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THIS PETROLEUM LICENSE NO: 000-000-2012, made this ___ day of

201*, by and

between the Government of the Republic of Sierra Leone (hereinafter referred to as “the State”),

represented by the Director General of the Petroleum Directorate of the Office of the President of

the Republic of Sierra Leone (hereinafter referred to as the “Director General”) and…….

hereinafter referred to as “Licensee”).

W I T N E S S E T H:

1.



All Petroleum existing in its natural state within Sierra Leone is the property of the

Republic of Sierra Leone and held in trust by the State.



2.



The Director General acting on behalf of the President and Government of Sierra Leone

has by virtue of the Petroleum Act of 2011 the right to invite Licensees to undertake

Exploration, Development and Production of Petroleum over all blocks declared by the

State to be open for Petroleum Operations.



3.



The Director General has been authorized to enter into a Petroleum License with a

Licensee for the purpose of Exploration, Development and Production of Petroleum.



4.



The Contract Area that is the subject matter of this Petroleum License has been declared

open for Petroleum Operations by the Director General and the Government of Sierra

Leone desires to encourage and promote Exploration, Development and Production

within the said area.



5.



Licensee, having the financial ability, technical competence and professional skills

necessary for carrying out the Petroleum Operations herein described, desires to enter

into a Petroleum License with the State for the Exploration, Development and Production

of, the Petroleum resources of the said area.

NOW THEREFORE, in consideration of the mutual covenants herein contained, it is

hereby agreed and declared as follows:



Page 1 of 86



ARTICLE 1

DEFINITIONS

1.1



In this License: “



1.2



Accounting Guide” means the accounting guide which is attached hereto as

Annex 2 and made a part hereof;



1.3



“Affiliate” means any person, whether a natural person, corporation, partnership,

unincorporated association or other entity:

a)



in which one of the Parties hereto directly or indirectly holds more than

fifty percent (50%) of the share capital or voting rights;



b)



which holds directly or indirectly more than fifty percent (50%) of the

share capital or voting rights in a Party hereto;



c)



in which the share capital or voting rights are directly or indirectly and to

an extent more than fifty percent (50%) held by a company or companies

holding directly or indirectly more than fifty percent (50%) of the share

capital or voting rights in a Party hereto; or



d)



which holds directly five percent (5%) or more of the share capital or

voting rights in Licensee.



1.4



“License” means this License between the State and Licensee, and includes the

Annexes attached hereto;



1.5



Appraisal Program” means a program carried out following a Discovery of

Petroleum for the purpose of delineating the accumulation of Petroleum to which

that Discovery relates in terms of thickness and lateral extent and estimating the

quantity of recoverable Petroleum therein;



1.6



“Appraisal Well” means a well drilled for the purposes of an Appraisal Program;



1.7



“Associated Gas” means Natural gas produced from a well in association with

Crude Oil;



1.8



“Barrel” means a quantity or unit of Crude Oil equal to forty two (42) United

States gallons at a temperature of sixty (60) degrees Fahrenheit and at 14.65 psia

pressure;



1.9



“Block” means an area of approximately --- square kilometers as depicted on the

reference map prepared by the Director General in accordance with the provisions

of the Petroleum Act;



Page 2 of 86



1.10



“Calendar Year” means the period of twelve (12) months of the Gregorian

calendar, commencing on January 1 and ending on the succeeding December 31;



1.11



“Commercial Discovery” means a Discovery which is determined to be

commercial in accordance with the provisions of this License;



1.12



“Commercial Production Period” means in respect of each Development and

Production Area the period from the Date of Commencement of Commercial

Production until the termination of this License or earlier relinquishment of such

Development and Production Area;



1.13



“Contract Area” means the area covered by this License in which Licensee is

authorized to explore for, develop and produce Petroleum, which is described in

Annex 1 attached hereto and made a part of this License, but excluding any

portions of such area in respect of which Licensee’s rights hereunder are from

time to time relinquished or surrendered pursuant to this License;



1.14



“Licensee” means



1.15



Contract Year” means a period of twelve (12) calendar months, commencing on

the Effective Date or any anniversary thereof;



1.16



“Crude Oil” means hydrocarbons which are liquid at 14.65 psia pressure and

sixty (60) degrees Fahrenheit and includes condensates and distillates obtained

from Natural Gas;



1.17



“Date of Commencement of Commercial Production” means, in respect of

each Development and Production Area, the date on which production of

Petroleum under a program of regular production, lifting and sale commences;



1.18



“Date of Commercial Discovery” means the date of approval of the

Development Plan.



1.19



“Development” or “Development Operations” means the preparation of a

Development Plan, the building and installation of facilities for Production, and

includes drilling of Development Wells, construction and installation of

equipment, pipelines, facilities, plants and systems, in and outside the Contract

Area, which are required for achieving Production, treatment, transport, storage

and lifting of Petroleum, and preliminary Production and testing activities carried

out prior to the Date of Commencement of Commercial Production, and includes

all related planning and administrative work, and may also include the

construction and installation of secondary and tertiary recovery systems;



1.20



“Development Costs” means Petroleum Costs incurred in Development

Operations;



and its respective successors and assignees.



Page 3 of 86



1.21



“Development and Production Area” means that portion of the Contract Area

reasonably determined by Licensee on basis of the available seismic and well data

to cover the areal extent of an accumulation of Petroleum constituting a

Commercial Discovery, enlarged in area by ten percent (10%), where possible,

such enlargement to extend uniformly around the perimeter of such accumulation;



1.22



“Development Period” means in respect of each Development and Production

Area, the period from the Date of Commercial Discovery until the Date of

Commencement of Commercial Production;



1.23



“Development Plan” means the plan for development of a Commercial

Discovery prepared by Licensee;



1.24



“Development Well” means a well drilled in accordance with a Development

Plan for producing Petroleum, for pressure maintenance or for increasing the

Production rate;



1.25



“Director General” means The Director General of the Petroleum Directorate of

The Office of The President of Sierra Leone;



1.26



“Discovery” means finding during Exploration Operations an accumulation of

Petroleum which can be and is recovered at the surface in a flow measurable by

conventional petroleum industry testing methods;



1.27



“Discovery Area” means that portion of the Contract Area, reasonably

determined by Licensee on the basis of the available seismic and well data to

cover the areal extent of the geological structure in which a Discovery is made. A

Discovery Area may be modified at any time by Licensee if justified on the basis

of new information, but may not be modified after the date of completion of the

Appraisal Program;



1.28



Effective Date” means the date on which this License comes into effect and,

unless otherwise provided, shall be the date of execution of this Directorate.



1.29



“Exploration” or “Exploration Operations” means the search for Petroleum by

geological, geophysical and other methods and the drilling of Exploration Well(s)

and includes any activity in connection therewith or in preparation thereof and

any relevant processing and appraisal work, including technical and economic

feasibility studies, that may be carried out to determine whether a Discovery of

Petroleum constitutes a Commercial Discovery;



1.30



“Exploration Period” means the period commencing on the Effective Date and

continuing during the time provided within which Licensee is authorized to carry

out Exploration Operations and shall include any periods of extensions provided

for in this License. The period shall terminate with respect to any Discovery

Area on the Date of Commercial Discovery in respect of such Discovery Area;



Page 4 of 86



1.31



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

conducted hereunder during the Exploration Period, but does not include an

Appraisal Well;



1.32



“Force Majeure” means any event beyond the reasonable control of the Party

claiming to be affected by such event which has not been brought about at its

instance, including, but not limited to, earthquake, storm, flood, lightning or other

adverse weather conditions, war, embargo, blockade, strike, riot or civil disorder;



1.33



“Foreign National Employee” means an expatriate employee of Licensee, its

Affiliates, or its Sub-contractors who is not a citizen of Sierra Leone.



1.34



Gross Production” means the total amount of Petroleum produced and saved

from a Development and Production Area during Production Operations which is

not used by Licensee in Petroleum Operations;



1.35



“Month” means a month of the Calendar Year;



1.36



“Natural Gas” means all hydrocarbons which are gaseous at 14.65 psia pressure

and sixty (60) degrees Fahrenheit temperature and includes wet gas, dry gas and

residue gas remaining after the extraction of liquid hydrocarbons from wet gas;



1.37



“Non-Associated Gas” means Natural Gas produced from a well other than in

association with Crude Oil;



1.38



“Operator” means ……… or such other Party as may be appointed by Licensee;



1.39



“Party” means the State or Licensee, as the case may be;



1.40



“Petroleum” means Crude Oil or Natural Gas or combination of both;



1.41



“Petroleum Costs” means all expenditures made and costs incurred in the

conduct of Petroleum Operations hereunder, determined in accordance with the

Accounting Guide attached hereto as Annex 2;



1.42



“Petroleum Act” means the Petroleum (Exploration and Production) Act, 2011;



1.43



“Petroleum Operations” means all activities, both in and outside Sierra Leone,

relating to the Exploration for, Development, Production, handling and

transportation of Petroleum contemplated under this License and includes

Exploration Operations, Development Operations and Production Operations and

all activities in connection therewith;



1.44



“Petroleum Product” means any product derived from Petroleum by any

refining or other process;



Page 5 of 86



1.45



“Production” or “Production Operations” means activities not being

Development Operations undertaken in order to extract, save, treat, measure,

handle, store and transport Petroleum to storage and/or loading points and to carry

out any type of primary and secondary operations, including recycling,

recompression, maintenance of pressure and water flooding and all related

activities such as planning and administrative work and shall also include

maintenance, repair and replacement of facilities, and well workovers, conducted

after the Date of Commencement of Commercial Production of the respective

Development and Production Area;



1.46



“Production Costs” means Petroleum Costs incurred in Production Operations;



1.47



“Quarter” means a quarter, commencing January 1, April 1, July 1 or October 1;



1.48



“Sierra Leone” means the territory of the Republic of Sierra Leone and includes

the sea, seabed and subsoil, the Continental Shelf, the exclusive economic zone

and all other areas within the jurisdiction;



1.49



“Specified Rate” means the rate which the Barclays Bank, London, certifies to be

the London Interbank offered rate (LIBOR) in the London Interbank Eurodollar

market on thirty (30) day deposits, in effect on the last business day of the last

respective preceding month, plus one per cent (1%);



1.50



“Standard Cubic Foot” or “SCF” means the quantity of gas that occupies one

(1) cubic foot at 14.65 psia pressure and sixty (60) degrees Fahrenheit

temperature;



1.51



“State” means the Government of the Republic of Sierra Leone;



1.52



“Subcontractor” has the meaning assigned to that term in the Petroleum Act;



1.53



“Work Program” means the annual plan for the conduct of Petroleum

Operations.



Page 6 of 86



ARTICLE 2

SCOPE OF THE LICENSE AND CONTRACT AREA

2.1



This License provides for the Exploration for and Development and Production of

Petroleum in the Contract Area by Licensee.



2.2



Subject to the provisions of this License, Licensee shall be responsible for the

execution of such Petroleum Operations as are required by the provisions of this

License and is hereby appointed the exclusive entity to conduct Petroleum

Operations in the Contract Area.



2.3



The Director General authorizes the Licensee pursuant to the terms set forth

herein to carry out the useful and necessary Petroleum Operations in the Contract

Area.



2.4



The Licensee undertakes, for all the work necessary for carrying out the

Petroleum Operations provided for hereunder, to comply with good international

petroleum industry practice and to be subject to the laws and regulations in force

in Sierra Leone unless otherwise provided under this Contract.



2.5



The Licensee shall supply all financial and technical means necessary for the

proper performance of the Petroleum Operations.



2.6



The Licensee shall bear alone the financial risk associated with the performance

of the Petroleum Operations. The Petroleum Costs related thereto shall be

recoverable by the Licensee in accordance with the provisions of this Agreement.



2.7



In the event that no Commercial Discovery is made in the Contract Area, or that

Gross Production achieved from the Contract Area is insufficient fully to

reimburse Licensee in accordance with the terms of this License, then Licensee

shall bear its own loss; the Director General and the State shall have no

obligations whatsoever to Licensee in respect of such loss.



2.8



During the term hereof, in the event of Production, the total Production arising

from the Petroleum Operations shall be shared between the parties according to

the terms set forth in this License.



2.9



On the Effective Date, the Contract Area shall be the area as defined in Annex (1)

One.



2.10



The Licensee, within thirty (30) days from the Effective Date, shall submit to the

Director General the name and other details of the appointed Operator who shall

take charge of the conduct and carrying out the Petroleum Operations.



2.11



The State shall have a ten percent (10%) Free Carried Interest with respect to all

Production Operations.

Page 7 of 86



2.12



In addition to the Initial Interest provided for in Article 2.11, the Director General

shall have the option in respect of each Development and Production Area to

contribute a proportionate share not exceeding ………% of all Development and

Production Costs in respect of such Development and Production Area, (or make

arrangements satisfactory to Licensee to that effect) thereby acquiring an

Additional Interest of up to ……..% in Petroleum Operations in such

Development and Production Area. The Director General shall notify Licensee of

its option within ninety (90) days of the Date of Commercial Discovery.



2.13



If the Director General opts to take an Additional Interest as provided for in

Article 2.12 then within six (6) months of its election, the Director General shall

reimburse Licensee for all expenditure attributable to Director General’s

Additional Interest and incurred from the Date of Commercial Discovery to the

date the Director General notifies Licensee of its election.



2.14



For the avoidance of doubt the Director General shall only be liable to contribute

to Petroleum Costs:

(a)



2.15



incurred in respect of Development and Production Operations in any

Development and Production Area to the extent only of any Additional

Interest acquired in such Development and Production Area under Article

2.12;



As of the Effective Date, the Contract Area shall cover a total of approximately

…sq km as depicted by Annex (1) One and shall from time to time during the

Term of this License be reduced according to the terms herein. During the

Exploration Period, Licensee shall pay license fees to the State for that area

included within the Contract Area at the beginning of each Calendar Year

according to the provisions of this License.



Page 8 of 86



ARTICLE 3

EXPLORATION PERIOD

3.1



3.2



The Exploration Period shall begin on the Effective Date and shall not cover a

period of more than seven (7) years unless it is extended in accordance with the

terms of this License or the License is sooner terminated.

a)



The Exploration Period shall be divided into an Initial Exploration Period

of three years (“Initial Exploration Period”) and two (2) extension periods

of two years each (respectively “First Extension Period” and “Second

Extension Period”) and where applicable the further periods for which

provision is made hereafter.



b)



Where Licensee has fulfilled its work and expenditure obligations before

the end of the Initial Exploration Period or, as the case may be, the First

Extension Period, and has exercised its option by applying to the Director

General in writing for an extension, the Director General will be deemed

to have granted an extension into the First or, as the case may be, into the

Second Extension Period.



c)



For each well drilled by Licensee during the Initial Exploration Period, the

Initial Exploration Period shall be extended by three (3) months and the

commencement of subsequent periods shall be postponed in their entirety

accordingly.



Following the end of the Second Extension Period, Licensee will be entitled to an

extension or extensions, of the Exploration Period as follows:

a)



Where at the end of the Second Extension Period, Licensee is drilling or

testing any well, Licensee shall be entitled to an extension for such further

period as may be reasonably required to enable Licensee to complete such

work and assess the results and, in the event that Licensee notifies the

Director General that the results from any such well show a Discovery

which merits appraisal, Licensee shall be entitled to a further extension for

such period as may be reasonably required to carry out an Appraisal

Program and determine whether the Discovery constitutes a Commercial

Discovery;



b)



Where at the end of the Second Extension Period Licensee is engaged in

the conduct of an Appraisal Program in respect of a Discovery which has

not been completed, Licensee shall be entitled to a further extension

following the end of the Second Extension for such period as may be

reasonably required to complete that Appraisal Program and determine

whether the Discovery constitutes a Commercial Discovery:



Page 9 of 86



c)



Where at the end of the Second Extension Period Licensee has undertaken

work not falling under paragraphs (a) or (b) which is not completed,

Licensee will be entitled to a further extension following the end of the

Second Extension Period for such period as the Director General may

consider reasonable for the purpose of enabling such work to be

completed.



d)



Where Licensee has before the end of the Second Extension Period,

including extensions under (a), (b) and (c) above, given to the Director

General a notice of Commercial Discovery, Licensee shall, if the

Exploration Period would otherwise have been terminated, be entitled to a

further extension of the Exploration Period in which to prepare the

Development Plan in respect of the Discovery Area to which that

Development Plan relates until the Director General has approved the

Development Plan.



3.3



Where Licensee has during the First Extension Period failed to fulfill its work and

expenditure obligations in respect of that Period but has made reasonable

arrangements to remedy its default during the Second Extension Period, Licensee

shall be entitled to an extension subject to such reasonable terms and conditions

as the Director General may stipulate to assure performance of the work.



3.4



The provisions of this Article insofar as they relate to the duration of the

extension period to which Licensee will be entitled shall be read and construed as

requiring the Director General to give effect to the provisions of this Agreement

relating to the time within which Licensee must meet the requirements of that

Article.



Page 10 of 86



ARTICLE 4

PERFORMANCE GUARANTEE

4.1



Within Sixty (60) days of the Effective date, the Licensee shall deliver to the

Director General a Performance Security in the amount stipulated in Article 5.2

(a) as the minimum expenditure in the initial exploration period to guarantee the

performance of their work obligation.



4.2



Within Sixty days from the day the Licensee elects to enter into any extension

period in accordance with Article 3 of this License, the Licensee shall deliver to

the Director General, subject to Article 5.2 (d), a Performance Security in the

amount of the minimum expenditure specified in Article 5.2 (b) for the first

extension period and Article 5.2 (c) for the second extension period to guarantee

the performance of their work obligation for that period.



4.3



All Performance Security delivered under this License, shall be in the form of an

unconditional and irrevocable Bank Guarantee as stipulated in Annex 3 of this

License from a reputed bank in good standing, and shall be denominated in

United States Dollars. The Performance Security shall be issued either (a) by a

foreign bank through a correspondent bank located in Sierra Leone, or (b) with

the agreement of the Director General directly by a foreign bank acceptable to the

Director General.



4.4



Licensee shall also provide a legal opinion from its legal advisors in a form

acceptable to the State, to the effect that the aforesaid guarantees have been duly

signed and delivered on behalf of the guarantors with due authority and is legally

valid and enforceable and binding upon them;



4.5



All Letters of Guarantee issued under this License shall remain effective for six

(6) months after the end of the relevant Exploration period for which it has been

issued, except as it may be expired prior to that time in accordance with the terms

thereof.



4.6



In the circumstances of a default, (i.e.) failure to undertake the minimum work

obligation by the end of the period for which the Performance Security is

deposited, the Director General shall immediately make a demand on the

guarantee, and the minimum expenditure for the period shall be paid to the

Director General by the guaranteeing bank.



Page 11 of 86



ARTICLE 5

MINIMUM EXPLORATION PROGRAM

5.1



Exploration Operations shall begin as soon as practicable and in any case not later

than ninety (90) days after the Effective Date.



5.2



Subject to the provisions of this Article, in discharge of its obligations to carry out

Exploration Operations in the Contract Area, Licensee shall during the several

phases into which the Exploration Period is divided carry out the work specified

hereinafter:

a)



Initial Exploration Period (Three years): Commencing on the Effective

Date and terminating at the end of the --- contract Year;

i.



Description of Work: Acquisition of 2D and 3D data from TGSNOPEC. Acquisition of at least 2000 line Km of 2D and 2500 Sq.

Km of 3D Seismic where not available at TGS-NOPEC.



ii.



Process and Interpret data and drill at least One (1) Exploration

Well.



iii.



Minimum expenditure: minimum expenditure for the initial

shall be $20 million.



b)



First Extension Period: Commencing at the end of the Initial

Exploration Period and terminating at the end of the … of Contract Period.

i.



Description of work: Drill appraisal where deemed necessary



ii.



Reinterpret or reprocess the seismic data and drill at least one

exploration well



iii.



Minimum expenditure: minimum expenditure for the second

extension period shall be $120 million.



Page 12 of 86



c)



d)



Second Extension Period: Commencing at the end of the First Extension

and terminating at the end of seventh year of Contract Period.

i.



Description of Work: Acquire process and interpret 1,500sq.km

of 3D seismic.



ii.



Drill one exploration well and three additional wells contingent

upon a commercial discovery



iii.



Minimum Expenditure: Minimum expenditure for work in the

Second extension period shall be $120 million.



Work and expenditures accomplished in any period in excess of the above

obligation may be applied as credit in satisfaction of obligations called for

in any other Period. The fulfillment of any work obligation shall relieve

Licensee of the corresponding minimum expenditure obligation, but the

fulfillment of any minimum expenditure obligation shall not relieve

Licensee of the corresponding work obligation.



5.3



No Appraisal Wells drilled or seismic surveys carried out by Licensee as part of

an Appraisal Program and no expenditure incurred by Licensee in carrying out

such Appraisal Program shall be treated as discharging the minimum work

obligations hereunder.



5.4



The seismic program, when combined with existing data, shall be such as will

enable a study of the regional geology of the Contract Area and the preparation of

a report thereon with appropriate maps, cross sections and illustrations, as well as

a geophysical survey of the Contract Area which, when combined with existing

data, shall provide:



5.5



a)



a minimum seismic grid adequate to define prospective drill sites over

prospective closures as interpreted from data available to Licensee, and



b)



a seismic evaluation of structural and stratigraphic conditions over the

remaining portions of the Contract Area.



Each of the Exploration Wells referred to above shall be drilled to a minimum

prognosed depth of … meters, after deduction of the water depth, or to a lesser

depth if the continuation of drilling performed in accordance with good

international petroleum industry practice is prevented for any of the following

reasons:



Page 13 of 86



a)



the basement is encountered at a lesser depth than the minimum

contractual depth;



b)



continuation of drilling presents an obvious danger due to the existence of

abnormal formation pressure;



c)



rock formations are encountered the hardness of which prevents, in

practice, the continuation of drilling by the use of appropriate equipment;



d)



petroleum bearing formations are encountered the crossing of which

requires, for their protection, the laying of casings preventing the

minimum contractual depth from being reached.



In the event that any of the above reasons occurs, the Exploration Well shall be

deemed to have been drilled to the minimum contractual depth.



5.6



Notwithstanding any provision in this Article to the contrary, the Director General

and the Licensee may, at any time, agree to abandon the drilling of a well at a

lesser depth than the minimum contractual depth.



5.7



If during an exploration period the Licensee has performed its work commitments

for an amount lesser than the amount specified above, it shall be deemed to have

fulfilled its investment obligations relating to that period. Conversely, the

Licensee shall perform the entirety of its work commitments set forth in respect of

an Exploration Period even if it results in exceeding the amount specified above

for that period.



5.8



If in the course of drilling an Exploration Well the Licensee concludes that

drilling to the minimum depth specified in this Article 5 above is impossible,

impracticable or imprudent in accordance with accepted international petroleum

industry drilling and engineering practice, then Licensee may plug and abandon

the Exploration Well.



5.9



During the Exploration Period, Licensee shall have the right to perform additional

Exploration Operations, including without limitation performing gravity and

magnetic surveys, drilling stratigraphic wells and performing additional

geological and geophysical studies, provided the minimum work obligations are

performed within the applicable period.



5.10



During the Exploration Period, Licensee shall deliver to the Director General

reports on Exploration Operations conducted during each Calendar Quarter within

thirty (30) days following the end of that Quarter. Further requests for

information by the Director General shall be complied with within a reasonable

time and copies of documents and other material containing such information

shall be provided to the Director General.

Page 14 of 86



Page 15 of 86



ARTICLE 6

RELINQUISHMENT

6.1



6.2



Except as otherwise provided in this License, Licensee shall relinquish portions of

the Contract Area in the manner provided hereunder.

a)



If on or before the expiration of the Initial Exploration Period, Licensee

elects to enter into the First Extension Period, then at the commencement

of the First Extension Period the area retained shall not exceed fifty

percent (50%) of the Contract Area as at the Effective Date;



b)



If on or before the expiration of the First Extension Period, Licensee elects

to enter into the Second Extension Period, at the commencement of the

Second Extension Period the area retained shall not exceed (25%) of the

Contract Area as at the Effective Date;



c)



On the expiration of the Second Extension Period, Licensee shall

relinquish the remainder of the retained Contract Area subject to Article

6.2.



The Provisions of Article 6.1 shall not be read or construed as requiring Licensee

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

either a Discovery Area or a Development and Production Area.

PROVIDED HOWEVER THAT if at the end of the Initial Exploration Period or

the First Extension Period as the case may be Licensee elects not to enter into the

First or Second Extension Period Licensee shall relinquish the entire Contract

Area.



6.3



Each area to be relinquished pursuant to this Article shall be selected by Licensee

and shall be measured as far as possible in terms of continuous and compact units

of a size and shape that will permit the carrying out of Petroleum Operations in

the relinquished portions subject to the approval of the Director General.



Page 16 of 86



ARTICLE 7

OBLIGATIONS AND RIGHTS OF LICENSEE

7.1



Licensee shall maintain an office in Sierra Leone at which notices shall be validly

served. Licensee shall appoint a General Manager and assign to those offices such

representatives as it shall consider necessary for the purposes of this Agreement.

The General Manager and staff shall be entrusted by Licensee with sufficient

power to carry out all local written directions given to them by the Director

General or his representatives under the terms of this License.



7.2



Subject to the provisions of this License, Licensee shall be responsible for the

conduct of Petroleum Operations and shall:



7.3



a)



conduct Petroleum Operations with utmost diligence, efficiency and

economy, in accordance with accepted Petroleum Industry practices,

observing sound technical and engineering practices using appropriate

advanced technology and effective equipment, machinery, materials and

methods;



b)



take all practicable steps to ensure compliance with the Petroleum Act;

including ensuring the maximum conservation of Petroleum in the

Contract Area in accordance with accepted Petroleum industry practices;



c)



prepare and maintain in Sierra Leone full and accurate records of all

Petroleum Operations performed under this License;



d)



prepare and maintain accounts of all Petroleum Operations under this

License in such a manner as to present a full and accurate record of the

costs of such operations, in accordance with the Accounting Guide;



In connection with its performance of Petroleum Operations, Licensee shall have

the right within the terms of applicable law;

a)



to use public lands in accordance with existing law for installation and

operation of shore bases, and terminals, harbors and related facilities,

pipelines from fields to terminals and delivery facilities, camps and other

housing;



b)



to receive licenses and permission to install and operate such

communications and transportation facilities as shall be necessary for the

efficiency of its operations;



c)



to bring to Sierra Leone such number of Foreign National Employees as

shall be necessary for its operations, including employees assigned on

permanent or resident status, with or without families, as well as those

assigned on temporary basis such as rotational (rota) employees;

Page 17 of 86



7.4



d)



to provide or arrange for reasonable housing, schooling and other

amenities, permanent and temporary, for its employees and to import

personal and household effects, furniture and vehicles, for the use of its

personnel in Sierra Leone;



e)



to be solely responsible for provision of health, accident, pension and life

insurance benefit plans for its Foreign National Employees and their

families; and such employees shall not be required to participate in any

insurance compensation or other employee or social benefit programs

established in Sierra Leone; provided, however, that Licensee shall be

responsible for social benefit programs and insurance benefit plans which

apply under the law to employees who are Sierra Leone nationals;



f)



to have, together with its personnel, at all times the right of ingress to and

egress from its offices in Sierra Leone, the Contract Area, and the facilities

associated with Petroleum Operations hereunder in Sierra Leone including

the offshore waters, using its owned or chartered means of land, sea and

air transportation;



g)



to engage such Subcontractors, expatriate and national, including also

consultants, and to bring such Subcontractors and their personnel to Sierra

Leone as are necessary in order to carry out the Petroleum Operations in a

skillful, economic, safe and expeditious manner; and said Subcontractors

shall have the same rights as Licensee specified in this License to the

extent they are engaged by Licensee for the Petroleum Operations

hereunder.



The Director General shall assist Licensee in carrying out Licensee’s obligations

expeditiously and efficiently as stipulated in this License, and in particular the

Director General shall use its best efforts to assist Licensee and its Subcontractors

to;

a)



establish supply bases and obtain necessary communications facilities,

equipment and supplies;



b)



obtain necessary approvals to open bank accounts in Sierra Leone;



c)



obtain entry visas and work permits for such number of Foreign National

Employees of Licensee and its Subcontractors engaged in Petroleum

Operations and members of their families who will be resident in Sierra

Leone and make arrangements for their travel, medical services and other

necessary amenities;



d)



obtain the necessary permits to transport documents, samples or other

forms of data to foreign countries for the purpose of analysis or processing

if such is deemed necessary for the purposes of Petroleum Operations;

Page 18 of 86



7.5



The Director General shall use its best efforts to render assistance to Licensee in

emergencies and major accidents, and such other assistance as may be requested

by Licensee, provided that any reasonable expenses involved in such assistance

shall be borne by Licensee.



Page 19 of 86



ARTICLE 8

ANNUAL WORK PROGRAMS AND BUDGETS

8.1



Without prejudice to the rights and obligations of Licensee for day-to-day

management of the operations, the Director General shall ensure that all Work

Programs and Development Plans are complied with and also that accounting for

costs and expenses and the maintenance of records and reports concerning the

Petroleum Operations are carried out in accordance with this License and the

accounting principles and procedures generally accepted in the international

petroleum industry.



8.2



Each Work Program submitted to the Director General pursuant to this Article

and every revision or amendment thereof shall be consistent with the

requirements set out in this License relating to minimum work and expenditure

for the period of the Exploration Period in which such Work Program or budget

falls;



8.3



The work obligations referred to in Article 5 shall be described in an annual plan,

drawn up in due detail and with the respective budget, to be prepared by the

Licensee and submitted to the Director General for review and approval.



8.4



The annual work program should be submitted to the Director General no less

than sixty (60) days before the start of the year in question.



8.5



The Director General will review Work Programs and budgets and any

amendments or revisions thereto, and Appraisal Programs submitted to it by

Licensee pursuant to this Article, and may only order it not to be implemented if it

fails to comply with the Petroleum and Exploration Act of 2011 or any terms of

this License.



8.6



In the event of all or part of the annual plan being refused, the Director General

shall notify the Licensee of the fact within fifteen days of receiving the plan,

indicating the reasons for the refusal.



8.7



In the event of refusal under the preceding paragraph, the Licensee shall draw up

a new plan, or rectify the previous plan, which shall be submitted to the Director

General.



8.8



If the plan is not refused within the period referred to in Aritcle 8 (6), the plan

may be freely implemented.



8.9



The Licensee may submit addenda to the annual work plan to the Director

General provided they are justified on technical grounds.



Page 20 of 86



8.10



After the date of the first Commercial Discovery, Licensee may submit a proposal

for the drilling of an Exploration Well or Wells not associated with the

Commercial Discovery and not otherwise required to be drilled hereunder.



8.11



From the first occurring Date of Commercial Discovery, the Licensee:



8.12



i.



Within sixty (60) days after the Date of Commercial Discovery

Licensee shall prepare and submit to the Director General any

revisions to its annual Work Program and budget that may be

necessary for the remainder of that Contract Year and for the rest

of the Exploration Period.



ii.



At least ninety (90) days before the Commencement of each

subsequent Calendar Year Licensee shall submit to the Director

General for review a Work Program and budget setting forth all

Development and Production Operations which Licensee proposes

to carry out in that Calendar Year and the estimated cost thereof

and shall also give an indication of Licensee’s plans for the

succeeding Calendar Year;



iii.



Within sixty (60) days of the Date of Commencement of

Commercial Production and thereafter not later than one hundred

and twenty (120) days before the commencement of each Calendar

Year, Licensee shall submit to the Director General an annual

production schedule which shall be in accordance with good

international oilfield practice, and shall be designed to provide the

most efficient, beneficial and timely production of the Petroleum

resources.



The Licensee shall provide The Director General with lifting schedules for

Development and Production Areas as well as Licensee’s reports on the conduct

of Petroleum Operations.



Page 21 of 86



ARTICLE 9

COMMERCIALITY

9.1



Licensee shall notify the Director General in writing as soon as possible after any

Discovery is made, but in any event not later than seven (7) days after any

Discovery is made.



9.2



As soon as possible after the analysis of the test results of such Discovery is

complete and in any event not later than Sixty (60) days from the date of such

Discovery, Licensee shall by a further notice in writing to the Director General

indicate whether in the opinion of Licensee the Discovery merits appraisal.



9.3



Where Licensee indicates that the Discovery merits appraisal, Licensee shall

submit to the Director General an Appraisal Program to be carried out by

Licensee in respect of such Discovery.



9.4



Unless Licensee and the Director General otherwise agree in any particular case,

Licensee shall have a period of two (2) years from the date of Discovery to

complete the Appraisal Program.



9.5



Licensee shall commence appraisal work within one (1) year from the date of

submission of the Appraisal Program to the Director General. Where the

Licensee is unable to commence appraisal work within one (1) year from the date

of submission of the Appraisal Program to the Director General, Licensee may

request an extension of time from the Director General.



9.6



Not later than ninety (90) days from the date on which said Appraisal Program

relating to the Discovery is completed Licensee will submit to The Director

General a report containing the results of the Appraisal Program. Such report

shall include all available technical and economic data relevant to a determination

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

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

reservoir rocks, areas, thickness and depth of pay zones, pressure, volume and

temperature analysis of the reservoir fluids; preliminary estimates of Crude Oil

and Natural Gas reserves; recovery drive characteristics; anticipated production

performance per reservoir and per well; fluid characteristics, including gravity,

sulphur percentage, sediment and water percentage and refinery assay pattern.



9.7



Not later than one hundred twenty (120) days from the date on which said

Appraisal Program is completed Licensee will, by a further notice in writing,

inform the Director General whether the Discovery in the opinion of Licensee is

or is not commercial.



9.8



If Licensee informs the Director General that the Discovery is not commercial,

then Licensee shall relinquish such Discovery Area; provided, however, that in

appropriate cases, before declaring that a Discovery is not commercial, Licensee

Page 22 of 86



shall consult with the Director General and may make appropriate representations

proposing minor changes in the fiscal and other provisions of this Agreement

which may, in the opinion of Licensee, affect the determination of commerciality.

The Director General may, where feasible, and in the best interests of all parties

agree to make such changes or modifications in the existing arrangements. In the

event the Parties do not agree on such changes or modifications, then Licensee

shall relinquish the Discovery Area.

9.9



If Licensee informs the Director General that the Discovery is commercial,

Licensee shall not later than one hundred and eighty (180) days thereafter, prepare

and submit to the Director General a Development Plan.



9.10



The Development plan shall be based on engineering studies and shall include:

a)



Licensee’s proposals for the delineation of the proposed Development and

Production area and for the development of any reservoir(s);



b)



the way in which the Development and Production of the reservoir is

planned to be financed;



c)



Licensee’s proposals relating to the spacing, drilling and completion of

wells, the production, storage, transportation and delivery facilities

required for the production, storage, transportation of the Petroleum,

including without limitation:

i)



the estimated number, size and production capacity of

production platforms if any;



ii)



the estimated number of production wells;



iii)



the particulars of feasible alternatives for transportation of

the Petroleum, including pipelines;



iv)



the particulars of onshore installations required, including

the type and specifications or size thereof and;



v)



the particulars of other technical equipment required for the

operations;



d)



the estimated production profiles for Crude Oil and Natural Gas from the

Petroleum reservoirs;



e)



estimates of capital and operating expenditures;



f)



the safety measures to be adopted in the course of the Development and

Production Operations, including measures to deal with emergencies;



Page 23 of 86



g)



the necessary measures to be taken for the protection of the environment;

and;



h)



the timetable for effecting Development Operations.



9.11



The date of the Director General’s approval of the Development Plan shall be the

Date of Commercial Discovery.



9.12



After thirty (30) days following its submission, the Development Plan shall be

deemed approved as submitted, unless the Director General has before the end of

the said thirty (30) day period given Licensee a notice in writing stating:

i)



that the Development Plan as submitted has not been

approved; and



ii)



the revisions proposed by the Director General, to the

Development Plan as submitted, and the reasons thereof.



9.13



Where the Development Plan is not approved by the Director General, the Parties

shall within a period of thirty (30) days from the date of the notice by the Director

General as referred to above, meet to agree on the revisions proposed by the

Director General to the Development Plan.



9.14



In the event that Licensee indicates that a Discovery does not at the time merit

appraisal, or after appraisal does not appear to be commercial but may merit

appraisal or potentially become commercial at a later date during the Exploration

Period, then Licensee need not relinquish the Discovery Area and may continue

its Exploration Operations in the Contract Area during the Exploration Period

provided that the Licensee shall explain what additional evaluations, including

Exploration work or studies, are or may be planned in order to determine whether

subsequent appraisal is warranted or that the Discovery is commercial. After

completion of the evaluations, Licensee shall make the indications called for

under this Article and either proceed with appraisal, confirm commerciality or

relinquish the Discovery Area. In any case, if at the end of the Exploration Period

Licensee has not indicated its intent to proceed with an Appraisal Program or that

the Discovery is Commercial, then the Discovery Area shall be relinquished.



9.15



Nothing in this Article shall be read or construed as requiring Licensee to

relinquish:

a)



any area which constitutes or forms part of another Discovery Area in

respect of which:



Page 24 of 86



b)



i)



Licensee has given the Director General a separate notice

indicating that such Discovery merits appraisal or

confirmation; or



ii)



Licensee has given the Director General a separate notice

indicating that such Discovery is commercial; or



any area which constitutes or forms part of a Development and Production

Area.



Page 25 of 86



ARTICLE 10

PRODUCTION OF CRUDE OIL

10.1



Gross Production of Crude Oil from each Development and Production Area shall

be distributed in the following sequence and proportions:

a)



The rate of Royalty for Oil Production shall be 12% and shall be delivered

to the State as ROYALTY pursuant to the provisions of the Petroleum

Act. Upon Notice to Licensee, the State shall have right to elect to receive

its Royalty payment in kind in Crude Oil. The State’s Notice shall be

given to the Licensee at least 90 days in advance of each lifting period..



b)



After distribution of such amounts of Crude Oil as are required pursuant to

(a) above, the remaining Crude Oil produced from each Development and

Production area shall be the Licensee’s and, the State on the basis of their

respective participating Interests pursuant to Article 2.



10.2



Ownership and risk of loss of all Crude Oil produced from the Contract Area

which is purchased, and all of its percentage Interest or other Crude Oil lifted by

Licensee shall pass to Licensee at the outlet flange of the marine terminal or other

storage facility for loading into tankers.



10.3



Licensee shall have the right freely to export and dispose of all of its Petroleum

pursuant to this Article subject to Article 15.



10.4



The Parties shall through consultation enter into supplementary Licenses

concerning Crude Oil lifting and tanker schedules, loading conditions and Crude

Oil metering at the end of each Calendar Year. The Crude Oil to be distributed or

otherwise made available to the Parties in each Calendar Year in accordance with

the preceding provisions of this Article shall insofar as possible be in reasonably

equal monthly quantities.



Page 26 of 86



ARTICLE 11

MEASUREMENT AND PRICING OF CRUDE OIL

11.1



Crude Oil shall be delivered by Licensee to storage tanks constructed, maintained

and operated in accordance with applicable laws and good oilfield practice.

Crude Oil shall be metered or otherwise measured for quantity and tested for

quality in such storage tanks for all purposes of this Agreement. Any Party may

request that measurements and tests be done by an internationally recognized

inspection company. Licensee shall arrange and pay for the conduct of any

measurement, or test so requested provided, however, that in the case of (1) a test

requested for quality purposes and (2) a test requested on metering (or

measurement) devices, or where the test demonstrates that such devices are

accurate within acceptable tolerances, the Party requesting the test shall reimburse

Licensee for the costs associated with the test or tests.



11.2



Licensee shall keep full and accurate accounts concerning all Petroleum measured

as aforesaid and provide the Director General with copies thereof on a monthly

basis, not later than ten (10) days after the end of each month.



11.3



The Market Price for Crude Oil delivered by Licensee hereunder shall be

established with respect to each lifting as follows:

a)



on Crude Oil sold by Licensee in arm’s length commercial transactions,

the Market Price shall be the price actually realized by Licensee on such

sales;



b)



On other sale by Licensee, on exports by Licensee without sale, the

Market Prices shall be determined by reference to world market prices of

comparable Crude Oils sold in arm’s length transactions for export in the

major world petroleum markets, and adjusted for oil quality, location and

conditions of pricing, delivery and payment.



c)



sales in arm’s length commercial transactions shall mean sales to

purchasers independent of the seller, which do not involve Crude Oil

exchange or barter transactions, government to government transaction,

sales directly or indirectly to Affiliates, or sales involving consideration

other than payment in U.S. Dollar or currencies convertible thereto, or

affected in whole or in part by considerations other than the usual

economic incentives for commercial arm’s length Crude Oil sales;



d)



the price of Crude Oil shall be expressed in U.S. Dollars per barrel, F.O.B.

the point of delivery by Licensee;



e)



if the quality of Crude Oils produced from the Contract Area is different,

the Market Price shall be determined separately for each type sold and/or

exported by Licensee.

Page 27 of 86



11.4



Licensee shall notify the Director General of the Market Price determined by it

for its respective lifting during each Quarter not later than thirty (30) days after

the end of that Quarter.



11.5



If the Director General considers that the price notified by Licensee was not

correctly determined, it shall so notify Licensee not later than thirty (30) days

after notification by Licensee of such price, and the Director General and

Licensee shall meet not later than twenty (20) days thereafter to agree on the

correct Market Price.



11.6



If the Parties fail to agree on the Market Price applicable to a given quarter within

seventy five (75) days after the end of that quarter, the Director General or the

Licensee may immediately submit to an expert, appointed in accordance with the

following paragraph, the determination of the Market Price (including the

determination of reference crude oils if the Parties have not determined them).

The expert shall determine the price within thirty (30) days after his appointment

and his conclusions shall be final and binding on the Parties. The expert shall

decide in accordance with the provisions of this Article.



11.7



The expert shall be selected by agreement between the Parties or, if no agreement

is reached, by UNCITRAL/ICSID in accordance with its rules on technical

expertise, at the request of the most diligent Party. The expert costs shall be

charged to the Licensee and included in the Petroleum Costs.



Page 28 of 86



ARTICLE 12

FISCAL TERMS

12.1



The Licensees shall be subject to the following license fees, taxes and royalties in

respect of activities directly related to exploration, production and sale of

petroleum:

i)



Annual License Fees payable to the State per square

kilometer of the area remaining at the beginning of each

Calendar Year as part of the Contract Area, in the amounts

as set forth below:

Phase of Operation



License Fees Per annum



Initial Exploration Period



US $40 per sq. km.



1st Extension Period



US $60 per sq. km.



2nd Extension Period



US $85 per sq. km.



Development and

Production Area



US $110 per sq. km.



The License Fee is paid in advance for the entire year, and

is Due on the first Business Day of the Calendar Year.

The payment pertaining to the period between the Effective

date and the end of the current Calendar Year is made

within (10) Business Days following the Effective date and

the amount of the fee will be calculated in accordance with

the period of time remaining until the end of the said

Calendar Year. The same provisions will apply mutatis

mutandis to the first payment after the granting of an

extension, as well as for the last payment of each extension

period.

ii)



Royalty as provided for in Article 10 herein;



iii)



Income Tax of (30%) thirty percent.

A.



The rate of capital allowances shall be in accordance

with the Income Tax Act 2000; i.e.

a. 100% for Exploration costs.

b. For Development and Production, an annual

allowance of 25% for 4 years succeeding the

year of expenditure.

Page 29 of 86



B.



iv)



A loss in any year of assessment may be carried

forward as a deduction against income of the

subsequent year of assessment.



Payments for rental of State Property, public lands or for

the provision of specific services requested by Licensee

from public enterprises; provided, however, that the rate

charged Licensee for such rentals or services shall not

exceed the rates charged to other members of the public

who receive similar rentals or services;



12.2



Sub-Contractors and Foreign National Employees shall be exempt from paying

income tax during the period of exploration and development but shall be liable to

pay income tax in accordance with the Income Tax Act in force during the period

of production of petroleum.



12.3



The Licensee and Sub-Contractors may import into Sierra Leone, all plant,

equipment and materials to be used solely and exclusively in the conduct of

Petroleum Operations without payment of customs and other duties, taxes, fees

and charges on imports.



12.5

12.6



Licensee, Subcontractors and Foreign National Employees shall have the right to

export from Sierra Leone all previously imported items as defined. Such exports

shall be exempt from all customs and other duties, taxes, fees and charges on

exports.



12.8



Vessels or other means of transport used in the export of Licensee’s Petroleum

from Sierra Leone shall not be liable to any discriminatory tax, duty or charge by

reason of their use for that purpose.



Page 30 of 86



ARTICLE 13

FOREIGN EXCHANGE TRANSACTIONS

13.1



Licensee shall for the purpose of this License be entitled to receive, remit, keep

and utilize freely abroad all the foreign currency obtained from the sales of the

Petroleum assigned to it by this License or purchased hereunder, or from

transfers, as well as its own capital, receipts from loans and in general all assets

thereby acquired abroad. Upon making adequate arrangements with regard to its

commitment to conduct Petroleum Operations, Licensee shall be free to dispose

of this foreign currency or assets as it deems fit.



13.2



Licensee shall have the right to open and maintain in Sierra Leone bank accounts

in foreign currency and Sierra Leone currency. No restriction shall be made on

the import by Licensee in an authorized manner of funds assigned to the

performance of the Petroleum Operations and Licensee shall be entitled to

purchase Sierra Leone currency through authorized means, without

discrimination, at the prevailing rate of exchange; provided, however, that such

prevailing rate applicable to Licensee hereunder for all transactions for converting

Sierra Leone currency into U.S. Dollars, and vice versa, shall be at a buying or

selling, as the case may be, rate of exchange not less favorable to Licensee than

that quoted by the State or its foreign exchange control authority to any person or

entity on the dates of such conversion.



13.3



Licensee shall be entitled to convert in an authorized manner into foreign

currencies of its choice funds imported by Licensee for the Petroleum Operations

and held in Sierra Leone which exceed its local requirements at the prevailing rate

of exchange and remit and retain such foreign currencies outside Sierra Leone.



13.4



Licensee shall have the right to make direct payments outside of Sierra Leone

from its home offices or elsewhere to its Foreign National Employees, and to its

Subcontractors and suppliers for wages, salaries, purchases of goods and

performance of services, whether imported into Sierra Leone or supplied or

performed therein for Petroleum Operations carried out hereunder, in accordance

with the provisions of this License, in respect of services performed within the

framework of this License, and such payments shall be considered as part of the

costs incurred in Petroleum Operations. In the event of any changes in the

location of Licensee’s home or other offices, Licensee shall so notify the Director

General. All such payments however shall be subject to the Income Act 2000 and

other relevant financial Acts and Regulations currently in force.



Page 31 of 86



13.5



All payments which this License obligates Licensee to make to the State shall be

made in U.S. Dollars, except as requested otherwise. All payments shall be made

by wire transfer in immediately available funds to a bank to be designated by the

Director General, and reasonably accessible to Licensee by way of its being able

to receive payments made by Licensee and give a confirmation of receipt thereof,

or in such other manner as may be mutually agreed.



13.6



All payments which this License may obligate the Director General or the State to

make to Licensee shall be made by wire transfer in immediately available funds in

U.S. Dollars to a commercial bank to be designated by Licensee.



Page 32 of 86



ARTICLE 14

SPECIAL PROVISIONS FOR NATURAL GAS

PART 1 - GENERAL

14.1



Licensee shall have the right to use Natural Gas produced from any Development

and Production Area for Petroleum Operation within the Contract Area such as

for, but not limited to, re-injection for pressure maintenance and/or power

generation.



14.2



The natural gas produced from any petroleum deposit shall be exploited, and

flaring of the same is expressly forbidden, except flaring for short periods of time

when required for purpose of testing or other safety reasons.



14.3



In the case of marginal or small deposits, the Director General may authorize the

flaring of associated gas in order to make its exploitation viable.



14.4



The authorization referred to in Article 14.3 may only be granted on submission

of a duly substantiated technical and economic and environmental impact

evaluation report evidencing that it is not feasible to exploit or preserve the

natural gas.



14.5



When gas flaring is authorized, the Director General may determine that a

relevant fee be charged in accordance with the quantity and quality of the gas

flared and with its location.



14.6



Licensee shall have the right to extract Condensate and Natural Gas liquids for

disposition under the provisions relating to Crude Oil. Residual Natural Gas

remaining after the extraction of Condensate and Natural Gas Liquids is subject to

the provisions of this Article.



PART II – ASSOCIATED GAS

14.7



Based on the principle of full utilization of Associated Gas and without

substantial impediment to Crude Oil production, the Development Plan of each

Development and Production Area shall include a plan of utilization for

Associated Gas.



PART III – NON-ASSOCIATED GAS

14.8



Licensee shall notify the Director General in writing as soon as any discovery of

Non-Associated Gas is made in the Contract Area.



14.9



As soon as possible after the technical evaluation of the test results of such

discovery is complete and in any event not later than one hundred eighty days

(180) days from the date of Discovery, Licensee shall by a further notice in

Page 33 of 86



writing to The Director General (the “Notice”) indicate whether in Licensee’s

opinion the Discovery merits Appraisal.

14.10 Where Licensee’s Notice indicates that the Discovery does not at that time merit

Appraisal but may merit Appraisal or additional evaluation at a later date during

the Exploration Period, then Licensee need not submit a proposed Appraisal

Program at that time but instead shall indicate what other studies or evaluation

may be warranted before an Appraisal Program is undertaken.

14.11 Where Licensee’s Notice indicates that the Discovery merits the drilling of one or

more Appraisal Wells at that time, Licensee shall prepare and submit the

appropriate Appraisal Program which Program shall be scheduled to be completed

within two (2) years of the submission of the Notice to the Director General.

14.12 Not later than ninety (90) days from the date on which the Appraisal Program

relating to a Discovery is concluded, Licensee shall submit a report containing the

results of the Program. If the report concludes that the Discovery merits

commercial assessment, Licensee shall notify the Director General within one

hundred eighty (180) days from the date on which the Appraisal Program relating

to the Discovery was completed of a Program of such assessment and shall

conduct such Program during the rest of the Exploration Period. Notwithstanding

the above, Licensee may also notify the Director General that commercial

assessment of the Discovery is not warranted at that time but the Discovery may

merit such assessment at a later date during the Exploration Period.

14.13 The purpose of the commercial assessment shall be to study the uses to which

production from the Discovery Area can be devoted and whether involving

exports or domestic utilization. As part of the assessment, the Parties shall also

pursue discussions on the required contractual arrangements for disposition of the

Natural Gas to potential purchasers and/or consumers of the Natural Gas.

14.14 Licensee may consult with the Director General and may make appropriate

representations proposing minor changes in the fiscal and other provisions of this

Agreement which may, in the opinion of Licensee, affect the above

determinations. The Director General may, where feasible and in the best

interests of the Parties, agree to make such changes or modifications in the

existing arrangements.

14.15 Nothing in this Part III of Article 14 shall be read or construed as requiring

Licensee to relinquish any area

i)



which constitutes or forms part of another Discovery Area

in respect of which Licensee has given to the Director

General a separate notice indicating that such Discovery

merits confirmation or commercial assessments; or



Page 34 of 86



ii)



which constitutes or forms part of a Development and

Production Area.



PART IV – NATURAL GAS PROJECTS

14.16 If at any time during the commercial assessment Licensee informs the Director

General in writing that the Discovery can be produced commercially, it shall as

soon as reasonably possible thereafter submit its proposals for an agreement

relating to the development of the Discovery on the principles set forth in this Part

IV of Article 13. The Director General undertakes on receipt of such notice to

negotiate in good faith with Licensee with a view to reaching agreement on terms

for such production. Any such agreement will be based on terms and fiscal

requirements which shall be no less favorable to Licensee than those provided

elsewhere in this Agreement.

14.17 If at any time during the commercial assessment Licensee has identified a market

in Sierra Leone for the reserves of Associated and/or Non-Associated Gas or any

part thereof that can be saved without prejudice to an export project, the Parties

shall proceed in good faith to negotiate the appropriate contractual arrangements

for the disposition of the Gas. In the event of a domestic market for such Gas,

Licensee shall receive for delivery onshore of its share of the Gas a price to be

agreed between the Director General and Licensee taking into account among

other things the cost of developing the Gas and the uses which will be made of the

Gas.

14.18 In the event of a Discovery of Natural Gas in the Contract Area which is to be

developed and commercially produced, the provisions of this Agreement in

respect to interests, rights and obligations of the Parties regarding Crude Oil shall

apply to Natural Gas, with the necessary changes in points of detail, except with

respect to specific provisions in this Agreement concerning Natural Gas and

different or additional provisions concerning Natural Gas which may be agreed by

the Parties in the future.

a)



The system for the allocation of Natural Gas among the Parties shall

follow the same general format as provided for Crude Oil, with the

exception that the royalty to be delivered to the State on Natural Gas shall

be at the rate of 5% as an incentive to enhance the viability of a Gas

project on the basis herein provided for.



b)



The Parties recognize that projects for the development and production of

Natural Gas are generally long-term in nature for both the project

developers and the customers who purchase the Natural Gas. Substantial

investments and dedication of facilities require long-term commitments on

both sides. This Agreement, being for a specific term of years, may not

Page 35 of 86



cover the length of time for which customers in given cases will require

commitments on the part of the Parties to this Agreement to deliver their

respective shares of the output. Accordingly the Parties agree to consider

undertaking such commitments where reasonably required for the efficient

and viable development of a Natural Gas project. It is recognized that,

unless otherwise agreed by the Parties hereto, Licensee will have no right

or interest in the project or the Natural Gas produced and delivered after

the term of this Agreement has expired.

c)



The Parties will consider collaboration in obtaining any common external

financing available for Natural Gas processing or Natural Gas utilization

facilities, including project financing; however, each party shall remain

free to finance externally its share of such facilities to the extent it prefers

to do so.



a)



Where Licensee has during the continuance of the Exploration Period

made a Discovery of Non-Associated Gas but has not before the end of the

Exploration Period declared that Discovery to be commercial, the Director

General may, if Licensee so requests, enter into a new Petroleum

Agreement with Licensee in respect of the Discovery Area to which that

Discovery relates;



b)



A Petroleum License entered into pursuant to this Article:



14.19



i)



shall unless the Discovery in respect of which the License

has been made is declared by Licensee to be commercial

continue in force for an initial period not exceeding five (5)

years;



ii)



shall in the event that the Discovery is declared by Licensee

to be commercial



iii)



a)



continue in force for an aggregate period not

exceeding thirty (30) years;



b)



include, or be deemed to include, all the provisions

which mutatis mutandis, would have applied to a

commercial Discovery of Non-Associated Gas if

Licensee had declared such Discovery to be

commercial under this Agreement;



shall contain in respect of the initial period or of any

renewal period details of the evaluations or studies which

Licensee proposes to undertake in order to determine or

keep under review the commerciality of the discovery.

Page 36 of 86



c)



Where Licensee has not, before the end of the initial period, declared the

Discovery to be commercial and the Director General has in his discretion

determined that further evaluation or studies may be required before the

Discovery can be declared commercial, the right of Licensee to retain the

Discovery Area shall continue for a further period not exceeding in the

aggregate five (5) years. The right of Licensee to retain the Discovery

Area aforesaid shall be secured by the renewal of the License referred to

in this Article 13 or where necessary by a new License entered into by the

Parties for that purpose.



Page 37 of 86



ARTICLE 15

DOMESTIC SUPPLY REQUIREMENTS (CRUDE OIL)

15.1



Crude Oil for consumption in Sierra Leone (in this Article called the “Domestic

Supply Requirement”) shall be supplied, to the extent possible, by the State from

its respective entitlement under this License and under any other contract for the

production of Crude Oil in Sierra Leone.



15.2



In the event that Crude Oil available to the State is insufficient to fulfill the

Domestic Supply Requirements, Licensee shall be obliged together with any third

parties which produce Crude Oil in Sierra Leone, to supply a volume of Crude Oil

to be used for such Domestic Supply Requirements, calculated on the basis of the

ratio of Licensee’s entitlement to Crude Oil to the similar entitlements of all such

third parties and provided that Licensee’s obligation to supply Crude Oil for

purposes of meeting the Domestic Supply Requirement Crude Oil shall not

exceed the total of Licensee’s said entitlement under this Agreement. The State

shall purchase any Crude Oil supplies by Licensee pursuant to this Article at the

weighted average Market Price determined under this Agreement for the Month

of delivery, and the State shall pay such prices within thirty (30) days after receipt

of invoice, failing which Licensee’s obligations in respect of the Domestic Supply

Requirement under this Article 14 shall be suspended until payment is made

good, at which time deliveries shall be resumed subject to any alternative

commitments that may have been reasonably entered into by Licensee to dispose

of the Domestic Supply Requirement Crude Oil during the period of default in

payment.



Page 38 of 86



ARTICLE 16

INFORMATION AND REPORTS: CONFIDENTIALITY

16.1



Licensee shall keep the Director General regularly and fully informed of

operations being carried out by Licensee and provide the Director General with all

information, data, (film, paper, digital forms and magnetic tapes), samples,

interpretations and reports, (including progress and completion reports) including

but not limited to the following:

(a)



processed seismic data and interpretations thereof;



(b)



well data, including but not limited to electric logs and other wireline

surveys, and mud logging reports and logs, samples of cuttings and cores

and analyses made therefrom;



(c)



any reports prepared from drilling data or geological or geophysical data,

including maps or illustrations derived therefrom;



(d)



well testing and well completion reports;



(e)



reports dealing with locations surveys, seabed conditions and seafloor

hazards and any other reports dealing with well, platform or pipeline

locations;



(f)



reservoir investigations and estimates regarding reserves, field limits and

economic evaluations relating to future operations;



(g)



daily, weekly, monthly and other regular reports on Petroleum Operations;



(h)



comprehensive final reports upon the completion of each specific project

or operation;



(i)



contingency programs and reports on safety and accidents;



(j)



procurement plans, subcontractors and contracts for the provision of

services to Licensee.



16.2



All information, data, logs, reports, samples, collected, processed or analysed

pursuant to this License shall remain the property of the State but the Licensee

shall have the right to retain for its own use in connection with the conduct of

Petroleum Operations under this License copies of data, well logs, maps,

magnetic tapes, other geological and geophysical information, portions of core

samples and copies of reports, studies and analysis referred to in Article 16.1.



16.3



Not later than ninety (90) days following the end of each Calendar Year, Licensee

shall submit to the Director General a report covering Petroleum Operations

Page 39 of 86



performed in the Contract Area during such Calendar Year. Such report shall

include, but not be limited to:

(a)



a statement of the number of Exploration Wells, Appraisal Wells and

Development Wells drilled, the depth of each such well, and a map on

which drilling locations are indicated;



(b)



a statement of any Petroleum encountered during Petroleum Operations, as

well as a statement of any fresh water layers encountered and of any other

minerals discovered;



(c)



a statement of the quantity and quality of Petroleum produced and of all

other minerals produced therewith from the same reservoir or deposit;



(d)



a summary of the nature and extent of all exploration activities in the

Contract Area;



(e)



a general summary of all Petroleum Operations in the Contract Area.



16.4



All data, information, reports and statistics including interpretation and analysis

supplied by Licensee pursuant to this License shall be treated as confidential and

shall not be disclosed by any Party to any other person without the express written

consent of the other Parties during the life of this License.



16.5



The provisions of this Article 16.4 shall not prevent disclosure:

(a)



(b)



By the Director General or the State:

(i)



To any agency of the State or to any adviser or

consultant to the Director General or the State;



(ii)



For the purpose of obtaining a Petroleum License in

respect of any acreage adjacent to the Contract

Area; or



(iii)



For the purpose of complying with the State’s

international obligations for the submission of

statistics and related data.



by Licensee:

i)



to its Affiliates, advisers or consultants;



ii)



to a bona fide potential assignee of all or part of Licensee’s

interest hereunder;



Page 40 of 86



16.6



iii)



to banks or other lending institutions for the purpose of

seeking external financing of costs of the Petroleum

Operations;



iv)



to Non-Affiliates who shall provide services for the

Petroleum Operations, including subcontractors, vendors

and other service contractors, where this is essential for

their provision of such services;



v)



to governmental agencies for obtaining necessary rulings,

permits, licenses and approvals, or as may be required by

applicable law or financial stock exchange, accounting or

reporting practices.



Any Party disclosing information or providing data to any third party under this

Article shall require such persons to undertake the confidentiality of such data.



Page 41 of 86



ARTICLE 17

INSPECTION, SAFETY AND ENVIRONMENTAL PROTECTION

17.1



The Director General shall be responsible for monitoring and inspecting all

activities undertaken by the Licensee under the scope of this Petroleum License.



17.2



The Director General or his duly authorized representatives shall have the right of

access to all sites and offices of Licensee and the right to inspect all buildings and

installations used by Licensee relating to Petroleum Operations. Such inspections

and access shall take place in consultation with Licensee and at such times and in

such manner as not unduly to interfere with the normal operations of Licensee.

Such representatives may 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 the Licensee

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

reasonable assistance by the agents and employees of the Licensee so that none of

their activities endanger or hinder the safety or efficiency of the operations. The

Licensee 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 of adequate housing while they are in the field for the

purpose of facilitating the objectives of this Article.



17.3



Licensee shall save and keep a representative portion of each sample of cores and

cuttings taken from drilling wells, to be disposed of, or forwarded to the Director

General. All samples acquired by the Licensee for their own purposes shall be

considered available for inspection at any reasonable time by the Director General

or his representatives.



17.4



The Licensee shall provide the Director General 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 relevant

information in Licensees possession.



17.5



Licensee shall take all necessary steps, in accordance with accepted Petroleum

Industry practice, to perform activities pursuant to the Agreement in a safe

manner.



17.6



Licensee shall provide an effective and safe system for disposal of water and

waste oil, oil base mud and cuttings in accordance with accepted Petroleum

Industry practice, and shall provide for the safe completion or abandonment of all

boreholes and wells.



17.7



Licensee shall exercise its rights and carry out its responsibilities under this

Agreement in accordance with accepted Petroleum Industry practice, and shall

take steps in such manner as to:

Page 42 of 86



(a)



Result in minimum ecological damage or destruction;



(b)



Control the flow and prevent the escape or the avoidable waste of

Petroleum discovered in or produced from the Contract Area;



(c)



Prevent damage to Petroleum-bearing strata;



(d)



Prevent the entrance of water through boreholes and wells to Petroleumbearing strata, except for the purpose of secondary recovery;



(e)



Prevent damage to onshore lands and to trees, crops, buildings or other

structures;



(f)



Prevent damage to marine life and fishing activities in offshore operations;

and



(g)



Avoid any actions, which would endanger the health or safety of persons.



17.8



If Licensee’s failure to comply with the requirements of Article 17.5 results in the

release of Petroleum or other materials on the seabed, in the sea, on land or in

fresh water, or if Licensee’s operations result in any other form of pollution or

otherwise cause harm to fresh water, marine, plant or animal life, Licensee shall,

in accordance with accepted Petroleum Industry practice, promptly take all

necessary measures to control the pollution, to clean up Petroleum or released

material, or to repair, to the maximum extent feasible, damage resulting from any

such circumstances. The cost of clean-up and repair activities shall be borne by

Licensee.



17.9



For the purposes of Article 17.1, the Licensee shall send to the Director General

all logs, operational reports and incident reports on their activities by the 10th day

of the end of each month.



17.10 If it is determined that a particular petroleum operation may endanger the lives of

persons or the preservation of the environment, the Director General, after

consulting Licensee, may:

(a)



order such petroleum operation to be suspended;



(b)



order the withdrawal of all persons from the locations deemed dangerous,

in coordination with the relevant State authorities;



(c)



order the suspension of the use of any machine or equipment which may

jeopardize the said values.



17.11 Licensee shall notify the Director General immediately in the event of any

emergency or major accident and shall take such action as may be prescribed by

its emergency procedures and by accepted Petroleum Industry practices.

Page 43 of 86



ARTICLE 18

DECOMMISSIONING

18.1



The Licensee may at any time relinquish and/or abandon any portion of the

Contract Area or any Well not included in a Field subject to having given three

(3) months prior notice to the Director General, provided that the Licensee shall

have fulfilled all of its obligations under this Contract and that it has given the

Director General full details of the state of any reservoir and the facilities

equipment in such area in addition to any plans for the removal or dismantling of

such facilities and equipment including all technical and financial information.

All decommissioning operations must be undertaken in accordance with the

Petroleum Law.



18.2



The decommissioning of a Field by the Licensee, and its corresponding

decommissioning plan shall require the prior approval of the Director General. At

the time the Licensee presents a development plan according to Article , the

Licensee shall also prepare and deliver to the Director General a plan for the

decommissioning of all Wells, facilities and equipment, the rehabilitation of the

landscape and the continuation of Petroleum Operations, if applicable.



18.3



Unless the Director General elects to keep the facilities and equipment in order to

continue Petroleum Operations in accordance with Article 18.4, the Licensee is

obligated to fully decommission all Fields within the Contract Area.



18.4



Upon receipt by the Director General of the notice referred to in Article 18.1 or

upon the decommissioning of any Field, the State shall be entitled to take over

any Discovery or Field whose decommissioning is proposed by the Licensee. If

the Director General does not communicate its desire to take over Petroleum

Operations within three (3) months of receipt of the relevant notice, it shall be

deemed to have elected not to do so.



18.5



In order to implement the decommissioning of a Field, the Licensee shall

contribute to a reserve fund set up for the estimated decommissioning costs, (the

Reserve Fund) in accordance with the the approved decommissioning plan.



18.6



In the event that the total amount of the Reserve Fund is greater than the actual

cost of decommissioning, the account balance shall be distributed between the

State and the Licensee in equal amounts. In the event that the amount of the

Reserve Fund is less than the actual cost of decommissioning operations, the

Licensee shall be liable for the remainder.



18.7



In the event that the State elects to keep the facilities and equipment in order to

continue Petroleum Operations after the withdrawal of the Licensee, the Reserve

Fund so established together with the related interest shall be put at the States

disposal to cover the later decommissioning. The Licensee shall be released from

any further decommissioning liability in respect of such facilities and equipment.

Page 44 of 86



18.8



The State undertakes not to interfere with the conduct of Petroleum Operations in

the Contract Area retained by the Licensee in the event that the State should elect

to take over a Discovery or Field pursuant to Article 18.4. If requested by the

Director General, the Licensee shall undertake to continue all operations for a fee

and on terms to be agreed between the Director General and the Licensee.



18.9



The Licensee shall duly plug all the Wells and decommission all facilities and

equipment in order to avoid contamination and harm to the environment and

possible damage to the reservoir, in accordance with generally accepted practice

of the international petroleum industry.



Page 45 of 86



ARTICLE 19

ACCOUNTING AND AUDITING

19.1



Licensee shall maintain, at its offices in Sierra Leone, books of account and

supporting records in the manner required by applicable law and accepted

accounting principles generally used in the petroleum industry and shall file

reports, tax returns and any other documents and any other financial returns which

are required by applicable law.



19.2



In addition to the books and reports required by Article 18.1 above, Licensee shall

maintain, at its office in Sierra Leone, a set of accounts and records relating to

Petroleum Operations under this License. Such accounts shall be kept in

accordance with the requirements of the applicable law and accepted accounting

principles generally used in the industry.



19.3



The accounts required by Articles 18.1 and 18.2 shall be kept in United States

Dollars.



19.4



Licensee will provide the Director General with quarterly summaries of the

Petroleum Costs incurred under this License.



19.5



The Director General shall review all financial statements submitted by the

Licensee as required by this License, and shall signify its provisional approval or

disapproval of such statements in writing within ninety (90) days of receipt,

failing which the financial statements as submitted by Licensee shall be deemed

approved by the Director General.



19.6



Notwithstanding any provisional approval pursuant to Article 18.5 the Director

General shall have the right at its sole expense and upon giving reasonable notice

in writing to Licensee to audit the books and accounts of Licensee relating to

Petroleum Operations within two (2) years from the submission by Licensee of

any report of financial statement. The Director General shall not, in carrying out

such audit, interfere unreasonably with the conduct of Petroleum Operations.

Any such audit shall be completed within nine (9) months after commencement.

Licensee shall provide all necessary facilities for auditors appointed hereunder

including working space and access to all relevant personnel, records, files and

other materials.



19.7



Subject to any adjustments resulting from such audits, Licensee’s accounts and

financial statements shall be considered to be correct on expiry of a period of two

(2) years from the date of their submission unless before the expiry of such two

year period the Director General has notified Licensee of any exceptions to such

accounts and statements.



Page 46 of 86



ARTICLE 20

PURCHASING AND PROCUREMENT

20.1



In the acquisition of plant, equipment, services and supplies for Petroleum

Operations, Licensee shall give preference to materials, services and products

produced in Sierra Leone, of the same or approximate quality, if such materials,

services and products can be supplied in due time at prices, which are no more

than 10% higher than the imported items including transportation, insurance costs

and customs charges due.



20.2



For the purposes of the provisions of Article 19.1, Sierra Leonean companies shall

be mandatorily consulted on the same terms as those used for consulting

companies on the international market.



20.3



The Licensee shall always Contract local service providers, to the extent to which

the services they provide are similar to those available on the international

market, and their prices, when subject to the same tax charges, are no more than

ten percent higher than the prices charged by foreign contractors for similar

services.



Page 47 of 86



ARTICLE 21

EMPLOYMENT AND TRAINING

21.1



Licensee shall pay to the State the sum of two hundred thousand US dollars

(US$200,000) every year from the effective date during the exploration and

development period, and five hundred thousand US dollars (US$500,000) for

each contract year during the production period, which the State may use at its

sole discretion to train Sierra Leonean personnel and transfer the management and

technical skills required for the efficient conduct of Petroleum Operations, and for

other general and educational training purposes. This sum shall be paid to the

Director General on the effective date, and at the latest, on January 15th each

calendar year thereafter and shall not be prorated.



21.2



Licensee shall be required to employ Sierra Leone citizens in all categories and

functions, except if there are no Sierra Leone citizens in the national market with

the required qualifications and experience, under terms to be regulated.



21.3



National and foreign workers employed by Licensee who occupy identical

professional categories and carry out identical functions shall enjoy the same

rights of remuneration and the same working and social conditions, without any

type of discrimination.



21.4



Licensee shall, if so requested by the Director General, provide opportunities for a

mutually agreed number of employees nominated by the Director General to be

seconded for on-the-job training or attachment to all phases of its Petroleum

Operations under a mutually agreed secondment contract.



21.5



Licensee shall regularly provide to the Director General information and data

relating to worldwide Petroleum science and technology, Petroleum economics

and engineering available to Licensee.



21.6



It is agreed that there will be no disclosure or transfer of any documents, data,

know-how, technology or other information owned or supplied by Licensee, its

Affiliates, or Non-Affiliates, to third parties without Licensee’s prior written

consent, and then only upon agreement by the recipients to retain such

information in strict confidence during the life of this Agreement.



Page 48 of 86



ARTICLE 22

PROTECTION OF RIGHTS

22.1



The State shall take all necessary and possible steps to facilitate the

implementation by the Licensee of the objectives of this License, and to protect

the property and operations of the Licensee, its employees and agents in the

territory of Sierra Leone.



22.2



At the duly justified request of the Licensee, the State shall prohibit the

construction of dwelling or business buildings in the vicinity of installations

which the Licensee may declare dangerous as a result of its operations. It shall

take all necessary precautions to prohibit anchoring in the vicinity of submerged

pipelines at river passages, and to prohibit any hindrance to the use of any other

installation necessary for the Petroleum Operations whether on land or offshore.



22.3



The Licensee shall take out and cause to be taken out by its contractors and

subcontractors, in respect of the Petroleum Operations, all insurances of the type

and for such amounts customarily used in the international petroleum industry,

including without limitation third party liability insurance and insurances to cover

damage to property, facilities, equipment and material.



22.4



Upon the entry into Sierra Leone of all Foreign National Employees of

Contractors, its Affiliates, Non-Affiliates and Subcontractors and their Agents, the

Director General shall facilitate the issue of the documents necessary for the entry

to all such Foreign National Employees, such as entry visas, working permits, exit

visas and other related documents.



22.5



At the request of the Licensee, the Director General shall facilitate any

immigration formalities at the points of entry into and exit from Sierra Leone in

respect of all such Foreign National Employees and their families.



22.6



All the Foreign National Employees required for the conduct of the Petroleum

Operations shall be under the Licensee’s authority or that of its Affiliates, NonAffiliates, Subcontractors and Agents, in their capacity as employers. Their work,

number of working hours, salaries and any other matters relating to their

employment conditions shall be determined by the Licensee or its Affiliates, NonAffiliates, Subcontractors and Agents.



Page 49 of 86



ARTICLE 23

FORCE MAJEURE

23.1



No delay or default of a Party in performing any of the obligations resulting from

this License shall be considered as a breach of this License if such delay or

default is caused by a case of Force Majeure.



23.2



If in the event of Force Majeure the performance of any of the obligations under

this License is delayed, that delay, extended by the period of time required to

repair the damage caused during such delay and resume the Petroleum

Operations, shall be added to the period provided by this Agreement for the

performance of said obligations, and the Exploration or Production authorizations

shall be extended by that period as regards the Contract Area concerned by Force

Majeure.



23.3



Force Majeure shall have the meaning set forth in Article 1 herein.



23.4



Where a Party considers it is prevented from performing any of its obligations by

the occurrence of a case of Force Majeure, it shall forthwith notify the other Party

thereof by specifying the grounds for establishing Force Majeure and take, in

agreement with the other Party, all necessary and useful steps to ensure the

normal resumption of the performance of the concerned obligations upon

termination of the event constituting the case of Force Majeure.



23.5



Obligations other than those affected by Force Majeure shall continue to be

performed in accordance with the provisions of this License.



Page 50 of 86



ARTICLE 24

TERM OF AGREEMENT

24.1



The term of this License shall be either thirty (30) years commencing from the

Effective Date or for the duration of production from the Contract Area,

whichever shall be earlier.



24.2



At the end of the term provided for in Article 24.1, provided that this License has

not earlier been terminated, the Parties may negotiate concerning the terms and

conditions of a further License with respect to the Contract Area or any part

thereof.



Page 51 of 86



ARTICLE 25

CONSULTATION, ARBITRATION AND INDEPENDENT EXPERT

25.1



Any dispute or difference arising between the State on one hand and Licensee on

the other in relation to or in connection with or arising out of any terms and

conditions of this License shall be resolved by consultation and negotiation. In

the event that no agreement is reached within thirty (30) days after the date when

either Party notifies the other that a dispute or difference exists within the

meaning of this Article or such longer period specifically agreed to by the Parties

or provided elsewhere in the License, any Party shall have the right subject to

Article 24.8 to have such dispute or difference settled through international

arbitration under the rules and procedures and under the auspices of

UNCITRAL/ICSID.



25.2



The tribunal shall consist of three (3) arbitrators. Each Party to the dispute shall

appoint one (1) arbitrator and those so appointed shall designate an umpire

arbitrator. If a Party’s arbitrator and/or the umpire arbitrator is not appointed

within the periods provided in the rules, such Party’s arbitrator and/or the umpire

arbitrator shall at the request of any Party to the dispute be appointed by

UNCITRAL/ICSID.



25.3



No arbitrator shall be a citizen of the home country of any Party hereto, and shall

not have any economic interest or relationship with any such Party.



25.4



The arbitration proceedings shall be conducted in London, England, or at such

other location as selected by the arbitrators unanimously. The proceedings shall

be conducted in the English language.



25.5



If the opinions of the arbitrators are divided on issues put before the tribunal, the

decision of the majority of the arbitrators shall be determinative. The award of

the tribunal shall be final and binding upon the Parties. The award may be

submitted to a court of appropriate jurisdiction to implement as a judicial decree.



25.6



The right to arbitrate disputes arising out of this License shall survive the

termination of this License.



25.7



In lieu of resorting to arbitration, the Parties to a dispute arising under this

Agreement, including the Accounting Guide, which such Parties by mutual

agreement may consider appropriate may be referred for determination by a Sole

Expert to be appointed by agreement of the Parties. In such case, the Parties shall

agree on the terms of reference for such proceeding, the schedule of presentation

of evidence and testimony of witnesses, and other procedural matters. The

decision of the Sole Expert shall be final and binding upon the Parties. The Sole

Expert shall have ninety (90) days after his appointment to decide the case,

subject to any extensions mutually agreed to by the Parties to the dispute. Upon

Page 52 of 86



failure of the Sole Expert to decide the matter timely, any Party may call for

arbitration under Article 24.1 above.

25.8



Each Party to a dispute shall pay its own counsel and other costs of litigation;

however, costs of the arbitration tribunal shall be allocated in accordance with the

decision of the tribunal. The costs and fees of the Sole Expert shall be borne

equally by the Parties to the dispute.



Page 53 of 86



ARTICLE 26

ASSIGNMENT

26.1



All or part of the rights and obligations arising from this License may be assigned

by any of the entities constituting the Licensee to third parties whose technical

and financial reputation is well established; the assignees with the other entities

constituting the Licensee shall thereafter be jointly and severally liable for the

obligations arising from this License.



26.2



The terms of any joint and several assignment and ownership shall be subject to

the prior approval of the Director General,



26.3



All or part of the joint and several rights and obligations arising from this License

may be freely assigned at any time by any of the entities constituting the Licensee

to one or more Affiliated companies or other entities constituting the Licensee.

Said assignments shall be notified to the State by the Licensee prior to the

effective date thereof.



26.4



To enable consideration to be given to any request for the Director Generals

consent referred to in Articles 26.2, the following conditions must be fulfilled:

(a)



All the obligations of the assignor deriving from this License must have

been duly fulfilled as of the date such request is made.



(b)



The instrument of assignment must include provisions stating precisely

that the assignee is bound by all covenants contained in this License 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

the Director General for review and approval before being formally

executed.



(c)



The assignor(s) must submit to the Director General reasonable documents

that evidence the assignee's financial and technical competence.



(d)



Once the assignor and a proposed third party assignee, other than an

Affiliated Company, have agreed the final conditions of an assignment,

the assignor shall disclose in details such final conditions in a written

notification to the Director General. The State shall have the right to

acquire the interest intended to be assigned, if, within Ninety (90) days

from assignor’s written notification, the Director General delivers to the

assignor a written notification that it accepts the same conditions agreed to

with the proposed third party assignee. If the Director General does not

deliver such notification within such Ninety (90) day period, the assignor

shall have the right to assign to the proposed third party assignee, subject

to the Director General’s approval under Article 26.2 this agreement.



Page 54 of 86



(e)



26.5



As long as the assignor shall hold any interest under this License, the

assignor together with the assignee shall be jointly and severally liable for

all duties and obligations of Licensee under this License.



If :

(a)



any of the entities constituting the Licensee (“Assignor”) assigns all or a

part of its Participating Interest to a third party (“Assignee”) in accordance

with Article 26;



(b)



the Assignee provides an irrevocable, unconditional bank guarantee from a

reputed bank of good standing, acceptable to the State, in favour of the

State, for an amount equal to the assignee’s Participating Interest share of

the estimated expenditure of the Minimum Work Programme of the

Exploration Phase current at the Effective Date of the assignment;



(c)



the Assignee provides performance guarantee and legal opinion in terms

of Article 4; and



(d)



the assignment of Participating Interest is executed by all Parties;



then the Government shall release the guarantee given by the assignor under

Article 4 to the extent of the amount of the guarantee provided by the assignee



Page 55 of 86



ARTICLE 27

BONUSES

27.1.



Licensee shall pay to the State as a signature bonus the sum of U.S. Dollars ($

000 000) on the Effective Date.



27.2.



Licensee shall pay to the State as a Development bonus the sum of U.S. Dollars ($

000 000) on the date of the approval of each Commercial Development.



27.3.



Licensee shall pay to the State the sum of U.S. Dollars ($ 000 000) as a Lease

extension bonus on the approval date of entry into any of the extension periods, or

on the extension of any period pursuant to Article 3.



27.4.



Licensee shall pay to the State as an assignment fee of on the date of approval of

each assignment requested by any of the entities constituting the Licensee to any

assignee in accordance with Article 26, in the following cases:

a) During any Exploration period, in case Licensee assigns in whole or in part of

it’s rights, privileges, duties and obligations to any assignee other than an

Affiliate Company of the same Licensee, Licensee shall pay to the State the

sum equivalent to ten percent (10%), valued in US Dollars, of the total

financial commitment of the Exploration phase during which the assignment

is made and according to the assigned percentage…….(Or an Assignment Fee

of US$750,000)

b) During any Development or Production Period, in case Licensee assigns in

whole or in part of it’s rights, privileges, duties and obligations to any

assignee other than an Affiliate Company of the same Licensee or member,

Licensee shall pay to the Director General the sum of ten percent (10%),

valued in US Dollars, of the value of each Assignment Deal which could be

any of the following: The financial value to be paid by the Assignee to the

Assignor; or The financial value of shares or stocks to be exchanged between

the Assignor and the Assignee; or The financial commitments for technical

programs; or The financial value of the reserves, to be swapped between the

assignor and the assignee from the Development areas; or Any other type of

deal to be declared. (Or an assignment Fee of US$1,500,000)

c) In case of an assignment to an Affiliate company of any of the entities

constituting the Licensee during any Exploration or Development phase;

Licensee shall pay to the State the sum of Five hundred Thousand U.S.

Dollars (US$ 500,000).



27.5.



Licensee shall pay to the State the sum of U.S. Dollars ($ 000 000) as a

production bonus when the total average daily production from the Area first

Page 56 of 86



reaches the rate of five thousand (5,000) Barrels of Oil or equivalent per day as

for a period of thirty (30) consecutive producing days. Payment shall be made

within fifteen (15) days thereafter.

27.6.



Licensee shall also pay to the State the additional sum of U.S. Dollars ($000 000)

as a production bonus when the total average daily production from the Area first

reaches the rate of ten thousand (10,000) Barrels of Oil or equivalent per day for a

period of thirty (30) consecutive producing days. Payment shall be made within

fifteen (15) days thereafter.



27.7.



Licensee shall also pay to the State the additional sum of U.S. Dollars ($ 000000)

as a production bonus when the total average daily production from the Area first

reaches the rate of twenty five thousand (25,000) Barrels of Oil or equivalent per

day for a period of thirty (30) consecutive producing days. Payment will be made

within fifteen (15) days thereafter.



27.8.



Licensee shall also pay to the State the additional sum of U.S. Dollars ($ 000 000)

as a production bonus when the total average daily production from the Area first

reaches the rate of fifty thousand (50 000) Barrels of Oil or equivalent per day for

a period of thirty (30) consecutive producing days. Payment shall be made within

fifteen (15) days thereafter.



27.9.



Gas shall be taken into account for purpose of determining the total average daily

production from the Area under this Article 27 by converting daily Gas delivered

into equivalent barrels of daily Crude Oil production in accordance with the

following formula for each unit of one thousand (1,000) standard Cubic Feet of

Gas: Equivalent Barrels of Oil Per MSCF = H x 0.167 Where: MSCF = one

thousand Standard Cubic Feet of Gas. H = the number of million British Thermal

Units (MMBTU) per MSCF.



27.10. Licensee shall pay to the State the sum of Five Hundred Thousand U.S. Dollars

(US$ 500,000) as a technology bonus, which the State may use to acquire leading

edge technology and equipment for the efficient conduct of Petroleum Operations.

Payment shall be made on the first anniversary of the effective date.

27.11. The Director General shall act as agent for the State in the collection of all

Petroleum or money accruing to the State under this Article and delivery or

payment to Director General by Licensee shall discharge Licensee’s liability.

27.12. All the above mentioned bonuses shall in no event be recovered by Licensee.



Page 57 of 86



Article 28

IMPLEMENTATION OF LICENSE

28.1



The Parties agree to cooperate in every possible manner to achieve the objectives

of this License. The Director General shall facilitate the grant of any permits,

licenses, access rights, appropriate services and facilities required by the Licensee

for the performance of the Petroleum Operations.



28.2



If the State considers that the Licensee has committed a breach in the performance

of any of its obligations, it shall so notify the Licensee in writing and the Licensee

shall have sixty (60) days to remedy the breach or refer the matter to Arbitration

in accordance with the provisions of this License.



28.3



The breach by the Licensee of the provisions of this License may give rise to the

termination thereof by the State upon the uncorrected occurrence of any of the

events or failures to act listed below:



28.4



(a)



the submission by Licensee to the Director General of a written statement

which the Licensee knows or should have known to be false in a particular

material matter;



(b)



the assignment or purported assignment by Licensee of this License

contrary to the Assignment provisions hereunder;



(c)



the insolvency or bankruptcy of Licensee or the entry of the Licensee into

liquidation or receivership, whether compulsory or voluntary, and there is

justifiable anticipation that the obligations of Licensee hereunder will not

be performed;



(d)



the failure of Licensee to fulfill its minimum work obligations hereunder

unless the Director General has waived the default;



(e)



the substantial and material failure by Licensee to comply with any of its

obligations pursuant to Article 6 hereof;



(f)



the failure of the Licensee to provide the required Performance Security

within Sixtyty (60) days of the effective date for the Initial Exploration

Period or within Sixty (60) days of entrance into any extension period.



(g)



the failure by Licensee to make any payment of any sum due to the

Director General or the State pursuant to this Agreement within sixty (60)

days after receiving notice that such payment is due.



If the Director General or the State believes an event or failure to act as described

in Article 29.3 above has occurred, a written notice shall be given to Licensee

describing the event or failure. Licensee shall have sixty (60) days from receipt

Page 58 of 86



of said notice to commence and pursue a remedy of the event or failure cited in

the notice. If after said sixty (60) days Licensee has failed to commence

appropriate remedial action, the Director General or the State may then issue a

written Notice of Suspension or Termination to Licensee unless the Licensee has

referred the matter to Arbitration under this Agreement. Disputes regarding nonpayment of Annual License Fees, Annual Training Fees and non-receipt of bank

guarantees shall not be referred to Arbitration and such written Notice of

Termination shall be effective without delay. If so referred to Arbitration, the

Director General and/or the State may not terminate this License in respect of

such event except in accordance with the terms of any resulting Arbitration

Award.

28.5



Upon termination of this License, all rights of Licensee hereunder shall cease,

except for such rights as may at such time have accrued, and without prejudice to

any obligation or liability imposed or incurred under this License prior to

termination and to such rights and obligations as the Parties may have under

applicable law.



28.6



The terms and conditions of this License may be modified only in writing and by

mutual agreement between the Parties.



28.7



The Director General shall represent the State under this License and is

empowered to grant, in the name and on behalf of the State, any consent

necessary or useful for the implementation of this Agreement.



28.8



The Petroleum Directorate shall act as an agent for the State in the collection of

all petroleum or money apart from Duties and Taxes, accruing to the State under

this License, and delivery or payment to the Director General by Licensee shall

discharge Licensee’s liability.



28.9



Headings in this License are inserted for purposes of convenience and reference

and in no event shall define, restrict or describe the scope or object of the

Agreement or of any of its clauses.



28.10 Annexes 1, 2 and 3 attached hereto shall form an integral part of this License.

28.11 Any waiver of the State concerning the performance of any obligation of the

Licensee shall be in writing and signed by the Director General, and no waiver

shall be implied if the Director General does not exercise any of its rights to

which it is entitled under this License.



Page 59 of 86



ARTICLE 29

NOTICE

29.1



Any Notice, Application, Requests, Licenses, Consent, Approval, Instruction,

Delegation, Waiver or other communication required or permitted to be given

hereunder shall be in writing and shall be deemed to have been properly given

when delivered in person to an authorized representative of the Party to whom

such notice is directed or when actually received by such Party through registered

mail, telefax or telegram at the following address or at such other address as the

Party shall specify in writing fifteen (15) days in advance:

ADDRESS:

Director General

Petroleum Directorate

43 Siaka Stevens Street

Freetown,

Sierra Leone



TELEPHONE:



TELEFAX:



232 22 222714

232 76 610131



232 22 290405



For Licensee:

ADDRESS:



TELEPHONE:



: TELEFAX:



IN WITNESS WHEREOF the parties have caused this agreement to be executed by their duly

authorized representatives as of the date first written above.



Page 60 of 86



FOR THE STATE represented by

The Director General, Petroleum

Directorate, Office of The

President



WITNESSED:



By:



By:



FOR LICENSEE:



By:



WITNESSED:



By:



Page 61 of 86



ANNEX 1

Attached to and made part of this Agreement between the Republic of Sierra Leone and

the Licensee.

CONTRACT AREA

On the Effective Date, the Contract Area, designated as SL- Block, is formed by the area

included inside the perimeter constituted by the points indicated …. on the map attached hereto.

The geographical coordinates of those points are the following, with reference to the

Greenwich meridian.

Point



Latitude



Longitude



Those coordinates are only given for purposes of illustration and shall not be considered

as the boundaries of the national jurisdiction of Sierra Leone.

The surface of the Contract Area above-defined is deemed to be equal to about … square

kilometers.



Page 62 of 86



MAP OF THE CONTRACT AREA



Page 63 of 86



ANNEX 2

ACCOUNTING GUIDE

The purpose of this Accounting Guide is to establish equitable methods as between the Parties

for determining charges and credits applicable to operations under the License. Principles

established by this Accounting Guide shall reflect the Licensee’s actual costs.



Page 64 of 86



SECTION 1

1.1



GENERAL PROVISIONS



Words and terms appearing in this Annex shall have the same meaning as in the License and to

that end shall be defined in accordance with Article 1 of the License.

In the event of a conflict between the provisions of the Accounting Guide and the provisions of

the License, the provisions of the License shall prevail.

1.2



STATEMENTS REQUIRED TO BE SUBMITTED BY LICENSEE



Within forty-five (45) days from the Effective Date, Licensee shall propose to the Director

General an outline of the chart of accounts, operating records and reports to be prepared and

maintained, which shall describe the basis of the accounting principles and procedures to be used

during the term of the License, and shall be consistent with normal practice of the international

petroleum industry.

Within ninety (90) days of the receipt of such proposal the Director General shall either accept it

or request such revisions as the Director General deems necessary. Failure to notify Licensee of

any requested revisions within a ninety (90) day period shall be deemed acceptance of such

proposal.

Within one hundred and eighty (180) days from the Effective Date, the Parties shall either agree

on such outline or submit any outstanding issue for determination by a Sole Expert pursuant to

the Arbitration provisions of this License.

Following agreement over the outline Licensee shall prepare and submit to the Director General

formal copies of the chart of accounts relating to the accounting, recording and reporting

functions listed in such outline. Licensee shall also permit the Director General to inspect its

manuals and to review all procedures which are to be followed under the License.

Without prejudice to the generality of the foregoing, Licensee shall make separate statements

relating to Petroleum Operations for each Development and Production Area as follows:

(a)



Production Statement (see Section 5)



(b)



Value of Production Statement (see Section 6)



(c)



Cost Statement (see Section 7)



(d)



Statement of Expenditures and Receipts (see Section 8)



(e)



Final End-of-Year Statement (see Section 19)



(f)



Budget Statement (see Section 10)



Page 65 of 86



1.3



(g)



Local Procurement Statement (see Section 11)



(h)



Local Employment Statement (see Section 12)



(i)



Long Range Plan and Forecast (see Section 13)



LANGUAGE MEASUREMENT, AND UNITS OF ACCOUNTS



the U.S. Dollar being the currency unit for investments and compensation hereunder shall

therefore be the unit of currency for all bookkeeping and reporting under the License. When

transactions for an asset or liability are in currency other than the U.S. Dollar, the respective

accounts shall be kept in such other currency as well as the U.S. Dollar.

Measurement required under this Annex shall be in the metric system and Barrels.

The English language shall be employed.

Where necessary for purposes of clarification, Licensee may also prepare financial reports in

other languages, units of measurement and currencies.

It is the intent of the Parties that no Party shall experience any gain or loss at the expense of or to

the benefit of the other as a result of exchange of currency. Where any such gain or loss arises it

shall be charged or credited to the accounts under the License.

The rate of exchange for the conversion of currency shall be the rate quoted by the Bank of

Sierra Leone, or, where buying and selling rates are quoted, the arithmetic average of those rates,

at the close of business on the date of such currency conversion.

Current Assets and Liabilities shall be translated at the rate prevailing on the date of settlement

of the account.

To translate revenue received and expenditures made in currencies other than U.S. Dollars, the

average of the monthly rate between the currencies shall be used.

Expenditures made in U.S. Dollars or other currencies in respect of capital items shall be

translated at the rate prevailing at the date of acquisition.



Page 66 of 86



SECTION 2

CLASSIFICATION AND ALLOTMENT OF COSTS AND EXPENDITURE

2.1



Expenditure relating to Petroleum Operations shall be classified, as follows:

a)



Exploration Expenditure;



b)



Development Expenditure;



c)



Production Expenditure;



d)



Service Costs; and



e)



General and Administrative expenses



and shall be defined and allotted as herein below provided.

2.2



EXPLORATION EXPENDITURE

Exploration Expenditure shall consist of all direct, indirect and allotted costs incurred in

the search for Petroleum in the Contract Area, including but not limited to expenditure

on:

a)



aerial,

geographical,

geochemical,

paleontological,

geological,

topographical and seismic surveys, and studies and their interpretation;



b)



borehole drilling and water drilling;



c)



labor, materials and services used in drilling wells with the objective of

finding new Petroleum reservoirs or for the purpose of appraising of

Petroleum reservoirs already discovered provided such wells are not

completed as producing wells;



d)



facilities used solely for Exploration Operations, including access roads,

where applicable, and purchased geological and geophysical information;



e)



service costs allotted to the Exploration Operations on an equitable basis;



f)



General and Administrative Expenses allotted to Exploration Operations

based on the percentage share of projected budget expenditure which will

be adjusted to actual expenditure at the end of each year.



Page 67 of 86



2.3



DEVELOPMENT EXPENDITURE

Development Expenditure shall consist of expenditure incurred in Development

Operations, including but not limited to expenditure on:



2.4



a)



drilling wells which are completed as producing wells and drilling wells

for purposes of producing a Petroleum reservoir already discovered,

whether these wells are dry or producing;



b)



completing wells by way of installation of casing or equipment or

otherwise after a well has been drilled for the purpose of bringing such

well into use as a producing well;



c)



intangible drilling costs such as labor, consumable material and services

having no salvage value which are incurred in drilling and deepening of

wells for producing purposes;



d)



field facilities such as pipelines, flow lines, production and treatment

units, wellhead equipment, subsurface equipment, enhanced recovery

systems, offshore platforms, Petroleum storage facilities and access roads

for production activities;



e)



engineering and design studies for field facilities;



f)



service costs allotted to Development Operations on an equitable basis;



g)



General and Administrative Expenses allotted to Development Operations

based on the percentage projected budget expenditure which will be

adjusted to actual expenditure as the end of the year.



PRODUCTION EXPENDITURE

Production Expenditure shall consist of but not limited to expenditure incurred in

Petroleum Operations after the Date of Commencement of Commercial Production, such

expenditure being other than Exploration Expenditure, Development Expenditure,

General and Administrative Expenses and Service Costs. The balance of General and

Administrative Expenses and Service Costs not allotted to Exploration Operations or to

Development Operations under Section 2.2 and 2.3 shall be allotted to Production

Expenditure.



2.5



SERVICE COSTS



Service Costs shall consist of but not be limited to direct and indirect expenditure incurred in

support of Petroleum Operations, including the construction or installation of warehouses, piers,

marine vessels, vehicles, motorized rolling equipment, aircraft, fire security stations, workshops,

water and sewage plants, power plants, housing community and recreational facilities and

furniture, tools and equipment used in such construction or installation.

Page 68 of 86



Service Costs in any Calendar Year shall include the total costs incurred in such year to purchase

and construct or install such facilities as well as the annual costs of maintaining and operating

such facilities.

Service Costs will be regularly allotted on an equitable basis to Exploration Expenditure,

Development Expenditure and Production Expenditure.

2.6



GENERAL AND ADMINISTRATIVE EXPENSES

General and Administrative Expenses shall consist of:



main office, field and general administrative costs, in the Republic of Sierra Leone, including but

not limited to supervisory, accounting and employee relations services;

An overhead charge for the actual cost of services rendered outside the Republic of Sierra Leone

by Licensee and its Affiliates for managing Petroleum Operations and for staff advice and

assistance, including but not limited to financial, legal, accounting and employee relations

services.

General and Administrative Expenses will be regularly allotted as specified in subsections 2.2

(f), 2.3 (g) and 2.4 to Exploration Expenditure, Development Expenditure and Production

Expenditure.



Page 69 of 86



SECTION 3

3.1



COSTS NOT ALLOWABLE UNDER THE AGREEMENT

The following costs and expenses shall not be recoverable or allowable (whether directly

as such or indirectly as part of any other charges or expense) under the License:

(a)



commission paid to intermediaries by Licensee;



(b)



costs and charges incurred before the Effective Date including costs in

respect of preparation, signature or ratification of this Contract;



(c)



expenditures in respect of any financial transaction to negotiate, float or

otherwise obtain or secure funds for Petroleum Operations including, but

not limited to, interest, commission, brokerage and fees related to such

transactions, as well as exchange losses on loans or other financing,

whether between Affiliates or otherwise;



(d)



expenditures incurred in obtaining, furnishing and maintaining the

guarantees required under the Contract and any other amounts spent on

indemnities with regard to non-fulfillment of contractual obligations;



(e)



attorney’s fees and other costs and charges in connection with arbitration

proceedings and sole expert determination pursuant to the Contract;



(f)



amounts paid with respect to non-fulfillment of contractual obligations;



(g)



costs incurred as a result of failure to insure where insurance is required

pursuant to the Contract, or of failure to follow procedures laid down by

an insurance policy or where the Licensee has elected to self insure, or has

under-insured;



(h)



financing cost of inventory and loss on disposal of inventory



(i)



Costs which are not adequately supported and documented.



(j)



any bonus payments made by the Licensee;



(k)



any unapproved over-expenditures that exceed the limits of Article 4.4 of

this Contract;



(l)



any payments made to the State for failure to fulfill the minimum

Exploration work obligations pursuant to Article 3 of the Contract;



(m)



any fines and sanctions incurred for infringing the laws and regulations of

Sierra Leone;



Page 70 of 86



3.2



(n)



any donation to the State or other similar expenses unless otherwise

agreed;



(o)



the State’s audit and inspection expenses incurred as a result of the

absence of original documents in the Licensee’s offices in Sierra Leone;



(p)



costs related to the assignment from the Licensee to any of its Affiliates or

other Persons.



(q)



petroleum marketing costs or costs of transporting petroleum beyond the

Delivery Point;



(r)



cost of arbitration under the Agreement or dispute settlement by any

independent expert under the terms of the Agreement;



(s)



fines and penalties imposed by a competent Court of Law;



(t)



costs incurred as a result of gross negligence or willful misconduct

chargeable to Licensee or the Operator under the terms of the Agreement.



ALLOWABLE AND DEDUCTIBILITY

The costs and expenses set forth herein shall be for the purpose of determining allowable

or non-allowable costs and expenses only and shall have no bearing on Licensee’s

eligibility or otherwise for deductions in computing Licensee’s net income from

Petroleum Operations for income tax purposes under the License.



3.3



CREDITS UNDER THE LICENSE

The net proceeds of the following transactions will be credited to the accounts under the

Agreement:

a)



the net proceeds of any insurance or claim in connection with Petroleum

Operations or any assets charged to the accounts under the Agreement

when such operations or assets were insured and the premiums charges to

the accounts under the License;



b)



revenue received from third parties for the use of property or assets

charged to the accounts under this License;



c)



any adjustment from the suppliers or manufacturers or their agents in

connection with a defective equipment or material the cost of which was

previously charged to the account under the License;



d)



the proceeds received for inventory materials previously charged to the

account under the License and subsequently exported from the Republic of



Page 71 of 86



Sierra Leone or transferred or sold to third parties without being used in

the Petroleum Operations;



3.4



e)



rentals, refunds or other credits received which apply to any charge which

has been made to the account under the License, but excluding any award

granted under arbitration or Sole Expert proceedings;



f)



the proceed from the sale or exchange of plant or facilities from the

Development and Production Area;



g)



the proceeds derived from the sale or issue of any intellectual property the

development costs of which were incurred pursuant to this License;



h)



the proceeds from the sale of any petroleum information derived from

Petroleum Operations under this License.



DUPLICATION OF CHARGES AND CREDITS

Notwithstanding any provision to the contrary in this Annex, it is the intention that there

shall be no duplication of charges or credits in the accounts under the License.



Page 72 of 86



SECTION 4

MATERIAL

4.1



VALUE OF MATERIAL CHARGED TO THE ACCOUNTS UNDER THE

LICENSE

Material purchased, leased or rented by Licensee for use in Petroleum Operations shall be

valued at the actual net cost incurred by Licensee. The net cost shall include invoice

price less trade and cash discounts, if any, purchase and procurement fees plus freight and

forwarding charges between point of supply and point of shipment, freight to port of

destination, insurance, taxes, customs duties, consular fees, other items chargeable

against imported material, and any other related costs actually paid.



4.2



VALUE OF MATERIAL PURCHASED FROM AN AFFILIATE

Licensee shall notify the Director General of any goods supplied by an Affiliate of

Licensee. Material purchased from Affiliate of Licensee shall be charged at the prices

specified in Sections 4.2.1, 4.2.2 and 4.2.3.



New Material (Condition “A”)

New material shall be classified as Condition “A”. Such material shall be valued at the

prevailing market price, plus expenses incurred in procuring such new materials, and in

moving such materials to the locations where the material shall be used.

Used Material (Condition “B”)

Used material shall be classified as Condition “B” provided that it is in sound and

serviceable condition and is suitable for reuse without reconditioning. Such material

shall be valued at not more than seventy five percent (75%) of the current price of new

material valued according to Section 4.2.1 above.

Used Material (Condition “C”)

Used material which is serviceable for original function as good second hand material

after reconditioning and cannot be classified as Condition “B” shall be classified as

Condition “C”. Such material shall be valued at not more than fifty percent (50%) of the

current price of new material valued according to Section 4.2.1 above. The cost of

reconditioning shall be charged to the reconditioned material provided that the value of

such Condition “C” material plus the cost of reconditioning does not exceed the value of

Condition “B” material.

4.3



CLASSIFICATION OF MATERIALS

Material costs shall be charged to the respective Exploration Expenditure, Development

Expenditure, Operating Expenditure accounts at the time the material is acquired and on

Page 73 of 86



the basis of the intended use of the material. Should such material subsequently be used

other than as intended, the relevant charge will be transferred to the appropriate account.

4.4



DISPOSAL OF MATERIALS

Sales of property shall be recorded at the net amount collected by the Licensee from the

purchaser.



4.5



WARRANTY OF MATERIALS

In the case of defective material or equipment, any adjustment received by Licensee from

the suppliers or manufacturers of such materials or their agents will be credited to the

accounts under the License.



4.6



CONTROLLABLE MATERIALS



The Licensee shall control the acquisition, location, storage and disposition of materials which

are subject to accounting record control, physical inventory and adjustment for overages and

shortages (hereinafter referred to as Controllable Material).

Licensee shall conduct one physical inventory of the Controllable Material each Calendar Year

which shall be completed prior to the end of the year.

The gain or loss resulting from the physical inventory shall be reflected in the stock records of

Controllable Materials. The Licensee shall compile a reconciliation of the inventory with a

reasonable explanation for such gains or losses. Failure on the part of the Director General to

object to Licensee’s reconciliation within thirty (30) days of compilation of said reconciliation

shall be regarded as approval by the Director General.



Page 74 of 86



SECTION 5

PRODUCTION STATEMENT

5.1

Subsequent to the Date of Commencement of Commercial Production from the Contract

Area, Licensee shall submit a monthly Production Statement to the Director General showing the

following information for each Development and Production Area as appropriate:

a)



the quantity of Crude Oil produced and saved ;



b)



the quantity of Natural Gas produced and saved;



c)



the quantities of Petroleum used for the purpose of conducting drilling and

Production Operations, pumping to field storage and re-injection;



d)



the quantities of Natural Gas flared;



e)



the size of Petroleum stocks held at the beginning of the Month;



f)



the size of Petroleum stocks held at the end of the Month.



5.2

The Production Statement of each Calendar Month shall be submitted not later than ten

(10) days after the end of such Month.



Page 75 of 86



SECTION 6

6.1



VALUE OF PRODUCTION STATEMENT



Licensee shall prepare a statement providing calculations of the value of Crude Oil produced and

saved during each Quarter based on the Market Price established under the Agreement. Such

Statement shall be submitted to the Director General not later than thirty (30) days following the

determination, notification and acceptance of the World Market Price to the Director General

according to the License.



Page 76 of 86



SECTION 7

COST STATEMENT

7.1

Licensee shall prepare with respect to each Quarter, a Cost Statement containing the

following information:

a)



Total Petroleum Costs in previous Quarters, if any;



b)



Petroleum Costs for the Quarter in question;



c)



Total Petroleum Costs as of the end of the Quarter in question (subsection

7.1 (a) plus subsection 7.1 (b)).



Petroleum Costs for Exploration, Development and Production Operations as detailed above

shall be separately identified for each Development and Production Area. Petroleum Costs for

Exploration Operations not directly attributable to a specific Development Area shall be shown

separately.

7.2

The Cost Statement of each Quarter shall be submitted to the Director General no later

than forty-five (45) days after the end of such Quarter.



Page 77 of 86



SECTION 8

STATEMENT OF EXPENDITURES AND RECEIPTS

8.1

Subsequent to the Date of Commencement of Commercial Production from the Contract

Area, Licensee shall prepare with respect to each Quarter a Statement of Expenditures and

Receipts. The Statement will distinguish between Exploration Expenditure and Development

Expenditure and Production Expenditure and will identify major items of expenditure within

these categories. The statement will show the following:

a)



actual expenditures and receipts for the Quarter in question;



b)



cumulative expenditure and receipts for the budget year in question;



c)



latest forecast of cumulative expenditures at the year end; and



d)



variations between budget forecast and latest forecast and explanations

therefore.



8.2

The Statement of Expenditures and Receipts of each Calendar Quarter shall be submitted

to the Director General not later than forty-five (45) days after the end of such Quarter for

provisional approval by the Director General.



Page 78 of 86



SECTION 9

FINAL END-OF-YEAR STATEMENT

9.1

The Licensee will prepare a Final End-of-Year Statement. The Statement will contain

information as provided in the Production Statement, Value of Production Statements, Cost

Statement and Statements of Expenditures and Receipts, as appropriate. The Final End-of-year

Statement of each Calendar Year shall be submitted to the Director General within ninety (90)

days of the end of such Calendar Year.



Page 79 of 86



SECTION 10

BUDGET STATEMENT

10.1 The Licensee shall prepare an annual budget Statement. This will distinguish between

Exploration Expenditure, Development Expenditure and Production Expenditure and will show

the following:

a)



forecast Expenditures and Receipts for the budget year under the

Agreement;



b)



cumulative Expenditures and Receipts to the end of said budget year, and



c)



the most important individual items of Exploration, Development and

Production Expenditures for said budget year.



10.2 The Budget may include a budget line or lines for unforeseen expenditures which,

however, shall not exceed ten percent (10%) of the total budgetary expenditure.

10.3 The Budget Statement shall be submitted to the Director General with respect to each

budget year no less than ninety (90) days before the start of such year except in the case of the

first year of the License when the Budget Statement shall be submitted within sixty (60) days of

the Effective Date.

10.4 Where Licensee foresees that during the budget period expenditures have to be made in

excess of the ten percent (10%) pursuant to Section 10.2 hereof, Licensee shall submit a revision

of the budget to the Director General.



Page 80 of 86



SECTION 11

LOCAL PROCUREMENT STATEMENT

11.1 In furtherance of the obligation in Article 20 of the Contract for the Licensee to give

preference to the procurement of Sierra Leonean goods and services, the Licensee shall prepare

in respect of each Year a local procurement statement, containing the following information:

a. The amount of expenditure incurred by the Licensee directly, or indirectly through its

Subcontractors, on goods supplied, produced or manufactured in Sierra Leone

b. the amount of expenditure incurred by the Licensee directly, or indirectly through its

Subcontractors, on services provided by Sierra Leonean entities;

c. the respective percentages that the expenditures recorded under items (a) and (b)

above represent of the Licensee’s total expenditures;

d. a detailed description of the procedures adopted during the Year to identify and

purchase goods and services from Sierra Leonean suppliers; and

e. a detailed exposition of how the local purchases for the Year as recorded under items

(a) and (b) above compared with the projected purchases included in the budget

statement for that Year, with explanations for any significant variations;

11.2 The local procurement statement shall be submitted to the Government within sixty (60)

days after the end of each Year.



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SECTION 12

LOCAL EMPLOYMENT STATEMENT

12.1 In furtherance of the obligation in Article 21 of the Contract for the Licensee to give

preference to the employment of Sierra Leonean citizens, the Licensee shall prepare in respect of

each Year a local employment statement, containing the following information:

a. the number of Sierra Leoneans employed by the Licensee directly, or indirectly

through its Subcontractors, their level within the organization and their salary scale;

b. the mean salary of foreign employees hired by the Licensee directly, or indirectly

through its Subcontractors, on at the same levels as the Sierra Leonean workers;

c. the percentage that the number of Sierra Leoneans employed by Licensee or

Subcontractor represent of the total number of Licensee and Subcontractors’s

employees respectively;

d. the percentage that the total salaries of Sierra Leoneans employed under items (a)

above represents of the Licensee and Subcontractor’s total salaries.

e. a detailed description of the procedures adopted during the Year to identify and

purchase goods and services from Indian suppliers; and

f. a detailed exposition of how the number of new Sierra Leoneans hired and trained for

the Year compared with the projected recruitment for that Year and how the total

number of Sierra Leoneans employed compared with the previous two years, with

explanations for any significant variations;

12.2 The local procurement statement shall be submitted to the Government within sixty (60)

days after the end of each Year.



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SECTION 13

LONG RANGE PLAN AND FORECAST

13.1



Licensee shall prepare and submit to the Director General the following:

During Exploration Period, an Exploration Plan for each year commencing as of the

Effective Date which shall contain the following information:



13.2



i)



Estimated Exploration Costs showing outlays for each of the years or the

number of years agreed and covered by the Plan.



ii)



Details of seismic operations for each such year,



iii)



Details of drilling activities planned for each such year;



iv)



Details of infrastructure utilization and requirements.



The Exploration Plan shall be revised on each anniversary of the Effective Date.

Licensee shall prepare and submit to the Director General the first Exploration Plan for

the Initial Exploration Period of two (2) years within sixty (60) days of the Effective Date

and thereafter shall prepare and submit to The Director General no later than forty-five

(45) days before each anniversary of the Effective Date a revised Exploration Plan.

a)



b)



In the event of a Development Plan being approved, the Licensee shall

prepare a Development Forecast for each calendar year of the

Development Period, which shall contain the following information:

i)



forecast of the capital expenditure portions of Development and

Production expenditures for each Calendar Year of the

Development Period;



ii)



forecast of operating costs for each Calendar Year;



iii)



forecast of Petroleum production for each Calendar year;



iv)



description of main technologies employed; and



The Development forecast shall be revised at the beginning of each

Calendar Year commencing as of the second year of the first Development

forecast. Licensee shall prepare and submit to the Director General the

first Development forecast within one hundred and twenty (120) days of

the date when the first Development Plan is approved by the Director

General no later than forty-five (45) days before each Calendar Year

commencing as of the second year of the first Development forecast.

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13.3



CHANGES OF PLAN AND FORECAST

It is recognized by Licensee and The Director General that the details of the Exploration

Plan and Development forecast may require changes in the light of existing

circumstances and nothing herein contained shall limit the flexibility to make such

changes. Consistent with the foregoing the said Plan and Forecast may be revised

annually.



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Form of Guarantee

1. In consideration of the Government of Sierra Leone represented by the Director General of the

Petroleum Directorate (hereinafter referred to as “the State”) having entered into a Petroleum

License for the block ________dated _________ (hereinafter referred to as “License”, which

expression shall include all the amendments agreed to between the State and the Licensee,

thereto), with M/s __________________ having its registered office at _____________

(hereinafter referred to as “Licensee”, which expression unless repugnant to the context or

meaning thereof include all its successors, administrators, executors and assigns), and the State

have agreed that the Licensee shall furnish to the State, a bank guarantee (hereinafter referred to

as “Guarantee”) towards its minimum financial obligations as provided in the Contract for

US$(xxx) for the performance of its obligations under the License.

2. We __________(name of the Bank) registered under the Law of __________ and having its

registered office at _____________ (hereinafter referred to as “the Bank”, which expression

shall unless repugnant to the context or meaning thereof includes all its successors,

administrators, executors and assigns) do hereby guarantee and undertake to pay to the State,

immediately on the first demand in writing, any/all money(s) to the extent of US$ _______(in

figures) and (US$ ______ in words) without any demur, reservation, contest or protest and/or

without any reference to the Licensee. Any such demand made by the State on the Bank by

serving a written notice shall be conclusive and binding, without any proof, on the Bank as

regards the amount due and payable, notwithstanding any dispute(s) pending before any court,

tribunal, arbitrator, sole expert, conciliator or any other authority and/or any other matter or thing

whatsoever, as liability under these presents being absolute and unequivocal. We agree that the

Guarantee herein contained shall be irrevocable and shall continue to be enforceable until it is

discharged by the State in writing. This Guarantee shall not be determined, discharged or

affected by the liquidation, winding up, dissolution or insolvency of the Licensee and shall

remain valid, binding and operative against the Bank.

3. The Bank also agree that the State at its option shall be entitled to enforce this Guarantee

against the Bank as a principal debtor, in the first instance, without proceeding against the

Licensee and notwithstanding any security or other guarantee that the State may have in relation

to the Licensee’s liabilities.

4. The Bank further agree that the State shall have fullest liberty without our consent and without

affecting in any manner our obligations hereunder to vary any of the terms and conditions of the

said Contract or to extend time of performance by the said Licensee from time to time or to

postpone for any time or from time to time exercise of any of the powers vested in the State

against the said Licensee and to forebear or enforce any of the terms and conditions relating to

the said Contract and we shall not be relieved from our liability by reason of any such variation,

or extension being granted to the said Licensee or for any forbearance, act or omission on the

part of the State or any indulgence by the State to the said Licensee or any such matter or thing

whatsoever which under the law relating to sureties would, but for this provision, have effect of

so relieving us.

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5. The Bank further agree that the Guarantee herein contained shall remain in full force during

the period that is taken for the performance of the License and all dues of the state under or by

virtue of this License have been fully paid and its claim satisfied or discharged or till the State

discharges this Guarantee in writing, whichever is earlier.

6. This Guarantee shall not be discharged by any change in our constitution, or in the constitution

of the Licensee.

7. The Bank confirm that this Guarantee has been issued with observance of appropriate laws of

the country of issue.

8. The Bank also agree that this Guarantee shall be governed and construed in accordance with

Sierra Leone Laws and subject to the exclusive jurisdiction of Sierra Leone courts

9. Notwithstanding anything contained herein above, our liabilities under this Guarantee is

limited to US$ ____________(in figures) US$ _______________ (in words) and our Guarantee

shall remain in force up to ———————— and including sixty (60) days after the expiry

date/extended date. Any claim under this Guarantee must be received before the expiry of sixty

(60) days after the expiry date, or before the expiry of sixty (60) days from the extended date if

any. If no such claim has been received by us within sixty (60) days after the said date/extended

date the PRU’s right under this guarantee will cease. However, if such a claim has been received

by us within and up to sixty (60) days after the said date/extended date, all the PRU’s rights

under this Guarantee shall be valid and shall not cease until we have satisfied that claim.

In witness whereof, the Bank through its authorized officers has set its hand and stamp on this

_______day of __________ 200_ at ______________. The seal of___________________ was

hereto duly affixed by______________ this__________ day of ____________200_ in

accordance with its bye-laws and this Guarantee was duly signed by_________________ and

________________ as required by the said bye-laws.



________________________

Secretary



________________________

President & Director



Witness:



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