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INDEX



ARTICLE TITLE PAGE

_____________________________________________________



I Definitions..................................11



II Annexes to the Agreement.....................21



III Grant of Rights and Term.....................23



IV Work Program and Expenditures During

Exploration Period...........................45



V Mandatory and Voluntary Relinquishments......57



VI Operations after Commercial Discovery........61



VII Recovery of Costs and Expenses and Production

Sharing......................................67



VIII Title to Assets.............................109



IX Bonuses.....................................111



X Office and Service of Notices...............115



XI Saving of Petroleum and Prevention of Loss..115



XII Customs Exemptions..........................119



XIII Books of Account: Accounting and Payments...125



XIV Records, Reports and Inspection.............129



XV Responsibility for Damages..................133



XVI Privileges of Government Representatives....133



XVII Employment Rights and Training of Arab

Republic of Egypt Personnel................135



XVIII Laws and Regulations........................139



XIX Stabilization...............................143



XX Right of Requisition........................145

[Egyptian Arabic Text]

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INDEX



ARTICLE TITLE PAGE

____________________________________________________________



XXII Breach of Agreement and Power to Cancel..........149



XXIII Force Majeure...................................153



XXIV Disputes and Arbitration.........................155



XXV Status of the Parties............................159



XXVI Local Contractors and Locally Manufactured Material 161



XXVII Arabic Text......................................161



XXVIII General..........................................163



XXIX Approval of the Government.......................163





ANNEXES TO THE CONCESSION AGREEMENT



ANNEX "A" Boundary Description of the Concession Area....165



ANNEX "B" Illustrative Map showing Area Covered..........171



ANNEX "C" Letter of Guaranty.............................173



ANNEX "D" Charter of Operating Company...................177



ANNEX "E" Accounting Procedure...........................187



ANNEX "F" Map of the National Gas Pipeline Grid System...227



CONCESSION AGREEMENT FOR PETROLEUM

EXPLORATION AND EXPLOITATION

BETWEEN

THE ARAB REPUBLIC OF EGYPT

AND

THE EGYPTIAN GENERAL PETROLEUM CORPORATION

AND

NATIONAL EXPLORATION COMPANY

IN

CENTRAL SINAI AREA

A.R.E.

This Agreement made and entered on this…………………… day of …………………19, by and between the ARAB REPUBLIC OF EGYPT (hereinafter referred to variously as “A.R.E. “or as “GOVERNMENT”). The EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity created by Law No. 167 of 1958 as amended (hereinafter referred to as “EGPC”) and NATIONAL EXPLORATION COMPANY, a company organized and existing under the laws of the Arab Republic of Egypt (hereinafter referred to as “NAGECO” of “CONTRACTOR”);

WITNESSETH



WHEREAS, all minerals including petroleum existing in mines and quarries in A.R.E. , including the territorial waters , and in the sea bed subject to its jurisdiction ad extending beyond the territorial waters , are the property of the State; and



WHEREAS, EGPC has applied for an exclusive concession for the exploration and exploitation of petroleum in and throughout the area referred to in Article II, and described in Annex “A” and shown approximately on Annex “B”, which are attached hereto and made part hereof (hereinafter referred to as the “Area”); and



WHEREAS, NAGECO agrees to undertake its obligations provided hereinafter as CONTRACTOR with respect to the exploration, development and production of petroleum in Central Sinai Area; and



WHEREAS, the GOVERNMENT desires hereby to grant such Concession; and



WHEREAS, the Minister of Petroleum pursuant to the provisions of Law No. 86 of 1956, may enter into a concession agreement with EGPC, and with NAGECO as CONTRACTOR in the said Area.



NOW, THEREFORE, the parties hereto agree as follows:



ARTICLE I

DEFINITIONS

(a) “Exploration” shall include such geological, geophysical, aerial and other surveys as may be contained in the approved Work Programs and Budgets, and the drilling of such shot holes, core holes, strati-graphic tests, holes for the discovery of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase or acquisition of such supplies, materials, services and equipment therefore, all as may be contained in the approved Work Programs and Budgets. The verb “explore” means the act of conducting exploration.

‘Development” shall include, but not be limited to, all the operations and activities pursuant to approved Work Programs and Budgets under this Agreement with respect to:



(i) the drilling, plugging, deepening, side tracking, redrilling, completing, equipping of development wells, the changing of the status of a well, and



(ii) design, engineering, construction, installation, servicing and maintenance of equipment, lines, systems facilities, plants and related operations to produce and operate said development wells, taking, saving, treating, handling, storing, transporting and delivering petroleum, repressuring, recycling and other secondary recovery projects, and



(iii) transportation, storage and any other work or activities necessary or ancillary to the activities specified in (i) and (ii).



Petroleum” means liquid crude oil of various densities, asphalt, gas, casinghead gas and all other hydrocarbon substances that may be found in, and produced, or otherwise obtained and saved from the Area under this Agreement, and all substances that may be extracted therefrom.



‘Liquid Crude Oil” or “Crude Oil” or “Oil” means any hydrocarbon produced from the Area which is in a liquid state at the wellhead or lease separators or which is extracted from the gas or casinghead gas in a plant. Such liquid state shall exist at sixty degrees Fahrenheit (60” F) and atmospheric pressure of 14.65 PSIA. Such term includes distillate and condensate.(e) "Gas" means natural gas both associated and non-associated, and all of its constituent elements produced from any well in the Area (other than Liquid Crude Oil) and all non-hydrocarbon substances therein. Said term shall include residual gas, that gas remaining after removal of LPG.



(f) "LPG" means liquefied petroleum gas, which is a mixture principally of butane and propane liquefied by pressure and temperature.



(g) A "Barrel" shall consist of forty-two (42) United States gallons, liquid measure, corrected to a temperature of sixty degrees Fahrenheit (60°F) at atmospheric pressure of 14.65 PSIA.



(h) (1) "Commercial Oil Well" means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices and verified by EGPC, is found to be capable of producing at the average rate of not less than two thousand (2000) Barrels of Oil per day (BOPD). The date of discovery of a "Commercial Oil Well" is the date on which such well is tested and completed according to the above.



(2) "Commercial Gas Well" means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices and verified by EGPC, is found to be capable of producing at the average rate of not less than fifteen million (15,000,000) standard cubic feet of Gas per day ("MMSCFD"). The date of discovery of a "Commercial Gas Well" is the date on which such well is tested and completed according to the above.(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.



(j) "Effective Date" means the date on which the text of this Agreement is signed by the GOVERNMENT, EGPC and CONTRACTOR, after the relevant Law is issued.



(k)(1) "Year" means a period of twelve (12) months according to the Gregorian Calendar.



(2) "Calendar Year" means a period of twelve (12) months according to the Gregorian Calendar being 1st January to 31st December.



(l) "Financial Year" means the GOVERNMENT's FINANCIAL YEAR ACCORDING TO THE LAWS AND REGULATIONS OF THE a.r.e.



(m)"Tax Year" means the period of twelve (12) months according to the laws and regulations of the A.R.E.



(n) An "Affiliated Company" means a company:



(i) of which share capital, conferring a majority of votes at stockholders' meetings of such company, is owned directly or indirectly by a party hereto;



(ii) which is the owner directly or indirectly of share capital conferring a majority of votes at stockholders' meetings of a party hereto; or



(iii) of which the share capital conferring a majority of votes at stockholders' meetings of such company and the share capital conferring a majority of votes at stockholders' meetings of a party hereto are owned directly or indirectly by the same company.

(o) "Exploration Block" shall mean an area, the comer

points of which have to be coincident with six (6)

minutes by six (6) minutes latitude and longitude

divisions, according to the International Grid

System where possible or with the existing

boundaries of the Area covered by this Concession

Agreement as set out in Annex "A".



(p) “Development Block" shall mean an area, the comer

points of which have to be coincident with one (1)

minute by one (1) minute latitude and longitude d

divisions, according to the International Grid

System where possible or with the existing

boundaries of the Area covered by this Concession

Agreement as set out in Annex "A".



(q) "Development Lease(s)" shall mean the Development

Block or Blocks covering the geological structure

capable of production, the comer points of which

have to be coincident with one (1) minute by one (1)

minute latitude and longitude divisions according to

the International Grid System where possible or with

the existing boundaries of the Area covered by this

Concession Agreement as set out in Annex "A".



(r) "Agreement" shall mean this Concession Agreement and

its Annexes.



(s) "Gas Sales Agreement" shall mean a written agreement

between EGPC and CONTRACTOR (as seller) and EGPC (as

buyer), which contains the terms and conditions for

Gas sales from a Development Lease entered into

pursuant to Article VII (e).



(t) "Standard Cubic Foot" (SCF) is the amount of Gas

necessary to fill one (1) cubic foot of space at

atmospheric pressure of 14.65 PSIA at a base

temperature of sixty degrees Fahrenheit (60‘F).



ARTICLE II

ANNEXES TO THE AGREEMENT

Annex “A” is a description of the area covered and affected by this Agreement, hereinafter referred to as the “Area”.



Annex “B” is a provisional illustrative map on the scale of approximately 1:3000000 indicating the Area covered and affected by this Agreement and described in Annex “A”.



Annex “C” is the form of a Letter of Guaranty to be submitted by CONTRACTOR to EGPC one (1) day before the time of signature by the Minister of Petroleum of this Agreement , for the sum of six million 6,000,000) U.S. Dollars guaranteeing the execution of CONTRACTOR’s minimum Exploration obligations here under for the initial three (3) year Exploration period. In case CONTRACTOR extends the initial Exploration period for two (2) additional periods each of two (2) years respectively each in accordance with Article III (b) of the Agreement, a similar Letter of Guaranty shall be issued and be submitted by CONTRACTOR on the day the CONTRACTOR exercises its option to extend. The first such letter of Guaranty shall be for the sum of four million (4,000,000) U.S. Dollars and the second such Letter of Guaranty shall be for the sum of five million (5,000,000) U.S. Dollars less in both instances any excess expenditures of the preceding Exploration period permitted for carry forward in accordance with Article IV (b) third paragraph of this Agreement. Each of the three Letters of Guaranty shall remain effective for six (6) months after the end of the Exploration period for which it has been issued except as it may be released prior to that time in accordance with the terms thereof.

Annex "D" is the form of a Charter of the Operating Company to be formed as provided for in Article VI.



Annex "E" is the Accounting Procedure.



Annex "F" is a current map of the National Gas Pipeline Grid System established by the GOVERNMENT. The point of delivery for gas shall be agreed upon by EGPC and CONTRACTOR under a Gas Sales Agreement, which point of delivery shall be located at the flange connecting the development lease pipeline to the nearest point on the National Gas pipeline Grid System as depicted in such Annex "F", or as otherwise agreed upon between EGPC and CONTRACTOR.



Annexes "A", "B", "C", "D", “E" and "F" to this Agreement are hereby made part hereof, and they shall be-considered as having equal force and effect with the provisions of this Agreement.



ARTICLE III



GRANT OF RIGHTS AND TERM



The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the terms, covenants and conditions set out in this Agreement, which insofar as they are contrary to, or inconsistent with any provisions of Law No. 66 of 1953, as amended, shall have the force of Law, an exclusive concession in and to the Area described in Annexes " A " and "B ".



(a) The GOVERNMENT shall own and be entitled, as

hereinafter provided to a royalty in cash or in kind

of ten percent (10%) of the total Quantity of

Petroleum produced and saved from the Area during

the development period including renewal. Said

royalty shall be borne and paid by EGPC and shall

not be the obligation of CONTRACTOR. The payment of

royalties by EGPC shall not be deemed to result in

income attributable to CONTRACTOR.



(a) An initial Exploration Period of three (3) years shall start from the Effective Date, Two (2) successive extensions to the initial Exploration Period, each of two (2) years respectively shall be granted to CONTRACTOR at its option, upon not less than thirty (30) days prior written notice to EGPC, such notice to be given not later than the end of the then current period, as may be extended pursuant to the provisions of Article V (a), and subject only to its having fulfilled its obligations here under for that period. This agreement shall be terminated if neither a Commercial Oil Discovery nor a Commercial Gas Discovery is established by the end of the seventh (7th) year of the Exploration Period, as may be extended pursuant to Article V (a). The election by EGPC to undertake a sole risk venture under paragraph (c) below shall not extend the Exploration Period nor affect the termination of this Agreement as to CONTRACTOR.



(b) Commercial Discovery:



(i) A Commercial Discovery- whether of Oil or Gas – may consist of one producing reservoir or a group of producing reservoirs which is worthy of being developed commercially. After discovery of a Commercial Oil or Gas Well CONTRACTOR shall, unless otherwise agreed upon wit EGPC, undertake as part of its Exploration program the appraisal of the discovery by drilling one or more appraisal wells, to determine whether such discovery is worth of being developed commercially, taking into consideration the recoverable reserves, production, pipeline, and terminal facilities required, estimated Petroleum prices, and all other relevant technical and economic factors.































[ ----------------PAGE IS EMPTY --------------------](ii) The provisions laid down herein postulate the unity and indivisibility of the concepts of Commercial Discovery and Development Leases. They shall apply uniformly to Oil and Gas unless otherwise specified.



(iii) CONTRACTOR shall give notice of a Commercial Discovery to EGPC immediately after the discovery is considered by CONTRACTOR to be worthy of commercial development, but in any event with respect to a Commercial Oil Well not later than thirty (30) days following the completion of the second appraisal well, or twelve (12) months following the date of the discovery of the Commercial Oil Well, (unless EGPC agrees that such period may be extended), whichever is earlier, or with respect to a Commercial Gas Well not later than twenty-four (24) months following the date of the discovery of the Commercial Gas Well (unless EGPC agrees that such period may be extended) except that CONTRACTOR shall also have the right to give such notice of Commercial Discovery with respect to any reservoir or reservoirs even if the well or wells thereon are not "Commercial" within the definition of the "Commercial Well" if, in its opinion, a reservoir or a group of reservoirs, considered collectively, could be worthy of commercial development.



CONTRACTOR may also give a notice of Commercial Oil Discovery in the event it wishes to undertake a Gas Recycling Project.



A notice of Commercial Gas Discovery shall contain all detailed particulars of the discovery and especially the area of Gas reserves, the estimated production potential and profile and field life.



Within sixty (60) days following receipt of a notice of a Commercial Oil or Gas Discovery, EGPC and CONTRACTOR shall meet and review all appropriate data with a view to mutually agreeing upon the existence of a Commercial Discovery. The date of a Commercial Discovery shall be the date EGPC and CONTRACTOR jointly agree in writing that a Commercial Discovery exists.



[Egyptian Arabic](iv) If Crude Oil is discovered but is not deemed by CONTRACTOR to be a Commercial Oil Discovery under the above provisions of this paragraph (c), EGPC shall one (1) month after the expiration of the period specified above within which CONTRACTOR can give notice of a Commercial Oil Discovery , or thirteen (13) months after completion of a well not considered to be a “Commercial Oil Well” have the right , following sixty (60) days notice in writing to CONTRACTOR , at its sole cost , risk and expense, to develop, produce, and dispose of all Crude Oil from the geological feature on which the well has been drilled. Said notice shall state the specific area covering said geological feature to be developed, the wells to be drilled, the production facilities to be installed and EGPC’s estimated cost thereof. Within thirty (30) days after receipt of said notice CONTRACTOR may, in writing, elect to develop such area as provided for in the case of Commercial Discovery here under. In such event all terms of this Agreement shall continue to apply to the specified area.



If CONTRACTOR elects not to develop such area, the specific area covering said geological feature shall be set aside for sole risk operations by EGPC, such area to be mutually agreed upon by EGPC and CONTRACTOR on the basis of good petroleum industry practice. EGPC shall be entitled to perform, or in the event Operating Company has come into existence, to have Operating Company perform such operations for the account of EGPC and at EGPC’s sole cost, risk and expense. When EGPC has recovered from the Crude Oil produced from such specific area a quantity of Crude Oil equal in value to three hundred percent (300%) of the cost it has incurred in carrying out the sole risk operations, CONTRACTOR shall have the option, only in the event there has been a separate Commercial Oil Discovery elsewhere within the Area, to share in further development and production of that specific area upon paying EGPC one hundred percent (100%) of such costs incurred by EGPC.

[Egyptian Arabic Text]

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Such one hundred percent (100%) payment shall not be recovered by CONTRACTOR. Immediately following such payment the specific area shall either (i) revert to the status of an ordinary Development Lease under this Agreement and thereafter shall be operated in accordance with the terms hereof; or (ii) alternatively, in the event that at such time EGPC or its Affiliated Company is conducting Development operations in the area at its sole expense and EGPC elects to continue operating, the area shall remain set aside and CONTRACTOR shall only be entitled to its production sharing percentages of the Crude Oil as specified in Article VII(b). The sole risk Crude Oil shall be valued in the manner provided in Article VII(c). In the event of any termination of this Agreement shall however, continue to apply to EGPC's operation of any sole risk venture hereunder, although such Agreement shall have been terminated with respect to CONTRACTOR pursuant to the provisions of Article III(b).



(d) Conversion to a Development Lease:



(i) Following a Commercial Oil Discovery or Commercial Gas Discovery, the extent of the whole area capable of production to be covered by a Development Lease shall be mutually agreed upon by EGPC and CONTRACTOR and be subject to the approval of the Minister of Petroleum. Such area shall be converted automatically into a Development Lease without the issue of any additional legal instrument of permission.





(i) Following the conversion of an area to a Development Lease based on a Commercial Gas Discovery (or upon the discovery of Gas in a Development Lease granted following a Commercial Oil Discovery), EGPC shall endeavor with diligence to find adequate local markets capable of absorbing the production of Gas and shall advise CONTRACTOR of the potential outlets for such Gas, and the expected annual schedule of demand. Thereafter, EGPC and CONTRACTOR shall meet with a view to assessing whether the outlets for such Gas and other relevant factors warrant the development and production of the Gas and in case of agreement the Gas thus made available shall be disposed of to EGPC under a long-term Gas Sales Agreement in accordance with and subject to the conditions set forth in Article VII.



(ii) The Development period of each Development Lease shall be as follows:

(aa) In respect of a Commercial Oil Discovery , twenty (20) years from the date of such Commercial Discovery plus the Optional Extension Period (as defined below) provided that, in the event that, subsequent to the conversion of a Commercial Oil Discovery into a Development Lease and is used or is capable of being used locally or for export hereunder, the period of the Development Lease shall be extended only with respect to such Gas, LPG extracted from such Gas and Crude Oil in the form of condensate produced with such Gas for twenty (20) years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that , the duration of such Development Lease based on a Commercial Oil Discovery may not be extended beyond thirty-five (35) years from the date of such Commercial Oil Discovery unless otherwise agreed upon between EGPC and CONTRACTOR and subject to the approval of the Minister of Petroleum.

CONTRACTOR shall immediately notify EGPC of any Gas Discovery but shall not be required to apply for a new Development Lease in respect of such Gas.



(bb) In respect of a Commercial Gas Discovery, twenty (20)years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that, if subsequent to the conversion of a Commercial Gas Discovery into a Development Lease, Crude Oil is discovered in the same Development Lease, CONTRACTOR’s shape of such Crude Oil from the Development Lease(except LPG extracted from Gas or Crude Oil in the form of condensate produced with Gas) and Gas associated with such Crude Oil shall revert entirely to EGPC upon the lapse of twenty (20) years from the date of such Crude Oil Discovery plus the Optional Extension Period(as defined below).



Notwithstanding, anything to the contrary under this Agreement, the duration of a Development Lease based on a Commercial Gas Discovery shall in no case exceed thirty-five (35) years from the date of such Commercial Discovery, unless otherwise agreed upon between EGOC and CONTRACTOR and subject to the approval of the Minister of Petroleum.



CONTRACTOR shall immediately notify EGPC of any Oil Discovery but shall not be required to apply for a new Development Lease in respect of such Crude Oil.

The “Optional Extension Period” shall mean a period of five (5) years which may be elected by “CONTRACTOR” upon six (6) months written notice to EGPC prior to the expiry of the relevant twenty (20) year period.





(e) Development operations shall upon the issuance of a

Development Lease granted following a Commercial

Oil Discovery, be started promptly by Operating

Company and be conducted in accordance with good

oil field practices and accepted petroleum

engineering principles, until the field is

considered to be fully developed, it being

understood that if associated gas is not utilized,

EGPC and CONTRACTOR shall negotiate in good faith

on the best way to avoid impairing the production

in the interests of the parties.



In the event no Commercial Production of Oil in

regular shipments is established in any Development

Block within four (4) years from the date of the

Commercial Oil Discovery, such Development Block

shall immediately be relinquished unless there is a

Commercial Gas discovery oft the Development Lease.



Each Development Block in a Development Lease being

partly within the radius of drainage of any

producing well in such Development Lease shall be

considered as participating in the Commercial

Production referred to above.



Development operations in respect of Gas and Crude

Oil in the form of condensate or LPG to be produced

with or extracted from such Gas shall, upon the

signature of a Gas Sales Agreement or commencement

of a scheme to dispose of the Gas, whether for

export as referred to in Article VII or otherwise,

be started promptly by Operating Company and be

conducted in accordance with good gas Field

practices and accepted petroleum engineering

principles and the provisions of such agreement or

scheme. In the event no Commercial Production of

Gas is established in accordance with such Gas

Sales Agreement or scheme, the Development Lease

relating to such Gas shall be relinquished, unless

otherwise agreed upon by EGPC.



If upon application by CONTRACTOR it is recognized by

EGPC that Crude Oil or Gas is being drained from on

Exploration Block under this Agreement into a

Development Block on an adjoining concession area held

by CONTRACTOR, the block being drained shall be

considered as participating in the Commercial

Production of the Development Block in question and

the Block being drained shall be converted into a

Development Lease with the ensuing allocation of costs

and production (calculated from the Effective Date or

the date such drainage occurs, whichever is later)

between the two Concession Areas. The allocation of

such costs and production under each Concession

Agreement shall be in the same portion that the

recoverable reserves in the drained geological

structure underlying each Concession Area bears to the

total recoverable reserves of such structure

underlying both Concession Areas. The production

allocated to a Concession Area shall be priced

according to the Concession Agreement covering that

concession area.



(f) CONTRACTOR shall bear and pay all the costs and

expenses required in carrying out all the operations

under this Agreement but such costs and expenses shall

not include any interest on investment CONTRACTOR

shall look only to the Petroleum to which it is

entitled under this Agreement to recover such costs

and expenses. Such costs and expenses shall be

recoverable as provided in Article VII. During the

term of this Agreement and its renewal, the total

production achieved in the conduct of such operations

shall be divided between EGPC and CONTRACTOR in

accordance with the provisions of Article VII.

(g) (I) Unless otherwise provided, CONTRACTOR shall be subject to Egyptian income tax laws and shall comply with the requirements of such laws with respect to the filing of returns, the assessment of tax, and keeping and showing of books and records.



(2) CONTRACTOR’s annual income for Egyptian income tax purposes under this Agreement shall be an amount calculated as follows:

The total of the sums received by CONTRACTOR from the sale or other disposition of all Petroleum acquired by CONTRACTOR pursuant to Article VII (a) and Article VII (b);



Reduced by:



(i) The costs and expenses of CONTRACTOR;

(ii) The value, as determined according to Article VII (c), of EGPC’s share of the Excess Cost Recovery Petroleum repaid to EGPC in cash or in kind, if any.



Plus:



An amount equal to CONTRACTOR’s Egyptian income taxes grossed up in the manner shown in Annex “E” Article VI.



For purposes of above tax deductions in any Tax Year, Article VII (a) shall apply only in respect of classification of costs and expenses and rates of amortization , without regard to the percentage limitation referred to in the first paragraph of Article VII (a) (1). All costs and expenses of CONTRACTOR in conducting the operations under this Agreement which are not controlled by Article VII (a) as above qualified shall be deductible in accordance with the provisions of the Egyptian Income Tax Law.

(3) EGPC shall assume, pay and discharge, in the name

and on behalf of CONTRACTOR, CONTRACTOR'S Egyptian

income tax out of EGPC's share of the Petroleum

produced and saved and not used in operations under

Article VII. All taxes paid by EGPC in the name and

on behalf of CONTRACTOR shall be considered income to

CONTRACTOR.



(4) EGPC shall furnish to CONTRACTOR the proper official

receipts evidencing the payment of CONTRACTOR'S

Egyptian income tax for each Tax Year Within ninety

(90) days following the receipt by EGPC of

CONTRACTOR'S tax declaration for the preceding Tax

Year. Such receipts shall be issued by the proper Tax

Authorities and shall state the amount and other

particulars customary for such receipts.



(5) As used herein, Egyptian Income Tax shall be

inclusive of all income taxes payable in the A.R E.

(including tax on tax) such as the tax on income from

movable capital and the tax on profits from Commerce

and industry, and inclusive of taxes based on income

or profits including all dividends, withholding with

respect to shareholders and other taxes imposed by

the GOVERNMENT on the distribution of income or

profits by CONTRACTOR.



(6) In calculating its A.R.E income taxes, EGPC shall be

entitled to deduct all royalties paid by EGPC to the

GOVERNMENT and CONTRACTOR'S Egyptian income taxes

paid by EGPC on CONTRACTOR'S behalf.

ARTICLE IV



WORK PROGRAM AND EXPENDITURES DURING EXPLORATION PERIOD



a) CONTRACTOR shall commence Exploration operations hereunder not later than six (6) months after the Effective Date with a commitment of acquiring five hundred (500) km seismic and two hundred (200) sq. km 3D seismic. Not later than the end of the twenty-four (24) months after the Effective Date, CONTRACTOR shall start Exploratory drilling in the Area during the initial Exploration period with a commitment of drilling four (4) wells. EGPC shall make available for CONTRACTOR's use all seismic, wells and other Exploration data in EGPC's possession with respect to the Area as EGPC is entitled to do so.



b) The initial Exploration period shall be three (3) years. CONTRACTOR may extend this Exploration period for two (2) successive extensions each of two (2) years respectively in accordance with Article III(b), each of which upon at least thirty (30) days prior written notice to EGPC subject to its expenditure of its minimum Exploration obligations and of its fulfillment of the drilling obligations hereunder, for the then current period.



CONTRACTOR shall spend a minimum of six million (6,000,000) U.S. Dollars on Exploration operations and activities related thereto during the initial three (3) year Exploration period; provided that CONTRACTOR shall drill four (4) wells and acquire five hundred (500) km seismic and two hundred (200) sq.km 3D seismic. For the first two (2) year extension period that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall spend a minimum of four million (4,000,000) U.S.Dollars and for the second two (2) year extension period that CONTRACTOR elects to extend beyond the two (2) year first extension period, CONTRACTOR shall also spend a minimum of five million.



[Egyptian Arabic](5,000,000) U.S. Dollars. During the first and second extension periods that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall drill three (3) wells in the first extension and four (4) wells in the second extension.



Should CONTRACTOR spend more than the minimum amount required to be expended or drill more wells than the minimum required to be drilled or acquire more seismic than the minimum required during the initial three (3) year Exploration period, or during any period thereafter, the excess may be subtracted from the minimum amount of money required to be expended by CONTRACTOR or minimum number of wells required to be drilled or minimum kilometers of seismic to be acquired during any succeeding Exploration Period, or Periods, as the case may be.



In case CONTRACTOR surrenders its Exploration rights under this Agreement as set forth above before or at the end of the third (3rd) year of the initial Exploration period, having expended less than the total sum of six million (6,000,000) U.S. Dollars on Exploration or in the event at the end of the three (3) years, CONTRACTOR has expended less than said sum in the Area, an amount equal to the difference between the said six million (6,000,000) U.S. Dollars and the amount actually spent on Exploration shall be paid by CONTRACTOR to EGPC at the time of surrendering or within three (3) months from the end of the third (3rd) year of the initial Exploration period, as the case may be. Any expenditure deficiency by CONTRACTOR at the end of any additional period for the reasons abovenoted shall similarly result in a payment by CONTRACTOR to EGPC of such deficiency. Provided this Agreement is still in force as to CONTRACTOR, CONTRACTOR shall be entitled to recover any such payments as Exploration expenditure in the manner provided for under Article VII in the event of Commercial Production.

Without prejudice to Article III (b), in case no Commercial Oil Discovery is established or no notice of Commercial Gas Discovery is given by the end of the seventh (7th) year, as may be extended pursuant to Article V(a), or in case CONTRACTOR surrenders the Area under this Agreement prior to such time, EGPC shall not bear any of the aforesaid expenses spent by CONTRACTOR.



(c) At least four (4) months prior to the beginning of each Financial Year or at such other times as may mutually be agreed to by EGPC and CONTRACTOR, CONTRACTOR shall prepare an Exploration Work Program and Budget for the Area setting forth the Exploration operations which CONTRACTOR proposes to carry out during the ensuing year.



The Exploration Work Program and Budget shall be reviewed by q joint committee to be established by EGPC and CONTRACTOR after the Effective Date of this Agreement. This Committee, hereinafter referred to as the "Exploration Advisory Committee", shall consist of six (6) members, three (3) of whom shall be appointed by EGPC and three (3) by CONTRACTOR. The Chairman of the Exploration Advisory Committee shall be designated by EGPC from among the members appointed by it. The Exploration Advisory Committee shall review and give such advice as it deems appropriate with respect to the proposed Work Program and Budget. Following review by the Exploration Advisory Committee, CONTRACTOR shall make such revisions as CONTRACTOR deems appropriate and submit the Exploration Work Program and Budget to EGPC for its approval.



Following such approval, it is further agreed that:



(i) CONTRACTOR shall not substantially revise or modify said Work Program and Budget nor reduce the approved budgeted expenditure without the approval of EGPC;



[Egyptian Arabic] (ii) In the event of emergencies involving danger or

loss of lives or property, CONTRACTOR may expend

such additional unbudgeted amounts as may be

required to alleviate such danger. Such expenditure

shall be considered in all respects as Exploration

expenditure and shall be recovered pursuant to the

provisions of Article VII.



(d) CONTRACTOR shall advance all necessary funds for

all materials, equipment, supplies, personnel

administration and operations pursuant to the

Exploration Work Program and Budget and EGPC shall

not be responsible to bear or repay any of the

aforesaid costs.



(e) CONTRACTOR shall be responsible for the preparation

and performance of the Exploration Work Program

which, shall be implemented in a workmanlike manner

and consistent with good industry practices.



Except as is appropriate for the processing of

data, specialized laboratory engineering and

development studies thereon, to be ftiade in

specialized centers Outside the A.R. E, all

geological and geophysical studies as well as any

other studies related to the performance of this

Agreement, shall be made in the A.R.E.



CONTRACTOR shall entrust the management of

Exploration operations in the A. R. E. to its

technically competent General Manager and Deputy

General Manager. The names of such Manager and

Deputy General Manager shall, upon appointment, be

forthwith notified to the GOVERNMENT and to EGPC.

The General Manager and, in his absence, the Deputy

General Manager shall be entrusted by CONTRACTOR

with sufficient powers to carry out immediately all

lawful written, directions given to them by the

GOVERNMENT or its representative under the terms of

this Agreement. All lawful regulations issued or

hereafter to be issued which are applicable

hereunder and not in conflict with this Agreement

shall apply to CONTRACTOR.

(f)CONTRACTOR shall supply EGPC,within thirty(30)days from the end of each calendar quarter, with a statement of Exploration Activity, showing costs incurred by CONTRACTOR during such quarter.CONTRACTOR's records and necessary documents shall be available for inspection by EGPC at any time during regular working hours for three(3)months from the date of receiving each Statement.

Within the three(3)months from the date of receiving such Statement, EGPC shall advise CONTRACTOR in writing if it consdiers:

(1)that the record of costs is not correct;

(2)that the costs of goods or services supplied are not in line with the international market prices for goods or services of similar quality supplied on similar terms prevailing at the time such goods or services were supplied,provided however,that purchases made and services performed within the A.R.E, shall be subject to Article XXVI;

(3)that the condition of the materials furnished by CONTRACTOR does not tally with their prices;or

(4)that the costs incurred are not reasonably required for operations.

CONTRACTOR shall confer with EGPC in connection with the problem thus presented,and the parties shall attempt to reach a settlement which is mutually satisfactory.



Any reimbursement due to EGPC out of the Cost Recovery Petroleum as a result of reaching an agreement or of an arbitral award shall be promptly made in cash to EGPC,plus simple interest at LIBOR plus two and one-half percent(2.5%)per annum from the date on which the disputed

amount(s) would have been paid to EGPC according to Article VII (a) (2) and Annex "E" (i.e. the date of rendition of the relevant Cost Recovery Statement) to the date of payment. The LIBOR rate applicable shall be the average of the figure or figures published by the Financial Times representing the mid-point of the rates (bid and ask) applicable to one month U. S. Dollar deposits in the London Inter bank Euro currency Market on each fifteenth (15th) day of each month occurring between the date on which the disputed amount (s) would have been paid to EGPC and the date on which it is settled.



If the LIBOR fate is available on any fifteenth (15th) day but is not published in the Financial Times in respect of such day for any reason, the LIBOR rate chosen shall be that offered by Citibank N. A. to other leading banks in the London Inter bank Euro currency Market for one month U. S. Dollar deposits.



If such fifteenth (15th) day is not a day on which LIBOR rates are quoted in the London Inter bank Euro currency Market, the LIBOR rate to be used shall be that quoted on the next following day on which such rates ate quoted.



If within the time limit of the three (3) month period provided for in this paragraph, EGPC has not advised CONTRACTOR of its objection to any Statement, such Statement shall be considered as approved.



(g) CONTRACTOR shall supply all funds necessary for its

operations in the A. R. E. under this Agreement in

freely convertible currency from abroad. CONTRACTOR

shall have the right to freely purchase Egyptian

currency in the amounts necessary for its operations

in the A.R.E. from any bank or entity authorized by

the GOVERNMENT to conduct foreign currency

exchanges.

(h) EGPC is authorized to advance to CONTRACTOR the

Egyptian currency required for the operations under

this Agreement against receiving from CONTRACTOR an

equivalent amount of U.S. Dollars at the official

A.R.E. rate of exchange. Such amounts in U.S.

Dollars shall be deposited in an EGPC account abroad

with a correspondent bank of the National Bank of

Egypt, Cairo. Withdrawals from said account shall be

used for financing EGPC’s and its Affiliated

Companies’ foreign currency requirements subject to

the approval of the Minister of Petroleum.



ARTICLE V



MANDATORY AND VOLUNTARY RELINQUISHMENTS



(a) MANDATORY



At the end of the third (3rd) year after the

Effective Date hereof, CONTRACTOR shall relinquish

to the GOVERNMENT a total of twenty-five percent

(25%) of the original Area not then converted to a

Development Lease Or Leases. Such relinquishment

shall be in units of whole Exploration Blocks or

parts of Exploration Blocks not converted to

Development Leases SO as to enable the

relinquishment requirements to be precisely

fulfilled.



At the end of the fifth (5th) year after the

Effective Date hereof, CONTRACTOR shall relinquish

to the GOVERNMENT an additional twenty-five percent

(25%) of the original Area not then converted to a

Development Lease or Leases. Such relinquishment

shall be in units of whole Exploration Blocks or

parts of Exploration Blocks not converted to

Development Leases so as to enable the

relinquishment requirements to be precisely

fulfilled.



Without prejudice to Articles in and XXIII and the

last three paragraphs Of this Article V (a), at the

end of the seventh (7th) year of the Exploration

period, CONTRACTOR shall relinquish the remainder of

the Area not then converted to a Development Lease

or Leases.



It is understood that at the time of any

relinquishment the areas to be converted into

Development Leases and which are submitted to the

Minister of Petroleum for his approval, according to

Article III (d) shall, subject to such approval, be

deemed converted to Development Leases.



CONTRACTOR shall not be required to relinquish any

Exploration Block or Blocks on which a Commercial

Oil or Gas Well is discovered before the period of

time referred to in Article III (c) given to

CONTRACTOR to determine whether such Well is a

Commercial Discovery worthy of Development, or to

relinquish an Exploration Block in respect Of which

a notice of Commercial Gas Discovery has been given

to EGPC subject to EGPC's right to agree on the

existence of a Commercial Discovery pursuant to

Article 111(c), and without prejudice to the

requirements of Article III (e).



In the event at the end of the initial Exploration

Period or either of the two successive extensions of

the initial Exploration Period, a well is actually

drilling or testing, CONTRACTOR shall be allowed up

to six (6) months to enable it to discover a

Commercial Oil or Gas Well or to establish a

Commercial Discover, as the case may be. However,

any such extension of up to six (6) months shall

reduce the length of the next succeeding Exploration

Period, as applicable, by that amount.



(b) VOLUNTARY:



CONTRACTOR may, voluntarily, during any period

relinquish all or any part of the Area in whole

Exploration Blocks or parts of Exploration Blocks

provided that at the time of such voluntary

relinquishment its Exploration obligations under

Article IV (b) have been satisfied for such period.

Any relinquishments hereunder shall be credited toward

the Mandatory provision of Article V(a) above.



Following Commercial Discovery, EGPC and CONTRACTOR

shall mutually agree upon any area to be relinquished

thereafter, except for the relinquishment provided for

above at the end of the total Exploration period.



ARTICLE VI



OPERATIONS AFTER COMMERCIAL DISCOVERY



(a) On Commercial Discovery, EGPC and CONTRACTOR shall

form in the A. R. E. an operating company pursuant to

Article VI (b) and Annex (D) (hereinafter referred to

as "Operating Company") which Company shall be named

by mutual agreement between EGPC and CONTRACTOR and

such name shall be subject to the approval of the

Minister of Petroleum. Said Company shall be a private

sector company. Operating Company shall be subject to

the laws and regulations in force in the A.R.E. to the

extent that such laws and regulations are not

inconsistent with the provisions of this Agreement or

the Charter of Operating Company.



However, Operating Company and CONTRACTOR shall, for

the purpose of this Agreement, be exempted from the

following laws and regulations as now or hereafter

amended or substituted:



- Law No. 48 of 1978, on the employee regulations of

public sector companies;



- Law No. 159 of 1981, promulgating the law on joint

stock companies, partnership limited by shares and

limited liability companies;

- Law No. 97 of 1983, promulgating the law concerning

public sector Organizations and companies.



- Law No. 203 of 1991, promulgating the law on public

business sector companies; and



- Law No. 38 of 1994, organizing dealings in foreign

currencies.



(b) The Charter of Operating Company is hereto attached

as Annex "D". Within thirty (30) days after the

date of Commercial Oil Discovery or within thirty

(30) days after the signature of a Gas Sales

Agreement or commencement of a scheme to dispose of

Gas (unless otherwise agreed upon by EGPC and

CONTRACTOR), the Charter shall take effect and

Operating Company shall automatically come into

existence without any further procedures. The

Exploration Advisory Committee shall be dissolved

forthwith upon the Coming into existence of the

Operating Company.



(c) Ninety (90) days after the date Operating Company

comes into existence in accordance with paragraph

(b) above, it shall prepare a Work Program and

Budget for further Exploration and Development for

the remainder of the year in which the Commercial

Discovery is made; and not later than four (4)

months before the end of the current Financial Year

(or such Other date as may be agreed upon by EGPC

and CONTRACTOR) and four (4) months preceding the

commencement of each succeeding Financial Year

thereafter (or such other date as may be agreed

upon by EGPC and CONTRACTOR), Operating Company

shall prepare ah annual Production Schedule, Work

Program and Budget for further Exploration and

Development for the succeeding Financial Year. The

Production Schedule, Work Program and Budget shall

be submitted to the Board of Directors for

approval.

(d) Not later than the twentieth (20th) day of each month, Operating Company shall furnish to CONTRACTOR a written estimate of this total cash requirements for expenditure for the first half and the second half of the succeeding month expressed in U.S. Dollars having regard to the approved budget. Such estimate shall take into consideration any cash expected to be on hand at month end.



Payment for the appropriate period of such month shall be made to the correspondent bank designated in paragraph (e) below on the first (1st) day and fifteenth (15th) day respectively, or the next following business day, if such day is not a business day.



(e) Operating Company is authorized to keep at its own disposal abroad in an account opened with a correspondent bank of the National Bank of Egypt, Cairo, the foreign funds advanced by CONTRACTOR. Withdrawals from said account shall be used for payment for goods and services acquired abroad and for transferring to a local bank in the A.R.E. the required amount to meet the expenditures in Egyptian Pounds for Operating Company in connection with its activities under this Agreement.



Within sixty (60) day after the end of each Financial Year, Operating Company shall submit to the appropriate exchange control authorities in the A.R.E. a statement, duly certified by a recognized firm of auditors, showing the funds credited to that account, the disbursements made out of that account and the balance outstanding at the end of the year.



(f) If and for as long during the period of production operations there exists an excess capacity in facilities which cannot during the period of such excess be used by the Operating Company, EGPC and CONTRACTOR will consult together to find a mutually agreed formula whereby EGPC may use the excess capacity if it so desires without any unreasonable financial or unreasonable operational disadvantage to the CONTRACTOR.



[Egyptian Arabic] ARTICLE VII



RECOVERY OF COSTS AND EXPENSES AND



PRODUCTION SHARING



(a) (1) Cost Recovery Petroleum:



Subject to the auditing provisions under this Concession Agreement, CONTRACTOR shall recover quarterly all costs, expenses and expenditures in respect of all the Exploration, Development and related operations under this Agreement to the extent and out of thirty-five percent (35%) of all Petroleum produced and saved from all Development Leases within the Area hereunder and not used in Petroleum operations. Such Petroleum is hereinafter referred to as "Cost Recovery Petroleum”.



For the purpose of determining the classification of all costs, expenses and expenditures for their recovery, the following terms shall apply:



1. "Exploration Expenditures" shall mean all costs and expenses for Exploration and the related portion of indirect expenses and overheads.



2. "Development Expenditures" shall mean all costs and expenses for Development (with the exception of Operating Expenses) and the related portion of indirect expenses and overheads.



3. "Operating Expenses" shall mean all costs, expenses and expenditures made after initial commercial production, which costs, expenses and expenditures are not normally depreciable.

However, Operating Expenses shall include work-over, repair and maintenance of assets but shall not include any of the following; sidetracking, re-drilling and changing of the status of a well, replacement of assets or part of an asset, additions, improvements, renewals or major overhauling that extend the life of the asset.



Exploration Expenditures, Development Expenditures and Operating Expenses shall be recovered from Cost Recovery Petroleum in the following manner:-



(i) Exploration Expenditures including those accumulated prior to the commencement of initial commercial production, which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable at the rate of twenty-five percent (25%) per annum starting either in the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial commercial production commences, whichever is the later date.



(ii) Development Expenditures, including those accumulated prior to the commencement of initial commercial production which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable at the rate of twenty percent (20%) per annum starting either in the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial commercial production commences, whichever is the later date.



[Egyptian Arabic]

(iii) Operating Expenses, incurred and paid after the

date of initial commercial production which for the

purposes of this Agreement shall mean the date on

which the first regular shipment of Crude Oil or the

first deliveries of Gas are made, shall be

recoverable either in the Tax Year in which such

costs and expenses are incurred and paid or the Tax

Year in which initial commercial production occurs,

whichever is the later date.



(iv) To the extent that, in a Tax Year, costs, expenses

or expenditures recoverable per paragraphs (i), (ii)

and (iii) above, exceed the value of all Cost

Recovery Petroleum for such Tax Year, the excess

shall be carried forward for recovery in the next

succeeding Tax Year or years until fully recovered,

but in no case after the termination of this

Agreement, as to CONTRACTOR.



(v) The recovery of costs and expenses, based upon the

rates referred to above, shall be allocated.to each

quarter proportionately (one fourth to each

quarter). However, any recoverable costs and

expenses not recovered in one quarter as thus

allocated, shall be carried forward for recovery in

the next quarter.



(2) Except as provided in Article VII (a) 3 and Article

VII (e) 1, CONTRACTOR shall each quarter be entitled

to take and own all Cost Recovery Petroleum, which

shall be taken and disposed of in the manner

determined pursuant to Article VII (e); To the extent

that the value of all Cost Recovery Petroleum {as

determined in

Article VII (c)] exceeds the actual recoverable costs and expenditures, Including any carry forward under Article VII (a) 1 (iv), to be recovered in that quarter, then the value of such Excess Cost Recovery Petroleum, shall be divided between EGPC and CONTRACTOR in accordance with the percentages specified in Article VII (b) 1 and EGPC's share shall be paid by CONTRACTOR to EGPC either (i) in cash in the manner set forth in Article IV of the Accounting Procedure contained in Annex "E" or (ii) in kind in accordance with Article VII (a) (3).



(3) Ninety (96) days prior to the commencement of each Calendar Year EGPC shall be entitled to elect by notice in writing to CONTRACTOR to require payment of up to one hundred percent (100%) of EGPC’s share of Excess Cost Recovery Petroleum in kind. Such payment will be in Crude Oil frond the Area F.O.B. export terminal or other agreed delivery point provided that the amount of Crude Oil taken by EGPC in kind in a quarter shall not exceed the value of Cost Recovery Crude Oil actually taken and separately disposed of by CONTRACTOR from the Area during the previous quarter. If EGPC’s entitlement to receive payment of its share of the Excess Cost Recovery Petroleum in kind is limited by the foregoing provision, the balance of such entitlement shall be paid in cash.



(b) Production Sharing



(1) The remaining sixty-five percent (65%) of the Petroleum, shall be divided between EGPC and CONTRACTOR according to the following shares. Such shares shall be taken and disposed of pursuant to Article VII (e):

(i) Crude Oil EGPC SHARE CONTRACTOR SHARE



Crude Oil produced and saved

under this Agreement and not

used in Petroleum Operations.

Barrels per day (BOPD)

(quarterly average):



That portion or increment up (74%) (26%)

to 5,000 BOPD. Seventy-four twenty-six

percent percent



That portion or increment in (76%) (24%)

excess of 5,000 BOPD Seventy-six twenty-four

and up to 10,000 BOPD. percent percent



That portion or increment in (78%) (22%)

excess of 10,000 BOPD Seventy-eight twenty-two

and up to 20,000 BOPD. percent percent



That portion or increment in (81%) (19%)

excess of 20,000 BOPD eighty-one nineteen

and up to 40,000 BOPD. percent percent



That portion or increment in (83%) (17%)

excess of 40,000 BOPD eighty-three seventeen

and up to 50,000 BOPD. percent percent



That portion or increment in (85%) (15%)

excess of 50,000 BOPD eighty-five fifteen

percent percent

____________________________________________________________





[Egyptian Arabic]

(ii) Gas and LPG:



Gas and LPG produced and saved under this Agreement

and not used in Petroleum Operations by MMSCFD

(quarterly average).



EGPC share: seventy-five percent (75%)

CONTRACTOR share: twenty-five percent (25%)



(2) After the end of each contractual year during

the term of any Gas Sales Agreement entered

into pursuant to Article VII(e), EGPC and

CONTRACTOR (as sellers) shall render to EGPC

(as buyer) a statement for an amount of Gas, if

any, equal to the amount by which the quantity

of Gas of which EGPC (as buyer) has taken

delivery falls below seventy five percent (75%)

of the contract quantities of Gas as

established by the applicable Gas Sales

Agreement (the "Shortfall"), provided the Gas

is available. Within sixty (60) days of receipt

of the statement, EGPC (as buyer) shall pay

EGPC and CONTRACTOR (as sellers) for the amount

Of the "shortfall", if any. The Shortfall shall

be included in EGPC’s and CONTRACTOR’S

entitlement to Gas pursuant to Article VII (a)

and Article VII (b) in the fourth (4th) quarter

of such contractual year.



Quantities Of Gas not taken but to be paid for

shall be recorded in a separate " Take-or-Pay

Account". Quantities of Gas ("Make Up Gas")

which are delivered in subsequent years in

excess of seventy five percent (75%) of the

contract quantities of Gas as established by

the applicable Gas Sales Agreement, shall be

set against and reduce quantities of Gas iA the

"Take-or-Pay" account to the extent thereof

and, to that extent, no payment shall be due in

respect of such Gas. Such Make Up Gas shall not

be included in CONTRACTOR’S entitlements to Gas

pursuant to Article VII (a) and Article VII

(b). CONTRACTOR shall have no rights to such

Make Up Gas.





The percentages set forth in Article VII (a)

hereinabove and this Article VII (fa) in respect

of LPG produced from a plant constructed and

operated by or on behalf of EGPC and CONTRACTOR

shall apply to all LPG available for delivery.



(c) Valuation of Petroleum:



(1) Crude Oil:



(i) The Cost Recovery Crude Oil to which

CONTRACTOR is entitled hereunder shall be

valued by EGPC and CONTRACTOR at "Market

Price” for each calendar quarter.



(ii) "Market Price" shall mean the weighted

average prices realized from sales by EGPC

or CONTRACTOR during the quarter, whichever

is higher, provided that the sales to be

used in arriving at the weighted average (s)

shall be sales of comparable quantities on

comparable credit terms in freely

convertible currency from F. O. B. point of

export sales to non-affiliated companies at

arm’s length under all Crude Oil sales

contracts then in effect, but excluding

Crude Oil sales contracts involving barter

and:



(1) Sales, whether direct or indirect,

through brokers or otherwise, of EGPC or

CONTRACTOR to any Affiliated Company.



(2) Sales involving a quid pro quo other

than payment in a freely convertible

currency or motivated in whole or in

part by considerations other than the

usual economic incentives for commercial

arm’s length crude oil sales.



(iii) It is understood that in the case of C.I.F. sales,

appropriate deductions shall be made for transport

and insurance charges to calculate the F.O.B. point

of export price; and always taking into account the

appropriate adjustment for quality of Crude Oil,

freight advantage or disadvantage of port of

loading and other appropriate adjustments. Market

Price shall be determined separately for each Crude

Oil or Crude Oil mix, and for each port of loading.



(iv) If during any calendar quarter, there are no such

sales by EGPC and/or CONTRACTOR under the Crude Oil

sales contracts in effect, EGPC and- CONTRACTOR

shall mutually agree upon the Market Price of the

barrel of Crude Oil to be used for such quarter,

and shall be guided by all relevant and available

evidence including current prices in freely

convertible currency of leading crude oils

produced by major oil producing countries (in the

Arabian Gulf/at the Mediterranean Area), which are

regularly sold in the open market according to

actual sales contracts but excluding paper sales

and sales promises where AO crude oil is delivered,

to the extent that such sales are effected raider

such terms and-.conditions (excluding the price)

not significantly different from those under which

the Crude Oil to be valued, was sold, and always

taking into consideration

[Egyptian Arabic Text]

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appropriate adjustments for Crude Oil quality, freight advantages or disadvantages of port of loading and other appropriate adjustments, as the case may be, for differences in gravity, sulphur, and other factors generally recognized by sellers and purchasers, as reflected in crude prices, transportation ninety (90) days insurance premiums, unusual fees borne by the seller, and for credit terms in excess of sixty (60) days, and the cost of loans or guarantees granted for the benefit of the sellers at prevailing interest rates.



It is the intent of the parties that the value of the Cost Recovery Crude Oil shall reflect the prevailing market price for such Crude Oil.



(v) If either EGPC or CONTRACTOR considers that the Market Price as determined under sub-paragraph (ii) above does not reflect the prevailing market price or in the event EGPC and CONTRACTOR fail to agree on Market Price for any Crude Oil produced under this Agreement for any quarter within fifteen (15) days after the end thereof, any party may elect at any time thereafter to submit to a single arbitrator the question, what single price per barrel, in the arbitrator's judgement, best represents for the pertinent quarter the Market Price for the Crude Oil in question. The arbitrator shall make his determination as soon as possible following the quarter in question. His determination shall be final and binding upon all the parties. The arbitrator shall be selected in the manner described below.



--------------------------------------------------------------



[Egyptian Arabic Text]In the event EGPC and CONTRACTOR fail to agree on the arbitrator within thirty (30) days from the date any party notifies the other that it has decided to submit the determination of the Market Price to an arbitrator, such arbitrator shall be chosen by the appointing authority designated in accordance with Article XXIV (e), or such other appointing authority with access to such expertise as may be agreed to between EGPC and CONTRACTOR, with regard to the qualifications for arbitrators set forth below, upon written application of one or both of EGPC and CONTRACTOR. Copies of such application by one of them shall be promptly sent to the other.



The arbitrator shall be as nearly as possible a person with an established reputation in the international petroleum industry as an expert in pricing and marketing crude oil in international commerce.



the arbitrator shall not be a citizen of a country which does not have diplomatic relations with both the A.R.E., and the country of CONTRACTOR. He may not be, at the time of selection, employed by, or an arbitrator or consultant on a continuing or frequent basis to,, the American Petroleum Institute, the Organization of the Petroleum Exporting Countries or the Organization of Arab Petroleum Exporting Countries, or a consultant on a continuing basis to EGPC, CONTRACTOR or art Affiliated Company of either, but past occasional consultation with such companies, with other petroleum companies, with governmental agencies or organizations shall not be a ground for disqualification. He may not have been, at any time during the two (2) years before selection, an employee of any petroleum company or Of any government- agency or Organization.

Should a selected person decline or be unable to serve as arbitrator or should the position of arbitrator fall vacant prior to the decision called for, another person shall be chosen in the same manner provided in this paragraph. EGPC and CONTRACTOR shall share equally the expenses of the arbitrator.



The arbitrator shall make his determination in accordance with the provisions of this paragraph, based on the best evidence available to him. He will review oil sales contracts as well as other sales data and information, but shall be free to evaluate the extent to which any contracts, data or information is substantiated or pertinent. Representatives of EGPC and CONTRACTOR shall have the right to consult with the arbitrator and furnish him written materials provided the arbitrator may impose reasonable limitations on this right. EGPC and CONTRACTOR each shall cooperate with the arbitrator to the fullest extent and shall insure such cooperation of its trading companies. The arbitrator shall be provided access to crude oil sales contracts and related data and information which EGPC and CONTRACTOR or their trading companies are able to make available and which in judgement of the arbitrator might aid the arbitrator in making a valid determination.



(vi) Pending Market Price agreement by EGPC and CONTRACTOR or determination by the arbitrator, as applicable, the Market Price agreed for the quarter preceding the quarter in question shall remain temporarily in effect. In the event either EGPC or CONTRACTOR should incur a loss by virtue of the temporary continuation of the Market Price of the previous quarter, it shall promptly be reimbursed such loss by the other party plus simple interest at the LIBOR plus two and one-half percent (2.5%) per annum rate provided for in Article IV (f) from the date on which the disputed amount (s) should have been paid to the date of payment.[Egyptian Arabic Text]

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(2) Gas and LPG



(i) The Cost Recovery and Production Shares of Gas subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) entered into pursuant to Article VII (c) shall be valued, delivered to and purchased by EGPC at a price determined monthly according to the following formula:





F

PG = 0.85 X ------------ X H

42.96 X 10^6



Where:



PG = the value of the Gas in U.S. Dollars per thousand standard cubic feet (MSCF).



F = a value in U.S. Dollars per metric ton of the Crude of Gulf of Suez blend priced "FOB Ras Shukheir" calculated by referring to "Platt's Oilgram Price Report "during a month under the heading "Spot Crude Price Assessment for Suez Blend". This value reflects the total averages of the published high and low values for a Barrel during such month divided by the number of days in such month for which such values were quoted. The value per metric ton shall be calculated on the basis of a conversion factor to be agreed upon annually between EGPC and CONTRACTOR.



H = the number of British Thermal Unit's (BTU's) per thousand standard cubic feet (MSCF) of the Gas based on gross calorific value.



In the event that the value of F cannot be determined because Platt's Oilgram Price Report is not published at all during a month, EGPC and CONTRACTOR shall meet and agree the value of F by reference to other published sources. In the event that there are no such published sources or if the value of F cannot be determined pursuant to the foregoing for any other reason, EGPC and CONTRACTOR shall meet and agree the value of F.[Egyptian Arabic Text]

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Such evaluation of Gas under a formula providing for a fifteen percent (15%) discount is based upon delivery at the delivery point specified in Article VII(e)(2)(ii) hereinafter and is to enable EGPC to finance and maintain the portions of the pipeline distribution system to be provided by EGPC.



(ii) The Cost Recovery and Production Shares of LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR shall be separately valued for Propane and Butane at the outlet of such LPG plant according to the following formula (unless otherwise agreed between EGPC and CONTRACTOR):



F

PLPG = 0.95 PR -(J X 0.85 X -------------------)

42.96 X 10^6



Where:



PLPG = LPG price (separately determined for Propane and Butane) in U.S. Dollars per metric ton.



PR = the average over a period of a month of the figures representing the mid-point between the high and low prices in U.S. Dollars per metric ton quoted in "Platt's LPGaswire" during such month for Propane and Butane FOB Ex-Ref/Stor. West Mediterranean.



J = BTU's removed from the Gas Stream by the LPG plant per metric ton of LPG produced.

F - the same value as F under sub-paragraph (i) above.



In the event that Platt’s LPGaswire is issued on

certain days during a month but not on others, the

value of PR shall be calculated using only those

issues which are published during such month. In the

event that the value of PR cannot be determined

because Platt’s LPGaswire is not published at all

during a month, EGPC and CONTRACTOR shall meet and

agree to the value of PR by reference to other

published sources. In the event that there are no such

other published sources or if the value of PR cannot

be determined pursuant to the foregoing for any other

reason, EGPC and CONTRACTOR shall meet and agree to

the value of PR by reference to the value of LPG

(Propane and Butane) delivered FOB from the

Mediterranean Area.



Such valuation of LPG is based upon delivery at the

delivery point specified in Article VII (e) (2)

(iii) hereinafter.



(iii) The prices of Gas and LPG so calculated shall

apply during the same month.



(iv) The Cost Recovery and production shares of Gas and

LPG disposed of by EGPC and CONTRACTOR other than

to EGPC pursuant to Article Vll (e) hereinafter

shall be valued at their actual realized price.

[Egyptian Arabic Text]

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(d) FORECASTS



Operating Company shall prepare (not less than ninety (90) days prior to the beginning of each calender semester following first regular production) and furnish in writing to CONTRACTOR and EGPC a forecast setting out a total quantity of Petroleum that Operating Company estimates can be produced, saved and transported hereunder during such calendar semester in accordance with good oil and gas industry practices.



Operating Company shall endeavor to produce each calendar semester the forecast quantity. The Crude Oil shall be run o storage tanks or offshore loading facilities constructed, maintained and operated according to GOVERNMENT regulations, by Operating Company in which said Crude Oil shall be metered or otherwise measured for royalty, and the other purposes required by this Agreement. Gas shall be handled by Operating Company in accordance with the provisions of Article VII(e)



(e) DISPOSITION OF PETROLEUM



(1) EGPC and CONTRACTOR shall have the right and the obligation to separately take and freely export or otherwise dispose of currently all of the Crude Oil to which each is entitled under Article VII(a) and Article VII(b). Subject to payment of sums due to EGPC under Article VII(a) 2 and Article IX, CONTRACTOR shall have the right to remit and retain abroad all funds acquired by it including the proceeds from the sales of its share of Petroleum. [Egyptian Arabic Text]

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Notwithstanding anything to the contrary under this Agreement priority shall be given to meet the requirements of the A.R.E. market from CONTRACTOR's share under Article VII (b) of the Crude Oil produced from the Area and EGPC shall have the preferential right to purchase such Crude Oil at a price to be determined pursuant to Article VII (c). The amount of Crude Oil so purchased shall be a portion of CONTRACTOR's share under Article VII (b). Such amount shall be proportional to CONTRACTOR's share of the total production of crude oil from the concession areas in the A.R.E. that are also subject to EGPC's preferential right to purchase. The payment for such purchased amount shall be made by EGPC in U.S. Dollars or in any other freely convertible currency remittable by CONTRACTOR abroad.



It is agreed upon that EGPC shall notify CONTRACTOR; at least forty-five (45) days prior to the beginning of the calendar semester, of the amount to be purchased during such semester under this Article VII(e)(1).



2) With respect to Gas and LPG produced from the Area:



(i) Priority shall be given to meet the requirements of the local market as determined by EGPC.



(ii) In the event that EGPC is to be the buyer of Gas, the disposition of Gas to the local-market as indicated above shall be by virtue of long term Gas Sale Agreements to be entered into between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer).



EGPC and CONTRACTOR (as sellers) shall have the obligation to deliver Gas to the following point where such Gas shall be metered for sales, royalty, and other purposes required by this Agreement.



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[Egyptian Arabic Text]

(a) In the event no LPG Plant is constructed to process

such Gas, the delivery point shall be the flange

connecting the lease pipeline to the nearest point on

the National Gas Pipeline Grid System as depicted in

Annex "F" or as otherwise agreed by EGPC and

CONTRACTOR.



(b) In the event an LPG Plant is constructed to process

such Gas, such Gas shall, for the purpose of

valuation and sales, be metered at the inlet to such

LPG Plant. However, notwithstanding the fact that

the metering shall take place at the LPG Plant inlet,

CONTRACTOR shall through the Operating Company build

a pipeline suitable for transport of the processed

Gas from the LPG Plant outlet to the nearest point

on the National Gas Pipeline Grid System as depicted

in Annex "F", or as otherwise agreed by EGPC and

CONTRACTOR. Such pipeline shall be owned in

accordance with Article VIII (a) by EGPC, and its

cost shall be financed and recovered by CONTRACTOR as

Development Expenditures pursuant to Article VII.



(iii)EGPC and CONTRACTOR shall consult together to

determine whether to build an LPG plant for

recovering LPG from, any Gas produced hereunder. In

the event EGPC and CONTRACTOR decide to build such a

plant, the plant shall, as is appropriate, be in the

vicinity of the point of delivery as determined in

Article VII(e) 2(ii) above Delivery of LPG for

royalty and other purposes required by this Agreement

shall be at the Outlet Of the LPG plant. The costs of

any such LPG plant shall be recoverable in accordance

with the provisions of this Agreement unless the

Minister of Petroleum agrees to accelerated recovery.

(iv) EGPC (as buyer) shall have the option to elect, by ninety (90) days prior written notice to EGPC and CONTRACTOR (as sellers), whether payment for the Gas which is subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) and LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR, as valued in accordance with Article VII (c), and to which CONTRACTOR is entitled under the Cost Recovery and Production Sharing provisions of Article VII herein, shall be made 1) in cash or 2) in kind.



Payments in cash shall be made by EGPC (as buyer) at intervals, provided for in the relevant Gas Sales Agreement in U.S.Dollars, remit-table by CONTRACTOR abroad.



Payment in kind shall be calculated by converting the value of Gas and LPG to which CONTRACTOR is entitled into equivalent barrels of Crude Oil to be taken concurrently by CONTRACTOR from the Area, or to the extent that such Crude Oil is insufficient, rude Oil from CONTRACTOR's other concession areas or such other areas as may be agreed. Such Crude Oil shall be added to the Crude Oil that CONTRACTOR is otherwise entitled to lift under this Agreement. Such equivalent barrels shall be calculated on the basis of the provisions of Article VII (c) relating to the valuation of Cost Recovery Crude Oil.



[Egyptian Arabic]Provided that:



(aa) Payment of the value of Gas and LPG shall always be

made in cash in U.S. Dollars remittable by CONTRACTOR

abroad to the extent that there is insufficient Crude

Oil available for conversion as provided for above;



(bb) Payment of the value of Gas and LPG shall always be

made in kind as-provided for above to the extent that

payments in cash are not made by EGPC.



Payments to CONTRACTOR (whether in cash or kind),

when related to CONTRACTOR’S Cost Recovery Petroleum,

shall be included in CONTRACTOR’S-Statement of

Recovery of Costs and of Cost Recovery Petroleum

referred to in Article IV of Annex "E" of this

Agreement



(v) Should EGPC (as buyer) fail to enter into a long-term

Gas Sales Agreement with EGPC and CONTRACTOR (as

sellers) within five (5) years (unless otherwise

agreed) from a notice of Commercial Gas Discovery

pursuant to Article III, EGPC add CONTRACTOR shall

have the right to take-and freely dispose of the

quantity of Gas and LPG in respect of which the'

notice of Commercial Discovery is given by exporting

such Gas and LPG.



(vi)The proceeds of sale of CONTRACTOR'S share of Gas and

LPG disposed of pursuant to the above sub-paragraph

(v) may be freely remitted or retained abroad by

CONTRACT(vii) In the event EGPC and CONTRACTOR agree to accept

new Gas and LPG producers to j<5m in an ongoing

export project, such producers shall have to

contribute a fair and equitable share of the

investment made.



(viii) (aa) Upon the expiration of the five (5) year

period referred to in Article VII (e) 2 (v)

above, CONTRACTOR shall have the obligation

to exert its reasonable efforts to find an

export market for Gas reserves.



(bb) In the event, at the end of the five (5)

year period referred to under Article VII

(e) 2 (v) above, CONTRACTOR and EGPC have

not entered into a Gas Sales Agreement,

CONTRACTOR shall retain its rights to such

Gas reserves for a further period of up to

seven (7) years, subject to Article VII (e)

2 (viii) (cc) below, during which period

EGPC shall attempt to find a market for the

Gas reserves.



(cc) CONTRACTOR shall, at any time prior to the

expiry Of such further seven (7) year

period, surrender the Gas reserves, if

CONTRACTOR does not accept an offer from

EGPC of a Gas Sales Agreement within six

(6) months from the date such Offer is

made, provided, that in such Gas Sales

Agreement or Gas disposal scheme offered to

CONTRACTOR, the relevant technical' and

economic factors to enable a commercial

contract or scheme are taken into

consideration, including:

- A sufficient delivery rate.

- Delivery pressure to-enter the National

Gas Pipeline Grid System at a mutually

accepted point of delivery.

- Delivered Gas quality specifications

not more stringent than those imposed or

required for % National Gas Pipeline

Grid System; and



- The Gas prices as specified in this

Agreement.



(dd) In the event that CONTRACTOR is not

exporting the Gas and CONTRACTOR has not

entered a Gas Sales Agreement pursuant to

Article VII (e) (2) prior to the expiry of

twelve (12) years from CONTRACTOR'S notice

of Commercial Discovery of Gas, CONTRACTOR

shall surrender the Gas reserves in respect

of which such notice has been given.



(ix) CONTRACTOR shall not be obligated to surrender

a Development Lease based on a Commercial Gas

Discovery, if Crude Oil has been discovered in

commercial quantities in the same Development

Lease and vice versa.



(f) OPERATIONS



If following the reversion to EGPC of any rights to

Crude OS hereunder CONTRACTOR retains rights to Gas

in the saint Development Lease, or if, following

surrender of rights to Gas hereunder, CONTRACTOR

retains rights to Crude Oil in the same Development

Lease, operations to explore for or exploit the

Petroleum, the rights to which have reverted or been

surrendered (Oil or Gas as the case may be) may only

be carried out by Operating Company which shall act on

behalf of EGPC alone, unless CONTRACTOR and EGPC agree

otherwise.(g) TANKER SCHEDULING



At a reasonable time prior to the commencement of

Commercial Production EGPC and CONTRACTOR shall meet

and agree upon a procedure for scheduling tanker

liftings from the agreed upon point of export.





ARTICLE VIII



TITLE TO ASSETS



(a) EGPC shall become the owner of all CONTRACTOR

acquired and owned assets which assets were charged

to Cost Recovery by CONTRACTOR in connection with

the operations carried out by CONTRACTOR or

Operating Company in accordance with the following:



(1) Land shall become the property of EGPC as soon

as it is purchased.



(2) Title to fixed and moveable assets shall be

transferred automatically and gradually from

CONTRACTOR to EGPC as they become subject to

recovery in accordance with the provisions of

Article VII; however the full title to fixed and

movable assets shall be transferred

automatically from CONTRACTOR to EGPC when its

total cost has been recovered by CONTRACTOR in

accordance with the provisions of Article VII or

at the time of termination of this Agreement

with respect to all assets chargeable to the

operations whether recovered or not, whichever

first occurs.



The book value of the assets, created during

each calendar quarter shall be communicated by

CONTRACTOR to EGPC or by Operating Company to

EGPC and CONTRACTOR within thirty (30) days of

the end of each quarter.





(b) During the term of this Agreement and the renewal period EGPC, CONTRACTOR and Operating Company are entitled to the full use and enjoyment of all fixed and movable assets referred to above in connection with operations hereunder or under any other Petroleum concession agreement entered into by the parties. Proper accounting adjustment shall be made. CONTRACTOR and EGPC shall not dispose of the same except with agreement of the other.



(c) CONTRACTOR and Operating Company may freely import into the A.R.E., use therein and freely export at the end of such use, machinery and equipment which they either rent or lease in accordance with good industry practices, including but not limited to the lease of computer hardware and software.



ARTICLE IX



BONUSES



(a) CONTRACTOR shall pay to EGPC as a signature bonus the sum of one million (1,000,000) U.S. Dollars on the Effective Date.



(b) CONTRACTOR shall pay to EGPC the sum of two million (2,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of twenty-five thousand (25,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter.



(c) CONTRACTOR shall also pay to EGPC the additional sum of four million (4,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of fifty thousand (50,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter.(d) CONTRACTOR shall also pay to EGPC the additional sum of eight million (8,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of one-hundred thousand (100,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter.



(e) All the abovementioned bonuses shall in no event be recovered by CONTRACTOR.



(f) In the event that EGPC elects to develop any part of the Area pursuant to the sole risk provisions of Article III (c) (iv), production from such sole risk Area shall be considered for the purposes of this Article IX only if CONTRACTOR exercises its option to share in such production, and only from the initial date of sharing.



(g) Gas shall be taken into account for purposes of determining the total average daily production from the Area under Article IX (b)-(d) by converting daily Gas delivered into equivalent barrels of daily Crude Oil production in accordance with the following formula:



MSCF x H x 0.136 = equivalent barrels of Crude Oil



Where



MSCF = one thousand standard cubic feet of Gas.



H = the number of million British Thermal Units (BTU’s) per MSCF. ARTICLE X



OFFICE AND SERVICE OF NOTICE



CONTRACTOR shall maintain an office in the A.R.E. at which notices shall be validly served.



The General Manager and Deputy General Manager shall be entrusted by CONTRACTOR with sufficient power to carry out immediately all local written directions given to them by the GOVERNMENT or its representatives under the terms of this Agreement. All lawful regulations issued or hereafter to be issued which are applicable hereunder and not in conflict with this Agreement shall apply to the duties and activities of the General Manager and Deputy General Manager.



All matters and notices shall be deemed to be validly served which are delivered to the office of the General Manager or which are sent to him by registered mail to CONTRACTOR’s office in the A.R.E.



All matters and notices shall be deemed to be validly served which are delivered to the office of the Chairman of EGPC or which are sent to him by registered mail at EGPC’s main office in Cairo.



ARTICLE XI



SAVING OF PETROLEUM AND PREVENTION OF LOSS



(a) Operating Company shall take all proper measures, according to generally accepted methods in use in the Oil and Gas industry to prevent loss or waste of Petroleum above or under the ground in any form during, drilling, producing, gathering and distributing or storage operations. The GOVERNMENT has the right to prevent any operation on any well that it might reasonably expect would result in loss or damage to the well or the Crude Oil or Gas field.[Egyptian Arabic Text]

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(b) Upon completion of the drilling of a productive well, Operating Company shall inform the GOVERNMENT or its representative of the time when the well will be tested and the production rate ascertained.



(c) Except in instances where multiple producing formations in the same well can only be produced economically through a single tubing string, Petroleum shall not be produced from multiple oil bearing zones through one string of tubing at the same time, except with the prior approval of the GOVERNMENT or its representative, which shall not be unreasonably withheld.



(d) Operating Company shall record data regarding the quantities of Petroleum and water produced monthly from each Development Lease. Such data shall be sent to the GOVERNMENT or its representative on the special forms provided for that purpose within thirty (30) days after the data are obtained. Daily or weekly statistics regarding the production from the Area shall be available at all reasonable times for examination by authorized representatives of the GOVERNMENT.



(e) Daily drilling records and the graphic logs of wells must show the quantity and type of cement and the amount of any other materials used in the well for the purpose of protecting Petroleum, gas bearing or fresh water strata.



Any substantial change of mechanical conditions of the well after its completion shall be subject to the approval of the representative of the GOVERNMENT. ARTICLE XII

CUSTOMS EXEMPTIONS



(a) EGPC, CONTRACTOR, and Operating Company shall be permitted to import and shall be exempted from customs duties, any taxes, levies or fees (including fees imposed by Ministerial Decision No. 254 of 1993 issued by the Minister of Finance, as now or hereafter amended or substituted) of any nature (except where an actual service has been rendered to CONTRACTOR by a competent authority), and from the importation rules with respect to the importation of machinery, equipment, appliances, materials, items, means of transport and transportation (the exemption from taxes and duties for cars shall apply to cars to be used in operations), electric appliances, air conditioners, for offices, field housing and facilities, electronic appliances, computer hardware and software, as well as spare parts required for any of the imported items, all subject to a duly approved certificate issued by the responsible representative nominated by EGPC for such purpose, which states that the imported items are required for conducting the operations pursuant to this Agreement. Such certificates shall be final and binding and shall automatically result in the importation and the exemption without any further approval, delay or procedure.



(b) Machinery, equipment, appliances and means of transport and transportation imported by EGPCs, CONTRACTOR’s and Operating Company’s contractors and sub-contractors temporarily engaged in any activity pursuant to the operations

which are the subject of this Agreement, shall be

cleared under the "Temporary Release System" without

payment of custom duties, any taxes, levies or fees

(including fees imposed by Ministerial Decision No.

254 of 1993 issued by the Minister of Finance, as now

or hereafter amended or substituted) of any nature

(except where an actual service has been rendered to

CONTRACTOR by a competent authority), upon

presentation of a duly approved certificate issued by

an EGPC responsible representative nominated by EGPC

for such purpose which states, that the imported items

are required for conducting the operations pursuant to

this Agreement Items (excluding cars not to be used in

operations) set out in Article XII (a) imported by

EGPC's, CONTRACTOR'S and Operating Company's

contractors and sub-contractors for the aforesaid,

operations, in order to be installed or used

permanently or consumed shall meet the conditions for

exemption set forth in Article XII (a) after being

duly certified by an EGPC responsible representative

to be used for conducting operations pursuant to this

Agreement.



(c) The expatriate employees of CONTRACTOR, Operating

Company and their contractors and sub-contractors

shall not be entitled to any exemptions from custom

duties and other ancillary taxes and charges except

within the limits of the provisions of the laws and

regulations applicable in the A.R.E. However, personal

household goods a&d furniture (including One (1) car)

for each expatriate employee of CONTRACTOR and/or

Operating Company shall be cleared under the

"Temporary Release System" (without payment of any

customs duties and other ancillary taxes) upon

presentation of a letter to



the appropriate customs authorities by CONTRACTOR or

Operating Company approved by an EGPC responsible

representative that the imported items are imported

for the sole use of the expatriate employee and his

family, and that such imported items shall be re-

exported outside the A.R.E. upon the repatriation of

the concerned expatriate employee.



(d) Items imported into the A.R.E. whether exempt or not

exempt from customs duties and other ancillary taxes

and charges hereunder, may be exported by the

importing party at any time after obtaining EGPC’s

approval, which approval shall not be unreasonably

withheld, without any export duties, taxes or

charges br any taxes or charges from which such

items have been already exempt, being applicable.

Such items may be sold within the A.R.E. after

obtaining the approval of EGPC which approval shall

not be unreasonably withheld. In this event the

purchaser of such items shall pay all applicable

customs duties and other ancillary taxes and charges

according to the condition and value of such items

and the tariff applicable on the date of sale,

unless such items have already been sold to an

Affiliated Company of CONTRACTOR, if any, or EGPC,

having the same exemption, or unless title to such

items (excluding cars not used in operations) has

passed to EGPC.





In the event of any such sale under this paragraph

(d), the proceeds from such sale shall be divided in

the following manner:



CONTRACTOR shall be entitled to reimbursement Of its

unrecovered cost, if any, in such items and the

excess, if any, shall be paid to EGPC.

(e) The exemption provided for in Article XII (a) shall

not apply to any imported items when items of the

same or substantially the same kind and quality are

manufactured locally meeting CONTRACTOR'S and/or

Operating Company's specifications for quality and

safety and are available for timely purchase and

delivery in the A.R.E. at a price not higher than ten

percent (10%) of the cost of the imported item,

before customs duties but after freight and insurance

costs, if any, have been added.



(f) CONTRACTOR, EGPC and their respective buyers shall

have the right to freely export the Petroleum

produced from the Area pursuant to this Agreement No

license shall be required, and such petroleum shall

be exempted from any customs duties, any taxes,

levies or any other imposts in respect of the export

of Petroleum hereunder.



ARTICLE XIII



BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS



(a) EGPC, CONTRACTOR and Operating Company shall each

maintain at their business offices in the A.R.E.

books of accounts, in accordance with the Accounting

Procedure in Annex "E" and accepted accounting

practices generally used in the petroleum industry,

and such other books and records as may be necessary

to show the work performed under this Agreement,

including the amount and value of all Petroleum

produced and saved hereunder. CONTRACTOR and

Operating Company shall keep their books of account

and accounting records in United States Dollars.

Operating Company shall furnish to the GOVERNMENT or its representative monthly returns showing the amount of petroleum produced and saved hereunder. Such returns shall be prepared in the form required by the GOVERNMENT, or its representative and shall be signed by the General Manager or by the Deputy General Manager or a duly designated deputy, and delivered to the GOVERNMENT or its representative within thirty (30) days after the end of the month covered in the return.



(b) The aforesaid books of account and other books and records referred to above shall be available at all reasonable times for inspection by duly authorized representatives of the GOVERNMENT.



(c) CONTRACTOR shall submit to EGPC a profit and loss Statement of its Tax Year not later than four (4) months after the commencement of the following Tax Year to show its net profit or loss from the Petroleum operations under this Agreement for such Tax Year.



CONTRACTOR shall at the same time submit a year-end Balance sheet for the same Tax year to EGPC. The Balance Sheet and financial Statements shall be certified by an Egyptian certified accounting firm.ARTICLE XIV



RECORDS, REPORTS AND INSPECTION



(a) CONTRACTOR and/or Operating Company shall prepare and, at all times while this Agreement is in force, maintain accurate and current records of its operations in the Area. CONTRACTOR and/or Operating Company shall furnish the GOVERNMENT or its representative, in conformity with applicable regulations or as the GOVERNMENT or its representative may reasonably require information and data concerning its operations under this Agreement. Operating Company will perform the functions indicated in this Artilce XIV in accordance with its respective role as specified in Article VI.



(b) CONTRACTOR and/or Operating Company shall save and keep for a reasonable period of time a representative portion of each sample of cores and cuttings taken from drilling wells, to be disposed of , or forwarded to the GOVERNMENT or its representative in the manner directed by the GOVERNMENT. All samples acquired by CONTRACTOR and/or Operating Company for their own purposes shall be considered available for inspection at any reasonable time by the GOVERNMENT or its representatives.



(c) Unless otherwise agreed to by EGPc, in case of exporting any rock samples outside the A.R.E, samples equivalent in size and quality shall, before such exportation, be delivered to EGPC as representative of the GOVERNMENT.(d) Originals of records can only be exported with the permission of EGPC; provided, however, that magnetic tapes and any other data which must be processed or analysed outside the A.R.E. may be exported if a monitor or comparable record, if avaialble, is maintained in the A.R.E. promptly followiing such processing or analysis on the understanding that they belong to EGPC.



(e) During the period CONTRACTOR is conducting the Exploration operations, EGPC's duly authorized representatives or employees shall have the right to full and complete access to the Area at all reasonable times with the right to observe the operations being conducted and to inspect all assets, records and data kept by CONTRACTOR. EGPC's representative, in exercising its rights under the preceding sentence of this paragraph (e), shall not interfere with CONTRACTOR'S operations. CONTRACTOR shall provide EGPC with copies of any and all data (including, but not limited to, geological and geophysical reports, logs and well surveys) information and interpretation of such data, and other information in CONTRACTOR's possession.



For the purpose of obtaining new offers, the GOVERNMENT and/or EGPC may, after the seventh (7th) year of the Exploration period or the date of termination of this Agreement, whichever is the earlier, show any other party uninterpreted basic geophysical and geological data (such data to be not less than one (1) year old unless CONTRACTOR agrees to a shorterperiod, which agreement shall not be unreasonably withheld) with respect to the Area, provided that the GOVERNMENT and/or EGPC may at any time show another party such data directly obtained over or acquired from those parts of the Area with CONTRACTOR has relinquished as long as such data is at least one (1) year old.



ARTICLE XV



RESPONSIBILITY FOR DAMAGES



CONTRACTOR shall entirely and solely be responsible in law toward third parties for any damage caused by CONTRACTOR's Exploration operatioins and shall indemnify the GOVERNMENT and/or EGPC against all damages for which they may be held liable on account of any such operations.



ARTICLE XVI



PRIVILEGES OF GOVERNMENT REPRESENTATIVES



Duly authorized representatives of the GOVERNMENT shall have access to the Area covered by this Agreement and to the operations conducted thereon. Such representatives may examine the books, registers and records of EGPC, CONTRACTOR and Operating Company and make a reasonable number of surveys, drawings and tests for the purpose of enforcing this Agreement. They shall, for this purpose, be entitled to make reasonable use of the machinery and instruments of CONTRACTOR or Operating Company on the condition that no danger or impediment to the operations hereunder shall arise directly or indirectly from such use. Such representatives shall be given reasonableassistance by the agents and employees of CONTRACTOR or Operating Company so that none of the activities shall endanger or hinder the safety or efficiency of the operations. CONTRACTOR or Operating Company shall offer such representatives all privileges and facilities accorded to its own employees in the field and shall provide them, free of charge, the use of reasonable office space and adequately furnished housing while they are in the field for the purpose of facilitating the objectives of this Article. Without prejudice to Article XIV (e), any and all information obtained by the GOVERNMENT or its representatives under this Article XVI shall be kept confidential with respect to the Area.



ARTICLE XVII



EMPLOYMENT RIGHTS AND TRAINING OF



ARAB REPUBLIC OF EGYPT PERSONNEL



(a) It is the desire of EGPC and CONTRACTOR that operations hereunder be conducted in a business-like and efficient manner.



(1) The expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company and the personnel of its contractors for the conduct of the operations hereunder, shall be granted a residence as provided for in Law No. 89 of 1960 as amended and Ministerial Order No. 280 of 1981 as amended, and CONTRACTOR agrees that all immigration, passport, visa and employment regulations of the A.R.E., shall be applicable to all alien employees of CONTRACTOR working in the A.R.E.(2) A minimum of twenty-five percent (25%) of the combined salaries and wages of each of the expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company shall be paid monthly in Egyptian Currency.



(b) CONTRACTOR and Operating Company shall each select its employees and determine the number thereof, to be used for operations hereunder.



(c) CONTRACTOR shall, after consultation with EGPC, prepare and carry out specialized training programs for all its A.R.E. employees engaged in operations hereunder with respect to applicable aspects of the petroleum industry. CONTRACTOR and Operating Company undertake to replace gradually their non-executive expatriate staff by qualified nationals as they are available.



(d) During any of the Exploration phases, CONTRACTOR shall give mutually agreed numbers of EGPC employees an opportunity to attend and participate in CONTRACTOR's and CONTRACTOR's Affiliated Companies training programs relating to Exploration and Development operations. In the event that the total cost of such programs is less than fifty thousand (50,000) U.S. Dollars in any Financial Year during such period, CONTRACTOR shall pay EGPC the amount of the shortfall within thirty (30) days following the end of such Financial Year. However, EGPC shall have the right that said amount (U.S. $50,000) allocated for training, be paid directly to EGPC for such purpose.ARTICLE XVIII



LAWS AND REGULATIONS



(a) CONTRACTOR and Operating Company shall be subject to Law No.66 of 1953 (excluding Article 37 thereof) as amended by Law no. 86 of 1956 and the regulations issued for the implementation thereof, including the regulations for the safe and efficient performance of operations carried out for the execution of this Agreement and for the conservation of the petroleum resources of the A.R.E. provided that no regulations, modification or interpretation thereof, shall be contrary to or inconsistent with the provisions of this Agreement.



(b) Except as provided in Article III (g) for income taxes, EGPC, CONTRACTOR and Operating Company shall be exempted from all taxes and duties, whether imposed by the GOVERNMENT or municipalities including among others, Sales Tax, Value Added Tax and Taxes on the Exploration, Development, extracting, producing, exporting or transporting of Petroleum and LPG as well as any and all withholding taxes that might otherwise be imposed on dividends, interest, technical service fees, patent and trademark royalties, and similar items. CONTRACTOR shall also be exempted from any tax on the liquidation of CONTRACTOR, or distributions of any income to the share holders of CONTRACTOR, and from any tax on capital.(c) The rights and obligations of EGPc and CONTRACTOR under, and for the effective term of this Agreement shall be governed by and in accordance with the provisions of this Agreement and can only be altered or amended by the written mutual agreement of the said contracting parties.



(d) The contractors and sub-contractors of CONTRACTOR and Operating Company shall be subject to the provisions of this Agreement which affect them. Insofar as all regulations which are duly issued by the GOVERNMENT apply from time to time and are not in accord with the provisions of this Agreement, such regulations shall not apply to CONTRACTOR, Operating Company and their respective contractors and sub-contractors, as the case may be.



(e) EGPC, CONTRACTOR, Operating Company and their respective contractors and sub-contractors shall for the purposes of this Agreement be exempted from all professional stamp duties, imposts and levies imposed by syndical laws with respect to their documents and activities hereunder.



(f) All the exemptions from the application of A.R.E laws or regulations granted to EGPC, CONTRACTOR, the Operating Company, their contractors and sub-contractors under this Agreement shall include such laws and regulations as presently in effect or hereafter amended or substituted.ARTICLE XIX



STABILIZATION



In case of changes in existing legislation or regulations applicable to the conduct of Exploration, Development and production of Petroleum, which take place after the Effective Date, and which significantly affect the economic interest of this Agreement to the detriment of CONTRACTOR or which imposes on CONTRACTOR an obligation to remit to the A.R.E the proceeds from sales of CONTRACTOR's Petroleum, CONTRACTOR shall notify EGPC of the subject legislative or regulatory measure. In such case, the Parties shall negotiate possible modifications to this Agreement designed to restore the economic balance thereof which existed on the Effective Date.



The Parties shall use their best efforts to agree on amendments to this Agreement within ninety (90) days from aforesaid notice.



These amendments to this Agreement shall not in any event diminish or increase the rights and obligations of CONTRACTOR as these were agreed on the Effective Date.



Failing agreement between the Parties during the period referred to above in this Article XIX, the dispute may be submitted to arbitration, as provided in Article XXIV of this Agreement.ARTICLE XX



RIGHT OF REQUISITION



(a) In case of national emergency due to war or imminent expectation of war or internal causes, the GOVERNMENT may requisition all or part of the production from the Area obtained hereunder and require Operating Company to increase such reproduction to the utmost possible maximum. The GOVERNMENT may also requisition the Oil and/or Gas field itself and, if necessary, related facilities.



(b) In any such case, such requisition shall not be effected except after inviting EGPC and CONTRACTOR or their representative by registered letter, with acknowledgment of receipt, to express their views with respect to such requisition.



(c) The requisition of production shall be effected by Ministerial Order. Any acquisition of an Oil and/or Gas field, or any related facilities shall be effected by a Presidential Decree fully notified to EGPC and CONTRACTOR.



(d) In the event of any requisition as provided above, the GOVERNMENT shall indemnify in full EGPC and CONTRACTOR for the period during which the requisition is maintained, including:



(1) All damages which result from such requisition; and



(2) Full repayment each month for all Petroleum extracted by the GOVERNMENT less the royalty share of such production.However, any damage resulting from enemy attack is not within the meaning of this paragraph (d). Payment hereunder shall be made to CONTRACTOR in U.S. Dollars remittable abroad. The price paid to CONTRACTOR FOR Petroleum taken shall be calculated in accordance with Article VII (c).



ARTICLE XXI



ASSIGNMENT



(a) Neither EGPC nor CONTRACTOR may assign to a person, firm or corporation, in whole or in part, any of its rights, privileges, duties or obligations under this Agreement without the written consent of the GOVERNMENT.



(b) To enable consideration to be given to any request for such consent, the following conditions must be fulfilled :



1. The obligations of the assignor driving from this Agreement must have been duly fulfilled as of the date such request in made.



2. The instrument of assignment must include provisions stating precisely that the assignee is bound by all covenants contained in this Agreement and any modifications or additions in writing that up to such time may have been made. A draft of such instrument of assignment shall be submitted to EGPC for review and approval before being formally executed.



(c) Notwithstanding the provisions of Article XXI(a), CONTRACTOR may assign all or any of its rights, privileges, duties or obligations under this Agreement to an Affiliated Company, provided that CONTRACTOR shall advise the GOVERNMENT and EGPC in writing of the assignment.(d) Any assignment, sale, transfer or other such conveyance made pursuant to the provisions of this Article XXI shall be free of any transfer, capital gains taxes or related taxes, charges or fees including without limitation, all income tax, sales tax, value added tax, stamp duty, or other taxes or similar payments.



(e) As long as the assignor shall hold any interest under this Agreement the assignor together with the assignee shall be jointly and severally liable for all duties and obligations of CONTRACTOR under this Agreement.



ARTICLE XXII



BREACH OF AGREEMENT AND POWER TO CANCEL



(a) The GOVERNMENT shall have the right to cancel this Agreement by Order or Presidential Decree, with respect to CONTRACTOR, in the following instances:



1. If it knowingly has submitted any false statements to the GOVERNMENT which were of a material consideration for the execution of this Agreement;



2. If it assigns any interest hereunder contrary to the provisions of Article XXI;



3. If it is adjudicated bankrupt by a court of a competent jurisdiction;



4. If it does not comply with any final decision reached as the result of a court proceedings conducted under Article XXIV (a);5. If it intentionally extracts any mineral other than Petroleum not authorized by this Agreement or without the authority of the GOVERNMENT, except such extractions as may be unavoidable as the result of operations conducted hereunder in accordance with accepted petroleum industry practice and which shall be notified to the GOVERNMENT or its representative as soon as possible; and



6. If it commits any material breach of this Agreement or of the provisions of Law No.66 of 1953, as amended by Law No. 86 of 1956, which are not contradicted by the provisions of this Agreement.



Such cancellation shall take place without prejudice to any rights which may have accrued to the GOVERNMENT against CONTRACTOR in accordance wiht the provisions of this Agreement, and, in the event of such cancellation, CONTRACTOR, shall have the right to remove from the Area all its personal property.



(b) If the GOVERNMENT deems that one of the aforesaid causes (other than a force majeure cause referred to in Article XIII hereof) exists to cancel this Agreement, the GOVERNMENT shall give CONTRACTOR ninety (90) days written notice personally served on CONTRACTOR's General Manager in the legally official manner and receipt of which is acknowledged by him or by his legal agents, to remedy and remove such cause; but if for any reason such service is impossible due to unnotified change of address, publication in the Official Journal of the GOVERNMENT of such notice shall be considered as validly served upon CONTRACTOR. If at the end of the said ninety (90) day notice period such cause has not been remedied andremoved, this Agreement may be cancelled forthwith by Order or Presidential Decree as aforesaid; provided, however, that if such cause, or the failure to remedy or remove such cause results from any act or omission of one party, cancellation of this Agreement shall be effective only against the party and not as against any other party hereto.



ARTICLE XXIII



FORCE MAJEURE



(a) The non-performance of delay in performance by EGPC and CONTRACTOR, or either of them of any obligation under this Agreement shall be excused if, and to the extent that, such non-performance or delay is caused by force majeure. The period of any such non-performance or delay, together with such period as may be necessary for the restoration of any damage done during such delay, shall be added to the time given in this Agreement for the performance of such obligation and for the performance of any obligation dependent thereon and consequently, to the term of this Agreement, but only with respect to the block or blocks affected.



(b) "Force Majeure", within the meaning of this Article XXIII, shall be any order, regulation or direction of the GOVERNMENT with respect to CONTRACTOR whether promulgated in the form of a law or otherwise or any act of God, insurrection, riot, war, strike, and other labor disturbance, fires, floods or any cause not due to the fault or negligence of EGPC and CONTRACTOR or either of them, whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of EGPC and CONTRACTOR, or either of them.(c) Without prejudice to the above and except as may be otherwise provided herein, the GOVERNMENT shall incur no responsibility whatsoever to EGPC and CONTRACTOR, or either of them for any damages, restrictions or loss arising in consequence of such case of force majeure except a force majeure caused by the order, regulations or direction of the GOVERNMENT.



(d) If the force majeure event occurs during the initial Exploration Period or any extension thereof and continues in effect for a period of six (6) months CONTRACTOR shall have the option upon ninety (90) days prior written notice to EGPC to terminate its obligations hereunder without further liability of any kind.



ARTICLE XXIV



DISPUTES AND ARBITRATION



(a) Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or invalidity thereof, between the GOVERNMENT and the parties hereto shall be referred to the jurisdiction of the appropriate A.R.E. Courts and shall be finally settled by such Courts.



(b) Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, between CONTRACTOR and EGPC shall be settled by arbitration in accordance with the Arbitration Rules of the Cairo Regional Centre for International Commercial Arbitration (the Centre) in effect on the date of the Concession Agreement. The award of the arbitrators shall be final and binding on the parties.



(c) The number of arbitrators shall be three (3).(d) Each party shall appoint one arbitrator. If, within thirty (30) days after receipt of the claimant's notification of the appointment of an arbitrator, the respondent has not notified the claimant in writing of the name of the arbitrator he appoints, the claimant may request the Centre to appoint the second arbitrator.



(e) The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the tribunal. If within thirty (30) days after the appointment of the second arbitrator, the two arbitrators have not agreed upon the choice of the presiding arbitrator, then either party may request the Secretary General of the Permanent Court of Arbitration at the Hague to designate the appointing authority. Such appointing authority shall appoint the presiding arbitrator in the same way as a sole arbitrator would be appointed under Article 6.3 of the UNCITRAL Arbitration Rules. Such presiding arbitrator shall be a person of a country which has diplomatic relations with the A.R.E., and who shall have no economic interest in the Petroleum business of the signatories hereto.



(f) Unless otherwise agreed by the parties to the arbitration, the arbitration, including the making of the award, shall take place in Cairo, A.R.E.



(g) The decisions of a majority of the arbitrators shall be final and binding upon the Parties and the arbitral award rendered shall be final and conclusive. Judgment on the arbitral award rendered may be entered in any court having jurisdiction or application may be made in such court for a judicial acceptance of the award and for enforcement, as the case may be.ARTICLE XXVI



LOCAL CONTRACTORS AND LOCALLY



MANUFACTURED MATERIAL



CONTRACTOR or Operating Company, as the case may be, and their contractors shall :



(a) Give priority to local contractors and sub-contractors, including EGPC's Affiliated Companies as long as their performance is comparable with international performance and the prices of their services are not higher than the prices of other contractors and sub-contractors by more than ten percent (10%).



(b) Give preference to locally manufactured material, equipment, machinery and consumables so long as their quality and time of delivery are comparable to internationally available material, equipment, machinery and consumables. However, such material, equipment, machinery and consumables may be imported for operations conducted hereunder if the local price of such items at CONTRACTOR's or Operating Company's operating base in the A.R.E. is more than ten percent (10%) higher than the price of such imported items before customs duties, but after transportation and insurance costs have been added.



ARTICLE XXVII



ARABIC TEXT



The Arabic version of this Agreement shall, before the Courts of the A.R.E., be referred to in construing or interpreting this Agreement, provided however, that in any arbitration pursuant of Article XXIV herein between EGPC and CONTRACTOR the English and Arabic version shall both be referred to as having equal force in construing or interpreting the Agreement. ARTICLE XXVIII



GENERAL



The headings or titles to each of the Articles to this Agreement are solely for the convenience of the parties hereto and shall not be used with respect to the interpretation of said Articles.



ARTICLE XXIX



APPROVAL OF THE GOVERNMENT



This Agreement shall not be binding upon any of the parties hereto unless and until a law is issued by the competent authorities of the A.R.E. authorizing the Minister of Petroleum to sign this Agreement and giving this Agreement full force and effect of Law, notwithstanding any countervailing governmental enactment, and the Agreement is signed by the GOVERNMENT, EGPC, and CONTRACTOR.



NATIONAL EXPLORATION COMPANY



BY: -------------------------------------------------



EGYPTIAN GENERAL PETROLEUM CORPORATION



ARAB REPUBLIC OF EGYPT



BY: -------------------------------------------------



DATE: -----------------------------------------------

ANNEX "A"



CONCESSION AGREEMENT



BETWEEN



ARAB REPUBLIC OF EGYPT



AND



EGYPTIAN GENERAL PETROLEUM CORPORATION



AND



NATIONAL EXPLORATION COMPANY



IN



CENTRAL SINAI AREA



A.R.E



BOUNDARY DESCRIPTION OF THE CONCESSION AREA



Annex "B" is an illustrative map at an approximate scale of 1 : 3,000,000 showing the Area covered and affected by this Agreement.



The Area measures approximately eighteen thousand hundred and fifty (18,150) square kilometers. The Area is composed of all or part of Exploration Blocks, the whole Blocks are defined on a six (6) minutes Latitude by six (6) minutes longitude grid.



It is to be noted that the delinecation lines of the individual Exploration Blocks in Annex "B" are intended to be only illustrative and provisional and may not show accurately their true position in relation to existing monuments and geographical features.

Coordinates of the corner points of the Area are given in the following table which forms an integral part of Annex "A".



BOUNDARY COORDINATES



OF



CENTRAL SINAI AREA



| POINT | LATITUDE | LONGITUDE |

| No. | NORTH | EAST |

| 1 | 30° 00' 00" | 34° 00' 00" |

| 2 | 28° 51' 00" | 34° 18' 00" |

| 3 | 30° 51' 00" | 33° 18' 00" |

| 4 | 28° 57' 00" | 33° 18' 00" |

| 5 | 29° 09' 00" | 33° 03' 00" |

| 6 | Intersection of eastern | 33° 03' 00" |

| | coast of G.O.S with | |

| | long 33° 03' 00" | |

| 7 | 30° 00' 00" | Intersection of |

| | | eastern ank of |

| | | Suez Canal with |

| | | Lat30° 00' 00" |



The Area excluded the Development Leases of Sudr, Ras Matarma and Asal of the General Petroleum Company by the following points:



| POINT | LATITUDE | LONGITUDE |

| No. | NORTH | EAST |

| SUDR |

| 8 | 29° 37' 46.19" | 32° 43' 13.75" |

| 9 | 29° 32' 45.14" | 32° 49' 09.88" |

| 10 | 29° 30' 55.44" | 32° 47' 08.51" |

| 11 | 29° 35' 56.41" | 32° 41' 12.38" |

POINT

No. LATITUDE NORTH LOGITUDE EAST

RAS MATARMA

12 29” 32’ 46.40” 32” 50’ 21.70”

13 29” 31’ 56.24” 32” 51’ 02.75”

14 29” 30’ 44.44” 32” 49’ 08.05”

15 29” 31’ 34.59” 32” 48’ 26.99”

ASAL

16 29” 30’ 53.46” 32” 50’ 28.10”

17 29” 27’ 39.82” 32” 52’ 18.48”

18 29” 26’ 45.53” 32” 50’ 13.96”

19 29” 29’ 59.32” 32” 48’ 23.51”











[---------------------IMAGE-----------------------------]







________________________________ _______________________

| | | |

| ANNEX "B" | | |

|PETROLEUM CONCESSION AGREEMENT | | |

| BETWEEN | | |

| ARAB REPUBLIC OF EGYPT | | |

| AND | | |

| EGYPTIAN GENERAL PETROLEUM | | [---------------] |

| CORPORATION | | |

| AND | | |

| NATIONAL EXPLORATION COMPANY | | |

| IN | | |

| CENTRAL SINAI | | |

| A.R.E | | |

| SCALE 1 : 3,000,000 | | |

|_______________________________| |______________________|

ANNEX "C"

LETTER OF GUARANTY



Letter of Guaranty No. — Cairo, EGYPTIAN GENERAL PETROLEUM CORPORATION.



Gentlemen,



The undersigned, National Bank of Egypt, as Guarantor, hereby guarantees to the EGYPTIAN GENERAL PETROLEUM CORPORATION (hereinafter referred to as "EGPC") to the limit of six million (6,000,000) U.S. Dollars, the performance by "NATIONAL EXPLORATION COMPANY ", ( hereinafter referred to as "CONTRACTOR") of its obligations required for Exploration Operations to spend a minimum of six million (6,000,000) U.S.Dollars during the initial three (3) years of the Exploration period under Article IV of that certain Concession Agreement (hereinafter referred to as the "Agreement") covering that Area described in Annexes "A" and ’TB" of said Agreement, by and between the Arab Republic of Egypt (hereinafter referred to as ("A.R.E."), EGPC and CONTRACTOR, dated ---.



It is understood that this Guaranty and the liability of the Guarantor hereunder shall be reduced quarterly, during the period of expenditure of said six million (6,000,000) U.S. Dollars by the amount of money expended by CONTRACTOR for such Exploration Operations during each, such quarter. Each such reduction shall be established by the joint written statement of CONTRACTOR and EGPC



In the event of a claim by EGPC of non-performance or surrender of the Agreement on the part of CONTRACTOR prior to fulfillment of said minimum expenditure obligations under Article IV of the Agreement, there shall be no liability on the undersigned Guarantor for payment to EGPC unless and until such liability has been established by written statement of EGPC setting forth the amount due under the Agreement.

It is a further of this Letter of Guaranty that:



(1) This Letter of Guaranty will become available only provided that the Guarantor will have been informed in writing by CONTRACTOR and EGPC that the Agreement between CONTRACTOR, A.R.E. and EGPC has become effective according to its terms, and said Guaranty shall become effective on the Effective Date of said Agreement.



(2) This Letter of Guaranty shall in any event automatically expire:



(a) Three (3) years and six (6) months after the date it becomes effective, or



(b) At such time as the total of the amounts shown on quarterly joint statements of EGPC and CONTRACTOR equals or exceeds the amount of said minimum expenditure obligation, whichever is earlier.



(3) Consequently, and claim, in respect thereof should be made to the Guarantor prior to either of said expiration dates at the latest accompanied by EGPC's written statement, setting forth the amount of under-expenditure by CONTRACTOR to the effect that:



(a) CONTRACTOR has failed to perform its expenditure obligations referred to in this Guaranty, and



(b) CONTRACTOR has failed to pay the expenditure deficiency to EGPC.



Please return to us this Letter of Guaranty in the event it does not become effective, or upon the expiry date.



Yours Faithfully,



BY : ..........................



Accountant : ..................



Manager : .....................



ANNEX "D"

CHARTER OF OPERATING COMPANY

ARTICLE I



A joint stock company having the nationality of the ARAB REPUBLIC OF EGYPT shall be formed with the authorization of the GOVERNMENT in accordance with the provisions of this Agreement referred to below and of this Charter.



The Company shall be subject to all laws and regulations in forte in the A. R. E. to the extent that such laws and regulations are not inconsistent with the provisions of this Charter and the Agreement referred to below.



ARTICLE II



The name of the Operating Company shall be mutually agreed upon between EGPC and CONTRACTOR on the date of the Commercial Discovery and shall be subject to the approval of the Minister of Petroleum.



ARTICLE III



The Head Office of Operating Company shall be in the A. R. E. in. Cairo.



ARTICLE IV



The object of Operating Company is to act as the agency through which EGPC and CONTRACTOR, carry out and conduct the Development Operations required in accordance with the provisions of the Agreement signed on the------day of------by and between the ARAB REPUBLIC OF EGYPT, the EGYPTIAN GENERAL PETROLEUM CORPORATION and CONTRACTOR covering Petroleum operations in Central Sinai Area, described therein.

Operating Company shall be the agency to carry out and conduct Exploration operations after the date of Commercial Discovery pursuant to Work Programs and Budgets approved in accordance with the Agreement.



Operating Company shall keep account of all costs, expenses and expenditures for such operations under the terms of the Agreement and Annex "B" thereto.



Operating Company shall not engage in any business or undertake any activity beyond the performance of said operations unless otherwise agreed upon by EGPC and CONTRACTOR.



ARTICLE V



The authorized capital of Operating Company is twenty thousand Egyptian Pounds divided into five thousand shares of common stock with a value of four Egyptian Pounds per share having equal voting rights, fully paid and non-assessable.



EGPC and CONTRACTOR shall each pay for, hold and own, throughout the life of Operating Company, one half (1/2) of the capital stock of Operating Company provided that only in the event that either party should transfer or assign the whole or may percentage of its ownership interest in the entirely of the Agreement, may such transferring Or assigning party transfer or assign any of the Capital stock of Operating Company and, in that event, Such Transferring or assigning party (and its successors and assignees) must transfer and assign a stock interest in Operating Company equal to the transferred or assigned whole or percentage of its ownership interest in the entirety of the said Agreement

ARTICLE VI



Operating Company shall not own any right, title, interest or estate in or under the Agreement or any Development Lease created thereunder or in any of the Petroleum produced from any Exploration Block or Development Lease thereunder or in any of the assets, equipment or other property obtained or used in connection therewith, and shall not be obligated as a principal for the financing or performance of any of the duties or obligations of either EGPC or CONTRACTOR under the Agreement. Operating Company shall not make any profit from any source whatsoever.



ARTICLE VII



Operating Company shall be no more than an agent for EGPC and CONTRACTOR.Whenever it is indicated herein that Operating Company shall decide, take action or make a proposal and the like, iti is understood that such decision, or judgement is the result of the decision or judgment of EGPC, CONTRACTOR or EGPC and CONTRACTOR, as may be required by the Agreement.



ARTICLE VIII



Operating Company shall have a Board of Directors consisting of eight (8) members, four (4) of whom shall be designated by EGPC and the other four (4) by CONTRACTOR. The Chairman shall be designated by EGPC and shall also be a Managing Director. CONTRACTOR shall designate the General Manager who shall also be a Managing Director. ARTICLE IX



Meetings of the Board of Directors shall be valid if a majority of the Directors are present and any decision taken at such meetings must have the affirmative vote of five (5) or more of the Directors; provided, however, that any Director may be represented and vote by proxy held by another Director.



ARTICLE X



General meetings of the Shareholders shall be valid if a majority of the capital stock of Operating company is represented thereat. Any decision taken at such meetings must have the affirmative vote of Shareholders owning or representing a majority of the capital stock.



ARTICLE XI



The Board of Directors shall approve the regulations covering the terms and conditions of employment of the personnel of Operating Company employed directly by Operating Company and not assigned thereto by CONTRACTOR and EGPC.



The Board shall, in due course, draw up the By-Laws of Operating Company, and such By-Laws shall be effective upon being approved by a General Meeting of the Shareholders, in accordance with the provisions of Article X hereof.

ARTICLE XII



Operating Company shall come into existence within thirty (30) days after the date of Commercial Oil Discovery or within thirty (30) days after signature of a Gas Sales Agreement or commencement of a scheme to dispose of Gas, as provided for in the Agreement (unless otherwise agreed by EGPC and CONTRACTOR).



The duration of Operating Company shall be for a period equal to the duration of the said Agreement, including any renewal thereof, unless otherwise agreed by EGPC and CONTRACTOR



The Operating Company shall be wound up if the Agreement referred to above is terminated for any reason as provided for therein.



NATIONAL EXPLORATION COMPANY



By : -------------------------------------



EGYPTIAN GENERAL PETROLEUM CORPORATION



By : -------------------------------------



DATE : -----------------------------------

ANNEX "E"

ACCOUNTING PROCEDURE



ARTICLE I



GENERAL PROVISIONS

(a) Definitions



The definitions contained in Article I of the Agreement shall apply to this Accounting Procedure and have same meanings.



(b) Statements of activity



(1) CONTRACTOR shall, pursuant to Article IV of this Agreement and until the Coming into existance of the of the Operating Company in accordance with Article VI of the Agreement render to EGPC within thirty (30) days of the end of each calendar quarter a Statement of Exploration Activity reflecting all charges and credits related to the exploration operations for that quarter summarized by classification indicative of the nature thereof.



(2) Following its coming into existence, Operating Company shall render to EGPC and CONTRACTOR within fifteen (15) days of the end of each calendar quarter a Statement of Development and Exploration Activity reflecting all charges and credits related to the Development and Exploration Operations for that quarter summarized by appropriate classifications indicative of the nature thereof, except that items of controllable material and unusual charges and credits shall be detailed.(c) Adjustments and Audits



(1)Each Quarterly Statement of Exploration Activity pursuant to Article I (b) (1) shall conclusively be presumed to be true and correct after three (3) months following the receipt of each Statement by EGPC unless within the said three (3)months EGPC takes written exception thereto pursuant to Article IV (f) of the Agreement. During said three (3) month period supporting documents will be available for inspection by EGPC during all working hours. CONTRACTOR will have the same audit rights on Operating Company Statement as EGPC under this sub-paragraph.



(2) All Statements of Development and Exploration Activity for any calendar quarter pursuant to Article I (b) (2) shall conclusively be presumed to true and correct three (3) months following the receipt of such statement,unless within the said three (3) month period EGPC or CONTRACTOR takes written exception thereto.Pending expiration of said three (3) months EGPC or CONTRACTOR or both of them shall have the right to audit Operating Company accounts, records and supporting documents for such quarter in the same manner as provided in the Article IV (f) of the Agreement.



(d) Currency Exchange



CONTRACTOR's books for Exploration and Operating Company's books for Development and Exploration, if any, shall be kept in the A.R.E. in U.S. Dollars. All U.S. Dollar expenditures shall be charged in the amount expended. All Egyptian Pounds expenditures shall be converted to U.S. Dollars at the applicable rate of exchange issued by the Central Bank of Egypt on the first day

of the month in which expenditures are recorded, and

all other non-U.S. Dollar expenditures shall be

translated to U.S. Dollars at the buying rate of

exchange for such currency as quoted by National

Westminster Bank Limited, London at 10.30 a.m. G.M.T.,

on the first day of the month in which expenditures

are recorded. A record shall be kept of the exchange

rates used in translating Egyptian Pounds or other

non-U.S. Dollar expenditures to U.S. Dollars.



(e) Precedence of Documents



In the event of any inconsistency or conflict between

tine provisions of this Accounting Procedure and the

provisions of the Agreement treating the same subject

differently, then the provisions of the Agreement

shall prevail.



(f) Revision of Accounting Procedure



By mutual agreement between EGPC and CONTRACTOR, this

Accounting Procedure may be revised in writing from

time to time in the light of future arrangements.



(g) No Charge for Interest on Investment



Interest on investment or any bank fees, charges or

commissions related to any bank guarantees shall not

at any time be charged as recoverable costs under the

Agreement.

[Egyptian Arabic]

------------------------------------------------------------

ARTICLE II



COSTS, EXPENSES AND EXPENDITURES



Subject to the provisions of the Agreement, CONTRACTOR shall alone bear and, directly or through Operating Company, pay the following costs and expenses, which costs and expenses shall be classified and allocated to the activities according to sound and generally accepted accounting principles and treated and recovered in accordance with Article VII of this Agreement:



(a) Surface Rights



All direct cost attributable to the acquisition, renewal or relinquishment of surface rights acquired and maintained in force for the Area.



(b) Labour and Related Costs



(1) Salaries and wages of CONTRACTOR's or Operating Company's employees as the case may be, directly engaged in the various activities under the Agreement including salaries and wages paid to geologists and other employees who are temporarily assigned to and employed in such activities. Such salaries and wages to be certified by a certified public accounting firm.



Reasonable revisions of such salaries and wages shall be effected to take into account changes in CONTRACTOR's policies and amendments of Laws applicable to salaries. For the purpose of this Article II (b) and of Article II (c), salaries and wages shall mean the assessable amounts for A.R.E. Income Taxes, including the salaries during vacations and sick leaves, but excluding all the amounts of the other items covered by the percentage fixed under (2) below.

____________________________________________________________

[Egyptian Arabic]









(2) For expatriate employees permanently assigned to

Egypt:



1. All allowances applicable to salaries and wages;



2. Cost of established plans; and



3. All travel and relocation costs of such expatriate

employees and their families to and from the

employee’s country or point of origin at the time

of employment, at the time of separation, or as a

result of transfer from one location to : another

and for vacation (transportation costs for

employees and their families transferring from the

A.R.E. to another location other than their country

of origin shall not be charged to A.R.E.

operations).



Costs under this Article II (b) (2) shall be deemed

to be equal to seventy percent (70%) for expatriate

personnel married and accompanied by their spouses

and fifty-two percent (52%) for expatriate

personnel either single or not accompanied by their

spouses to Egypt. These percentages refer to basic

salaries and wages paid for such expatriate

personnel including those paid during vacations and

sick leaves as established in CONTRACTOR'S

international policies, chargeable under Article

II(b)(1), Article II(i), Article II(k)(1) and

Article II(k)(3).



However, salaries and wages during vacations, sick

leaves and disability are covered by the-foregoing

percentage. The percentages outlined above shall be

deemed to reflect

CONTRACTOR's actual costs as of the Effective Date with regard to the following benefits, allowances and costs:



1. Housing and Utilities Allowance.



2. Commodities and Services Allowance.



3. Special Rental Allowance.



4. Vacation Transportation Allowance.



5. Vacation Travel Expense Allowance.



6. Vacation Excess Baggage Allowance.



7. Education Allowances (Children of Expatriate Employees).



8. Hypothetical U.S.A. Tax Offset (which results in a reduction of the chargeable percentage).



9. Storage of Personal Effects.



10. Housing Refurbishment Expense.



11. Property Management Service Fees.



12. Recreation Allowance.



13. Retirement Plan.



14. Group Life Insurance.



15. Group Medical Insurance.



16. Sickness and Disability.



17. Vacation Plan paid (excluding Allowable Vacation Travel Expenses).18. Savings Plan.



19. Educational Assistance.



20. Military Service Allowance.



21. F.I.C.A.



22. Workmans Compensation.



23. Federal and State Unemployment Insurance.



24. Personnel Transfer Expense.



25. National Insurance.



26. Any other Costs, Allowances and Benefits of a like

nature as established in CONTRACTOR’S International

Policies.



The percentages outlined above shall be reviewed at

intervals of three (3) years from the Effective

Date and at such time CONTRACTOR and EGPC will

agree on new percentages to be used under this

paragraph.



Revisions of the percentages will take into

consideration variances in costs and changes in

CONTRACTOR'S international policies which change or

exclude any of the above allowances and benefits.



The revised percentages will reflect as nearly as

possible CONTRACTOR'S actual costs of all its

established allowances and benefits and of

personnel transfers.



(3) For expatriate employees temporarily assigned to

Egypt all allowances costs of established plans

and all travel relocation costs for such

expatriates as paid in accordance with CONTRACTOR'S

international policies. Such costs shall not

include any administrative overhead other than what

is mentioned in Article II (k) (2).

(4) Costs of expenditure or contributions made pursuant to law or assessment imposed by governmental authority which are applicable to labour costs of salaries and wages as provided under Article II(b)(1), Article II(b)(2), Article II(i), Article II(k)(1) and Article II(k)(3).



:)Benefits, Allowances and Related Costs of National Employees



Bonuses, overtime, customary allowances and benefits on a basis similar to that prevailing for oil companies operating in the A.R.E., all as chargeable under Article II(b)(1), Article II(i), Article II(k)(1) and Article II(k)(3). Severance pay will be charged at a fixed rate applied to payrolls which will equal an amount equivalent to the maximum liability for severance payment as required under the A.R.E. Labour Law.



I) Material



Material, equipment and supplies purchased or furnished as such by CONTRACTOR or Operating Company.



I) Purchases



Material, equipment and supplies purchased shall be at the price paid by CONTRACTOR or Operating Company plus any related cost and after deduction of all discounts actually received.



[Egyptian Arabic]



2) Material Furnished by CONTRACTOR



Material required for operations shall be purchased directly whenever practicable, except that CONTRACTOR may furnish such material from CONTRACTOR's or CONTRACTOR's Affiliated Companies' stocks outside the A.R.E. under the following conditions:



1. New Material (Condition "A")



New Material transferred from CONTRACTOR's or CONTRACTOR's Affiliated Companies' warehouse or other properties shall be priced at cost, provided that the cost of material supplied is no higher than international prices for material of similar quality supplied on similar terms, prevailing at the time such material was supplied.



2. Used Material (Condition "B" and 'C")



a) Material which is in sound and serviceable condition and is suitable for re-use without reconditioning shall be classed as Condition "B" and priced at seventy-five percent (75%) of the price of new material.



b) Material which cannot be classified as Condition "B" but which is serviceable for original function but substantially not suitable for reconditioning, shall be classed as Condition "C" and priced at fifty percent (50%) of the price of new material.



c) Material which cannot be classified as Condition "B" or Condition "C" shall be priced at a value commensurate with its use.



d) Tanks, buildings and other equipment involving erection costs shall be charged at applicable percentage of knocked-down new price.



[Egyptian Arabic](3) Warranty of Material Furnished by CONTRACTOR



CONTRACTOR does not warrant the material furnished

beyond or back of the dealer’s or manufacturer’s

guaranty; and in case of defective material, credit

shall not be recorded until adjustment has been

received by CONTRACTOR from manufacturers or their

agents.



(e) Transportation and Employee Relocation Costs



(1) Transportation of equipment, materials and

supplies necessary for the conduct of

CONTRACTOR'S or Operating Company's activities.



(2) Business travel and transportation expenses to

the extent covered by established policies of

CONTRACTOR or with regard to expatriate and

national employees, as incurred and paid by, or

for employees in the conduct of CONTRACTOR’S or

Operating Company’s business.



(3) Employees transportation and relocation costs

for national employees to die extent covered by

established policies.



(f) Services



(1) Outside services. The costs of contracts fen:

consultants, services and utilities procured

from third parties.



(2) Cost of services performed by EGPC or by

CONTRACTOR, or their Affiliated Companies in

facilities inside or outside the A.R.E. Regular,

recurring, routine services, such as

interpreting magnetic tapes and/or other

analyses, shall be performed and charged by EGPC

and/or CONTRACTOR or their Affiliated

Companies at an agreed contracted price.Major projects involving engineering and design services shall be performed by EGPC and/or CONTRACTOR or their Affiliated Companies ata negotiated contract amount.



(3)Use of EGPC's,CONTRACTOR's or their Affiliated Companies'wholly owned equipment shall be charged at a rental rate commensurate with the cost of ownership and operation, but not in excess of competitive rates currently prevailing in the A.R.E.



(4)CONTRACTOR's or CONTRACTOR's Affiliated Companies'rates shall not include any administrative or overhead costs other than what is mentioned in the Article II(k)(2).



(g)Damages and Losses



All costs or expenses,necessary to replace or repair damages or losses incurred by fire,flood,storm,theft,accident or any other cause not controllable by CONTRACTOR or Operating Company through the exercise of reasonable diligence,CONTRACTOR or Operating Company shall furnish EGPC and CONTRACTOR written notice of damages or losses incurred in excess of ten thousand(10,000)U.S.Dollars per occurrence, as soon as practicable after report of the same has been received by CONTRACTOR or Operating Company.



(h)Insurance and Claim



The cost of any public liability,property damages and other insurance against liabilities of CONTRACTOR,Operating Company and/or the parties or any of them to their employees and/or outsiders as may be required by the laws,rules and regulations of the GOVERNMENT or as the parties may agree upon. The proceeds of any such insurance or claim collected, less the actual cost of making a claim, shall be credited against operations.



If no insurance is carried for a particular risk, in accordance with good international oil field practices, all related actual expenditures incurred and paid by CONTRACTOR or Operating Company in settlement of any and all losses, claims, damages, judgments and any other expenses, including legal services.



Indirect Expenses



Camp overhead and facilities such as shore base, warehouses, water systems, road systems, salaries and expenses of field supervisory personnel, field clerks, assistants, and other general employees indirectly serving the Area.



Legal Expenses



AH costs and expenses of litigation, or legal services otherwise necessary or expedient for the protection of the Area, including attorney’s fees and expenses as hereinafter provided, together with all judgments obtained against the parties or any of them on account of the operations under the Agreement, and actual expenses incurred by any party or parties hereto in securing evidence for the purpose of defending against any action or claim prosecuted or urged against the operations or the subject matter of the Agreement. In the event actions or claims affecting the interests hereunder shall be handled



by the legal staff of one or more of the parties hereto, a charge commensurate with cost of providing and furnishing such services may be made to operations.



Administrative Overhead and General Expenses



(1) While CONTRACTOR is conducting Exploration operations,

the cost of staffing and maintaining CONTRACTOR’S head

office in the A.R.E. and/or other offices established

in the A.R.E. as appropriate, other than field offices

which will be charged as provided in Article II (i),

and excepting salaries of employees of CONTRACTOR who

are temporarily assigned to and directly serving on

the Area, which will be charged as provided in Article

II (b).



(2) CONTRACTOR’S administrative overhead outside the

A.R.E. applicable to Exploration operations in the

A.R.E. shall be charged each month at the rate of five

percent (5%) of total Exploration expenditures,

provided that no administrative overhead of the

CONTRACTOR outside the A.R.E. applicable to A.R.E,

Exploration operations will be charged for Exploration

operations conducted by the Operating Company. No

other direct charges as such for CONTRACTOR’S

administrative overhead outside the A.R.E. will be

applied against the Exploration obligations. Examples

of the type of costs CONTRACTOR



is incurring and charging hereunder due to

activities under the Agreement and covered by said

percentage are:



1. Executive -Time of executive officers.



2. Treasury - Financial and exchange problems.



3. Purchasing - Procuring materials, equipment and

supplies.



4. Exploration and Production - Directing, advising

and controlling the entire project.



5. Other departments such as legal, controllers and

engineering which contribute time, knowledge and

experience to the operations.



The foregoing does not preclude charging for direct

service under Article II (f) (2).



(3) While Operating Company is conducting operations,

Operating Company’s personnel engaged in general

clerical and office work, supervisors and officers

whose time is generally spent in the main office

and not the field, and all employees generally

considered as general and administrative and not

charged to other types of expense will be charged

to operations. Such expenses shall be allocated

each month between Exploration and Development

operations according to sound and practicable

accounting methods.



(1) Taxes



All taxes, duties or levies paid in the A.R.E by

CONTRACTOR or Operating Company with respect to this

Agreement other than those covered by Article III

(g) 1 of this Agreement.

(m) Continuing CONTRACTOR Costs



Costs of CONTRACTOR activities required under the

Agreement and incurred exclusively in the A.R.E. after

Operating Company is formed. No sales expenses

incurred outside or inside the A.R.E. may be recovered

as a cost.



(n) Other Expenditures



Any costs, expenses or expenditures, other than those

which are covered and dealt with by the foregoing

provisions of this Article II, incurred by CONTRACTOR

or Operating Company under approved Work Programs and

Budgets.



ARTICLE III



INVENTORIES



(a) Periodic Inventories, Notice and Representation



At reasonable intervals as agreed upon by EGPC and

CONTRACTOR inventories shall be taken by Operating

Company of the operations materials, which shall

include all such material, physical assets and

construction projects. Written notice of intention to

take inventory shall be given by Operating Company to

EGPC and CONTRACTOR at least thirty (30) days before

any inventory is to begin so that EGPC and CONTRACTOR

may be represented when any inventory is taken-

Failure of EGPC and/or CONTRACTOR to be represented at

an inventory shall bind them to accept the inventory

taken by Operating Company, who shall in that event

furnish the party not represented with a copy thereof.

Reconciliation and Adjustments of Inventories



Reconciliation of inventory shall be made by CONTRACTOR and EGPC, and a list of overages and shortages shall be jointly determined by Operating Company and CONTRACTOR and EGPC, and the inventory adjusted by Operating Company.



ARTICLE IV



COST RECOVERY



Statements of Recovery of Costs and of Cost Recovery Petroleum



CONTRACTOR shall, pursuant to Article VII of the Agreement, render to EGPC as promptly as practicable but not later than fifteen (15) days after receipt from Operating Company of the Statements for Development and Exploration Activity for the calendar quarter a Statement for that quarter showing:



1. Recoverable costs carried forward from the previous

quarter, if any.



2. Recoverable costs incurred and paid during the

quarter.



3. Total recoverable costs for the quarter (1) + (2).



4. Value of Cost Recovery Petroleum taken and separately

disposed of by CONTRACTOR for the quarter.



5. Amount of costs recovered for the quarter.



6. Amount of recoverable costs carried into the

succeeding quarter, if any.



7. Excess, if any, of the value of Cost Recovery

Petroleum taken and separately disposed of by

CONTRACTOR over costs

Payments



If such Statement shows an amount due to EGPC, payment of that amount shall be made in U.S. Dollars by CONTRACTOR with the rendition of such Statement. If CONTRACTOR fails to make any such payment to EGPC on the date when such payment is due, then CONTRACTOR shall pay an interest of two and one-half percent (2.5%) per annum higher than the London Interbank Borrowing Offered Rate (LIBOR) for three (3) months U.S. Dollars deposits prevailing on the date such interest is calculated. Such interest payment shall not be recoverable.



Settlement of the Excess Cost Recovery Petroleum



EGPC has the right to take its entitlement to Excess Cost Recovery Petroleum under Article VII (a) of the Agreement, in kind during the said quarter. A settlement shall be required with the rendition of such Statement in case CONTRACTOR has taken more than its own entitlement of such Excess Cost Recovery Petroleum.



Audit Right



EGPC shall have a period of twelve (12) months from receipt of any Statement under this Article IV in which to audit and raise objection to any such Statement. EGPC and CONTRACTOR shall agree on any required adjustments. Supporting documents and accounts will be available to EGPC during said twelve (12) month period.

ARTICLE V



CONTROL AND MAJOR ACCOUNTS



Exploration Obligation Control Account



CONTRACTOR will establish an Exploration Obligation Control Account and an offsetting contra account to control therein the total amount of Exploration Expenditures reported on Statements of Activity prepared per Article I (b) (1), less any reductions agreed to by EGPC and CONTRACTOR following written exceptions taken by a Non-Operator pursuant to Article I (c) (1) hereof, in order to determine when minimum Exploration obligations have been met.



Cost Recovery Control Account



CONTRACTOR will establish a Cost Recovery Control Account and an offsetting contra account to control therein the amount of cost remaining to be recovered, if any, the amount of cost recovered, and the value of the Excess Cost Recovery Petroleum, if any.



Major Accounts



For the purposes of classifying costs, expenses and expenditures for cost recovery- as well' as. for-the purpose-of establishing when the minimum Exploration obligations have been met, costs, expenses and expenditures shall be recorded in major accounts including following:



- Exploration Expenditures



- Development Expenditures other than Operating

Expenses;



- Operating Expenses;



Necessary sub-accounts shall be used.



Revenue accounts shall be maintained by CONTRACTOR to

the extent necessary for the control of recovery of

costs and the treatment of Cost Recovery Petroleum







ARTICLE VI



TAX IMPLEMENTATION PROVISIONS



It is understood that CONTRACTOR shall be subject to Egyptian Income Tax Laws except as otherwise provided in the Agreement, that any A.R.E. income taxes paid by EGPC on CONTRACTOR’S behalf constitute additional income to CONTRACTOR, and this additional income is also subject to A.R.E. income tax, that is "grossed up".



CONTRACTOR’S annual income, as determined in Article III (g) 2 of the Agreement, less the amount equal to CONTRACTOR’S grossed-up Egyptian income tax liability, shall be CONTRACTOR'S "Provisional Income".



The “gross-up value" is an amount added to Provisional Income to give "Taxable Income”, such that the gross-up value is equivalent to the A.R.E. income taxes.



THEREFORE:



Taxable Income - Provisional Income PLUS Gross-up Value AND



Gross-up Value - A.R.E. Income Tax on Taxable Income.



If the "A.R.E. income tax rate”, which means the effective or composite tax rate due to the various A.R.E. taxes levied on income or profits, is constant and not dependent on the level of income, then:

Gross-up Value=A.R.E.income tax rate TIMES Taxable Income



Combining the first and last equations above,



Provisional Income X Tax Rate



Gross-up Value=________________________________________



1-Tax Rate





Where the tax rate is expressed as a decimal.





The above computations are illustrated by the following numerical example.Assuming that the Provisional Income is $10 and the A.R.E. Income Tax rate is forty percent(40%),then the Grossed-up Value is equal to:



10 x 0.4

$ _____________ =$6.67



1-0.4





THEREFORE $



Provisional Income 10.00



Plus Gross-up Value 6.67

________

Taxable Income 16.67



Less A.R.E. Income Taxes at 40% 6.67

_________

CONTRACTOR's Income after Taxes 10.00







ANNEX "F"



MAP OF NATIONAL GAS PIPELINE GRID SYSTEM





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