OF ASSETS

The Contractor shall maintain detailed records of property and assets in use for Petroleum

Operations in accordance with normal practice in exploration and production activities of the

international petroleum industry. At six (6) monthly intervals the Contractor shall notify TPDC

in writing of all assets acquired during the preceding six (6) months indicating the quantities,

costs and location of each asset. At reasonable intervals but at least once a year with respect to

movable assets and once every four (4) years with respect to immovable assets, inventories of the

property and assets under the Agreement shall be taken by the Contractor. The Contractor shall

give TPDC at least thirty (30) days written notice of its intention to take such inventory is taken.

The Contractor will clearly state the principles upon which valuation of the inventory has been

based. When an assignment of rights under the Agreement takes place a special inventory may

be taken by the Contractor at the request of the assignee provided that the costs of such inventory

are borne by the assignee.



108



SECTION 5: PRODUCTION STATEMENT

5.1



Upon commencement of production from the Contract Area, the Contractor shall submit

a monthly Production Statement to TPDC showing the following information for each

Development Area and for the Contract Area:

(a)



the quantity and quality of Crude Oil/Natural Gas produced and saved;



(b)



the quantity and composition of Natural Gas produced and saved;



(c)



the quantities of Petroleum used for the purposes of carrying on drilling and

production operations and pumping to field storage as well as quantities injected

into the formation;



(d)



the quantities of Petroleum unavoidably lost;



(e)



the size of Petroleum stocks held at the beginning of the Month in question;



(f)



the size of petroleum stocks held at the end of the Month in question;



(g)



the number of days in the Month during which Petroleum was produced from

each Development Area within the Contract Area;



5.2



At the end of each Calendar Quarter aggregated statements in respect of the three Months

comprising that Quarter shall be submitted for each of the items (a) to (g) in sub-section

5.1 above. Additionally, the average daily production rate for the Quarter shall be

calculated in accordance with Article 12 of the Agreement.



5.3



The Production Statement for each Month or quarter shall be submitted Government and

TPDC not later than seven (7) days after the end of such Month or quarter.



109



SECTION 6: VALUE OF PRODUCTION, PRICING AND ROYALTY STATEMENT

6.1 The Contractor shall, for the purposes of Article 13 and 14 of the Agreement, prepare a

Statement providing calculations of the value of Crude Oil/Natural Gas produced and saved

during each Calendar Quarter. This Statement, which shall be prepared for each Quality of

Tanzanian Crude Oil /Natural Gas produced and saved from the Contract Area, shall contain

the following information:

(a)



the quantities, prices and receipts realized therefore by the Contractor in Third

Party



(b)



Sales of Tanzanian Crude Oil/Natural Gas during the Calendar Quarter in

question;



(c)



the quantities, prices and receipts realized therefore by the Contractor in sales of

Tanzanian Crude Oil/Natural Gas during the Calendar Quarter in question, other

than in Third Party Sales;



(d)



the value of stocks of Crude Oil/Natural Gas held at the beginning of the Calendar

Quarter in question;



(e)



the value of stocks of Crude Oil/Natural Gas held at the end of the Calendar

Quarter in question;



(f)



the percentage volume of total sales of Tanzanian Crude Oil/Natural Gas made by

the Contractor during the Calendar Quarter that are the Third Party Sales;



(g)



all information available to the Contractor, if relevant for the purposes of Article

13 of the Agreement, concerning the prices of the selection of major competitive

crude oils/gas, including contract prices, discounts and premiums, and prices

obtained on the spot markets;



(h)



the statement of Royalty payable.



6.2 The Value of Production and Pricing Statement for each Calendar Quarter shall be submitted

to Government and TPDC not later than twenty (20) days after the end of such Calendar

Quarter.



110



SECTION 7: STATEMENT OF RECEIPTS AND EXPENDITURE

7.1 The Contractor shall prepare with respect to each Calendar Month a Statement of Receipts

and Expenditure under the Agreement. The Statement will distinguish between Exploration

Expenses, Development Expenses and Operating Expenses and will separately identify all

significant items of expenditures within these categories. If TPDC is not satisfied with the

degree of desegregation within the categories it shall be entitled to ask for a more detailed

breakdown. The statement will show the following:

(a)



actual receipts and expenditure (including all credits pursuant to Section 3.4 of this

Accounting Procedure) for the Month in question showing variances from the

budget and explanations thereof;



(b)



cumulative receipts and expenditure (including all credits pursuant to Section 3.4

of this Accounting Procedure) for the budget year in question;



(c)



latest forecast of cumulative expenditure at the Year-end; and



(d)



variations between budget forecast and latest forecast, with explanation thereof.



7.2



At the end of each Calendar Quarter aggregated Statements in respect of the three Months

comprising that Quarter shall be submitted for each of the items (a) to (d) in sub-section

7.1 above.



7.3



The Statement of receipts and expenditure for each Calendar Month or Quarter shall be

submitted to Government and TPDC not later than twenty-one (21) days after the end of

such Month or Quarter.



111



SECTION 8: COST RECOVERY STATEMENT

8.1



The Contractor shall prepare with respect to each Calendar Quarter a Cost Recovery

Statement containing the following information:

(a)



Recoverable Contract Expenses carried forward from the previous Quarter, if any;



(b)



Recoverable Contract Expenses for the Quarter in question;



(c)



total Recoverable Contract Expenses for the Quarter in question (sub-section

8.1(a) plus sub-section 8.1(b);



(d)



quantity and value of Cost Oil and/or Cost Gas taken and disposed of by the

Contractor for the Quarter in question;



(e)



Contract Expenses recovered for the Quarter in question;



(f)



total cumulative amount of Contract Expenses recovered up to the end of the

Quarter in question;



(g)



amount of Recoverable Contract Expenses to be carried forward into the next

Quarter.



(h)



proceeds and balance of the Decommissioning Fund pursuant to Article 22



8.2



The cost recovery information required pursuant to sub-section 8.1 above shall be

presented in sufficient detail so as to enable Government and TPDC to identify how the

cost of assets are being recovered for the purposes of Article 21 of the Agreement.



8.3



The Cost Recovery Statement for each Quarter shall be submitted to Government and

TPDC not later than twenty one (21) days after the end of such Quarter.



112



SECTION 9: ADDITIONAL PROFIT TAX STATEMENT

(details for parameters required to calculate the APT as per Article 17 are being drafted)



113



SECTION 10:



END-OF-YEAR STATEMENT



The Contractor shall prepare a definitive End-of-Year Statement. The Statement will contain

aggregated information for the Year in the same format as required in the Value of Production,

Pricing Statement, Royalty payable Statement, Abandonment Cost Reserve Fund Statement,

Cost Recovery Statement and Statement of Receipts and Expenditure to be based on the actual

quantities of Petroleum produced and the costs and expenses incurred. The End-of-Year

Statement for each Calendar Year shall be submitted to Government and TPDC within sixty (60)

days of the end of such Calendar Year.



114



SECTION 11:



BUDGET STATEMENT



10.1 The Contractor shall prepare an Annual Budget Statement. This Statement shall set out

separately Exploration Expenses, Development Expenses and Operating Expenses and

shall show the following:

(a)



forecast expenditure and receipts for the budget year under the Agreement;



(b)



cumulative expenditures and receipts to the end of the said budget year; and



(c)



a schedule showing the most important and individual items of Development

Expenses for the said budget year;



10.2 The Budget Statement shall be submitted to Government and TPDC with respect to each

budget year no less than ninety (90) days before the start of the year except in the case of

the year in which the Effective Date falls, when the Budget Statement shall be submitted

within thirty (30) days of the Effective Date.



115



SECTION 12:



REVISION OF ACCOUNTING PROCEDURE



11.1 The provisions of this Accounting Procedure may be amended by agreement between the

Contractor, the Government and TPDC The amendments shall be made in writing and

shall state the date upon which the amendments shall become effective.

11.2 In the event, and at the time, that TPDC elects to participate in Joint Operations as defined

in Article 10 of this Agreement the parties shall modify this Accounting Procedure to

reflect TPDC’s status as a party to the Operating Agreement.

11.3 Following any second discovery in the Contract Area the parties will meet in order to

establish specific principles and procedures for identifying all costs, expenditures and

credits, and for allocating Cost Oil and/or Cost Gas and Profit Oil and/or Profit Gas, on a

Development Area basis, it being understood that costs, expenditures and credits which do

not uniquely arise in respect of any one Development Area shall be apportioned between

Development Areas in a reasonable, equitable and consistent manner.



116



SECTION 13: CONFLICT WITH THE AGREEMENT

In the event of any conflict between the provisions of this Accounting Procedure and the

Agreement the provisions of the Agreement shall prevail.



117



ANNEX "E":



APT SAMPLE CALCULATION METHODOLOGY



Hard data input per Petroleum Agreement

Percent 25.00%

1. First Account

Percent 40.00%

2. Second Account Tax Rate

Percent 35.00%

3. First Account Real Rate of Return

4. First Account APT Taxes are Deductible when calculating Second Account Balances



Assumptions

1. Assumed Annual Change in USIGPPI = Two (2) Percent (Added to Account Rates of Return



to reflect the "Real" nature of these ROR's).

2. Cash Flow is for illustrative purposes only; data entirely assumed.



Calculation Methodology

Year Assumed

Pretax

Cash Flow

US$MM

1

-3.00

2

-10.00

3

-40.00

4

10.00

5

40.00

6

80.00

7

100.00

8

100.00

9

60.00

10

20.00

11

-20.00

12

10.00

13

20.00

14

30.00

15

20.00



FANCP

First

Account

Balance

US$MM

-3.00

-13.81

-57.54

-63.08

-40.11

29.06

100.00

100.00

60.00

20.00

-20.00

-15.00

0.44

30.00

20.00



First

Account

APT

Payable

US$MM

0.00

0.00

0.00

0.00

0.00

7.27

25.00

25.00

15.00

5.00

0.00

0.00

0.11

7.50

5.00



SANCP Second

Account

Balance

US$MM

-3.00

-14.11

-59.33

-71.28

-57.65

-6.25

66.44

75.00

45.00

15.00

-20.00

-17.40

-3.95

17.09

15.00



118



Second

Account

APT

Payable

US$MM

0.00

0.00

0.00

0.00

0.00

0.00

26.58

30.00

18.00

6.00

0.00

0.00

0.00

6.84

6.00



Total APT

Payable US$MM



0.00

0.00

0.00

0.00

0.00

7.27

51.58

55.00

33.00

11.00

0.00

0.00

0.11

14.34

11.00



ANNEX "F":



PARENT COMPANY GUARANTEE



Tanzania Petroleum Development Corporation

P. O. Box 2774,

DAR ES SALAAM

We, the UNDERSIGNED hereby DECLARE that:

A. The obligations set forth in Article 3(d)(ii) and Article 5 and reflected in the Guarantee

shall be continuing and absolute guarantees, and the obligations set forth in Article

3(d)(ii) and Article 5 shall remain in full force and effect unless and until a Notice of

Termination has been issued (subject to any rights to rectify being exhausted), provided,

however, that ABC’s obligations pursuant to 3(d)(ii) Article 5 shall survive only with

respect to such obligations that occurred or arose prior to such termination if, within six

(6) months from any such termination, TPDC or the United Republic of Tanzania shall

have notified the Guarantor in writing of such a Loss and that it is demanding or will be

demanding payment pursuant to Article 3(g).

B. If ABC shall fail to make any required payment guaranteed pursuant to Article 3(g)

following demand thereof, the ABC Parent shall, within ten (10) days following the

giving of notice of such failure and the demand by TPDC or the United Republic of

Tanzania for payment, promptly and fully make such payment. If such payment is not

made within ten (10) days of such demand, ABC Parent shall pay all reasonable costs and

expenses, including reasonable legal fees and expenses, paid or incurred by TPDC or the

United Republic of Tanzania in connection with the enforcement of the obligations under

Article 3. Each default in any obligation shall give rise to a separate cause of action

hereunder, and separate suits may be brought hereunder as each cause of action arises.

C. The obligations of the ABC Parent under the Guarantee shall not be impaired, modified,

released or limited by any occurrence or condition whatsoever, including any

compromise, settlement, release, waiver, renewal, extension, indulgence, impairment,

limitation of liability, change in or modification of any of the obligations and liabilities,

either original or assumed, of ABC. No invalidity, irregularity or unenforceability of any

obligation of ABC shall affect, impair, or be a defence to the obligations of ABC under

Article 3.

D. No lawful act of commission or omission of any kind or at any time upon the part of

TPDC or the United Republic of Tanzania in respect of any matter whatsoever shall in

any way affect or impair either Party’s rights to enforce any right, power or benefit under

Article 3, and no set-off, claim, reduction or diminution of any obligation or any defence

of any kind or nature which ABC has or may have against TPDC or the United Republic

of Tanzania shall be available against TPDC or the United Republic of Tanzania,

119



respectively, in any suit or action brought by TPDC or the United Republic of Tanzania,

as the case may be, to enforce any right, power or benefit under Article 3(g).

E. In the event that any payment pursuant to their obligations under Article 3(g) should give

rise to a right of subrogation, the Guarantor will waive any and all rights of subrogation

with respect to TPDC or the United Republic of Tanzania until such time as TPDC and

the United Republic of Tanzania’s obligations for any indebtedness have been satisfied in

full.

Signed for and on behalf

of ABC Parent



President/CEO

ABC Parent

Name:.……………………………………

Signed: ……………………………..…….

Date: ……………………………..…….



Witnessed:

Title: ……………………………..…….

Name:. ……………………………..…………..

Signed: ………………………………………...

Date: …………………………………………...

CC:



The Hon. Minister

Ministry of Energy and Minerals

P.O. Box 2000,

DAR ES SALAAM



120