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PRODUCTION SHARING CONTRACT

FOR THE

JOINT PETROLEUM

DEVELOPMENT AREA

JPDA 06-103



15 November 2006



CONTENTS

Article 1



Interpretation ..............................................................................................................8

1.1

1.2

1.3

1.4

1.5

1.6



Article 2



Scope and Term.........................................................................................................12

2.1

2.2

2.3

2.4

2.5

2.6



Article 3



3.5

3.6



Periodic Relinquishment of Exploration Area ........................................................... 15

Final Relinquishment of Exploration Area ................................................................ 16

Relinquishment of Development Area....................................................................... 16

Termination of Agreement and Continuing Obligations in respect of Relinquished

Area............................................................................................................................ 17

Gas Retention Area.................................................................................................... 17

Oil Retention Area ..................................................................................................... 18



Work Programmes and Budget ...............................................................................18

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15



Article 5



Scope.......................................................................................................................... 12

Conditions Precedent ................................................................................................. 13

Effective Date and Term............................................................................................ 13

Grounds for Termination ........................................................................................... 14

Designated Authority to give Notice ......................................................................... 14

Surviving Obligations ................................................................................................ 15



Relinquishment of Blocks .........................................................................................15

3.1

3.2

3.3

3.4



Article 4



Definitions ................................................................................................................... 8

Headings .................................................................................................................... 11

Further Interpretation................................................................................................. 11

Annexes ..................................................................................................................... 12

Joint and Several Liability ......................................................................................... 12

Operator ..................................................................................................................... 12



Commitment in Initial Period .................................................................................... 18

Commitment in Second Period .................................................................................. 18

Commitment in Third Period..................................................................................... 19

Performance of Exploration Work Programme and Budget...................................... 19

Consequences of Non-Performance........................................................................... 20

Work Programmes and Budgets ................................................................................ 20

Emergency and Other Expenditures Outside Work Programmes and Budgets......... 20

Exploration ................................................................................................................ 21

Discovery and Appraisal............................................................................................ 21

Commercial Discovery .............................................................................................. 22

Development Plan...................................................................................................... 22

Development Work Programmes and Budgets.......................................................... 24

Approved Contracts ................................................................................................... 24

Decommissioning ...................................................................................................... 25

Decommissioning Security ........................................................................................ 26



Conduct of Work.......................................................................................................26

5.1

5.2

5.3



Proper and Workmanlike Manner.............................................................................. 26

Access to Contract Area ............................................................................................ 27

Health, Safety and the Environment .......................................................................... 27



15 November 2006



Page 2



5.4

5.5

5.6



Article 6



Recoverable Costs .....................................................................................................28

6.1

6.2



Article 7



Property...................................................................................................................... 34

Retention.................................................................................................................... 35



Consultation and Arbitration...................................................................................35

12.1

12.2

12.3

12.4

12.5



Article 13



Notice......................................................................................................................... 32

Contracts Not Requiring Designated Authority's Approval ...................................... 33

Tender Invitations ...................................................................................................... 33

Emergencies............................................................................................................... 34

Other Information to be Provided .............................................................................. 34



Title to Equipment ....................................................................................................34

11.1

11.2



Article 12



Fees ............................................................................................................................ 32

Payment Mechanism.................................................................................................. 32

Late Payment ............................................................................................................. 32

Minimum Payment .................................................................................................... 32



Provision of Goods and Services ..............................................................................32

10.1

10.2

10.3

10.4

10.5



Article 11



Point and type of Valuation ....................................................................................... 31

Value of Crude Oil..................................................................................................... 31

Value of Natural Gas ................................................................................................. 31

Price Payable ............................................................................................................. 31



Payments ....................................................................................................................32

9.1

9.2

9.3

9.4



Article 10



Determination of Shares ............................................................................................ 29

Option of Designated Authority................................................................................. 29

Lifting ........................................................................................................................ 30

Title and Risk............................................................................................................. 30

Payment on Account.................................................................................................. 30



Valuation of Petroleum.............................................................................................31

8.1

8.2

8.3

8.4



Article 9



Generally.................................................................................................................... 28

Recoverable Costs...................................................................................................... 28



Sharing Of Petroleum ...............................................................................................29

7.1

7.2

7.3

7.4

7.5



Article 8



Goods, Services, Training and Employment ............................................................. 28

Flaring........................................................................................................................ 28

Operator and its Sub-Contractors .............................................................................. 28



Arbitration.................................................................................................................. 35

Procedure ................................................................................................................... 35

Location and Language.............................................................................................. 36

Commercial Arrangement: Waiver of Sovereign Immunity...................................... 36

Obligations Continue During Arbitration .................................................................. 36



Financial and Technical Data, Records and Reports.............................................36

13.1

13.2

13.3



15 November 2006



Ownership.................................................................................................................. 36

Records, Storage, Retrieval and Submission ............................................................. 36

Reports....................................................................................................................... 37

Page 3



13.4

13.5

13.6

13.7



Article 14



Management of Operations ......................................................................................39

14.1

14.2



Article 15



Force Majeure Relief ................................................................................................. 41

Procedure ................................................................................................................... 42

Consultation ............................................................................................................... 42

Third Parties............................................................................................................... 42

Extension of Time...................................................................................................... 43



Restrictions on Assignment and Change in Control ..............................................43

19.1

19.2



Article 20



Indemnity ................................................................................................................... 41

Insurance.................................................................................................................... 41



Force Majeure ...........................................................................................................41

18.1

18.2

18.3

18.4

18.5



Article 19



Independent Audit...................................................................................................... 40

Designated Authority Audit....................................................................................... 40

Exceptions.................................................................................................................. 40

Contractor to Assist ................................................................................................... 40

Affiliates .................................................................................................................... 40



Indemnity and Insurance..........................................................................................41

17.1

17.2



Article 18



Third Party Access..................................................................................................... 39



Audit ...........................................................................................................................40

16.1

16.2

16.3

16.4

16.5



Article 17



Constitution of Committee......................................................................................... 39

Meetings .................................................................................................................... 39



Third Party Access ....................................................................................................39

15.1



Article 16



Export of Data and Information................................................................................. 37

Use of Data and Information ..................................................................................... 37

Confidentiality of Data and Information.................................................................... 38

Trade Secrets ............................................................................................................. 38



Assignment ................................................................................................................ 43

Change in Control...................................................................................................... 44



Other Provisions........................................................................................................44

20.1

20.2

20.3

20.4

20.5



Notices ....................................................................................................................... 44

Applicable Law.......................................................................................................... 44

Third Party Rights...................................................................................................... 44

Amendments/Modification ........................................................................................ 45

Entire Agreement....................................................................................................... 45



Annex A – Part 1 - JPDA 06-103 CONTRACT AREA DESCRIPTION ..................................47

Annex A – Part 2 - JPDA 06-103 CONTRACT AREA DESCRIPTION ..................................51

Annex B



Map of Contract Area – JPDA 06-103 ....................................................................54



Annex C



Accounting Procedure...............................................................................................55



Clause 1



General Provisions ......................................................................................................55



15 November 2006



Page 4



1.1

1.2

1.3



Clause 2



Classification and Allocation ......................................................................................56

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9



Clause 3



Purpose and Definitions............................................................................................. 55

Accounting Records................................................................................................... 55

Language and Units of Account ................................................................................ 55



Exploration Costs....................................................................................................... 56

Appraisal Costs .......................................................................................................... 56

Capital Costs .............................................................................................................. 56

Operating Costs ......................................................................................................... 57

Decommissioning Costs Reserve............................................................................... 57

Uplift.......................................................................................................................... 57

Miscellaneous Receipts.............................................................................................. 57

Ineligible Costs .......................................................................................................... 58

Other Matters ............................................................................................................. 59



Costs, Expenses and Credits........................................................................................60

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10

3.11

3.12

3.13

3.14

3.15

3.16



Surface Rights............................................................................................................ 60

Labour and Associated Labour Costs ........................................................................ 60

Transportation and Employee Relocation Costs........................................................ 61

Charges for Services .................................................................................................. 61

Communications ........................................................................................................ 62

Office , Storage and Miscellaneous Facilities........................................................... 63

Ecological and Environment...................................................................................... 63

Material Costs ............................................................................................................ 63

Rentals, Duties and Other Assessments..................................................................... 65

Insurance and Losses ................................................................................................. 65

Legal Expenses .......................................................................................................... 65

Claims ........................................................................................................................ 65

Training Costs............................................................................................................ 65

General and Administrative Costs ............................................................................. 65

Other Expenditures .................................................................................................... 66

Duplication ................................................................................................................ 66



Clause 4



Inventories...................................................................................................................66



Clause 5



Production Statement ..................................................................................................66

5.1

5.2



Clause 6



Value of Production and Pricing Statement ................................................................67

6.1

6.2



Clause 7



Value of Production and Pricing Statement Information........................................... 67

Submission of Value of Production and Pricing Statement....................................... 67



Cost Recovery Statement ............................................................................................67

7.1

7.2

7.3



Clause 8



Production Information.............................................................................................. 66

Submission of Production Statement ......................................................................... 67



Quarterly Statement ................................................................................................... 67

Preparation and Submission of Cost Recovery Statements ....................................... 68

Annual Statement....................................................................................................... 68



Statements of Expenditure and Receipt ......................................................................68



15 November 2006



Page 5



8.1

8.2



Quarterly Statement ................................................................................................... 68

Annual Statement....................................................................................................... 68



Annex D – Proposals in respect of training, employment and the acquisition of goods and

services (sub-Article 5.4).................................................................................................................69



15 November 2006



Page 6



PRODUCTION SHARING CONTRACT

15 November 2006

This Agreement, which has been approved by the Joint Commission, is a Production Sharing

Contract and is subject to the Treaty and the Petroleum Mining Code

BETWEEN

the Timor Sea Designated Authority established under the Treaty, party of the first part;

AND



Oilex (JPDA 06-103) Ltd (Company No. (ACN 122049594) a corporation organised and existing

under the laws of Australia with its registered address at 50 King’s Park Road, Level 3, West Perth,

Western Australia 6005; Global Energy Inc. (Company Number MC-156838) a corporation

organised and existing under the laws of the Cayman Islands with its registered address at P.O. Box

309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands;

Bharat PetroResources JPDA Limited (Company No.U23209MH2006GOI165279) a corporation

organised and existing under the laws of India with its registered address at Bharat Bhavan, 4 & 6

Currimbhoy Road, Ballard Estate, Mumbai 400 001; and GSPC (JPDA) Limited, (Company

No.U23201GJ2006SGC049229) a corporation organised and existing under the laws of India with

its registered address at GSPC Bhavan, Sector-11, Gandhinagar, 382011, India; (collectively, the

“Contractor”) parties of the second part;

(both referred to individually as a “Party” or collectively as the “Parties”).

Whereas:

A.



petroleum existing within the Joint Petroleum Development Area is a resource to be

exploited jointly by Timor-Leste and Australia;



B.



the Designated Authority, with the Joint Commission's approval, has the power to enter into

Production Sharing Contracts;



C.



the Designated Authority wishes to promote Petroleum Operations in the Contract Area and

the Contractor desires to join and assist the Designated Authority in exploring for,

developing and exploiting Petroleum in the Contract Area for the benefit of the people of

Timor-Leste and Australia; and



D.



the Contractor has the financial capability, and the technical knowledge and technical

ability, to carry on the Petroleum Operations in a manner wholly consistent with the Treaty,

the Code and this Agreement, and has a record of compliance with principles of good

corporate citizenship.



NOW, THEREFORE, it is agreed:



15 November 2006



Page 7



Article 1

1.1



Interpretation



Definitions

In this Agreement:

“Accounting Records” has the meaning given in Clause 1.2 of Annex C;

“Agreement” means this Production Sharing Contract;

“Appraisal” means any appraisal activities, including appraisal wells, the purpose of which

at the time such activity is commenced is to appraise and evaluate the extent, volume or the

quality of Petroleum reserves contained in a Discovery (including the commerciality of

them), and all related activities;

“Appraisal Costs” has the meaning given in Clause 2.2 of Annex C;

“Approved Contract” means a contract made by the Contractor and approved by the

Designated Authority as a part of a Development Plan;

“Associated Gas” means Natural Gas, commonly known as gas-cap gas, which overlies and

is in contact with significant quantities of Crude Oil in a Reservoir, and solution gas

dissolved in Crude Oil in a Reservoir;

“Capital Costs” has the meaning given in Clause 2.3 of Annex C;

“Code” means the Petroleum Mining Code agreed and adopted by Timor-Leste and

Australia pursuant to Article 7(a) of the Treaty, as amended, varied, modified or replaced

from time to time, and regulations made and directions given under it;

“Commercial Discovery” means a discovery of Petroleum that the Contractor declares

commercial as contemplated in sub-Article 4.10;

“Commercial Production” commences when commissioning and test production having

been concluded, the first day of the first period of thirty (30) consecutive days during which

the average level of regular production delivered for sale on the twenty five (25) highest

production days in the thirty-day period reaches a level of regular production delivered for

sale determined by the Designated Authority;

“Committee” has the meaning given in sub-Article 14.1;

“Contract Area” means the area specified in Annexes A and B, but not any part of it which

has been relinquished under Article 3;

“Contract Year” means a period commencing on the Effective Date, or on any anniversary

of it, and ending immediately before the next anniversary of it;

“Cost Recovery Statement” has the meaning given in Clause 7 of Annex C;

“Crude Oil Field” means:

(a)



a single Reservoir; or



15 November 2006



Page 8



(b)



multiple Reservoirs all grouped on, or related to, the same geological structure, or

stratigraphic conditions,



which contain hydrocarbons in a liquid state in the Reservoir with or without Associated

Gas and from which Crude Oil and Associated Gas may be produced;

“Decommission” means, in respect of the Contract Area or a part of it, as the case may be, to

abandon, decommission, transfer, remove and/or dispose of structures, facilities,

installations, equipment and other property, and other works, used in Petroleum Operations

in the area, to clean up the area and make it good and safe, and to protect the environment;

“Decommissioning Costs Reserve” means the cumulative amount of monies provided in

each Calendar Year for the funding of the Decommissioning Plan pursuant to paragraph

4.14(d);

“Decommissioning Plan” means a plan of works, and an estimate of expenditures therefor,

for Decommissioning, including environmental, engineering and feasibility studies in

support of the plan;

“Decommissioning Security Agreement” means an agreement between the Designated

Authority and the Contractor as mentioned in sub-Article 4.15;

“Development” means operations designed to recover Petroleum from a Reservoir for

commercial purposes and includes design, construction, installation, drilling (but excludes

drilling for the purposes of Exploration or Appraisal), and all related activities;

“Development Work Programme and Budget” has the meaning in sub-Article 4.12;

“Development Area” has the meaning given in sub-Article 4.10;

“Development Plan” means a development plan for a Development Area, as referred to in

sub-Article 4.11;

“Discovery” means a discovery of Petroleum in a Reservoir in which Petroleum has not

previously been found that is recoverable at the surface in a flow measurable by

conventional petroleum industry testing methods;

“Effective Date” has the meaning given in sub-Article 2.3;

“Exploration” means, any exploration activities, including geological, geophysical,

geochemical and other surveys, investigations and tests, and the drilling of, core holes,

stratigraphic tests, exploration wells and other drilling and testing operations for the purpose

of making a Discovery, and all related activities;

“Exploration Costs” has the meaning given in Clause 2.1 of Annex C;

“Exploration Work Programme and Budget” has the meaning in sub-Articles 4.1, 4.2 and

4.3;

“Field” means a Natural Gas Field or a Crude Oil Field from which Petroleum may be

produced;

“Force Majeure” has the meaning given in Article 18;

“Gas Retention Area” has the meaning given in sub-Article 3.5;

15 November 2006



Page 9



“ICC” means the International Chamber of Commerce;

“Ineligible Costs” has the meaning given in Clause 2.8 of Annex C;

“Loan Facility” means any overdraft, loan or other financial facility or accommodation

(including any acceptance credit, bond, note, bill of exchange or commercial paper, finance

lease, hire purchase agreement, trade bill, forward sale or purchase agreement, or

conditional sale agreement, or other transaction having the commercial effect of a

borrowing);

“Miscellaneous Receipts” has the meaning given in Clause 2.7 of Annex C;

“Natural Gas Field” means:

(a)



a single Reservoir; or



(b)



multiple Reservoirs grouped on, or related to, the same geological structure, or

stratigraphic conditions;



in which Non-Associated Gas exists naturally under Reservoir conditions of temperature and

pressure;

“Non-Associated Gas” means Natural Gas which is not Associated Gas;

“Operating Costs” has the meaning given in Clause 2.4 of Annex C;

“Production” means any Petroleum exploitation or export activities, but not Development;

“Production Statement” has the meaning given in Clause 5.1 of Annex C;

“Quarter” means a period of three months beginning on January 1, April 1, July 1 or

October 1 of each Calendar Year;

“Recoverable Costs” has the meaning given in Article 6;

“Security” means:

(a)



a standby letter of credit issued by a bank;



(b)



an on-demand bond issued by a surety corporation;



(c)



a corporate guarantee; or



(d)



any other financial security acceptable to the Designated Authority,



and issued by a bank, surety or corporation acceptable to the Designated Authority and

having a credit rating indicating that it has sufficient worth to pay its obligations in all

reasonably foreseeable circumstances;

“Treaty” means the Timor Sea Treaty between the Government of Timor-Leste and the

Government of Australia signed on 20th May 2002;

“United States Dollars” means the lawful currency of the United States of America;

“Uplift” has the meaning given in Clause 2.6 of Annex C;

15 November 2006



Page 10



“Value of Production and Pricing Statement” has the meaning given in Clause 6 of Annex

C; and

“Work Programme and Budget” means a work programme for Petroleum Operations and

budget therefor approved in accordance with this Agreement.

1.2



Headings

As used herein, headings are for convenience and do not form a part of, and shall not affect

the interpretation of, this Agreement.



1.3



Further Interpretation

In this Agreement, unless the contrary intention appears:

(a)



the words "including" and “in particular” shall be construed as being by way of

illustration or emphasis only, and shall not be construed as, nor shall they take effect

as, limiting the generality of any preceding words;



(b)



a reference to an Article, sub-Article, paragraph, sub-paragraph or to a Clause or an

Annex, is to an Article, sub-Article, paragraph, sub-paragraph of or to a Clause or an

Annex to this Agreement;



(c)



a reference to an agreement (including this Agreement) or instrument, is to the same

as amended, varied, novated, modified or replaced from time to time;



(d)



“person” includes a corporation or other legal entity;



(e)



the singular includes the plural, and vice versa;



(f)



any gender includes the other;



(g)



an agreement includes an arrangement, whether or not having the force of law;



(h)



a reference to the consent or approval of the Designated Authority means the consent

or approval, in writing, of the Designated Authority and in accordance with the

conditions of that consent or approval;



(i)



“law” includes the Treaty and the Code;



(j)



reference to any English legal concept, term, action, remedy, method of judicial

proceeding, legal document, legal status, court or official is, in any jurisdiction other

than England and Wales, a reference to what most nearly approximates in that

jurisdiction to that reference;



(k)



“contiguous area” means a Sub-Block, or a number of Sub-Blocks each having a

point in common with another such Sub-Block;



(l)



where a word or expression is defined, cognate words and expressions shall be

construed accordingly;



(m)



terms capitalised but not defined herein shall have the meaning defined in the Code;



15 November 2006



Page 11



and this Agreement shall inure to the benefit and burden of the Parties, their respective

successors and permitted assigns.

1.4



Annexes

If there is a conflict, the main body of this Agreement prevails over an Annex.



1.5



Joint and Several Liability

If the Contractor is more than one person, the obligations and liabilities of the Contractor

under this Agreement are the obligations and liabilities of them all, jointly and severally.



1.6



Operator

(a)



The appointment of an Operator by the Contractor shall be subject to prior approval

by the Designated Authority where:

(i)



there is more than one Authorised Person in respect of a particular

Authorisation and the person appointed as Operator is one of those

Authorised Persons; or



(ii)



the person appointed as Operator is not an Authorised Person.



(b)



Except with the prior approval of the Designated Authority as required under

paragraph 1.6(a), the Contractor shall not permit any person to exercise any function

of an Operator.



(c)



For all purposes of this Agreement, the Operator shall represent the Contractor, and

the Designated Authority may deal with, and rely on, the Operator. The obligations,

liabilities, acts and omissions of the Operator are, additionally, the obligations,

liabilities, acts and omissions of the Contractor.



(d)



The Operator shall establish its head operations office in Timor-Leste.



(e)



Any change in Operator shall be subject to the prior approval of the Designated

Authority.



(f)



Where the Designated Authority determines that an Operator is no longer competent

to be an Operator, the Designated Authority, with the approval of the Joint

Commission, may, by written notice to the Operator and to the Contractor, revoke its

approval.



Article 2

2.1



Scope and Term



Scope

(a)



This Agreement, and the rights, interests and benefits of the Contractor, and the

obligations and liabilities of the Designated Authority, under it, are subject to the

Treaty and the Code. The Contractor and the Designated Authority shall comply



15 November 2006



Page 12



with the terms of the Treaty, the Code, regulations and directions made in

accordance with the Code, and this Agreement.

(b)



2.2



(i)



shall, and has the exclusive right to, carry on Petroleum Operations at its sole

cost, risk and expense;



(ii)



shall provide all human, financial and technical resources therefor; and



(iii)



shall, as further provided in this Agreement, share in Petroleum from the

Contract Area.



(c)



The Contractor is not authorised to carry on Petroleum Operations in any part of the

JPDA outside the Contract Area, other than in accordance with an Access

Authorisation granted to it by the Designated Authority under Article 9 of the Code.



(d)



This Agreement does not authorise the Contractor to process Petroleum beyond the

Field Export Point, and no expenditure in respect of further processing shall be a

Recoverable Cost.



Conditions Precedent

(a)



(b)



2.3



Subject to this Agreement, the Contractor:



This Agreement is conditional on:

(i)



the appointment of an Operator in accordance with sub-Section 4.5 of the

Code;



(ii)



if the Contractor is more than one person, the conclusion of a Joint Operating

Agreement, and such agreement coming into full force and effect (subject

only to satisfaction of this condition);



(iii)



the Contractor providing the Designated Authority with a Security (in form

and content satisfactory to the Designated Authority) for the performance of

the Contractor's minimum work and expenditure obligations in accordance

with sub-Articles 4.1, 4.2 and 4.3; and



(iv)



the Contractor demonstrating, to the satisfaction of the Designated Authority,

that it has complied with its obligations under sub-Article 17.2 in regard to

insurance.



If the conditions mentioned in paragraph 2.2(a) are not fulfilled before the sixtieth

(60th) day after the date of this Agreement, this Agreement shall terminate and be of

no further force or effect.



Effective Date and Term

(a)



The effective date of this Agreement is the date on which all of the conditions

precedent set out at sub-Article 2.2 have been satisfied (“Effective Date”). The

Designated Authority shall notify the Contractor in writing that the conditions

precedent have been satisfied.



(b)



This Agreement shall terminate on the first to occur of:



15 November 2006



Page 13



2.4



(i)



all of the Contract Area being relinquished pursuant to Article 3;



(ii)



the Parties so agreeing;



(iii)



termination pursuant to sub-Article 2.4; or



(iv)



the Treaty ceasing to be in force.



Grounds for Termination

(a)



Where a Contractor:

(i)



has not complied with any plan, approval, condition or term to which this

Agreement is subject;



(ii)



has not complied with the Code;



(iii)



has knowingly provided false information to the Designated Authority in

connection with this Agreement;



(iv)



has not paid any amount payable by it under the Code or under this

Agreement within a period of three (3) months after the day on which the

amount became payable; or



(v)



is subject to or commits an Insolvency Event,



the Designated Authority may, with the approval of the Joint Commission, on that

ground, by instrument in writing served on the Contractor terminate this Agreement.



2.5



(b)



The Designated Authority shall not terminate this Agreement due to one or more of

the relevant grounds identified in sub-paragraphs 2.4(a)(i)-(iv) unless there has been

a material breach by the Contractor of one of those grounds.



(c)



Where this Agreement expressly grants the Designated Authority a right to terminate

this Agreement, that right shall be exercised in accordance with the requirements of

sub-Articles 2.4 and 2.5.



Designated Authority to give Notice

Except in relation to an Insolvency Event, in which case the Designated Authority may

terminate this Agreement forthwith, the Designated Authority shall not terminate this

Agreement unless:

(a)



it has, by instrument in writing served on the Contractor, given not less than thirty

(30) days notice of its intention to so terminate this Agreement;



(b)



it has, in the instrument, specified a date on or before which the Contractor may

submit in writing to the Designated Authority any matters that it wishes to be

considered; and



(c)



it has taken into account any information provided under paragraph 2.5 (b) and any

action taken by the Contractor or other parties to remove that ground or to prevent

the recurrence of similar grounds.



15 November 2006



Page 14



2.6



Surviving Obligations

(a)



Termination of this Agreement for any reason (including the passage of time), in

whole or in part, shall be without prejudice to rights and obligations expressed in the

Code or this Agreement to survive termination, or to rights and obligations accrued

thereunder prior to termination, including Decommissioning, and all provisions of

this Agreement reasonably necessary for the full enjoyment and enforcement of

those rights and obligations shall survive termination for the period so necessary.



(b)



If the Contractor is more than one person and circumstances arise in which the

Designated Authority may terminate an Authorisation, the Designated Authority

may, on such conditions as it may decide, elect to terminate this Agreement only in

respect of those persons whose acts or omissions (or in relation to whom acts,

omissions or events have occurred which) have led to such circumstances arising, if:

(i)



it is satisfied that the other persons did not connive in such acts, omissions or

events, and could not reasonably have been expected to prevent them

occurring; and



(ii)



it is satisfied that it is fair and reasonable to do so in all the circumstances,



and the other persons agree (including as to such conditions).



Article 3

3.1



Relinquishment of Blocks



Periodic Relinquishment of Exploration Area

(a)



The Contractor shall relinquish:

(i)



at the end of the third (3rd) Contract Year, not less than twenty five (25)

percent of the Sub-Blocks in the original Contract Area; and



(ii)



at the end of the fifth (5th) Contract Year, not less than a further twenty five

(25) percent of the Sub-Blocks in the original Contract Area.



(b)



At the end of any Contract Year, and subject to paragraph 3.1(e), the Contractor may

relinquish some or all, of the Sub-Blocks in the Contract Area. Any Sub-Blocks so

relinquished will be credited against the next relinquishment obligation of the

Contractor under paragraph 3.1(a).



(c)



The Contractor shall consult with and give not less than thirty (30) days notice to the

Designated Authority of the Sub-Blocks which, at any time, it wishes to relinquish.

Except with the consent of the Designated Authority:

(i)



those Sub-Blocks must form one discrete area; and



(ii)



the Sub-Blocks not relinquished must form one or more discrete areas,



all of sufficient size and convenient shape to enable Petroleum Operations to be

conducted thereon.



15 November 2006



Page 15



3.2



3.3



(d)



If the Contractor does not relinquish Sub-Blocks at the time and in the manner

required by this sub-Article 3.1, all of the Contract Area shall be deemed

relinquished at the end of the Contract Year concerned.



(e)



Without the consent of the Designated Authority, and notwithstanding sub-Article

3.1, the Contractor may not relinquish all of the Sub-Blocks in the Contract Area if it

has not then fulfilled its obligations under sub-Articles 4.1, 4.2 and 4.3, or is then in

breach of any provision of this Agreement.



Final Relinquishment of Exploration Area

(a)



At the end of the seventh (7th) Contract Year, the Contractor shall relinquish all of

the Contract Area other than such part thereof as is a Development Area.



(b)



If, at the end of the seventh (7th) Contract Year, a Discovery has been made but

there has been insufficient time for the Contractor (acting, and having acted, in

accordance with this Agreement) to appraise it, the obligation of the Contractor

under sub-Article 3.2 shall be postponed:

(i)



for such Sub-Blocks, and to such depths as the Designated Authority may

determine to be reasonably necessary to encompass the Field, plus a reserve

margin sufficient to cover the probable extent of the field;



(ii)



for such period as is reasonably necessary to permit the Contractor to

appraise (or to complete the Appraisal of) the Discovery; and



(iii)



as a consequence of that Appraisal, for the Contractor to decide whether to

declare a Commercial Discovery and, if it does so, for the Designated

Authority to declare a Development Area in respect of it.



Relinquishment of Development Area

(a)



Except with the consent of the Designated Authority and subject to paragraph 3.3(b)

below, a Development Area shall be deemed to be relinquished on the first to occur

of:

(i)



production from the Development Area ceasing permanently or for a

continuous period of twelve (12) months (or, if because of Force Majeure, as

is determined by the Designated Authority in consultation with the Contractor

under sub-Article 18.5); and



(ii)



the twenty fifth (25th) anniversary of the date on which the first (1st)

Development Plan in respect of the Development Area was approved by the

Designated Authority.



(b)



Where the Contractor has entered into contracts for the sale of Natural Gas, which

have been approved as part of a Development Plan, then relinquishment shall be no

earlier than the expiry date of those contracts.



(c)



Without the consent of the Designated Authority, the Contractor may not otherwise

relinquish all or any part of a Development Area.



15 November 2006



Page 16



3.4



3.5



Termination of Agreement and Continuing Obligations in respect of Relinquished

Area

(a)



This Agreement shall terminate in respect of a part of the Contract Area which is

relinquished.



(b)



Relinquishment of all or a part, of the Contract Area is without prejudice to the

obligations of the Contractor to Decommission.



Gas Retention Area

(a)



If the Appraisal of a Discovery of Non-Associated Gas demonstrates that the

Discovery, although substantial, is not then, either alone or in combination with

other Discoveries, commercially viable, but is likely to become so within five

(5) years, the Designated Authority may, at the request of the Contractor, declare a

Gas Retention Area in respect of it for that period. On request of the Contractor, and

after demonstration that the grant of an extended period is likely to result in the

declaration of a Commercial Discovery, the Designated Authority may extend the

period of the Gas Retention Area for such longer period, and on such conditions, as

is considered appropriate by the Designated Authority.



(b)



This Article 3 (but not sub-Article 3.3) applies to and in respect of a Gas Retention

Area as it does to and in respect of a Development Area for as long as, during that

period, the Contractor diligently seeks to make it commercially viable, and

demonstrates to the Designated Authority that it is doing so.



(c)



The Gas Retention Area consists of those Sub-Blocks (forming a single contiguous

area) that encompass the Natural Gas Field, plus a reserve margin sufficient to cover

the probable and possible extent of it, but the Designated Authority may exclude

deeper formations in which no Discovery has been made. The Designated Authority,

at any time and from time to time, and whether of its own volition or at the request

of the Contractor, may:

(i)



add Sub-Blocks then in the Contract Area to;



(ii)



remove Sub-Blocks from; or



(iii)



vary by depth within the Contract Area,



a Gas Retention Area as may be required to ensure that it encompasses the Natural

Gas Field. The Contractor shall relinquish any part of the Contract Area removed

from a Gas Retention Area as a consequence of such removal or other variation if it

occurs after the time for the relinquishment provided for in paragraph 3.2(a).

(d)



The Gas Retention Area shall be deemed to have been relinquished on the earlier of:

(i)



expiry of the period mentioned in paragraph 3.5 (a);



(ii)



the Contractor ceasing to meet its obligations under paragraph 3.5 (b); and



(iii)



the Contractor declaring a Commercial Discovery in respect of it and the

Designated Authority declaring a Development Area as a consequence

thereof.



15 November 2006



Page 17



3.6



Oil Retention Area

If the Appraisal of a Discovery of a Crude Oil Field demonstrates that the Discovery,

although substantial, is not then, either alone or in combination with other Discoveries,

commercially viable, but is likely to become so within five (5) years, the Designated

Authority may in its absolute discretion, at the request of the Contractor, declare an Oil

Retention Area in respect of it, or any part thereof, for that period on such terms and

conditions as the Designated Authority considers appropriate.



Article 4

4.1



Work Programmes and Budget



Commitment in Initial Period

In each Contract Year mentioned below, the Contractor shall carry out an Exploration Work

Programme and Budget of not less than the amount of work specified for that Contract Year:

Contract

Year

1



Data

Evaluation

Nil



2



Permit remapping

and development of

prospect inventory

Permit re-evaluation



3

4.2



Surveys

Acquisition of 2001

kilometres of recently

available 2D seismic

data and 2337

kilometres of newly

reprocessed 2D seismic

data.

Acquisition of 1060

kilometres of 2D

seismic.

Acquisition of 1020

square kilometres 3D

seismic.

Nil



Wells

Nil



2 wells



Nil



2 wells



Commitment in Second Period

In each Contract Year mentioned below, and unless the Contractor has relinquished all of

the Contract Area (not being a Development Area, Oil Retention Area or a Gas Retention

Area) before the start of the fourth (4th) Contract Year, the Contractor shall carry out an

Exploration Work Programme and Budget of not less than the amount of work specified for

that Contract Year:

Contract

Year

4

5



15 November 2006



Data

Evaluation

Permit remapping and

development of

prospect inventory

Nil



Surveys

Acquisition of 520

square kilometres of

3D seismic

Nil



Wells

Nil

1 well

Page 18



4.3



Commitment in Third Period

In each of the sixth (6th) and seventh (7th) Contract Years, and unless the Contractor has

relinquished all of the Contract Area (not being a Development Area, Oil Retention Area or

a Gas Retention Area) before the start of the Contract Year concerned, the Contractor shall

carry out such Exploration Work Programme and Budget of not less than the amount of

work specified for that Contract Year:

Contract

Year

6

7



4.4



Data

Evaluation

Permit re-evaluation

Preparation for

relinquishment



Surveys

Nil

Nil



Wells

Nil

1 well



Performance of Exploration Work Programme and Budget

(a)



If any well forming part of the Exploration Work Programme and Budget provided

for in this Article 4 is abandoned for any reason other than a reason specified in

paragraph 4.4 (b) before reaching the defined objectives of such well, the Contractor

shall drill a substitute well. In this event, the First, Second or Third Exploration

Period, as the case may be, shall be extended by a period of time equal in length to

the time spent in preparing for and drilling the substitute well, including mobilisation

and demobilisation of the drilling rig, if applicable.



(b)



Unless otherwise agreed by the Designated Authority, any well which forms part of

the Exploration Work Programme and Budget provided for in this Article 4 shall be

drilled to such depth as is necessary for the evaluation of the geological formation

established by the available data as the target formation and which Good Oil Field

Practices would require the Contractor to attain, unless before reaching such depth:

(i)



a formation stratigraphically older than the deepest target formation is

encountered;



(ii)



basement is encountered;



(iii)



further drilling would present an obvious danger, such as but not limited to

the presence of abnormal pressure or excessive losses of drilling mud;



(iv)



impenetrable formations are encountered;



(v)



Petroleum bearing formations are encountered which require protecting,

thereby preventing planned depths from being reached;



(vi)



the Contractor and the Designated Authority agree to terminate the drilling

operation; or



(vii)



the Designated Authority confirms that the drilling obligation has been

fulfilled.



In such circumstances the drilling of any such well may be terminated at a lesser

depth and shall be deemed to have satisfied the Contractor’s obligations in respect of

that well.



15 November 2006



Page 19



(c)



4.5



Consequences of Non-Performance

(a)



4.6



Where a well which forms part of the Exploration Work Programme and Budget

provided for in this Article 4 results in a Discovery and the Contractor informs the

Designated Authority pursuant to sub-Article 4.9 that the Discovery merits

Appraisal, that well will be deemed to have met its objective and to have satisfied

the Contractor’s obligations in respect of that well.



If, in a Contract Year, the Contractor carries out less Exploration than is required of

it under the Exploration Work Programme and Budget, the Designated Authority

may:

(i)



require that the shortfall be added to the Exploration to be carried out in the

next Contract Year;



(ii)



require payment of the estimated cost of the Exploration not carried out in

that Contract Year; or



(iii)



terminate this Agreement and require payment of the estimated cost of the

Exploration not carried out in that Contract Year.



(b)



If, in a Contract Year, the Contractor carries out more Exploration than is required of

it, the excess shall be credited against Exploration to be carried out in the following

Contract Year and, to the extent in excess of that Exploration, shall be further carried

forward.



(c)



For the purposes of the foregoing provisions of this Article 4, and of Article 6 and

Annex C and except with the consent of the Designated Authority, no work in a

Development Area will be regarded as Exploration except to the extent in respect of

a formation shallower or deeper than the Field concerned and in which no Discovery

has been made.



Work Programmes and Budgets

Subject to sub-Article 4.7, the Contractor shall carry out Petroleum Operations substantially

in accordance with Work Programmes and Budgets approved by the Designated Authority.

Such an approval by the Designated Authority is without prejudice to any other obligation or

liability of the Contractor under this Agreement.



4.7



Emergency and Other Expenditures Outside Work Programmes and Budgets

(a)



Without further approval by the Designated Authority, the Contractor may

overexpend, by ten percent (10%) on any line item in an approved Work Programme

and Budget for a Contract Year.



(b)



Without further approval by the Designated Authority, the total of all overexpenditures under paragraph 4.7(a) under that Work Programme and Budget for

that Contract Year shall not exceed ten percent (10%) of the total expenditures in

that Work Programme and Budget.



15 November 2006



Page 20



4.8



4.9



(c)



The Contractor shall promptly inform the Designated Authority if it anticipates (or

should reasonably anticipate) that any such limit in paragraph 4.7(b) will be

exceeded and seek, in the manner provided in this Article 4, an amendment to the

appropriate Work Programme and Budget.



(d)



In determining whether to approve the over-expenditures contemplated at paragraphs

4.7(a) and (b), the Designated Authority shall consider whether such increases are

necessary to complete the programme of works, provided that such increase is not

the result of any failure of the Contractor to fulfill its obligations under this

Agreement.



(e)



Nothing in sub-Article 4.6 or paragraph 4.7(a) precludes or excuses the Contractor

from taking all necessary and proper measures for the protection of life, health, the

environment and property if there is an emergency (including a significant fire,

explosion, Petroleum release, or sabotage; incident involving loss of life, serious

injury to an employee, contractor or third party, or serious property damage; strikes

and riots; or evacuation of the Operator's personnel). As soon as reasonably

practicable, the Operator will inform the Designated Authority of the details of the

emergency and of the actions it has taken and intends to take.



Exploration

(a)



The Contractor shall submit, for the approval of the Designated Authority, an

Exploration Work Programme and Budget for each Calendar Year.



(b)



From time to time, the Contractor may submit, for the approval of the Designated

Authority, amendments to the Exploration Work Programme and Budget.



(c)



The Contractor is not obliged to carry out more Exploration in a Contract Year than

is required by sub-Articles 4.1, 4.2 and 4.3.



Discovery and Appraisal

(a)



The Contractor shall notify the Designated Authority of a Discovery and shall

provide the Designated Authority with such information in respect of it as the Code

requires.



(b)



As soon as reasonably practicable after a Discovery is made, the Contractor shall

advise the Designated Authority whether or not, having regard to paragraph 4.9(e),

the Discovery merits Appraisal.



(c)



At such time and in such manner as the Designated Authority requires, the

Contractor shall submit, for the approval of the Designated Authority, an Appraisal

Work Programme and Budget for each Calendar Year.



(d)



From time to time, the Contractor may submit, for the approval of the Designated

Authority, amendments to the Appraisal Work Programme and Budget.



(e)



An Appraisal Work Programme and Budget for a Calendar Year will be such as

would be undertaken by a person seeking diligently to appraise (in accordance with

this Agreement) a Discovery with a view to determining if it is, either alone or in

combination with other Discoveries, a Commercial Discovery.



15 November 2006



Page 21



4.10



Commercial Discovery

(a)



The Contractor may, at any time and having regard to paragraph 4.10(b), declare that

a Commercial Discovery has been made.



(b)



The declaration is to be made in such manner, and be accompanied by such

supporting data and information, as the Designated Authority requires, including the

Contractor's proposal as to that part of the Contract Area to be declared a

Development Area.



(c)



The Designated Authority shall declare those Sub-Blocks which encompass the Field

in which the Commercial Discovery has been made plus a reserve margin sufficient

to cover the probable extent of the Field, to be a Development Area, but may

exclude deeper formations in which no Discovery has been made. The Designated

Authority, at any time and from time to time, of its own volition or that of the

Contractor, may:

(i)



add Sub-Blocks then in the Contract Area to;



(ii)



remove Sub-Blocks from; or



(iii)



vary by depth within the Contract Area,



a Development Area as may be required to ensure that it encompasses the Field

concerned, but not, unless the Designated Authority and the Contractor otherwise

agree, after the first Development Plan in respect of the Development Area has been

approved. The Contractor shall relinquish any part of the Contract Area removed

from a Development Area as a consequence of such removal or other variation, if it

occurs after the time for the relinquishment provided for in paragraph 3.2(a).

4.11



Development Plan

(a)



Not more than twelve (12) months after the declaration of a Development Area, and

in the manner required by the Designated Authority, the Contractor shall submit, for

the approval of the Designated Authority, a Development Plan for the Development

Area.



(b)



From time to time, the Contractor may submit, for the approval of the Designated

Authority, amendments to the Development Plan.



(c)



A Development Plan will be assessed on the basis of whether it would be undertaken

by a person seeking diligently to develop and exploit (in accordance with this

Agreement) the Petroleum in the Development Area in accordance with Good Oil

Field Practice and in a way that promotes further investment and contributes to the

long term development of Timor-Leste and Australia.



(d)



Except with the consent of the Designated Authority, and without prejudice to the

generality of paragraph 4.11(a), a Development Plan shall include:

(i)



a description of the proposed reservoir development and management

programme;



(ii)



details of:



15 November 2006



Page 22



(aa)



the geological and the reservoir work done, together with the

production profiles simulated, in order to reach the best depletion

alternative;



(bb)



the production, treatment and transportation facilities to be located in

the JPDA;



(cc)



facilities for transporting the Petroleum from the Contract Area and

the JPDA; and



(dd)



facilities, wherever located ,which are connected to any facilities

mentioned in sub-paragraphs (bb) and (cc) above and which (or the

operation of which) might affect the integrity, management or

operation thereof;



(iii)



the production profiles for all hydrocarbon products including possible

injections for the life of the Development including the commencement of

Production and the specific rates of Petroleum production;



(iv)



the projected start of Commercial Production;



(v)



the Decommissioning Plan, in such detail as the Designated Authority

requires, including a calculation of the Decommissioning costs, the annual

contribution to the Decommissioning Costs Reserve, and the Contractor’s

proposal for the Decommissioning Security Agreement;



(vi)



an environmental impact statement and proposals for environmental

management covering the life of the Development;



(vii)



a Contractor’s proposal for ensuring the safety, health and welfare of persons

in or about the proposed Petroleum Operations;



(viii) the Contractor's proposals for:

(aa)



the use of Timor-Leste goods and services;



(bb)



training and employment of nationals and permanent residents of

Timor-Leste; having regard to occupational health and safety

requirements; and



(cc)



processing Petroleum;



(ix)



the estimated capital expenditure covering the feasibility, fabrication,

installation, commissioning and pre-production stages of the Development;



(x)



an evaluation of the commerciality of the Development, including a full

economic evaluation;



(xi)



the Contractor's (and if more than one person, each such person's) proposals

for financing;



(xii)



summary details and copies of:

(aa)



15 November 2006



all contracts and arrangements made or to be made by the Contractor

for the sale of Natural Gas;

Page 23



(bb)



(for information purposes only) all contracts and arrangements made

or to be made by persons in respect of that Natural Gas downstream of

the point at which it is to be sold by the Contractor and which are

relevant to the price at which (and other terms on which) it is to be

sold by the Contractor or are otherwise relevant to the determination

of the value of it for the purposes of this Agreement, but not beyond

the point at which it is first disposed of in an arm’s length transaction;

and



(cc)



all contracts and arrangements made or to be made by the Contractor

in respect of facilities downstream of the Field Export Point for

transporting, processing, liquefying, storing, handling and delivering

that Natural Gas; and



(xiii) such other data and information (including in respect of insurance to be

obtained by the Contractor, and buyers and shippers of Petroleum) as the

Code requires and as the Designated Authority otherwise requires and is

relevant to the Development Plan.

(e)



4.12



4.13



The Designated Authority shall not approve a Development Plan, or an amendment

to it unless:

(i)



a Decommissioning Security Agreement has been concluded in respect of the

Development Area; and



(ii)



the Designated Authority has consulted with the Joint Commission in relation

to the Development Plan or amendment.



Development Work Programmes and Budgets

(a)



At such time and in such manner as the Code requires, and as the Designated

Authority otherwise requires, the Contractor shall submit, for the approval of the

Designated Authority, a Development Work Programme and Budget for each

Development Area for each Calendar Year. At any time and from time to time, the

Contractor may submit, for that approval, amendments to it.



(b)



A Development Work Programme and Budget for a Calendar Year shall be

substantially in accordance with the Development Plan for the Development Area.



(c)



The Designated Authority may not unreasonably withhold its approval of a

Development Work Programme and Budget properly submitted by the Contractor.



Approved Contracts

(a)



The Contractor may not sell or otherwise dispose of, Natural Gas from the Contract

Area other than pursuant to an Approved Contract or as otherwise may be provided

in the Development Plan or in this Agreement.



(b)



The Contractor may not use any facilities downstream of the Field Export Point for

transporting, processing, treating, liquefying, storing, handling or delivering

Petroleum other than under the terms of an Approved Contract.



15 November 2006



Page 24



(c)



4.14



The Contractor may not amend, waive, or fail to enforce, any provision of an

Approved Contract without the approval of the Designated Authority.



Decommissioning

(a)



The Contractor shall submit to the Designated Authority, for its approval, pursuant

to sub-paragraph 4.11(d)(v), a Decommissioning Plan for the Development Area and

a schedule of provisions for the Decommissioning Costs Reserve.



(b)



The Decommissioning Plan shall be revised and resubmitted to the Designated

Authority for its approval at such times as are reasonable having regard to the

likelihood that the Decommissioning Plan (including cost estimates thereunder) may

need to be revised.



(c)



The Contractor shall carry out the Decommissioning Plan substantially in

accordance with its terms.



(d)



Estimates of the monies required for the funding of the Decommissioning Plan shall

be charged as Recoverable Costs beginning in the Calendar Year following the

Calendar Year in which Commercial Production first occurs. The amount charged in

each Calendar Year shall be calculated as follows:

(i)



The total Decommissioning costs at the expected date of Decommissioning

shall first be calculated.



(ii)



There shall be deducted from such total Decommissioning costs the additions

made to the Decommissioning Costs Reserve made, and taken as

Recoverable Costs, in all previous Calendar Years together with interest on

such Recoverable Costs calculated to the approved date of Decommissioning

at the actual or forecast rate of Uplift (whichever is applicable).



(iii)



The residual Decommissioning costs, resulting from the calculations under

sub-paragraph 4.14(d)(i) and (ii), shall then be discounted to the Calendar

Year in question at the forecast rate of Uplift for each Calendar Year

remaining until the Calendar Year of Decommissioning.



(iv)



The discounted total of residual Decommissioning costs shall then be divided

by the total number of Calendar Years remaining prior to the Calendar Year

of Decommissioning itself, including the Calendar Year in question.



(v)



The resultant amount shall be the addition to the Decommissioning Costs

Reserve for the Calendar Year in question.



(vi)



It is the intention of this provision that the total accumulated provision

allowed, including interest calculated to the Calendar Year of

Decommissioning at the rate of Uplift, will equal the total Decommissioning

costs.



(vii)



If the amount in sub-paragraph 4.14(d)(v) is a negative amount, then such

amount shall be treated as a reduction of Recoverable Costs for the Calendar

Year in question.



15 November 2006



Page 25



4.15



Decommissioning Security

(a)



Prior to Decommissioning, Security pursuant to the Decommissioning Security

Agreement shall be provided by the Contractor in an amount equal to the sum of

provisions made to the Decommissioning Costs Reserve, and taken as Recoverable

Costs, in all previous years together with interest on such Recoverable Costs

calculated to the end of the previous Calendar Year at the actual rate of Uplift.



(b)



After Decommissioning commences, the Designated Authority shall at the end of

each Calendar Year review the amount of Security required for the outstanding

Decommissioning and shall take into consideration any Decommissioning costs that

have already been incurred.



(c)



Failure of the Contractor to provide Security and otherwise to fulfill its obligations

under the Decommissioning Security Agreement, shall be a breach of this

Agreement.



Article 5

5.1



Conduct of Work



Proper and Workmanlike Manner

(a)



The Contractor shall carry out Petroleum Operations, and shall procure that they are

carried out, in a proper, efficient and workmanlike manner, and in accordance with

the Code, this Agreement and Good Oil Field Practice.



(b)



In particular, the Contractor shall carry out Petroleum Operations, and procure that

they are carried out, in such a manner as is required by paragraph 5.1(a) to:

(i)



protect the environment, ensure that Petroleum Operations result in minimum

ecological damage or destruction, and clean up pollution;



(ii)



ensure the safety, health and welfare of persons in or about the Petroleum

Operations;



(iii)



maintain in safe and good condition and repair all structures, facilities,

installations, equipment and other property, and other works, used or to be

used in Petroleum Operations;



(iv)



on the earlier of:

(aa)



termination of this Agreement; and



(bb)



when no longer required for Petroleum Operations;



and, in either case:

(cc)



except with the consent of the Designated Authority; or



(dd)



unless this Agreement otherwise provides,



abandon, decommission, transfer, remove and/or dispose of all structures,

facilities, installations, equipment and other property, clean up the Contract

15 November 2006



Page 26



Area and make it good and safe, and protect the environment, to the

satisfaction of the Designated Authority.

(v)



control the flow and prevent the waste or escape of Petroleum, water or any

product used in or derived by processing Petroleum;



(vi)



prevent the escape of any mixture of water or drilling fluid with Petroleum or

any other matter;



(vii)



prevent damage to Petroleum-bearing strata in or outside the Contract Area;



(viii) except with the consent of the Designated Authority, keep separate:



5.2



(aa)



each Reservoir discovered in the Contract Area; and



(bb)



such of the sources of water discovered in the Contract Area as the

Designated Authority directs;



(ix)



prevent water or any other matter entering any Reservoir through wells in the

Contract Area, except when required by, and in accordance with, the

Development Plan and Good Oil Field Practice;



(x)



minimise interference with navigation and fishing; and



(xi)



remedy in a timely fashion any damage caused to the environment.



Access to Contract Area

Subject to law and to this Agreement, the Contractor may enter and leave the Contract Area

at any time for the purposes of Petroleum Operations.



5.3



Health, Safety and the Environment

(a)



Within three (3) months of the Effective Date, the Contractor shall submit to the

Designated Authority, for its approval, plans in regard to:

(i)



the health, safety and welfare of persons in or affected by Petroleum

Operations; and



(ii)



the protection of the environment (including the marine environment and the

atmosphere and the prevention of pollution),



in order to reduce the risks to the personnel and the environment so they are as low

as reasonably practicable. The plans shall be reviewed annually and amended from

time to time as may be necessary to ensure its continuing compliance with Good Oil

Field Practice.

(b)



Notwithstanding anything elsewhere contained in this Agreement, the Contractor

shall clean up pollution resulting from Petroleum Operations to the satisfaction of

the Designated Authority, and meet the costs of so doing to the extent done by

anyone else (including the Designated Authority).



15 November 2006



Page 27



5.4



Goods, Services, Training and Employment

The Contractor shall take reasonable steps to comply with the proposals which accompanied

its application under sub-Section 5.4 of the Code for this Agreement in respect of training,

employment and the acquisition of goods and services (such proposals are specifically listed

at Annex D), and shall:



5.5



(a)



give persons based in Timor-Leste a real opportunity to compete for delivery of

goods and services, provided they are offered on competitive terms and conditions;



(b)



with due regard to occupational health and safety requirements, give preference in

employment in Petroleum Operations to nationals and permanent residents of TimorLeste; and



(c)



within thirty (30) days of the end of each Calendar Year, submit to the Designated

Authority a report demonstrating compliance with the above obligations.



Flaring

Except with the consent of the Designated Authority, or in an emergency, the Contractor

shall not flare Petroleum.



5.6



Operator and its Sub-Contractors

The Operator, and only the Operator, may carry out Petroleum Operations, and may do so

by itself, its agents and sub-contractors. This sub-Article 5.6 does not relieve the Contractor

of any obligation or liability under this Agreement; and the carrying out of Petroleum

Operations by its agents or contractors does not relieve the Operator (or the Contractor) of

any obligation or liability under this Agreement.



Article 6

6.1



6.2



Recoverable Costs



Generally

(a)



The Contractor’s accounts shall be prepared and maintained in accordance with

Annex C.



(b)



Only costs and expenses incurred by the Operator in carrying on Petroleum

Operations, including additions to the Decommissioning Costs Reserve, and (unless

the Contractor is only one person and the Contractor and the Operator are that

person) properly charged to the Contractor under an agreement made between them

and consented to by the Designated Authority, are Recoverable Costs, but without

prejudice to any other provision of this Agreement which would result in any such

cost or expense not being a Recoverable Cost.



Recoverable Costs

In any Calendar Year, Recoverable Costs are, subject as further provided in Annex C, the

sum of those of the following that are not ineligible costs:



15 November 2006



Page 28



(a)



the sum of:

(i)



Recoverable Exploration Costs;



(ii)



Recoverable Appraisal Costs;



(iii)



Recoverable Capital Costs; and



(iv)



Recoverable Operating Costs;



(b)



additions to the Decommissioning Costs Reserve, if any, allowable in that Calendar

Year;



(c)



Recoverable Costs in the previous Calendar Year, to the extent in excess of the value

of the Contractor’s share of Petroleum under sub-paragraph 7.1(b)(i) in that previous

Calendar Year; plus



(d)



a Quarterly amount equal to the product of the rate of Uplift and the Quarterly

balance of outstanding Recoverable Costs;



less Miscellaneous Receipts and less any deductions pursuant to paragraph 7.4(a).



Article 7

7.1



Sharing Of Petroleum



Determination of Shares

In each Calendar Year, the Parties shall take and receive the following shares of every grade

and quality of Petroleum as and when it is delivered at the Field Export Point:

(a)



(b)



(c)



7.2



the Designated Authority:

(i)



five (5) percent; plus



(ii)



its share of any balance as mentioned in paragraph 7.1(c);



the Contractor:

(i)



ninety five (95) percent but not more than is equal in value to Recoverable

Costs for the Calendar Year concerned; plus



(ii)



its share of any balance as mentioned in paragraph 7.1(c);



any Petroleum not taken by the Contractor under sub-paragraph 7.1(b)(i) shall be

shared as to forty (40) percent by the Designated Authority and as to sixty (60)

percent by the Contractor.



Option of Designated Authority

(a)



Unless the Designated Authority elects otherwise as per paragraph 7.2(b), the

Contractor shall take and receive, and dispose of, in common stream with its own

share and on terms no less favourable to the Designated Authority than the



15 November 2006



Page 29



Contractor receives for its own share, the Designated Authority’s entire share of

Petroleum.

(b)



7.3



7.4



7.5



The Designated Authority may make an election to take and separately dispose of

the Designated Authority’s share of Petroleum. Unless the Contractor otherwise

agrees, which agreement will not be unreasonably withheld, the Designated

Authority may not so elect other than:

(i)



in respect of all, or the same percentage of all, of the Designated Authority’s

shares of Crude Oil for and throughout each Calendar Year, on not less than

ninety (90) days prior written notice to the Contractor before the start of the

Calendar Year concerned; and



(ii)



in respect of the Designated Authority’s share of Natural Gas, in connection

with its approval of Approved Contracts.



Lifting

(a)



Subject to this Agreement, the Contractor may lift, dispose of and export from the

JPDA its share of Petroleum and retain the proceeds from the sale or other

disposition of that share.



(b)



The Contractor and the Designated Authority shall, from time to time, make such

agreements between them as are reasonably necessary, in accordance with Good Oil

Field Practice and the commercial practices of the international petroleum industry,

for the separate lifting of their shares of Petroleum.



Title and Risk

(a)



Petroleum shall be at the risk of the Contractor until it is delivered at the Field

Export Point. Without prejudice to any obligation or liability of the Contractor as a

consequence of a failure of the Contractor to comply with its obligations under the

Code and this Agreement (including sub-Article 5.1), Petroleum which is lost after it

is recovered at the well-head, and before it is delivered at the Field Export Point,

shall be deducted from the Contractor's Recoverable Costs under sub-Article 6.2.



(b)



Title in the Contractor’s share of Petroleum shall pass to it when (and risk therein

shall remain with the Contractor after) it is delivered at the Field Export Point.



(c)



Title in the Designated Authority’s share of Petroleum taken by the Contractor

pursuant to sub-Article 7.2 shall pass to the Contractor when (and risk therein shall

remain with the Contractor after) it is delivered at the Field Export Point.



(d)



The Contractor shall defend, indemnify and hold harmless the Designated Authority

and/or the members of the Joint Commission from all claims and demands asserted

in respect of Petroleum wherein the risk is with the Contractor.



Payment on Account

(a)



Unless the Designated Authority has made an election under paragraph 7.2(b), the

Contractor shall pay to the Designated Authority an amount equal to the Designated



15 November 2006



Page 30



Authority's share of all amounts received by the Contractor for the Petroleum within

thirty six (36) hours of receipt.

(b)



In the event that the Contractor has not received payment for Petroleum within sixty

(60) days of production, it nonetheless will make a provisional payment to the

Designated Authority of the estimated value of the Designated Authority’s share of

such Petroleum.



Article 8

8.1



Valuation of Petroleum



Point and type of Valuation

Petroleum shall be valued as if it were sold in an arm’s length transaction f.o.b. (or

equivalent) at the Field Export Point.



8.2



Value of Crude Oil

The value of Crude Oil



8.3



(a)



Sold f.o.b. (or equivalent) at the Field Export Point in an arm’s length transaction is

the price payable for it;



(b)



Sold in an arm’s length transaction other than f.o.b. (or equivalent) at the Field

Export Point is the price payable for it, less such fair and reasonable proportion of

such price that relates to the transportation, processing and delivery of the petroleum

downstream of the Field Export Point up to the actual point of sale; or



(c)



Sold other than as mentioned in paragraphs 8.2(a) and (b) shall be the fair and

reasonable market price thereof having regard to all relevant circumstances.



Value of Natural Gas

The value of Natural Gas shall be the price payable under the Approved Contract or as

otherwise may be provided in the Development Plan or in this Agreement, with such fair

and reasonable adjustments as required to reflect the point and type of valuation in subArticle 8.1, or where a Contractor enters into a sale other than at arm’s-length.



8.4



Price Payable

In this Article 8, the price payable is the price that is (or would be) payable by the buyer if

the Petroleum were delivered by the Contractor and taken by the buyer, without set off,

counterclaim or other withholding of any nature.



15 November 2006



Page 31



Article 9

9.1



Payments



Fees

The Contractor shall pay to the Designated Authority fees and other payments as provided

for in the Code.



9.2



Payment Mechanism

All payments under this Agreement shall be made in United States Dollars, unless otherwise

agreed, and within ten (10) days after the end of the month in which the obligation to make

the payment is incurred to a bank specified by the Party to whom the payment is due.



9.3



Late Payment

Any amount not paid in full when due shall bear interest, compounded on a monthly basis,

at a rate per annum equal to one month term, London Interbank Offer Rate (LIBOR) for

United States Dollar deposits, as published in London by the Financial Times or, if not so

published, then as published in New York by The Wall Street Journal, current from day to

day, plus five percentage (5%) points, on and from the due date for payment until the

amount, together with interest thereon, is paid in full.



9.4



Minimum Payment

If this Agreement is terminated for any reason before the end of the third Contract Year, the

Contractor shall, on such termination, pay, to the Designated Authority, those fees which it

would have paid under sub-Article 9.1 if termination had not occurred until the end of the

third Contract Year.



Article 10 Provision of Goods and Services

10.1



Notice

(a)



Except with the consent of the Designated Authority, the Contractor shall draw to

the attention of suppliers based in Timor-Leste and Australia, in such manner as the

Designated Authority agrees, all opportunities for the provision of goods and

services for Petroleum Operations.



(b)



Subject to sub-Article 10.2, the Contractor shall, before awarding any contract for

goods or services, obtain the written approval of the Designated Authority.

Approval from the Designated Authority shall be deemed thirty (30) days after

written notice of an intention to award is given by the Contractor, unless otherwise

notified in writing to the Contractor.



15 November 2006



Page 32



10.2



Contracts Not Requiring Designated Authority's Approval

The Contractor may make contracts for goods and services for Petroleum Operations

without the Designated Authority's consent (but not if for property to be leased to the

Contractor) where:



10.3



(a)



the contract (or related series of contracts) is expected to involve expenditure of less

than two million (2,000,000) United States Dollars or such higher amount that may

be specified by regulation; or



(b)



the contract (or related series of contracts) is expected to involve expenditure of less

than five million (5,000,000) United States Dollars or such other amount that may be

specified by regulation and the goods or services are required in respect of a

Development Plan, the cost of which is expected to exceed one hundred million

(100,000,000) United States Dollars or such higher amount that may be specified by

regulation.



Tender Invitations

(a)



All invitations to tender made for the purpose of procuring goods and services shall

be published in two (2) of the newspapers with broadest circulation in Timor-Leste

and Australia or as agreed with the Designated Authority.



(b)



Notwithstanding sub-Article 10.2, and except with the consent of the Designated

Authority, all goods and services shall be procured on an arm’s length basis by

competitive tendering, and the Contractor, before inviting any tender for goods or

services, shall consult with the Designated Authority, in respect of:

(i)



the list of bidders which the Contractor proposes to invite to tender; and



(ii)



the bid package to accompany the invitation, which shall include:

(aa)



a draft contract;



(bb)



the scope of work;



(cc)



a technical proposal form;



(dd)



a commercial proposal form;



(ee)



the use of Timor-Leste content; and



(ff)



the basis upon which bids will be evaluated.



In addition, the Contractor shall submit a statement to the Designated

Authority regarding the need for the goods or services concerned, and their

relationship to the approved Work Programme and Budget, the estimated

value of the contract and the contracting schedule.

(c)



If the Designated Authority grants an exception to the obligation at paragraph

10.3(b), it shall publish its reasons for doing so.



15 November 2006



Page 33



(d)



10.4



Costs for goods and services procured on other than an arm’s length basis, the price

payable for which is in excess of one hundred thousand (100,000) United States

Dollars, shall be established in accordance with the provisions of Annex C.



Emergencies

The foregoing provisions of this Article 10 do not apply in the circumstances mentioned in

paragraph 4.7(e) to the extent they would hinder the Contractor from taking all necessary

and proper measures as therein mentioned.



10.5



Other Information to be Provided

(a)



The Contractor shall submit to the Designated Authority copies of all contracts for

the supply of goods and services for use in relation to Petroleum Operations

promptly after their execution.



(b)



The Contractor shall, promptly after awarding a contract for the supply of goods and

services in relation to Petroleum Operations following a tender as mentioned in subArticle 10.3, provide the Designated Authority with a detailed report on the reasons

for the award.



(c)



From time to time, if requested by the Designated Authority, the Contractor shall,

upon completion of a specific contract relating to the provision of goods and services

in relation to Petroleum Operations, the price payable under which is in excess of

one hundred thousand dollars (100,000) United States Dollars, submit to the

Designated Authority an appraisal and completion report covering details of the

actual expenditures made, and of the manpower, goods and services utilised, in the

performance of the contract.



(d)



From time to time, if requested by the Designated Authority, the Contractor shall,

within sixty (60) days after such request, submit to the Designated Authority, details

of goods and services actually procured both from suppliers based inside and outside

Timor-Leste and Australia.



Article 11 Title to Equipment

11.1



Property

(a)



Subject to sub-Article 11.2, all structures, facilities, installations, equipment and

other property, and other works, used or to be used in Petroleum Operations, shall be

and remain the property of the Contractor while so used or held for use, unless

Contractor requests and obtains approval from the Designated Authority for an

alternative arrangement.



(b)



Paragraph 11.1(a) does not apply to property leased to the Contractor, or leased by or

belonging to third parties providing services.



15 November 2006



Page 34



11.2



Retention

(a)



The Designated Authority may, upon termination of this Agreement in respect of all

or a part of the Contract Area, elect to acquire any property or other works as

mentioned in paragraph 11.1(a) installed on, or used exclusively in respect of, that

area, by giving the Contractor a notice to that effect.



(b)



The Contractor shall have no further obligation or liability in respect of any property

or other works acquired by the Designated Authority pursuant to paragraph 11.2(a)

(but without prejudice to obligations and liabilities accrued prior thereto), and will

repay, to the Designated Authority, all amounts included in the Decommissioning

Costs Reserve claimed by the Contractor under Article 6 in respect of it before the

acquisition, and shall, subject to paragraph 11.2(c), claim no further such amounts in

respect of it.



(c)



In respect of any property which has not been fully cost recovered, the Designated

Authority shall upon electing to acquire such property pursuant to this sub-Article

pay, to the Contractor, an amount equal to the un-recovered costs of the property,

including Uplift, calculated at the date of the election. For the purposes of this subArticle it is assumed that costs are recovered in the order in which they were

incurred.



Article 12 Consultation and Arbitration

12.1



12.2



Arbitration

(a)



If a dispute arises between the Designated Authority and the Contractor relating to

the interpretation and performance of this Agreement and relevant provisions of the

Treaty and the Code, the Parties shall attempt to resolve that dispute by means of

negotiation.



(b)



If such a dispute cannot be resolved by negotiation within a period of ninety (90)

days of notification by either Party of a dispute, either Party may submit that dispute

to arbitration in accordance with the terms set out in this Article 12.



Procedure

(a)



Arbitration shall be conducted in accordance with the Rules of Arbitration of the

International Chamber of Commerce (ICC).



(b)



The Designated Authority and the Contractor shall each appoint one arbitrator and

those two arbitrators shall appoint a third. If either Party fails to appoint an

arbitrator within thirty (30) days after receipt of a written request to do so, such

arbitrator shall, at the other Party's request, if the Parties do not otherwise agree, be

appointed upon application to ICC. If the first two arbitrators appointed fail to agree

on a third within thirty (30) days of the second arbitrator being appointed, the third

arbitrator shall, if the Parties do not otherwise agree, be appointed, at the request of

either Party, upon application to ICC. If an arbitrator fails or is unable to act, that

arbitrator's successor shall be appointed in the same manner as the arbitrator who is

replaced.



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Page 35



(c)



12.3



The majority decision of the arbitrators shall be final and binding on the Parties. An

award made may be enforced in any court having jurisdiction for the purpose.



Location and Language

The place of arbitration shall be Singapore. The language of the arbitration shall be English.



12.4



12.5



Commercial Arrangement: Waiver of Sovereign Immunity

(a)



This Agreement is a commercial agreement.



(b)



Both the Designated Authority and the Contractor waive any claim to sovereign

immunity which they may have, both as to process and execution.



Obligations Continue During Arbitration

The obligations of the Parties under the Agreement shall continue pending the resolution of

any matter submitted to arbitration.



Article 13 Financial and Technical Data, Records and Reports

13.1



Ownership

(a)



The Designated Authority shall have title to all technical data and information

acquired in respect of:

(i)



the sea bed or subsoil in the JPDA;



(ii)



Petroleum therein; and



(iii)



the superjacent waters,



in the course of, or as a result, of Petroleum Operations.

(b)



13.2



Paragraph 13.1(a) includes all raw data and information (including cores, cuttings,

samples, and all geological, geophysical, geochemical, drilling, well, production and

engineering data and information) that the Contractor collects and compiles through

Petroleum Operations. It does not include data obtained from special studies carried

out by or for the Contractor that uses special proprietary software or procedures. It

also does not include interpretations that have particular commercial or regional

significance to a Contractor (over and above that which is necessary for the

commercial evaluation and development of a Contract Area) and in respect of which

the eligible recoverable cost attributable to the Contract Area is a small proportion of

the total cost of the interpretations.



Records, Storage, Retrieval and Submission

(a)



The Operator shall keep full, complete and accurate books, accounts and other

records of Petroleum Operations and of the sale or other disposition of Petroleum, of



15 November 2006



Page 36



the data and information mentioned in sub-Article 13.1 and of all other financial,

commercial, legal, operational, technical and other data and information acquired or

generated for, or resulting, directly or indirectly, from, Petroleum Operations

(including that relating to marketing and otherwise to the sale of Petroleum).



13.3



(b)



The Operator shall make the originals or copies of all such data, information and

records available to the Designated Authority (or as it shall direct) at reasonable

times at the Operator's offices in Timor-Leste, and shall promptly deliver the same to

the Designated Authority (or as it directs) as and when, and in such manner as, the

Designated Authority specifies.



(c)



Without prejudice to paragraph 13.2(b), the Operator shall store all such data and

information as the Designated Authority, after consultation with the Contractor,

reasonably directs, and otherwise in accordance with Good Oil Field Practice.



(d)



The Contractor may retain copies of all such data and information and records

delivered to the Designated Authority for use in or in relation to Petroleum

Operations and its complying with obligations under law, but not otherwise without

the consent of the Designated Authority.



(e)



Except with the consent of the Designated Authority, or as required by law or the

rules of a recognised stock exchange, the Contractor may not sell or disclose any

such data, information and records without the consent of the Designated Authority

or as otherwise provided in this Agreement.



Reports

The Contractor shall provide the Designated Authority with such reports as are mentioned in

Annex C and as the Designated Authority directs.



13.4



Export of Data and Information

No such data, information and records shall be taken out of, or transmitted from or stored

outside, Timor-Leste or Australia without the consent of the Designated Authority, which

consent shall not be withheld if resources for the processing, interpretation or analysis

thereof are not available in Timor-Leste, if the data, information and records are promptly

returned to Timor-Leste or Australia and accurate copies (or useable and representative

samples) are retained in Timor-Leste or Australia.



13.5



Use of Data and Information

(a)



The Designated Authority may make such use as it wishes of the data and

information mentioned in this Article 13, and nothing in sub-Articles 13.6 or 13.7

prevents the Designated Authority using data and information for the purposes of

general statistical and other general reporting (publicly or otherwise) on its activities.



(b)



Except with the consent of the Designated Authority, the Contractor may only use

the data and information mentioned in sub-Article 13.1 for its Petroleum Operations

or for an application for an Authorisation or for reporting information to its

Affiliates provided that the Authorised Person first procures that any such Affiliates

agree to be bound by this paragraph 13.5(b).



15 November 2006



Page 37



13.6



Confidentiality of Data and Information

(a)



(b)



Except as otherwise provided in this Agreement or with the consent of the

Contractor, the Designated Authority shall not publicly disclose or, other than for the

purpose of the administration of the Treaty or the Code, or as otherwise required by

the Treaty or the Code or for the purpose of the resolution of disputes under this

Agreement, make available to any person, any data or information mentioned in subArticle 13.1 until the earlier of:

(i)



five (5) years after the data or information was acquired by the Contractor;

and



(ii)



this Agreement ceasing to apply;



Except with the consent of the Designated Authority, and in accordance with the

conditions (if any) of the consent, the Contractor shall not disclose the data or

information mentioned in sub-Article 13.1 other than:

(i)



to its employees, agents, contractors and Affiliates to the extent necessary for

the proper and efficient carrying on of Petroleum Operations;



(ii)



as required by law;



(iii)



for the purpose of the resolution of disputes under this Agreement; or



(iv)



as required by a recognised stock exchange.



The Contractor shall procure that a person mentioned in sub-paragraph 13.6(b)(i)

maintains the data and information disclosed to it confidential in the terms of this

Article 13.

13.7



Trade Secrets

(a)



(b)



Except with the consent of the Contractor, and notwithstanding sub-Article 13.6, the

Designated Authority shall not publicly disclose or, other than for the purpose of the

administration of the Treaty or the Code, or as otherwise required by the Treaty or

the Code or for the purpose of the resolution of disputes under this Agreement, make

available to any person, any data or information submitted to it by the Contractor

which:

(i)



is a trade secret of, or other data and information the disclosure of which

would, or could reasonably be expected to, adversely affect, the Contractor in

respect of its lawful business, commercial or financial affairs; and



(ii)



was clearly marked as such when it was submitted to the Designated

Authority.



Without prejudice to sub-paragraph 13.7(a)(i):

(i)



15 November 2006



the Designated Authority may, at any time and from time to time, serve

notice on a Contractor requiring it to show cause, within the time specified

for the purpose in the notice, why information which it has marked pursuant



Page 38



to sub-paragraph 13.7(a)(ii) should still be considered a trade secret or other

information as mentioned in that paragraph; and

(ii)



if the Contractor does not show cause within that time, the data and

information shall no longer be a trade secret or other such information for the

purposes of this sub-Article 13.7.



Article 14 Management of Operations

14.1



Constitution of Committee

For the purpose of this Agreement there will be a committee consisting of two

representatives of the Designated Authority, one of whom shall be the chairperson, and the

same number of representatives of the Contractor, as nominated by the Designated Authority

and the Contractor respectively. For each of its representatives, the Designated Authority

and the Contractor may nominate an alternate to act in the absence of the representative.



14.2



Meetings

(a)



(b)



The Committee will meet at least twice in each year in the Designated Authority’s

offices or such other place as the Designated Authority may advise upon the

chairperson giving thirty (30) days notice thereof. There shall be at least one meeting

of the Committee for each of the following purposes:

(i)



examining the Work Programmes and Budgets for the following year which

the Contractor is required to submit under Article 14; and



(ii)



reviewing any proposed or agreed amendments to a Work Programme and

Budget; reviewing the progress of Petroleum Operations under the current

Work Programmes and Budgets; and discussing any other matter relating to

Petroleum Operations.



The Contractor or the Designated Authority may request a meeting of the Committee

at any time by giving written notice to the chairperson. Such notice shall include a

full description of the purpose of the meeting. The chairperson shall thereupon give

notice and call such a meeting.



Article 15 Third Party Access

15.1



Third Party Access

(a)



The Contractor shall provide for third party access to the structures, facilities,

installations, equipment and other property within the Contract Area on reasonable

terms and conditions.



(b)



The Contractor shall use all reasonable efforts to negotiate a satisfactory agreement

for third party access, and where mutual agreement can not be reached, the

Designated Authority after consultation with the Joint Commission, shall set the



15 November 2006



Page 39



terms for such third party access after taking into account internationally accepted

principles, Good Oil Field Practice and operational requirements and standards.



Article 16 Audit

16.1



Independent Audit

The Designated Authority may require, at the Contractor's cost, an independent audit

(starting, except in the case of manifest error or fraud, within twenty four (24) months after

the end of the Calendar Year, and concluding within twelve (12) months of this start) of the

Contractor's books and accounts relating to this Agreement for any Calendar Year. The

Contractor shall forward a copy of the independent auditor's report to the Designated

Authority within sixty (60) days following the completion of the audit. There shall be a

period of at least twelve (12) months between independent audits except in the case of

manifest error or fraud.



16.2



Designated Authority Audit

The Designated Authority may inspect and audit (by itself or as it directs), and at its own

cost, the Contractor's books and accounts relating to this Agreement for any Calendar Year

(starting within twenty four (24) months after the end of the Calendar Year, and concluding

within twelve (12) months of this start).



16.3



16.4



Exceptions

(a)



All audit exceptions shall be raised by the Designated Authority within six (6)

months after receipt of the independent auditor's report by the Designated Authority

or completion of the audit by the Designated Authority (or as it directed), as the case

may be, failing which the Contractor's books and accounts shall be conclusively

deemed correct except in the case of manifest error or fraud.



(b)



The Contractor shall fully respond to an audit exception within sixty (60) days of its

being raised, failing which the exception shall be deemed accepted.



(c)



Adjustments required among the Parties as a consequence of an audit shall be made

promptly.



Contractor to Assist

The Contractor shall fully and expeditiously assist and cooperate with audits.



16.5



Affiliates

The foregoing provisions of sub-Article 16.1 apply in respect of Affiliates of the Contractor.

The Contractor shall use its best endeavours to procure that its Affiliates comply with them.



15 November 2006



Page 40



Article 17 Indemnity and Insurance

17.1



Indemnity

The Contractor shall at all times defend, keep effectually indemnified and hold harmless the

Designated Authority and the members of the Joint Commission against all actions, suits,

proceedings, costs charges, claims and demands whatsoever (including for economic loss)

which may be made or brought against the Designated Authority and/or the members of the

Joint Commission wheresoever by any third party in relation to or in connection with this

Agreement or resulting, directly or indirectly, from Petroleum Operations under this

Agreement or any other matter or thing done or purported to be done in pursuance of this

Agreement or in the conduct of Petroleum Operations, notwithstanding that the Designated

Authority and/or the members of the Joint Commission may have approved in any manner

or form whatsoever thereof or that such may have been permitted or required by the terms of

the Treaty, the Code (including any regulation made or direction given thereunder) or this

Agreement, or that the Designated Authority and/or the members of the Joint Commission

could have exercised, but did not exercise, any power, function, right or authority to prohibit

the same. The Designated Authority and/or the members of the Joint Commission shall give

the Contractor prompt notice of any such claim and shall not settle it without the prior

consent of the Contractor.



17.2



Insurance

(a)



(b)



The Contractor shall:

(i)



unless the Designated Authority is satisfied from time to time, after

consultation with the Contractor, that the potential liability under sub-Article

17.1 can be covered by other means, including self-insurance, maintain

insurance in respect thereof for such amount and on such terms as the

Designated Authority requires from time to time; and



(ii)



take out and maintain insurance in respect of such other matters as the

Designated Authority requires (including in respect of pollution), for such

amounts as the Designated Authority requires from time to time and

otherwise as required by Good Oil Field Practice, unless the Designated

Authority is satisfied from time to time, after consultation with the

Contractor, that the potential liability can be covered by other means,

including self-insurance.



All such insurances shall name the Designated Authority and the members of the

Joint Commission as co-insured, and shall waive all rights of subrogation against the

Designated Authority and the members of the Joint Commission.



Article 18 Force Majeure

18.1



Force Majeure Relief

(a)



Subject to the further provisions of this Article 18, a Party shall not be liable for any

failure to perform an obligation under this Agreement to the extent such performance



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Page 41



is prevented, hindered or delayed by events or circumstances which are beyond its

reasonable control and the effects of which could not (including by reasonable

anticipation) and cannot reasonably be avoided or overcome by it ("Force Majeure").

(b)



18.2



Notwithstanding paragraph 18.1(a), the following shall not be Force Majeure:

(i)



failure to pay money;



(ii)



in the case of the Contractor, the law, or any action or inaction of the

government, of a place other than Timor-Leste or Australia (or of a political

subdivision thereof);



(iii)



in the case of the Designated Authority, the law, or any action or inaction of

the government, of Timor-Leste or Australia;



(iv)



in the case of the Contractor, any failure to deliver and maintain a Security or

to obtain and maintain insurance as required by this Agreement; and



(v)



in the case of the Contractor, strikes, lockouts and other industrial

disturbances of the Operator's (or of its agents' and sub-contractors')

employees and not part of a wider industrial dispute materially affecting other

employers.



Procedure

A Party claiming Force Majeure shall:



18.3



(a)



notify the other Party as soon as reasonably practicable of the event or circumstance

concerned, and of the extent to which performance of its obligations is prevented,

hindered or delayed thereby;



(b)



keep the other Party fully informed as to the actions taken, or to be taken, by it to

overcome the effects thereof, and, from time to time, provide it with such

information and permit it such access, as it may reasonably require for the purpose

of assessing such effects and the actions taken or to be taken; and



(c)



resume performance of its obligations as soon as reasonably practicable after the

event or circumstance no longer exists.



Consultation

The Parties shall consult with each other and take all reasonable steps to minimise the losses

of either Party and to minimise any overall delay or prejudice to Petroleum Operations as a

result of Force Majeure.



18.4



Third Parties

Where a Party enters into an agreement in relation to this Agreement with a third party, a

failure by the third party to perform an obligation under that agreement shall be Force

Majeure affecting that Party only if performance of that obligation was prevented, hindered

or delayed by events or circumstances which (if the third party were party to this Agreement



15 November 2006



Page 42



in the capacity of the Party concerned) would (in accordance with the provisions of this

Article 18) be Force Majeure affecting it.

18.5



Extension of Time

If Force Majeure materially prevents, hinders or delays Petroleum Operations for more than

one (1) month, the Parties shall discuss, in good faith, amendments regarding the term of,

and the periods of time in which Petroleum Operations are to be carried out, under this

Agreement.



Article 19 Restrictions on Assignment and Change in Control

19.1



Assignment

(a)



Except with the consent in writing of the Designated Authority, and unless in

accordance with the conditions of the consent, where the Contractor assigns or

otherwise deals with this Agreement, the Designated Authority may terminate this

Agreement.



(b)



Paragraph 19.1(a) includes any assignment, transfer, conveyance, novation, merger,

encumbering or other dealing in any manner whatsoever or howsoever (whether

legally, beneficially or otherwise, and whether conditionally or not) by a Contractor

with:

(i)



this Agreement, or all or any part of its rights, interests, benefits, obligations

and liabilities under it;



(ii)



Petroleum which has not then been, but might be, recovered in the Contract

Area, or any proceeds of sale of such Petroleum; and



(iii)



anything whereby this Agreement, that Petroleum or any of those rights,

interests and benefits would, but for this sub-Article 19.1, be held for the

benefit of, or be exercisable by or for the benefit of, any other person.



(c)



Paragraph 19.1(a) does not apply to an agreement for the sale or exchange of Crude

Oil where the sale or exchange occurs after title thereto has passed to the Contractor.



(d)



If, notwithstanding paragraphs 19.1(a) and (b), any assignment or other dealing is

effective by the laws of Timor-Leste, Australia or any other place without that

consent, the Designated Authority may terminate this Agreement.



(e)



The Designated Authority may not consent to a dealing which would result in a

person other than a limited liability corporation, or an entity with limited liability,

specifically established for the sole purposes of this Agreement, becoming a

Contractor, and any consent otherwise is of no force or effect.



(f)



For the purposes of the foregoing, encumbrance includes any mortgage, charge,

pledge, hypothecation, lien, assignment by way of security, title retention, option,

right to acquire, right of pre-emption, right of set off, counterclaim, trust

arrangement, overriding royalty, net profits interest, or any other security,

preferential right, equity or restriction, any agreement to give or to create any of the



15 November 2006



Page 43



foregoing and any transaction which, in legal terms, is not a secured borrowing but

which has an economic or financial effect similar to that of a secured borrowing.

19.2



Change in Control

(a)



Except with the consent of the Designated Authority, if:

(i)



there is a Change in Control of the Contractor (or, if more than one person,

any such person);



(ii)



within thirty (30) days after the Contractor has advised the Designated

Authority in reasonable detail of the Change in Control, the Designated

Authority serves notice on the Contractor that it will terminate this

Agreement unless such a further Change in Control of the Contractor as is

specified in the notice takes place within the period specified in the notice;

and



(iii)



that further Change in Control does not take place within that period,



the Designated Authority may terminate this Agreement.

(b)



Paragraph 19.2((a) does not apply if the Change in Control is the direct result of an

acquisition of shares or other securities listed on a recognised stock exchange.



(c)



For the purposes of paragraph 19.2(a), "Change in Control" includes a person

ceasing to be in Control (whether or not another person becomes in Control), and a

person obtaining Control (whether or not another person was in Control).



Article 20 Other Provisions

20.1



20.2



Notices

(a)



Any notices required to be given by any Party to another Party shall be served in

accordance with the Code.



(b)



All notices to be served on the Contractor shall be addressed to its office in Timor Leste.



Applicable Law

This Agreement shall be governed by and construed in accordance with the laws of England

without regard to principles of conflicts of law which would otherwise direct the laws of

another jurisdiction to be applied.



20.3



Third Party Rights

Unless specifically provided in this Agreement, the Parties do not intend that any term of

this Agreement be enforceable solely by virtue of the Contracts (Rights of Third Parties) Act

1999 (UK) by any person who is not a Party to this Agreement.



15 November 2006



Page 44



20.4



Amendments/Modification

This Agreement shall not be amended or modified in any respect, unless the Parties agree in

writing.



20.5



Entire Agreement

This Agreement in conjunction with the provisions of the Treaty and the Code sets out the

entire agreement and understanding of the Parties in connection with the subject matter of

this Agreement and supersedes any other prior agreements, understanding or arrangements

whether written or otherwise relating thereto.



IN WITNESS WHEREOF, the Parties have executed this Agreement.

The Designated Authority

BY:



___________________________________________



BY:



___________________________________________



Oilex (JPDA 06-103) Ltd

BY:



___________________________________________



BY:



___________________________________________



Global Energy Inc.



BY:



___________________________________________



BY:



___________________________________________



Bharat PetroResources JPDA Limited

BY:



___________________________________________



BY:



___________________________________________



15 November 2006



Page 45



GSPC (JPDA) Limited

BY:



___________________________________________



BY:



___________________________________________



15 November 2006



Page 46



Annex A – Part 1 - JPDA 06-103 CONTRACT AREA DESCRIPTION

Coordinates in AGD66

The JPDA 06-103 Contract Area is the area bounded by the line described below:

a) commencing at the point of Latitude 10° 06’ 40.00” South Longitude 126° 00’ 25.00” East

(“Point M1”);

b) running thence north east along the geodesic to the point of Latitude 9° 54’ 46.88” South

Longitude 126° 30’ 00.00” East (“Point M2”);

c) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 00’ 00.00” South (“Point M3”);

d) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 05’ 00.00” South (“Point M4”);

e) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 35’ 00.00” East (“Point M5”);

f)



thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 30’ 00.00” South (“Point M6”);



g) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

32’ 00.00” East (“Point M7”);

h) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 45’ 00.00” South (“Point M8”);

i)



thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

30’ 00.00” East (“Point M9”);



j)



thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 48’ 00.00” South (“Point M10”);



k) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

28’ 00.00” East (“Point M11”);

l)



thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 46’ 00.00” South (“Point M12”);



m) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

19’ 00.00” East (“Point M13”);

n) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 47’ 00.00” South (“Point M14”);

o) thence west along the that parallel of latitude to its intersection with the meridian of longitude

126° 16’ 00.00” East (“Point M15”);

15 November 2006



Page 47



p) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 45’ 00.00” South (“Point M16”);

q) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 19’ 00.00” East (“Point M17”);

r)



thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 44’ 00.00” South (“Point M18”);



s)



thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 22’ 00.00” East (“Point M19”);



t)



thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 41’ 00.00” South (“Point M20”);



u) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

19’ 00.00” East (“Point M21”);

v) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 42’ 00.00” South (“Point M22”);

w) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

16’ 00.00” East (“Point M23”);

x) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 40’ 00.00” South (“Point M24”);

y) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 21’ 00.00” East (“Point M25”);

z) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 38’ 00.00” South (“Point M26”);

aa) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

12’ 00.00” East (“Point M27”);

ab) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 36’ 00.00” South (“Point M28”);

ac) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 21’ 00.00” East (“Point M29”);

ad) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 34’ 00.00” South (“Point M30”);

ae) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

19’ 00.00” East (“Point M31”);

af) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 33’ 00.00” South (“Point M32”);



15 November 2006



Page 48



ag) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

16’ 00.00” East (“Point M33”);

ah) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 32’ 00.00” South (“Point M34”);

ai) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 24’ 00.00” East (“Point M35”);

aj) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 30’ 00.00” South (“Point M36”);

ak) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

15’ 00.00” East (“Point M37”);

al) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

12’ 00.00” East (“Point M38”);

am) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 29’ 00.00” South (“Point M39”);

an) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

04’ 00.00” East (“Point M40”);

ao) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 27’ 00.00” South (“Point M41”);

ap) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 07’ 00.00” East (“Point M42”);

aq) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 25’ 00.00” South (“Point M43”);

ar) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

03’ 00.00” East (“Point M44”);

as) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 23’ 00.00” South (“Point M45”);

at) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 13’ 00.00” East (“Point M46”);

au) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 21’ 00.00” South (“Point M47”);

av) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

07’ 00.00” East (“Point M48”);

aw) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 22’ 00.00” South (“Point M49”);



15 November 2006



Page 49



ax) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

02’ 00.00” East (“Point M50”);

ay) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 20’ 00.00” South (“Point M51”);

az) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 11’ 00.00” East (“Point M52”);

ba) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 18’ 00.00” South (“Point M53”);

bb) thence east along that parallel of latitude to its intersection with the meridian of longitude

126° 13’ 00.00” East (“Point M54”);

bc) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 17’ 00.00” South (“Point M55”);

bd) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

06’ 00.00” East (“Point M56”);

be) thence south along that meridian of longitude to its intersection with the parallel of latitude

10° 18’ 00.00” South (“Point M57”);

bf) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

02’ 00.00” East (“Point M58”);

bg) thence north along that meridian of longitude to its intersection with the parallel of latitude

10° 15’ 00.00” South (“Point M59”);

bh) thence west along that parallel of latitude to its intersection with the meridian of longitude 126°

00’ 15.23” East (“Point M60”); and

bi) thence north east along geodesic to the point of commencement (“Point M1”).

The approximate total area of JPDA 06-103 is 3,741 square kilometres.

Note: The origin of the geographical coordinates used in this area description is the Australian

Geodetic Datum 1966 (AGD66).



15 November 2006



Page 50



Annex A – Part 2 - JPDA 06-103 CONTRACT AREA DESCRIPTION

Coordinates in WGS84

In accordance with Section 3 of the Petroleum Mining Code, positions in the JPDA may be

expressed by reference to the spheroid World Geodetic System 84 (WGS84), which has its centre at

the centre of the Earth and a major (equatorial) radius of 6378137 metres and a flattening of

100/29825.7223563.

The point numbers in the following table of WGS84 coordinates correspond to the written

description of the Contract Area as described in Annex A – Part 1. In the event of a discrepancy

between the Annex A – Part 1 description and the WGS84 coordinates tabulated below, the Annex

A- Part 1 description takes precedence.



Point Number

M1



Latitude

10° 06’ 34.89” South



Longitude

126° 00’ 29.41” East



M2



9° 54’ 41.76” South



126° 30’ 04.39” East



M3



9° 59’ 54.88” South



126° 30’ 04.39” East



M4



10° 04’ 54.88” South



126° 30’ 04.40” East



M5



10° 04’ 54.88” South



126° 35’ 04.39” East



M6



10° 29’ 54.88” South



126° 35’ 04.40” East



M7



10° 29’ 54.88” South



126° 32’ 04.40” East



M8



10° 44’ 54.88” South



126° 32’ 04.41” East



M9



10° 44’ 54.88” South



126° 30’ 04.41” East



M10



10° 47’ 54.88” South



126° 30’ 04.41” East



M11



10° 47’ 54.88” South



126° 28’ 04.41” East



M12



10° 45’ 54.88” South



126° 28’ 04.41” East



M13



10° 45’ 54.88” South



126° 19’ 04.41” East



M14



10° 46’ 54.88” South



126° 19’ 04.41” East



M15



10° 46’ 54.88” South



126° 16’ 04.41” East



M16



10° 44’ 54.88” South



126° 16’ 04.41” East



M17



10° 44’ 54.88” South



126° 19’ 04.41” East



M18



10° 43’ 54.88” South



126° 19’ 04.41” East



M19



10° 43’ 54.88” South



126° 22’ 04.41” East



M20



10° 40’ 54.88” South



126° 22’ 04.41” East



M21



10° 40’ 54.88” South



126° 19’ 04.41” East



M22



10° 41’ 54.88” South



126° 19’ 04.41 “East



M23



10° 41’ 54.89” South



126° 16’ 04.41” East



M24



10° 39’ 54.89” South



126° 16’ 04.41” East



15 November 2006



Page 51



Point Number

M25



Latitude

10° 39’ 54.88” South



Longitude

126° 21’ 04.41” East



M26



10° 37’ 54.88” South



126° 21’ 04.41” East



M27



10° 37’ 54.89” South



126° 12’ 04.41” East



M28



10° 35’ 54.89” South



126° 12’ 04.41” East



M29



10° 35’ 54.88” South



126° 21’ 04.41” East



M30



10° 33’ 54.88” South



126° 21’ 04.41” East



M31



10° 33’ 54.88” South



126° 19’ 04.41” East



M32



10° 32’ 54.88” South



126° 19’ 04.41” East



M33



10° 32’ 54.89” South



126° 16’ 04.41” East



M34



10° 31’ 54.89” South



126° 16’ 04.41” East



M35



10° 31’ 54.88” South



126° 24’ 04.41” East



M36



10° 29’ 54.88” South



126° 24’ 04.40” East



M37



10° 29’ 54.89” South



126° 15’ 04.41” East



M38



10° 29’ 54.89” South



126° 12’ 04.41” East



M39



10° 28’ 54.89” South



126° 12’ 04.41” East



M40



10° 28’ 54.89” South



126° 04’ 04.41” East



M41



10° 26’ 54.89” South



126° 04’ 04.41” East



M42



10° 26’ 54.89” South



126° 07’ 04.41” East



M43



10° 24’ 54.89” South



126° 07’ 04.41” East



M44



10° 24’ 54.89” South



126° 03’ 04.41” East



M45



10° 22’ 54.89” South



126° 03’ 04.41” East



M46



10° 22’ 54.89”South



126° 13’ 04.41” East



M47



10° 20’ 54.89” South



126° 13’ 04.41” East



M48



10° 20’ 54.89” South



126° 07’ 04.41” East



M49



10° 21’ 54.89” South



126° 07’ 04.41” East



M50



10° 21’ 54.89” South



126° 02’ 04.41” East



M51



10° 19’ 54.89” South



126° 02’ 04.41” East



M52



10° 19’ 54.89” South



126° 11’ 04.41” East



M53



10° 17’ 54.89” South



126° 11’ 04.41” East



M54



10° 17’ 54.89” South



126° 13’ 04.40” East



M55



10° 16’ 54.89” South



126° 13’ 04.40” East



M56



10° 16’ 54.89” South



126° 06’ 04.41” East



M57



10° 17’ 54.89” South



126° 06’ 04.41” East



M58



10° 17’ 54.89” South



126° 02’ 04.41” East



15 November 2006



Page 52



Point Number

M59



Latitude

10° 14’ 54.89” South



Longitude

126° 02’ 04.41” East



M60



10° 14’ 54.89” South



126° 00’ 19.64” East



15 November 2006



Page 53



Annex B



Map of Contract Area – JPDA 06-103



15 November 2006



Page 54



Annex C



Accounting Procedure

Clause 1



1.1



1.2



1.3



General Provisions



Purpose and Definitions

(a)



The purpose of this Annex C is to further define the manner in which the costs and

expenses of Petroleum Operations will be recorded, Recoverable Costs will be

determined, and the Contractor's books and accounts will be prepared and

maintained, and ancillary matters.



(b)



A reference to a Clause or paragraph is to a clause or paragraph of this Annex C

unless the contrary is stated.



(c)



A reference to an Article is to an article of the Agreement to which this Annex C is

attached.



Accounting Records

(a)



The Contractor shall maintain complete accounts, books and records, on an accruals

basis, of all costs, expenses and revenues of, or relating to, Petroleum Operations,

and the sale or other disposition of Petroleum, on an accurate basis and in

accordance with generally accepted accounting procedures and standards of the

international petroleum industry and in accordance with the charts of accounts

mentioned in paragraph 1.2(b).



(b)



Within sixty (60) days after the Effective Date, the Contractor shall submit to the

Designated Authority, for its approval, an outline of charts of accounts, books,

records and reports to be used for the purposes of paragraph 1.2(a) and for reporting

to the Designated Authority thereon.



Language and Units of Account

(a)



Metric units and barrels shall be employed for measurements and quantities under

this Agreement.



(b)



The Accounting Records, and all reports to the Designated Authority, will be in

English.



(c)



The Accounting Records, and all reports to the Designated Authority, will be in

United States Dollars. Costs and revenues in another currency will be translated at

the exchange rate set on the day the cost is incurred or the revenue realised at a time

and by a financial institution designated by the Contractor and approved by the

Designated Authority.



(d)



Exchange gains or losses will be credited or charged to the Accounting Records.



15 November 2006



Page 55



Clause 2

2.1



Classification and Allocation



Exploration Costs

Exploration Costs are those costs, whether of a capital or operating nature, which directly

relate to Exploration and are incurred in respect of activities carried out substantially in

accordance with an approved Exploration Work Programme and Budget, but without

prejudice to sub-Article 4.7 of this Agreement, including costs of:



2.2



(a)



drilling wells (and related abandonment and site remediation thereof);



(b)



surveys, including labour, materials and services (including desk studies and analysis

of survey data) used in aerial, geological, geochemical, geophysical and seismic

surveys, and core hole drilling;



(c)



auxiliary or temporary facilities;



(d)



workshops, power and water facilities, warehouses, site offices, access and

communication facilities;



(e)



floating craft, automotive equipment, furniture and office equipment; and



(f)



if approved by the Designated Authority, employee and welfare housing,

recreational, educational, health and meals facilities, and other similar costs

necessary for Exploration.



Appraisal Costs

Appraisal Costs are those costs that directly relate to Appraisal.



2.3



Capital Costs

Capital Costs are:

(a)



in respect of a Development Area, and before the start of Commercial Production

from it, those costs, whether of a capital or operating nature, which directly relate to

the Development of it; and



(b)



in respect of a Development Area, and after the start of Commercial Production from

it, those costs of a capital nature which directly relate to the Development of it, or to

the production of Petroleum from it,



and are incurred in respect of activities carried out substantially in accordance with an

approved Development Work Programme and Budget, but without prejudice to sub-Article

4.7 of this Agreement, including costs of:

(a)



workshops, power and water facilities, warehouses, site offices, access and

communication facilities;



(b)



production facilities including offshore platforms (including the costs of labour, fuel

hauling and supplies for both the offsite fabrication and onsite installation of

platforms, and other construction costs in erecting platforms), wellhead production



15 November 2006



Page 56



tubing, sucker rods, surface pumps, flow lines, gathering equipment, storage

facilities, all other equipment, facilities and modules on platforms, treating plants

and equipment, and secondary recovery systems;



2.4



(c)



pipelines and other facilities for transporting Petroleum produced in the Contract

Area to the Field Export Point;



(d)



movable assets and subsurface drilling and production tools, equipment and

instruments, and miscellaneous equipment;



(e)



floating craft, automotive equipment, furniture and office equipment; and



(f)



if approved by the Designated Authority, employee and welfare housing,

recreational, educational, health and meals facilities, and other similar costs

necessary for the Development.



Operating Costs

Operating Costs are, in respect of a Development Area and after the start of Commercial

Production from it, those costs of an operating nature which directly relate to the

Development thereof, or to the production of Petroleum therefrom, and are incurred in

respect of activities carried out substantially in accordance with an approved Development

and Production Work Programme and Budget, but without prejudice to sub-Article 4.7 of

this Agreement.



2.5



Decommissioning Costs Reserve

Decommissioning Costs Reserve is the amount determined in accordance with paragraph

4.14(d).



2.6



Uplift

Uplift is the amount which, when compounded Quarterly, is equal to the average for the

business days of the Quarter of the annual yield on long-term United States Treasury Bonds

(thirty-year (30) bonds) plus an annual margin of eleven (11) percentage points.



2.7



Miscellaneous Receipts

Miscellaneous Receipts are:

(a)



all monies received by the Contractor, other than for the sale or other disposal of

Petroleum from a Development Area, which are directly related to the conduct of

Petroleum Operations, including:

(i)



amounts received from the sale or other disposal of Petroleum from

production testing activities undertaken in Exploration and Appraisal wells;



(ii)



amounts received for the disposal, loss, or destruction of property, the cost of

which is a Recoverable Cost;



(iii)



amounts received by the Contractor under an insurance policy, the premiums

of which are Recoverable Costs, in respect of damage to or loss of property;



15 November 2006



Page 57



(iv)



amounts received as insurance (the premiums of which are Recoverable

Costs), compensation or indemnity in respect of Petroleum lost or destroyed

prior to the Field Export Point;



(v)



amounts received from the hiring or leasing of property, the cost of which is a

Recoverable Cost;



(vi)



amounts received from supplying information obtained from Petroleum

Operations;



(vii)



amounts received as charges for the use of employee amenities, the costs of

which are Recoverable Costs; and



(viii) amounts received in respect of expenditures which are Recoverable Costs, by

way of indemnity or compensation for the incurring of the expenditure,

refund of the expenditure, or rebate, discount or commission in respect of the

expenditure; and

(b)



2.8



the value of property as determined by the Designated Authority, the cost of which is

a Recoverable Cost, when that property ceases to be used in Petroleum Operations.



Ineligible Costs

Ineligible Costs are:

(a)



interest (or any payment in the nature of, in lieu of, or having the commercial effect

of, interest) or other cost under, or in respect of, a Loan Facility;



(b)



Foreign exchange and currency hedging costs;



(c)



costs relating to formation of corporations or of any partnerships or joint venture

arrangements, other than in respect of a unitisation as required by the Code;



(d)



payments of dividends or the cost of issuing shares;



(e)



repayments of equity or loan capital;



(f)



payments of private override royalties, net profits interests and the like;



(g)



all expenditure (including professional fees, publicity and out-of-pocket expenses)

incurred in connection with the negotiation, signature or ratification of this

Agreement and payments associated with the acquisition of an interest under this

Agreement;



(h)



payments of taxes under the taxation law of either Timor-Leste or Australia made in

accordance with Article 5 of the Treaty and Annex G of the Treaty, and all other

taxes on income, profit or gain wherever arising;



(i)



payments of administrative accounting costs, and other costs indirectly associated

with Petroleum Operations;



(j)



except with the consent of the Designated Authority, costs incurred in respect of

Petroleum after it has passed the Field Export Point;



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2.9



(k)



costs incurred as a result of non-compliance by the Contractor with the law or this

Agreement, including costs incurred as a result of any negligent act or omission, or

willful misconduct, of the Contractor, its agents and sub-contractors, including any

amount paid in settlement of any claim alleging negligence or willful misconduct

whether or not negligence or misconduct is admitted or whether such sum is stated to

be paid on an ex-gratia or similar basis;



(l)



payment of compensation or damages under this Agreement;



(m)



costs relating to the settlement of disputes, which are not approved in advance by the

Designated Authority, including all costs and expenses of arbitration or litigation

proceedings under this Agreement;



(n)



Decommissioning costs actually incurred which have been taken into account for the

purposes of determining the Decommissioning Costs Reserve;



(o)



payments, if any, under Article 9 of this Agreement;



(p)



audit fees and accounting fees (excluding fees and expenses incurred for the conduct

of audit and accounting services required by this Agreement) incurred pursuant to

the auditing and accounting requirements of any law and all costs and expenses

incurred in connection with intragroup corporate reporting requirements (whether or

not required by law);



(q)



except with the consent of the Designated Authority and in accordance with the

conditions of the consent, any expenditure in respect of the hiring or leasing of

structures, facilities, installations; equipment or other property, or of other works;



(r)



except with the consent of the Designated Authority, costs, including donations,

relating to public relations or enhancement of the Contractor's corporate image and

interests;



(s)



costs associated with local offices and local administration, including staff benefits,

which are excessive;



(t)



costs which are not adequately supported and documented;



(u)



except with the consent of the Designated Authority, but subject to sub-Article 4.7 of

this Agreement, costs not included in a Work Programme and Budget for the

relevant Calendar Year; and



(v)



costs not falling within any of the above items which are stated elsewhere in this

Agreement not to be recoverable (including in paragraph 2.1(d) of Article 2), or

costs incurred without the consent or approval of the Designated Authority (where

such is required).



Other Matters

(a)



The methods mentioned in this 2.9 will be used to calculate Recoverable Costs.



(b)



Depreciation is not a Recoverable Cost.



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(c)



The method for the allocation of general and administration costs, other than direct

charges, allocable to Petroleum Operations proposed by the Contractor shall be

subject to approval by the Designated Authority, and shall be applied each Calendar

Year consistently.



(d)



Inventory levels shall be in accordance with Good Oil Field Practice. The value of

inventory items not used in Petroleum Operations, or sold, the cost of which has

been recovered as an Operating Cost, shall be treated as Miscellaneous Receipts. The

cost of an item purchased for inventory shall be a Recoverable Cost.



(e)



Where the cost of anything, or a receipt (or value) in respect of anything, relates only

partially to the carrying out of Petroleum Operations, only that portion of the cost or

the receipt (or value) which relates to the carrying out of Petroleum Operations will

be a Recoverable Cost or assessed as a Miscellaneous Receipt. Where any cost or

related receipt (or value) relates to more than one of Exploration, Appraisal, Capital

and Operating Costs, or to more than one Development Area, the cost or related

receipt (or value) will be apportioned in an equitable manner.



Clause 3



Costs, Expenses and Credits



Subject as otherwise provided in this Agreement, the following costs, charges and credits shall be

included in the determination of Recoverable Costs:

3.1



Surface Rights

All direct costs necessary for the acquisition, renewal or relinquishment of surface rights

acquired and maintained in force for the purposes of the Agreement.



3.2



Labour and Associated Labour Costs

(a)



The Contractor's locally recruited employees based in Timor-Leste or Australia:

Costs of all locally recruited employees who are directly engaged in the conduct of

Petroleum Operations in the JPDA, Timor-Leste or Australia. Such costs shall

include the costs of employee benefits and state benefits for employees and levies

imposed on the Contractor as an employer, transportation and relocation costs within

Timor-Leste and Australia of the employee and such members of the employee's

family (limited to spouse and dependent children) as required by law or customary

practice therein. If such employees are also engaged in other activities, the cost of

such employees shall be apportioned on a time sheet basis according to sound and

acceptable accounting principles.



(b)



Assigned Personnel: Costs of salaries and wages including bonuses of the

Contractor's employees directly and necessarily engaged in the conduct of the

Petroleum Operations, whether temporarily or permanently assigned, irrespective of

the location of such employees, it being understood that in the case of those

personnel only a portion of whose time is wholly dedicated to Petroleum Operations

under the Agreement, only that pro-rata portion of applicable salaries, wages, and

other costs as delineated in paragraphs 3.2(c), 3.2(d), 3.2(e), 3.2(f) and 3.2(g) shall

be charged and the basis of such pro-rata allocation shall be specified.



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(c)



The Contractor's costs regarding holiday, vacation, sickness and disability benefits

and living and housing and other customary allowances applicable to the salaries and

wages chargeable under paragraph 3.2(b).



(d)



Expenses or contributions made pursuant to assessments or obligations imposed

under the laws of Timor-Leste or Australia which are applicable to the Contractor's

cost of salaries and wages chargeable under paragraph 3.2(b).



(e)



The Contractor's cost of established plans for employees' group life insurance,

hospitalisation, pension, stock purchases, savings, bonus and other benefit plans of a

like nature customarily granted to the Contractor's employees, provided however that

such costs are in accordance with generally accepted standards in the international

petroleum industry, applicable to salaries and wages chargeable to Petroleum

Operations under paragraph 3.2(b).



(f)



Reasonable transportation and travel expenses of employees of the Contractor,

including those made for travel and relocation of the expatriate employees, including

their families and personal effects, assigned to Timor-Leste or Australia whose

salaries and wages are chargeable to Petroleum Operations under paragraph 3.2(b).

Actual transportation expenses of expatriate personnel transferred to Petroleum

Operations from their country of origin shall be charged to the Petroleum

Operations. Transportation expenses of personnel transferred from Petroleum

Operations to a country other than the country of their origin shall not be charged to

the Petroleum Operations. Transportation cost as used in this section shall mean the

cost of freight and passenger service, meals, hotels, insurance and other expenditures

related to vacation and transfer travel and authorised under the Contractor's standard

personnel policies. The Contractor shall ensure that all expenditures related to

transportation costs are equitably allocated to the activities which have benefited

from the personnel concerned.



(g)



3.3



Reasonable personal expenses of personnel whose salaries and wages are chargeable

to Petroleum Operations under paragraph 3.2(b) and for which expenses such

personnel reimbursed under the Contractor's standard personnel policies. In the event

such expenses are not wholly attributable to Petroleum Operations, the Petroleum

Operations shall be charged with only the applicable portion thereof, which shall be

determined on an equitable basis.



Transportation and Employee Relocation Costs

The cost of transportation of employees, equipment, materials and supplies other than as

provided in 3.2 necessary for the conduct of the Petroleum Operations along with other

related costs, including import duties, customs fees, unloading charges, dock fees, and

inland and ocean freight charges.



3.4



Charges for Services

For purposes of this Clause 3.4, Affiliates which are not wholly owned by the Contractor or

the Contractor's ultimate holding company shall be considered third parties.

(a)



Third Parties



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The actual costs of contract services, services of professional consultants, utilities,

and other services necessary for the conduct of the Petroleum Operations performed

by third parties other than an Affiliate of the Contractor.

(b)



3.5



Affiliates of the Contractor

(i)



Professional and Administrative Services Expenses: cost of professional and

administrative services provided by any Affiliates of the Contractor for the

direct benefit of Petroleum Operations, including services provided by the

production, exploration, legal, financial, insurance, accounting and computer

services divisions other than those covered by sub-paragraph 3.4(b)(ii) or

Clause 3.6 or paragraph 3.8(b) which the Contractor may use in lieu of

having its own employees. Charges shall reflect the cost of providing their

services and shall not include any element of profit and shall be no less

favourable than similar charges for other operations carried on by the

Contractor and its Affiliates. The chargeout rate shall include all costs

incidental to the employment of such personnel. Where the work is

performed outside the home office base of such personnel, the daily rate shall

be charged from the date such personnel leave the home office base where

they usually work up to their return thereto, including days which are not

working days in the location where the work is performed, excluding any

holiday entitlements derived by such personnel from their employment at

their home office base.



(ii)



Scientific or Technical Personnel: cost of scientific or technical personnel

services provided by any Affiliate of the Contractor for the direct benefit of

Petroleum Operations, which cost shall be charged on a cost of service basis

and shall not include any element of profit. Unless the work to be done by

such personnel is covered by an approved Work Programme and Budget, the

Contractor shall not authorise work by such personnel.



(iii)



Equipment and facilities: use of equipment and facilities owned and furnished

by the Contractor's Affiliates, at rates commensurate with the cost of

ownership and operation; provided, however, that such rates shall not exceed

those currently prevailing for the supply of like equipment and facilities on

comparable terms in the area where the Petroleum Operations are being

conducted. The equipment and facilities referred to herein shall exclude

major investment items such as (but not limited to) drilling rigs, producing

platforms, oil treating facilities, oil and gas loading and transportation

systems, storage and terminal facilities and other major facilities, rates for

which shall be subject to separate agreement with the Designated Authority.



Communications

Costs of acquiring, leasing, installing, operating, repairing and maintaining communication

systems including radio and microwave facilities between the Contract Area and the

Contractor's base facility.



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3.6



Office , Storage and Miscellaneous Facilities

Net cost to the Contractor of establishing, maintaining and operating any office, sub-office,

warehouse, data storage, housing or other facility in Timor-Leste directly serving the

Petroleum Operations.



3.7



3.8



Ecological and Environment

(a)



Costs incurred in the Contract Area as a result of legislation for archaeological and

geophysical surveys relating to identification and protection of cultural sites or

resources.



(b)



Costs incurred in environmental or ecological surveys required by this Agreement or

regulatory authorities.



(c)



Costs to provide or have available pollution containment and removal equipment.



(d)



Costs of actual control and cleanup of oil spills, and of such further responsibilities

resulting therefrom as may be required by applicable laws and regulations.



(e)



Costs of restoration of the operating environment.



Material Costs

Costs of materials and supplies, equipment, machines, tools and any other goods of a similar

nature used or consumed in Petroleum Operations subject to the following.

(a)



Acquisition – the Contractor shall only supply or purchase materials for use in

Petroleum Operations that may be used in the foreseeable future. The accumulation

of surplus stocks and inventory shall be avoided so far as is reasonably practical and

consistent with efficient and economical operations. Inventory levels shall, however,

take into account the time lag for replacement, emergency needs, weather conditions

affecting operations and similar considerations.



(b)



Components of costs, arm's length transactions – except as otherwise provided in

paragraph 3.8(d), material purchased by the Contractor in arm's length transactions

in the open market for use in the Petroleum Operations shall be valued to include

invoice price less trade and cash discounts, 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, excise

taxes, other items chargeable against imported materials and, where applicable,

handling and transportation expenses from point of importation to warehouse or

operating site. Where an Affiliate of the Contractor has arranged the purchase,

coordinated the forwarding and expediting effort, a fee equal to four (4) per cent of

the value of the materials may be added to the cost of the materials purchased.



(c)



Accounting – such material costs shall be charged to the Accounting Records and

books in accordance with the "First in, First out" (FIFO) method.



(d)



Material purchased from or sold to Affiliates of the Contractor or transferred from

other activities of the Contractor to or from Petroleum Operations shall be valued



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and charged or credited at the prices specified in sub-paragraphs 3.8(d)(i), 3.8(d)(ii)

and 3.8(d)(iii).

(i)



New material, including used new material moved from inventory (Condition

"A"), shall be valued at the current international net price which shall not

exceed the price prevailing in normal arm's length transactions in the open

market.



(ii)



Used material (Conditions "B", "C" and "D"):

(aa)



Material which is in sound and serviceable condition and is suitable

for re-use without reconditioning shall be classified as Condition "B"

and priced at seventy-five per cent (75%) of the current price of new

material defined in sub-paragraph 3.8(d)(i).



(bb)



Materials which cannot be classified as Condition “B” but which are

reconditioning will be further serviceable for its original function shall

be classified as Condition "C" and priced at not more than fifty per

cent (50%) of the current price of new material as defined in subparagraph 3.8(d)(i). The cost of reconditioning shall be charged to the

reconditioned material provided that the value of Condition "C"

material plus the cost of reconditioning does not exceed the value of

Condition "B" material.



(cc)



Material which cannot be classified as Condition "B" or Condition

"C" shall be classified as Condition "D" and priced at a value

commensurate with its use by the Contractor. If material is not fit for

use by the Contractor it shall be disposed of as junk.



(iii)



Material involving erection costs shall be charged at the applicable condition

percentage of the current knocked-down price of new material as defined in

sub-paragraph 3.8(d)(i).



(iv)



When the use of material is temporary and its service to the Petroleum

Operations does not justify the reduction in price as provided for in subparagraph 3.8(d)(ii)(bb), such material shall be priced on a basis that will

result in a net charge to the accounts under this Agreement consistent with

the value of the service rendered.



(v)



Premium prices – whenever material is not readily obtainable at published or

listed prices because of national emergencies, strikes or other unusual causes

over which the Contractor has no control, the Contractor may charge

Petroleum Operations for the required material at the Contractor's actual cost

incurred in providing such material, in making it suitable for use, and in

moving it to the Contract Area; provided notice in writing is furnished to the

Designated Authority of the proposed charge prior to charging Petroleum

Operations for such material and the Designated Authority shall have the

right to challenge the transaction on audit.



(vi)



Warranty of material furnished by the Contractor – the Contractor does not

warrant the material furnished. In case of defective material, credit shall not

be passed to Petroleum Operations until adjustment has been received by the

Contractor from the manufacturers of the material or their agents.



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3.9



Rentals, Duties and Other Assessments

All rentals, levies, charges, fees, contributions and other charges of every kind and nature

levied by any Timor-Leste or Australian governmental authority in connection with the

Petroleum Operations and paid directly by the Contractor (save where the contrary is

expressly provided in this Agreement).



3.10



Insurance and Losses

Insurance premiums and costs incurred for insurance provided that such insurance is

customary, affords prudent protection against risk and is at a premium no higher than that

charged on a competitive basis by insurance companies which are not Affiliates of the

Contractor. Except in cases of failure to insure where insurance coverage is required

pursuant to this Agreement, actual costs and losses incurred shall be allowable to the extent

not made good by insurance. Such costs may include repair and replacement of property

resulting from damages or losses incurred by fire, flood, storm, theft, accident or other

cause.



3.11



Legal Expenses

All reasonable costs and expenses resulting from the handling, investigating, asserting,

defending, or settling of any claim or legal action necessary or expedient for the procuring,

perfecting, retention and protection of the Contract Area, and in defending or prosecuting

lawsuits involving the Contract Area or any third party claim arising out of the Petroleum

Operations, or sums paid in respect of legal services necessary for the protection of the joint

interest of the Designated Authority and the Contractor shall be allowable. Such

expenditures shall include, attorney's fees, court costs, costs of investigation, and

procurement of evidence and amounts paid in settlement or satisfaction of any such

litigation and claims. Where legal services are rendered in such matters by salaried or

regularly retained lawyers of the Contractor or an Affiliate of the Contractor, such

compensation shall be included instead under Clause 3.4(b) as applicable.



3.12



Claims

Expenditures made in the settlement or satisfaction of any loss, claim, damage, judgement or

other expense arising out of or relating to Petroleum Operations.



3.13



Training Costs

All costs and expenses incurred by the Contractor in the training of its employees engaged in

Petroleum Operations, and such other training as is required by this Agreement.



3.14



General and Administrative Costs

The costs described in Clause 2.9(c).



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3.15



Other Expenditures

Other reasonable expenditures not covered or dealt with in the foregoing provisions of this

Clause 3 which are necessarily incurred by the Contractor for the proper, economical and

efficient conduct of Petroleum Operations.



3.16



Duplication

There shall be no duplication of charges and credits.



Clause 4



Inventories



Inventories of property in use in Petroleum Operations shall be taken at reasonable intervals

but at least once a year with respect to movable assets and once every three (3) years with

respect to immovable assets. The Contractor shall give the Designated Authority at least

thirty (30) days written notice of its intention to take such inventory and the Designated

Authority shall have the right to be represented when such inventory is taken. The

Contractor shall clearly state the principles upon which valuation of the inventory has been

based. The Contractor shall make every effort to provide to the Designated Authority a full

report on such inventory within thirty (30) days of the taking of the inventory. When an

assignment of rights under this Agreement takes place, the Contractor may, at the request of

the assignee, take a special inventory provided that the costs of such inventory are borne by

the assignee.



Clause 5

5.1



Production Statement



Production Information

From the start of production from the Contract Area, the Contractor shall submit a monthly

Production Statement to the Designated Authority showing the following information

separately for each producing Development Area and in aggregate for the Contract Area:

(a)



the quantity of Crude Oil produced and saved;



(b)



the quality characteristics of such Crude Oil produced and saved;



(c)



the quantity of Natural Gas produced and saved;



(d)



the quality characteristics of such Natural Gas produced and saved;



(e)



the quantities of Crude Oil and Natural Gas used for the purposes of carrying on

drilling and production operations and pumping to field storage;



(f)



the quantities of Crude Oil and Natural Gas unavoidably lost;



(g)



the quantities of Natural Gas flared and vented;



(h)



the size of Petroleum stocks held at the beginning of the month in question;



(i)



the size of Petroleum stocks held at the end of the month in question;



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(j)



the quantities of Natural Gas re-injected into the Reservoirs; and



(k)



in respect of the Contract Area as a whole, the quantities of Petroleum transferred at

the Field Export Point.



All quantities shown in this statement shall be expressed in both volumetric terms (barrels of

Crude Oil and cubic meters of Natural Gas) and in weight (metric tonnes).

5.2



Submission of Production Statement

The Production Statement for each month shall be submitted to the Designated Authority no

later than ten (10) days after the end of such month.



Clause 6

6.1



Value of Production and Pricing Statement



Value of Production and Pricing Statement Information

The Contractor shall, for the purposes of Article 7 of the Agreement, prepare a Value of

Production and Pricing Statement providing calculations of the value of Crude Oil and

Natural Gas produced and saved during each Quarter. This Value of Production and Pricing

Statement shall contain the following information:



6.2



(a)



the quantities and the price payable therefor by the Contractor in respect of sales of

Natural Gas and Crude Oil delivered to third parties during the Quarter in question;

and



(b)



the quantities and price payable in respect of sales of Natural Gas and Crude Oil

delivered during the Quarter in question, other than to third parties.



Submission of Value of Production and Pricing Statement

The Value of Production and Pricing Statement for each Quarter shall be submitted to the

Designated Authority not later than twenty one (21) days after the end of such Quarter.



Clause 7

7.1



Cost Recovery Statement



Quarterly Statement

The Contractor shall prepare with respect to each Quarter a Cost Recovery Statement

containing the following information:

(a)



Recoverable Costs carried forward from the previous Quarter;



(b)



Recoverable Costs for the Quarter in question;



(c)



Credits under the Agreement for the Quarter in question;



(d)



Total Recoverable Costs for the Quarter in question (paragraphs 7.1(a) plus 7.1(b)

less 7.1(c);



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7.2



(e)



quantity and value of the Contractor's share of Petroleum under Article 7 of the

Agreement in the Quarter in question; and



(f)



amount of Recoverable Costs to be carried forward into the next Quarter (paragraph

7.1(d) less paragraph 7.1(e).



Preparation and Submission of Cost Recovery Statements

Quarterly Cost Recovery Statements shall be submitted within thirty (30) working days after

the end of the Quarter in question.



7.3



Annual Statement

An Annual Cost Recovery Statement shall be submitted within ninety (90) days after the end

of each Calendar Year. The Annual Statement shall contain the categories of information

listed in Clause 7.1 for the Calendar Year in question, separated into the Quarters of the

Calendar Year in question, and showing the cumulative positions at the end of the Calendar

Year in question.



Clause 8

8.1



Statements of Expenditure and Receipt



Quarterly Statement

The Contractor shall prepare with respect to each Quarter a Statement of Expenditure and

Receipts. The Statement will distinguish between Exploration, Appraisal, Capital and

Operating Costs and will identify major items 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 Calendar Year in question;



(c)



latest forecast cumulative expenditures at the Calendar Year end;



(d)



variations between budget forecast and latest forecast and explanations thereof.



The Statement of Expenditure and Receipts of each Quarter shall be submitted to the

Designated Authority no later than fifteen (15) days after the end of such Quarter.

8.2



Annual Statement

The Contractor shall prepare a Final End-of-Year Statement. The Statement will contain

information as provided in the Production Statement, Value of Production and Pricing

Statement, Cost Recovery Statement and Statement of Expenditure and Receipts, but will be

based on actual quantities of Petroleum produced and costs incurred. This Statement will be

used to make any adjustments that are necessary to the payments made by the Contractor

under this Agreement. The Final End-of-Year Statement of each Calendar Year shall be

submitted to the Designated Authority within ninety (90) days of the end of such Calendar

Year.



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Annex D – Proposals in respect of training, employment and the acquisition of

goods and services (sub-Article 5.4)

The following proposals accompanied the Contractor’s application under sub-Section 5.4 of the

Code for this Agreement:

“Economic Development of Timor-Leste

Oilex has recently acquired production and exploration assets in India and would propose to

use a similar business model in Timor-Leste in the event that the consortium is successful in

acquiring a contract in this bid round. The model is based on maximising the involvement of

local personnel as far as possible during the life of a project. In India, where Oilex has recently

assumed operatorship of 3 fields in the state of Gujarat, we have:

1. Established an office in New Delhi, India with 1 expatriate and 8 Indian national staff.

2. Established a head operating office in Baroda, Gujarat State, with a staff of 2

expatriates to 20 Indian operational personnel.

3. Hired 2 Indian nationals based in Australia to provide local insight.

With this track record, Oilex is therefore pleased to acknowledge the requirements and

responsibilities specified in the JPDA Production Sharing Contract in relation to economic

development of Timor-Leste, namely:

1. To establish a head operations office in Timor-Leste

2. To give opportunity to entities based in Timor-Leste to provide goods and services.

3. To give preference to employment in petroleum operations to Timor-Leste nationals and

permanent residence.

Trough longstanding associations with Indian companies and Australian institutions and service

companies, Oilex actively participates in planning and policy development for the training of

technical and engineering staff for the exploration and production industry in India and is

therefore well placed to expand this experience to assist in the development of viable indigenous

industry in Timor-Leste.”

I.



Proposal for Training, and Giving Preference in Employment, To Nationals and Permanent

Residents of Timor-Leste

With respect to Timor-Leste national and permanent resident employment, our goal is to give

preference to Timor-Leste nationals for employment opportunities and to maximise the content

of Timor-Leste employees within our local workforce. This will be achieved through recruitment

of qualified and experienced Timor-Leste nationals into key professional positions wherever

possible and through the implementation of training programs and processes designed to

accelerate the technical and professional development of the high potential Timor-Leste

nationals who we employ.

Oilex is aware of a number of Timor-Leste citizens that have studied geosciences at reputable

institutions overseas. For any offshore drilling, development and production activities we will

firstly source unemployed Timor-Leste citizens that have had previous training and have worked

for other offshore companies on previous projects in the Timor Sea. In the event that TimorLeste personnel with adequate experience and training cannot be readily identified, preference

will be given to Australian nationals as Timor-Leste and Australia jointly manage the Joint

Petroleum Development Area (JPDA).

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Our national employee development programs and processes will be aimed at speeding up the

replacement of the expatriate work force that will be initially required. We plan to establish a

competency based program that will become our guide to the employee skill building process.

The first step in our competency based program is to identify the positions as well as the skills

that are required for each position within the operating organisation. An assessment process will

then be designed and implemented to verify the employee’s current skill level and ability to carry

out his/her tasks in a safe manner, with minimum supervision, and to a world class standard.

This process will also identify any required training. The training will then be provided through

both formal classroom courses (conducted either locally or abroad based on demand and

availability of the specific courses and instructors) and through on the job learning under the

guidance of an assigned mentor or supervisor. For technical professionals we anticipate that

some of the on the job training will be provided via temporary foreign assignments in our

Australia office where valuable experience may be gained working alongside Oilex’s technical

professionals on projects outside of the JPDA which would help to build a broader experience

base and knowledge set. Once the employee has taken the required training, gained suitable on

the job experience, and has been assessed as competent in those skills required for the position,

the employee will be ready to replace an expatriate performing that particular job. With further

time, training and hands on experience in the position, the individual may be considered for

advancement to the next level position of greater responsibility.

The employee training and development programs and processes will be developed in detail

after the award of the Block, but will require a number of highly motivated and committed

individuals to participate in the full range of activities over a number of years. The cost to

develop fully qualified professionals capable of replacing experienced expatriates will be quite

substantial in terms of formal training expenditures, program development costs, training

material costs, expatriate mentoring and supervision time and costs, and the cost of employing

the individuals who are “in training”. The investment in terms of time can also be quite

substantial depending on the individual’s starting educational qualifications and experience as

well as their aptitude and motivation for learning. In the case of a fresh university graduate it

may take as many as 10 years to develop the individual into a fully qualified technical

professional. As a result of the significant financial and time related investments in our

personnel, Oilex would expect a commitment from the Timor-Leste Government and the

individual that they would remain with Oilex in its Timor-Leste operations for a specified yet

reasonable period of time.

During the exploration phase, our staffing levels will be relatively small. We anticipate the

likely employment of two to three experienced Timor-Leste national or permanent resident

technical professionals in the areas of geology, geophysics and/or engineering, a senior

Government Affairs Manager, two to three qualified accountants, two procurement / logistics

specialists, and four to five office administrative assistants. All other local staffing would be

obtained under service agreements with local companies (e.g. legal services, logistics, shore

base, catering, housekeeping, drivers, etc.). We would commit to spend a minimum of

USD150,000 per year towards the transfer of technology to and training and development of our

Timor-Leste national or permanent resident employees during the exploration phase.

Once a commercial discovery is made, Oilex would commence recruitment and training of

suitable candidates for our eventual field operations. All selected personnel would be sent to

Darwin, Australia for basic safety training covering courses such as HUET, offshore survival,

fire fighting, etc. Darwin has the training infrastructure in place to conduct this safety training

as well as training for operators and technicians. Approximately 15–20 operators and

technicians would be put through this initial training campaign prior to the commissioning of

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any new production facilities. In addition to the aforementioned general training for operators

and technicians, Oilex would also ensure that any Engineering, Procurement, Installation and

Construction (EPIC) contract awarded for new field development facilities would also require

the contractor and its subcontractors or major equipment component manufacturers to provide

specific training to our operators and technicians on how to operate and maintain the new

facilities. This training would commence prior to and continue through the commissioning phase

of the project. The trained operators and technicians would then work side by side with the EPIC

contactor’s personnel and Oilex’s expatriate PMT and production supervisors during

commissioning to ensure a smooth start up and transition from the project phase to the

production phase of operations. The cost of this training would be part of the EPIC contract cost

and depends heavily on the size and type of facilities being constructed.

During the development and production phase, to cover the needs of our Timor-Leste operating

personnel, the additional technical professionals and additional support personnel required to

staff and support development and production operations, from the time a discovery is declared

commercial, Oilex and its consortium partners would commit to spending a minimum of

USD850,000 per year towards the transfer of technology to and training and development of our

Timor-Leste national or permanent resident employees. This commitment would extend over the

next 10 years or until such time as our ratio of Timor-Leste national or permanent resident

employees to expatriate employees exceeds 90 percent or annual Work Program and Budget

expenditures falls below USD20,000,000 per year.

Wherever we do business, we believe that the development of world class national employees is

critical to the long term success of Oilex. We also believe that it is the right thing to do.

II.



Proposal for the Acquisition of Goods and Services from Persons Based in Timor-Leste

We will be committed to maximising the use of Timor-Leste goods and services as may be

required for the conduct of our petroleum operations. To do this we will ensure that our

procurement processes strive to identify, pre-qualify and support the development of multiple

qualified local vendors and suppliers capable of meeting our needs. Our tender processes will

ensure local, national and international advertisement for expression of interest wherever

possible and appropriate. Local companies and suppliers would be given an opportunity to

participate in the competitive process and if necessary would be assisted in developing

relationships with international companies having the appropriate skills and technologies for the

projects. Preference shall be given to Timor-Leste venders and suppliers where price, delivery

time and quality being offered are competitive and meet the minimum technical and commercial

requirements set at the outset of the tender process. Oilex is committed to having international

service companies establish themselves in Timor-Leste and transfer their skills and knowledge

through training programs to local enterprises.

Initially, Oilex would establish a representative office for its subsidiary Operating Company that

will be a party to the Production Sharing Contract. This office would be located in Dili to

facilitate communication between the Timor Sea Designated Authority and other Timor-Leste

Government representatives and Oilex. The refurbishing and fitting out of this office will create

employment for local tradesmen and inject considerable funds in to the local economy.

During the exploration phase of the contract period, it is likely that the geoscience work would

be completed in a location where the IT infrastructure was available and could support such

activity. However, in the event of a discovery and during subsequent evaluation and

development activities, Oilex intends to consider migration of additional work to Timor-Leste.

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Any commercial discovery would significantly increase the size and cost of our operating office

and logistical support requirements depending upon the size and type of discovery.

Communications are vital to an oil and gas company and therefore significant expenditure

would be required to have the IT and communications infrastructure necessary for a successful

operation in Timor-Leste.

During the exploration phase the use of local goods and services in Dili are likely to be limited

to the lease of office space and housing for expatriates, lease of several vehicles, use of local

utilities for electricity, phones, water, etc. local freight handling and Customs clearance

services, legal services, the services of agencies to help with normal company and office

establishments, registrations and permits, catering services, and various services of drivers,

cooks, maids and house/office keepers. We would also intend to utilise local vessels during our

seismic surveys to perform surveillance and chase services so as to avoid possible interference

between local fishermen or commercial shipping activities and the seismic acquisition vessels

towing recording streamers. During initial exploratory drilling operations, a temporary shore

base will be established in one of the southern coast ports using primarily existing infrastructure

on lease.

Oilex undertakes to consider the use of Timor-Leste facilities for helicopter support of offshore

drilling operations. It is likely that Oilex may consider helicopter operations away from Dili and

we are aware of a number of different options available. The establishment of helicopter

facilities away from Dili would create the opportunity for local employment in remote locations,

diversification of the local economy and training in support of the aviation industry.

In the event of a commercial discovery, Oilex would consider expansion of contracted logistical

support operations in Timor-Leste and to commit to a level of expenditure commensurate with

the development investment. Oilex is cognizant that a number of locations in Timor-Leste may

be suitable for a local supply base and transit point for equipment and material to be marshalled

for use in the theatre of operations.

Oilex is also aware that new infrastructure is required in the South Coast area and the opening

of a port at Suai would be beneficial to creating more employment and synergy with other

industries such as fishing. In the event of a commercial discovery Oilex would consider

expansion of contracted logistical support operations in Timor-Leste to support our development

activities. If properly developed, the port at Suai could also be used as a base for security

operations in the Timor Sea. This would lead to an increase in vessel movements giving a

greater maritime presence on the South Coast. Depending on the magnitude of the operations

there is also a possibility that the airport at Suai would need to be upgraded, which could give

Timor-Leste a third international airport facility. The port of Com is another possibility for a

logistical support base as it already has significant infrastructure in place. In the event of a

discovery, Oilex will conduct a feasibility study to determine complete logistical requirements

and the most appropriate place for the logistical support base. Once established on the basis of

an Oilex discovery, it is likely that other operators would use the supply base and possibly

further expand the base to provide support to their operations in the JPDA. The initial

establishment of a large fully functional supply base capable of supporting development

activities would cost approximately USD10 million and require approximately 50–100 staff of

which 80% would be sourced from local areas.

In summary, once a commercial discovery is made and operations shift into development

activities, there would be much greater potential for the use of Timor-Leste goods and services

to help support and sustain any construction, development and ultimately production



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operations. All tenders and contracts would require our contractors to maximize the use of

Timor-Leste personnel, goods and services wherever possible.

III.



Proposal for the Improvement of the Technical Capabilities of Timor-Leste Through Research

to be Undertaken in Timor-Leste

Oilex notes that Timor-Leste is dependent upon imports for its transportation and power

generation fuels. In the event of a discovery containing liquid hydrocarbons, Oilex is prepared

to study and evaluate methods to deliver volumes of crude oil and/or condensate that could be

supplied for use in a mini-refinery(ies) to facilitate the development of indigenous energy selfsufficiency. The crude would be delivered at import parity pricing and deliveries guaranteed for

sufficient time to allow the mini-refinery business to become established and viable. Oilex would

contribute the expertise in the field of mini refineries to expedite the development. Oilex would

also assist qualified local businesses to establish relationships with international technology

suppliers for mini-refineries so that they might successfully invest in, own and operate a minirefinery(ies). The investment cost for a single mini-refinery would be approximately

USD3 million and would employ around 30 to 50 local personnel either directly or indirectly per

unit. A pilot facility could be set up on the South Coast preferably in the Suai area where port

access is available and there is reasonable transport infrastructure to the remainder of the

country. Oilex and its consortium would bear the cost for the initial techno-commercial

feasibility study of up to USD100,000 to evaluate the potential for the use of mini-refinery

technology.



IV.



Proposal for the Transfer of Technology and Skills to Timor-Leste Nationals and Permanent

Residents

In the event of a commercial discovery, in addition to our commitment to a minimum annual

expenditure of USD850,000 per year towards the transfer of technology to and training and

development of our Timor-Leste national or permanent resident employees over the next 10

years mentioned above under part I. Oilex and its consortium partners are prepared to establish

a scholarship arrangement to fund the advanced education of talented young Timor-Leste

students who are interested in and committed to the study of geology, geophysics, and/or

petroleum engineering. After completing a transparent advertisement, application and selection

process the Oilex led consortium would sponsor two sequential groups of 3 Timor-Leste student

candidates at universities in Western Australia for the duration of their enrolment in a four year

degree program. Each candidate is likely to cost USD50,000 per annum on a fully funded basis.

Our additional technology transfer commitment is therefore valued at up to USD150,000 per

year for eight years following the declaration of a commercial discovery. Subsequent to

receiving a degree, the graduates from the scholarship program would be employed by Oilex to

work on technical matters pertaining to our Block. The graduates would be expected to commit

to employment of at least 5 years with Oilex and/or one of its partners.



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