Azerbaijan Republic

20/09/1994

The agreement was executed on 20/09/1994, but becomes effective on the date in which SOCAR delivers to Contractor written evidence of the enactment by the legislature of Azerbaijan, after certain conditions precedent (guarantees and supplementary agreements) are complied with by the parties. The date of the enactment's delivery to Contractor is not set out in the agreement.

The Contract is executed in the English, Azeri and Russian, and all three versions have equal force (provided that for arbitration purposes the English version will be considered)

Offshore blocks comprising an area of 432.4 square kilometers. The contract area is designated by the coordinates set out in Appendix II to the agreement.

Amoco, BP, Delta, Statoil, Lukoil, McDermott, Pennzoil, Ramco, TPAO and UNOCAL undertake to form an unamed joint operating company

"AMOCO CASPIAN SEA PETROLEUM LIMITED (""Amoco"") a company incorporated in the British Virgin Islands; BP EXPLORATION (CASPIAN SEA) LIMITED (""BP"") a company incorporated in England; and DELTA NIMIR KHAZAR LIMITED (""Delta"") a company incorporated in ermuda; and DEN NORSKE STATS OLJESELSKAP a.s (""Statoil"") a company incorporated in Norway; and LUKOIL JOINT STOCK COMPANY ""Lukoil"") a company incorporated in the Russian Federation; and MCDERMOTT AZERBAIJAN, INC. (""McDermott"") a company incorporated in the Republic of Panama; and PENNZOIL CASPIAN CORPORATION (""Pennzoil"") a company incorporated in the British Virgin Islands; and RAMCO HAZAR ENERGY LIMITED (""Ramco"") a company incorporated in Scotland; and TURKIYE PETROLLERI A.O. (""TPAO"") a company incorporated in Turkey; and UNOCAL KHAZAR, LTD. (""UNOCAL"") a company incorporated in Bermuda. All the aforementioned companies are collectivelly referred to in the agreement as ""Contractor"" The agreement establishes the need for the Contractor Parties to incorporate a joint operating company to carry out the petroleum operations. The company may be created outside Azerbaijan, but it has to be registered in Azerbaijan in accordance with its laws. The name of the company is not set out in the agreement.

Azeri and Chirag Fields, and the deep water portion of the Gunashli Field in the Azerbaijan sector of the Caspian sea.

Additionally to its production share as result of its 20% interest in the contract (in case SOCAR opts in the effective date to have such participating interest), SOCAR is entitled to purchase crude oil for use within Azerbaijan, for purpose of satisfying any domestic shortfall. SOCAR may purchase up to 10% of the Contractor's share of crude oil.

"Crude oil (meaning crude mineral oil, condensate, asphalt, ozocerite, and all kinds of hydrocarbons and bitumen regardless of gravity, either solid or liquid, in their natural condition or obtained from Natural Gas by condensation or extraction, including natural gas liquids), and natural gas (meaning all hydrocarbons that are in gaseous phase at STP, but except for condensed or extracted liquid hydrocarbons)

State Oil Company of the Azerbaijan Republic , a public company having the authority to control and manage petroleum related matters in the country

The agreement will be in force and effect for a 30-year period counted as from the effective date. In case a commercially relevant discovery is made, the term of the agreement may be extended by agreement of the parties in order to make the full development of such discovery possible. In this case, the term's extension will only have effects in relation to that specific discovery.

Production Sharing Agreement

The agreement was executed on 20/09/1994, but becomes effective on the date in which SOCAR delivers to Contractor written evidence of the enactment by the legislature of Azerbaijan, after certain conditions precedent (guarantees and supplementary agreements) are complied with by the parties. The date of the enactment's delivery to Contractor is not set out in the agreement.

"Contractor shall conduct ongoing environmental monitoring of its operations. Data collected will be evaluated at least annually to determine if any practices and discharge standards need to be revised. Contractor is liable for those direct losses or damages incurred by it or a third party (other than the Government) arising out of any environmental pollution determined by the appropriate court of the Azerbaijan Republic to have been caused by the fault of Contractor. In the event of any environmental pollution or environmental damage caused by the fault of Contractor, Contractor will endeavour its efforts to mitigate the effect of any such pollution or damage on the environment. Costs of the contractor in this respect to be included in calculation of Petroleum Costs.

"SOCAR may request an audit of the petroleum operations accounts, after those are submitted to it by Contractor. Such audits will be carried out by a firm of internationally-recognized independent accountants selected by SOCAR, and SOCAR will bear the related costs. All accounting records, returns, books and accounts relating to petroleum operations will have to be maintained by the Contractor for a minimum of five (5) years.

SOCAR is entitled to receive a bonus from Contractor in the amount of US$ 300,000,000.00 (three hundred million dollars), payable in three installments (if they do not elect a participating interest).

Contractor entitled to full and complete exemptions from all taxes in respect of its activities, except for those expressly set forth in the Agreement.

"The agreement sets forth the calculation of the Taxable Profit as follows (and defines calculation of each of the following): Sales Income X Other Income X Expenses (X) Amortisation (X) Interest Costs (X) Balance Profit/(Loss) X Brought Forward Losses (X) Taxable Profit/(Loss) X

25% Profit Tax imposed on the Taxable Profit of each Contractor Party for each Calendar Year. Sub-contractors to be taxed 5% of payments made in connection with Hydrocarbon Activities (to be witheld from payments and paid to tax authority).

"After recovery of operating costs and the portion of capital cost, the balance of the total production for the relevant period will be shared between SOCAR and Contractor. If the Total Transport Costs are less than or equal to $3 per Barrel and the Contractor acheives Early-Oil Production, then production sharing will be calculated on whether the cumulative after-tax, real rate of return of the Contractor (RROR) is less than 16.75%, between 16.75 and 22.75% or greater than 22.75%. If the transport and early production conditions are not met, then the production share will be calcuated in accordance with Appendix VIII (which envisions different cost per barrel and production scenarios).

Contractor is entitled to cost recovery of Operating Costs from Total Production. Capital costs will then be recovered from a maximum of 50% of Crude Oil remaining out of the Total Production. Accounting Procedure is laid out in Appendix III.

SOCAR has the option to, until the effective date of the Agreement, elect to retain a 20% participating interest under the agreement, or such lesser percentage SOCAR elects to have at the time.

Contractor will make the joint operational company give preference, as far as is consistent with efficient operations, to citizens of the Azerbaijan Republic for employment in the petroleum operations to be carried out in accordance with the agreement, to the extent practicable, provided that they have the required knowledge, qualifications and experience. SOCAR will receive a list of vacant positions for Azerbaijan citizens from time to time, and recommend persons to occupy such positions. Contractor will then give priority rights for employment to these persons. The agreement further establishes the target manning levels of Azerbaijani citizens in the operations, although Contractor is free to hire foreigners as it deems necessary. The Azerbaijani employees will also be entitled to receive training and retraining with respect to petroleum operations.

Contractor shall give preference to Azerbaijani suppliers in those cases in which such Azerbaijani suppliers are in all material respects competitive in price, quality and availability with those available from other sources for import. Azerbaijani suppliers are understood, for purposes of the agreement, as legal entities legally operating in the Azerbaijan Republic, regardless of the nationality of its shareholders.

"In order to determine the state of the environment in the Contract Area at the Effective Date, Contractor will cause an environmental base line study to be carried out by a recognized international environmental consulting firm selected by Contractor, and acceptable to SOCAR. SOCAR will nominate representatives to participate in preparation of the study in collaboration with such firm and Contractor representatives. The Environmental Strategy included in Appendix IX outlines the environmental program that Contractor and SOCAR will follow during the course of Petroleum Operations within the Contract Area: A. Baseline Data 1. Literature review 2. International standards review 3. Audit of existing operations and practices 4. Environmental data collection - Atmospheric - Water Quality - Benthic - Flora and Fauna - Meteorological and Oceanographic - Sediment Background Radiation B. Environmental Impact Assessment (existing facilities, exploration and production activities and new facilities) 1. Project description 2. Environment description 3. Technology assessment 4. Air emission inventory - Dispersion modelling - Impact evaluation 5. Water discharge inventory - Fate and effects modelling - Impact evaluation - Treat and discharge offshore - Treat onshore and discharge - Injection onshore or offshore 6. Waste Inventory - Disposal options - Impact evaluation - Offshore treatment and disposal - Transportation and onshore disposal 7. Abandonment studies - Disposal options - Impact evaluation 8. Cost benefit analysis 9. Environment statement of preferred options

After completion of the initial work programme, Contractor will prepare and present its estimates on the investments on infrastructure deemed necessary for the oil operations. All such costs, if and when approved by the joint committee formed by Contractor and the Government, will be subject to cost recovery under the terms of the agreement. Additionaly, Contractor will have a participating interest in an export pipeline which shall be build to operate as the main way for transportation of the oil production.

"Contractor shall provide training (including retraining) for Azerbaijani citizens employed with respectto the Petroleum Operations. (included as Petroleum Costs).

With regards to the export of petroleum, each government willl provide necessary security of the Main Export Pipeline, associated facilities and pipeline personnel.

Details of the Priority Work Program can be found in Appendix X

All disputes arising between SOCAR and any or all of the Contractor Parties, including without limitation, any dispute as to the validity, construction, enforceability or breach of this Contract, which are not amicably resolved by the Parties will be finally settled before a panel of three (3) arbitrators under the Arbitration Rules of The United Nations Commission on International Trade Law known as UNCITRAL. The arbitration will be held in Stockholm, Sweden. The language used during the procedure will be the English language and the English language text of the agreement will be utilized by the arbitrators

All information and data of a technically, geologically or commercially sensitive nature acquired or obtained relating to Petroleum Operations and which on the Effective Date is not in the public domain or otherwise legally in the possession of such Party without restriction on disclosure, will be considered confidential and will be kept confidential (with enumerated exceptions).

The agreement as a whole is governed and interpreted in accordance with principles of law common to the law of the Azerbaijan Republic and English law, and to the extent that no common principles exist in relation to any matter then in accordance with the principles of the common law of Alberta, Canada (except for laws regarding conflicts of laws). The agreement is also subject to the international legal principle of pacta sunt servanda (agreements must be observed).

Contractor will indemnify and hold harmless SOCAR against all losses, damages and liability arising under any claim, demand, action or proceeding brought or instituted against SOCAR by any employee or dependant of the Contractor , for personal injuries, industrial illness, death or damage to personal property sustained in connection with this Contract. SOCAR will indemnify and hold harmless Contractor against all losses, damages, and liability arising under any claim, demand, action or proceeding brought or instituted against Contractor by any employee/dependant of SOCAR.

The rights and interests accruing to Contractor (or its assignees) under the agreement and its Sub-contractors will not be amended, modified or reduced without the prior consent of Contractor. In the event that the Government or other Azerbaijan authority invokes any present or future law, treaty, intergovernmental agreement, decree or administrative order which contravenes the provisions of the agreement, or adversely or positively affects the rights or interests of Contractor, the terms of the Contract will be adjusted to re- establish the economic equilibrium of the parties, and if the rights or interests of Contractor have been adversely affected, then SOCAR will indemnify the Contractor (and its assignees) for any disbenefit, deterioration in economic circumstances, loss or damages that ensue therefrom.