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PRODUCTION SHARING AGREEMENT











FOR





BLOCK L





BRUNEI DARUSSALAM














Between











Brunei National Petroleum Company Sendirian Berhad











and











Loon Brunei Limited








and





QAF Brunei Sendirian Berhad


 CONTENTS





ARTICLE PAGE


1. DEFINITIONS AND INTERPRETATION..............................................................................4


2. AGREEMENT AREA AND SCOPE......................................................................................24


3. COMMENCEMENT AND TERM OF AGREEMENT..........................................................25


4. RELINQUISHMENT..............................................................................................................27


5. GENERAL RIGHTS AND OBLIGATIONS OF CONTRACTOR........................................32


6. JOINT MANAGEMENT COMMITTEE................................................................................34


7. OPERATOR............................................................................................................................37


8. MINIMUM WORK AND EXPENDITURE OBLIGATION..................................................39


9. WORK PROGRAMME AND BUDGET................................................................................44


10. PROCEDURES FOR APPRAISAL PLANS, GAS MARKETING PLANS AND


DEVELOPMENT AND PRODUCTION PLANS..................................................................46


11. UNITISATION........................................................................................................................52


12. COST RECOVERY AND PETROLEUM ALLOCATION...................................................55


13. ROYALTY, TAXES AND BONUSES...................................................................................62


14. NATURAL GAS.....................................................................................................................63


15. SALE AND OFFTAKE OF CRUDE OIL...............................................................................65


16. EMERGENCY SUPPLY........................................................................................................70


17. PROCUREMENT....................................................................................................................72


18. RESEARCH AND DEVELOPMENT CONTRIBUTION......................................................77


19. PAYMENTS AND CURRENCY MATTERS........................................................................78


20. ASSISTANCE PROVIDED BY PETROLEUMBRUNEI......................................................80


21. OWNERSHIP OF PROJECT ASSETS...................................................................................82


22. REPORTS, ACCOUNTS AND AUDITS...............................................................................84


23. EMPLOYMENT AND TRAINING........................................................................................88


24. PARTICIPATION...................................................................................................................91


25. DOMESTIC SUPPLY AND DOWNSTREAM OPERATIONS............................................94


26. INSURANCE AND INDEMNITIES......................................................................................96


27. HEALTH, SAFETY, ENVIRONMENT AND ABANDONMENT.......................................99


28. TERMINATION....................................................................................................................103


29. FORCE MAJEURE...............................................................................................................106


30. EXPERT DETERMINATION..............................................................................................108


31. GOVERNING LAW AND ARBITRATION........................................................................Ill


32. DATA AND CONFIDENTIALITY......................................................................................113


33. ASSIGNMENT......................................................................................................................118


34. MISCELLANEOUS PROVISIONS......................................................................................120





ANNEX A - Agreement Area





ANNEX B - Accounting Procedures


ANNEX C - Minimum Expenditure Obligation Breakdown





ANNEX D -PCG





ANNEX E - Guarantee

















1


This Agreement is made on the 28th day of August 2006 between


(1) BRUNEI NATIONAL PETROLEUM COMPANY SENDIR1AN BERHAI), a


company incorporated under the Companies Act (Cap 39) having its registered


address at Unit 2.02, 2nd Floor, Block D, Yayasan Sultan Haji Hassanal Bolkiah


Complex, Jalan Pretty, Bandar Seri Begawan, Brunei Darussalam


(''PetroleumBRUNEI" an expression which shall include its successors and assigns);


AND


(2) LOON BRUNEI LIMITED, a company incorporated under the laws of Cyprus,


with its registered office at 27 Pindarou Street, Alpha Business Centre, 1060 Nicosia,


Cyprus; and


(3) QAF BRUNEI SDN BHD, a company incorporated under the Companies Act (Cap.


39), having its registered office at QAF Centre, Lot 66 Tapak Perindustrian Beribi


B.S.B. BE! 118, Brunei Darussalam,





(together, the “Contractor Parties”, an expression which shall include their respective


successors and assigns).





RECITALS:


A PetroleumBRUNEI wishes to ensure the sustainable exploitation of its non-renewable


mineral resources in a prudent and environmentally sound manner in accordance with


accepted international standards.


B The area described in Annex A is State Land as defined in the Petroleum Mining Act


(Cap. 44);





C Under section 2A of the Petroleum Mining Act (Cap. 44), the entire ownership of any


petroleum extracted from any State Land shall vest in the holder of mineral rights


unless otherwise expressly provided in any petroleum mining agreement;


D Under section 3(1) of the Brunei National Petroleum Company Sendirian Berhad


Order, 2002, His Majesty the Sultan and Yang Di-Pertuan in Council granted to


PetroleumBRUNEI all mineral rights within such area of State Land as His Majesty


the Sultan and Yang Di-Pertuan in Council may from time to time allocate;





By Notices on the granting of mineral rights by His Majesty the Sultan and Yang Di-


Pertuan in Council dated 27th June 2002 and 9th August 2004 respectively (the


N





2


"Notices"), PetroleumBRUNEI was granted all mineral rights within the areas


described in the Notices and know'n as Block L and Block M;


F PetroleumBRUNEI wishes that exploration for and development of Petroleum be


undertaken in the Agreement Area.


G The Contractor has the technical competence, financial ability and professional skills


necessary to explore for, appraise, develop, produce and market Petroleum and


desires enter into this Agreement with PetroleumBRUNEI and to conduct Petroleum


Operations in the Agreement Area pursuant to its terms and Applicable Law; and


H The Parties hereto have agreed that the Contractor shall have the exclusive right to


carry out all Petroleum Operations in the Agreement Area pursuant to this


Agreement.





NOW THEREFORE, in consideration of the mutual covenants and agreements contained


herein, the Parties hereby agree as follows: ,


 ARTICLE i





DEFINITIONS AND INTERPRETATION


Article 1.1 In this Agreement the following expressions (except where the context


otherwise requires) have the following meanings:





"Abandonment Fund" has the meaning attributed to it in Article 27.6(a);


"Abandonment Plan" has the meaning attributed to it in Article 27.5(b);


"Accounting Procedures" means the accounting procedures set out in Annex


B;


"Adjusted JCC" shall mean the JCC, denominated in dollars per barrel


according to the following formula:


Adjusted JCC = (JCC x 0.158987)/R


Where R = the 3 month arithmetic average of the Rate, determined in


accordance with the following formula:








V = the sum of all daily Rates for the three months preceding the Valuation


Date (including such Valuation Date itself, but excluding the preceding


Valuation Date);


N = the number of days for which a Rate was obtained


"Affiliate" means when used with respect to any Person, another Person that


directly or indirectly:


(a) Controls that Person; or







(c) is under common Control with that Person,


For the avoidance of doubt, a reference to an Affiliate of the Contractor shall


be deemed to include a reference to an Affiliate of any Contractor Party;











4


"Agreement” means this production sharing agreement, together with all


Annexes and Exhibits attached thereto, and any extension, renewal or


amendment hereof agreed to in writing by the Parties;


"Agreement Area" mean the area described in Annex A, as reduced or


modified from time to time pursuant to Article 4,1, Article 4.2, Article 4.4,


Article 4.5, Article 4.6 and Article 4.7 [ Annex A is to contain a Point File];


"Agreement Year" means one (1) year commencing on the Commencement


Date or any anniversary of the Commencement Date;


"Allocable Production" means Total Production less Royalty Oil and


Royalty Gas;


"Applicable Law" means the laws and regulations in force in Brunei


Darussalam from time to time;


"Appraisal Costs" means all costs and expenses that are incurred by the


Operator on behalf of the Contractor for the purposes of appraising a


Petroleum Field pursuant to an Approved Appraisal Plan;


"Appraisal Plan" means a plan of Petroleum Operations and a corresponding


estimate of costs and expenses that the Contractor prepares and submits for


written approval to PetroieumBRUNEI in accordance with Article 10.5;


"Appraisal Report" means a written report of the works carried out pursuant


to an approved Appraisal Plan;


"Appraisal Well" means a well classified as such in an Appraisal Plan and


drilled for the purpose of delineating a discovered Petroleum Field in terms


of its thickness and lateral extent and in order to further define the quantity of


recoverable Petroleum therein;


"Approved Appraisal Plan'1 means an Appraisal Plan approved in writing


by PetroieumBRUNEI in accordance with Article 10.5 and any amendments


thereto;


"Approved Budget" means a Budget approved in writing by


PetroieumBRUNEI in accordance with Article 9.5 and any amendments


thereto;


"Approved Development Plan" means a Development Plan approved in


writing by PetroleumBRUNEI in accordance with Article 10.8 and any


amendments thereto;


"Approved Gas Marketing Plan" means a Gas Marketing Plan approved in


writing by PetroleumBRUNEI in accordance with Article 10.4 and any


amendments thereto;


"Approved Work Programme" means a Work Programme approved in


writing by PetroleumBRUNEI in accordance with Article 9.5 and any


amendments thereto;


"Arm's Length Market Value" in respect of Crude Oil, means "Market


Value" as set out in Article 15.2 and, in respect of Natural Gas, means


"Market Value" as set out in Article 14.4;


"Arm’s Length Sale" has the meaning attributed to it in Article 15.3;


"Associated Gas" means Natural Gas, commonly known as gas-cap gas,


which is in contact with significant quantities of Crude Oil in a natural


underground reservoir or which is in solution in Crude Oil in a natural


underground reservoir but shall exclude any Crude Oil extracted from such


gas;


"Barrel" means a unit of volume equal to 42 U.S. gallons, liquid measure, at


or corrected to an absolute pressure of fourteen decimal point six nine six


(14.696) pounds per square inch and a temperature of sixty degrees


Fahrenheit (60°F);


"Basement" means igneous rocks, metamorphic rocks or rocks of a nature


that could not contain Petroleum or formations below which it would be


reasonable to conclude, applying knowledge generally accepted in the


international petroleum industry, that Petroleum could not be expected to


exist and shall also include impenetrable rock substances such as salt domes


and mud domes;





"Brunei Dollar" means an official currency unit of Brunei Darussalam;


"Brunei National" means a natural person who is a citizen of Brunei


Darussalam or a company or other legal entity which is incorporated or


A


\





6 »i


constituted pursuant to Applicable Law and which is majority owned by


another Brunei National;





"Btu" means a British thermal unit being a unit of energy equal to the amount


of heat needed to raise the temperature of one (1) pound of pure water from


fifty-nine degrees Fahrenheit (59°F) to sixty degrees Fahrenheit (60°F) at or


corrected to an absolute pressure of fourteen decimal point six nine six


(14.696) pounds per square inch;


"Budget" means an estimate of costs and expenses of Petroleum Operations,


that the Contractor prepares and submits to Petr oleum BRUNEI for written


approval together with the corresponding Work Programme in accordance


with Article 9.1;


"Calendar Quarter" means three (3) consecutive calendar months beginning


on any of 1 January, 1 April, 1 July or 1 October according to the Gregorian


calendar;


"Calendar Year” means one (1) year beginning on 1 January and ending on


31 December according to the Gregorian calendar;


"Capital Costs" means the aggregate of Development Costs, Exploration


Costs and Appraisal Costs;


"Change of Control" means an event where any single person or group of


persons acting in concert acquires direct or indirect control of the relevant


company or any interest (either legal or beneficial) in the relevant issued


share capital as a result of which that person or group of persons have a direct


or indirect interest in more than fifty (50) per cent, of the relevant share


capital in the company;


"Coal Bed Methane" means methane produced from coal beds or lignite;


"Commencement Date" means the date of this Agreement;


"Commerciality Date" means the date on which PetroIeumBRUNEI


approves, or is deemed to have approved, a Development Plan in accordance


with Article 10.8;


"Confidential Information" has the meaning attributed to 10’•








7


“Contract Date" means the date of this Agreement;


"Contractor" means the Investor Parties acting together, but shall exclude


PetroleumBRUNEI wherever such expression refers to obligations imposed


on, or liabilities incurred by, the Contractor after the Participation


Completion Date, save to the extent that such obligations and/or liabilities are


specifically expressed to be those of the PB Holder pursuant to Article 24


hereof and/or any provision of the Joint Operating Agreement, following


execution of a deed of adherence thereto by PetroleumBRUNEI;


"Contractor's Entitlement" means the aggregate volumes of Cost Oil and/or


Cost Gas and the share of Profit Oil and/or Profit Gas allocated to the


Contractor;


"Control" means the power, directly or indirectly, to direct or cause the


direction of the management and policies of a person, whether through


ownership of such person’s voting securities, by contract or otherwise, and


the terms “affiliated”, "controlling" and "controlled" have correlative


meanings.


"Controlling Interest" means, in relation to a Special Puipose Company:


(a) voting stock equal to more than fifty- (50) per cent of that Special


Purpose Company's voting stock; and/or


(b) Control of, either alone or pursuant to an agreement with other


shareholders or members, a majority of the voting rights in that


Special Purpose Company;


"Cost Gas" means such part of Allocable Production of Natural Gas


determined pursuant to Article 12.7 as being allocated to the Contractor for


the purpose of recovery of Costs out of the Cost Pool;


"Cost Oil" means such part of Allocable Production of Crude Oil determined


pursuant to Article 12.3 as being allocated to the Contractor for the purpose


of recovery of Costs out of the Cost Pool;


"Costs" means the aggregate of Operating Costs and Capital Costs;


"Crude Oil" means crude mineral oil, asphalt, Ozokerite, and all kinds of


hydrocarbons and bitumens, both in solid and in liquid form r '








E


state or obtained from Natural Gas by condensation or extraction including


propane and butane fractions, before the same has been refined or otherwise


treated but excluding water and artificial substances as well as coal or


bituminous shales or other stratified deposits from which Crude Oil can be


extracted by destructive distillation. Crude Oil shall include any casinghead


petroleum spirit and condensate;


"Crude Oil Quarterly Revenue" means, in relation to any Calendar Quarter,


a US Dollar amount equal to the application of the Market Value to the entire


Crude Oil production marketed in that period;


"Cubic Foot" means a volume of vapour saturated Natural Gas that occupies


one (1) cubic foot at or adjusted to an absolute pressure of fourteen decimal


point six nine six (14.696) pounds per square inch and a temperature of sixty'


degrees Fahrenheit (60°F);


"Data" means all data and information generated by Petroleum Operations


(whether raw, processed or interpreted);


"Delivery Point" means the following points) within the jurisdiction of


Brunei Darussalam, specified in the relevant Approved Development Plan,


where the Parties shall separately lift and take their respective shares of


Allocable Production:


(a) in the case of Crude Oil, this shall be the outlet flange of the loading


arm after the final sales meter at the export loading facility;


(b) in the case of Natural Gas, this shall be the point at which it reaches


the outlet flange of the delivery facility;


(c) such other points) as may be mutually agreed by the Parties;


"Development Costs" means all costs and expenses incurred by the Operator


on behalf of the Contractor for the purposes of Development Operations


pursuant to Approved Development Plans and/or the Abandonment Plan;


"Development and Production Field" means a Petroleum Field for which


there is an Approved Development Plan;


"Development and Production Period" means that period of time referred


to in Article 3.6;








9


"Development Operations" or "Development" means the engineering,


planning, design, construction and installation of facilities for the Production


of Petroleum and includes purchase of materials and equipment, drilling of


Development Wells, construction and installation of equipment, lines,


facilities, plants and systems in and outside the Agreement Area during the


Development and Production Period, which are required for Production,


treatment, waste disposal, transport, storage and lifting of Petroleum and for


recycling and other secondary and tertiary' recovery' projects.


"Development Plan" means a plan of Development Operations and a


corresponding estimate of costs and expenses that the Contractor prepares


and submits for the approval of PetroIeumBRUNEI in accordance with


Article 10.8;


"Development Well” means a Well drilled, deepened or completed after the


date of approval of the Development Plan pursuant to Development


Operations or Production Operations for the purposes of producing


Petroleum, increasing production, sustaining production or accelerating


extraction of Petroleum including production Wells, injection Wells and dry


Wells;


"Entitlement" means the aggregate of the Contractor's Entitlement and


PetroIeumBRUNEI's Entitlement;


"Event of Force Majeure" has the meaning given to that term in Article 29.1


"Excess Revenue Payment" has the meaning attributed to it in Article 12.5


and Article 12.9;


"Expert" means an expert referred to in Article 30;


"Exploration Costs" means all costs and expenses that are incurred by the


Operator on behalf of the Contractor for the purposes of Exploration


Operations pursuant to Approved Work Programmes and Approved Budgets;


"Exploration" or "Exploration Operations" means the search for Petroleum


during the Exploration Period by geological, geophysical and other methods


and the drilling of Exploration Wells and includes any relevant processing


work, including appraisal operations and other technical or economic











10


feasibility studies that may be carried out to determine if a Petroleum Field is


commercial;


"Exploration Period" means the period of time referred to in Article 3.3;


"Exploration Well" means in relation to the Agreement Area, a well


provided for as such in an Approved Work Programme and Approved Budget


and located on an unproven prospect in search of a new and as yet


undiscovered Petroleum Field or with the expectation of proving a new


accumulation on trend with an existing Petroleum Field or located in a


prospect which at the time of drilling is considered by the Parties to be


structurally or stratigraphically separate from any geological feature


previously drilled;


"First Commercial Production Date" means, in relation to any


Development and Production Field:


(a) in respect of Crude Oil, the date by which the production of Crude


Oil has continued for a period of twenty-four (24) hours following


completion of testing (including any extended well testing) from the


first Development Well; and


(b) in respect of Natural Gas, (i) any date within the first sixty (60) days


after the Natural Gas was first delivered, on which date cumulative


deliveries of Natural Gas have reached 106 Giga Joules, or (ii) the


sixtieth (60th) day after the Natural Gas was first delivered (or would


have been delivered but for the exercise of take-or-pay rights), if the


cumulative deliveries of Natural Gas within such sixty (60) day


period do not exceed 106 Giga Joules;


"F.O.B" has the meaning attributed to that expression in the most recent


edition of Incoterms;


"Gas Holding Area" means an area that the Contractor has demonstrated to


PetroleumBRUNErs reasonable satisfaction contains only those geological


structures constituting a Petroleum Field containing significant accumulations


of Natural Gas (and insignificant or no accumulations of Crude Oil), as


delineated in an Approved Gas Marketing Plan; "











11


"Gas Holding Period" means a period of eight (8) years (or such longer


period as may be agreed by PetroleumBRlMEI) from the date of approval of


a Gas Marketing Plan pursuant to Article 10.4;


"Gas Marketing Plan" means a proposed plan for the marketing of Natural


Gas submitted by the Contractor to PetroleumBRUNEI pursuant to Article


10.3(b)(ii);


"Giga Joule" means one billion (1,000,000,000) Joules;


"Good Oilfield Practice" means those practices, methods, standards, and


procedures generally accepted and followed by prudent, diligent, skilled and


experienced operators in international petroleum exploration, development


and production operations and which, at the particular time in question, in the


exercise of reasonable judgment and in light of facts known at the time a


decision was made, would be expected to accomplish the desired results and


goals;


"Goods and Services" means equipment, facilities, goods, materials, supplies


and services required for Petroleum Operations;


"Government" means the Government of His Majesty the Sultan and Yang


Di-Pertuan of Brunei Darussalam;


"Gross Negligence/Wilful Misconduct" means any act or failure to act


(whether sole, joint or concurrent) by any person or entity which was intended


to cause, or which was in reckless disregard of or wanton indifference to,


harmful consequences such person or entity knew, or should have known,


such act or failure would have on the safety or property of another person or


entity;


"Guarantee" means a bank guarantee issued by a bank incorporated or


licensed in Brunei Darussalam payable on demand and guaranteeing a part of


the Minimum Expenditure Obligation equal to the Percentage Interest held by


the Contractor Party on whose behalf it is issued;


"Guarantee Amount" means an amount expressed in USD equal to one-third


(1/3) of the Contractor's total Minimum Expenditure Obligation for Phase 1


and, if applicable, for Phase 2;











12


 "Insolvency Event" means a person taking any action or any legal


proceedings are started or other steps taken (including the presentation of a


petition) for:


(a) a Contractor Party to be adjudicated or found insolvent; or


(b) the winding up or dissolution of a Contractor Party (other than in


r connection with a solvent reconstruction); or


(c) the appointment of a trustee, receiver, administrative receiver or


similar officer in respect of any Contractor Party or any of its assets;


"Investor Parties" means the Contractor Parties together with, after the


Participation Completion Date, PetroleumBRUNEl in its capacity' as holder


of the PB Interest and shall include their successors and permitted assists;


"JCC" shall mean Japanese Crude-Oil Cocktail, as announced by the





Japanese Ministry of Finance (on the URL http://www.mof.go.jp),


denominated in yen per kilo-litre on or about the twentieth (20lh) day of the


month succeeding a calendar month, and whose value shall be computed on


each Valuation Date by taking the arithmetic average of the announced price


for the preceding three months to the calendar month for which the value is


required.


"Joint Appraisal Agreement" means an agreement between the Investor


Parties and a Third Party Contractor which sets out inter alia their agreed


rights and obligations in respect of a Joint Appraisal Plan;


"Joint Appraisal Documents" means a Joint Appraisal Plan and a Joint


Appraisal Agreement;


"Joint Appraisal Plan” means a plan prepared in accordance with the


requirements of Article 10.5 to appraise on a unitised basis a Petroleum Field


located partly within the Agreement Area and partly in another agreement


area in Brunei Darussalam held by a Third Party Contractor, prepared by the


Contractor and said Third Party Contractor;


"Joint Appraisal Report" means a written report, in form and substance r


acceptable to PetroleumBRUNEl, of the works described in and carried out








13


pursuant to a Joint Appraisal Plan to be prepared by the Contractor in


accordance with Article 11.1(c);


"Joint Development Plan" means a plan prepared in accordance with the


requirements of Article 10.7 to develop on a unitised basis a Petroleum Field


located partly within the Agreement Area and partly in another agreement


area in Brunei Darussalam held by a Third Party Contractor, prepared by the


Contractor and said Third Party Contractor;


"Joint Development Documents" means a Joint Development Plan and a


Unitisation Agreement;


"Joint Management Committee" means the committee established pursuant


to Article 6;


"Joint Operating Agreement" means an agreement to be entered into


between the Investor Parties governing the conduct of Petroleum Operations,


as the same may be amended from time to time;


"Joint Venture Account" has the meaning attributed to it in Article 22.4;


"Joule" means a unit of energy equal to the work done when the point of


application of a force of one newton is displaced one meter in the direction of


the force;


"LIBOR" means the London Interbank Offered Rate for the USD for three


hundred and sixty (360) days as published by the British Bankers Association


on the TELERATE screen (now on p.3750 LIBO) at or about 11.00 a.m.


(London time) on the relevant date;


"Market Price" has the meaning attributed to it in Article 15.3(b):


"Market Value" has the meaning attributed to it in Article 14.4 (for Natural


Gas) or Articlel5.2 (for Crude Oil);


"Material Contract" means a contract for the supply of Goods and Services


with a value in excess of one million U.S. Dollars (USD 1,000,000);


"Minimum Commitment Date" means the date on which





(a) this Agreement terminates;








14


(b) the entire Agreement Area is relinquished; or


(c) the Phase 2 of the Second Exploration Period comes to an end;


whichever occurs first;


"Minimum Expenditure Obligation" means the aggregate of the


Contractor's expenditure commitments referred to in Article 8.1(b) and


Article 8.2(b) (though 8.2(b) shall only be applicable if the Contractor should


notify PetroleumB RUN El of its intention to commence Exploration


Operations under Phase 2, pursuant to Article 4.1(a), and in any instrument


setting out the terms applicable to a Retained Exploration Area in relation to


Petroleum Operations;


"Minimum Work Obligation" means the aggregate of the Contractor's work


commitments referred to in Article 8.1(a) and Article 8.2(a) (or in any


instrument setting out the terms applicable to a Retained Exploration Area);


"MMBtu" means one million (1,000,000) Btu;


"Natural Gas" means a mixture of hydrocarbons and varying quantities of


non-hydrocarbons mainly composed of methane that exist either in a gaseous


state or in solution with Crude Oil in a natural underground reservoir but does


not include Coal Bed Methane. Natural Gas may be classified as either


Associated Gas or Non-Associated Gas;


"Natural Gas Cost Pool” means, for any Calendar Quarter, an amount equal


to the Market Value of sixty per cent (60%) of the Allocable Production of


Natural Gas for such Calendar Quarter;


"Natural Gas Quarterly Revenue" means, in relation to any Calendar


Quarter, a US Dollar amount equal to the application of the Market Value to


the entire Natural Gas production marketed in that period;


"Non-Arm's Length Sale" has the meaning attributed to it in Article 15.3(c);


"Non-Associated Gas" means Natural Gas that is found in a natural


underground reservoir that does not contain significant qu0r>titil>c f'ruAp


Oil;











15


"Non-Recoverable Costs" means all Costs referred to as Non-Recoverable


Costs in Section 8.1 of the Accounting Procedures or elsewhere in this


Agreement;


"Oil Cost Pool" means for any Calendar Quarter an amount equal to the


Market Value of sixty per cent (60%) of the Allocable Production of Crude


Oil for such Calendar Quarter;


"Operating Costs" means all costs and expenses (other than Exploration


Costs, Appraisal Costs or Development Costs) incurred by the Operator on


behalf of the Contractor for the purposes of the Petroleum Operations,


pursuant to Approved Work Programmes, Approved Budgets, Approved


Development Plans and/or the Abandonment Plan after the First Commercial


Production Date, including:


(a) operating, servicing, maintaining and repairing Development Wells


and all field facilities completed during Development;


(b) planning, producing, controlling, measuring and testing the flow of


Petroleum and collecting, gathering, testing, storing and transferring


the Petroleum from the Petroleum Field to the Delivery Point; and


(c) general and administrative expenses directly related to the activities


described in (a) and (b) above.


"Operator” means the entity appointed pursuant to Article 7.2 to conduct and


direct Petroleum Operations on behalf of the Contractor;


"Participation Completion Date" has the meaning attributed to it in Article


24.4;


"Participation Notice" has the meaning attributed to it in Article 24.3;


"Party" means either the Contractor or PetroleumBRUNEI;


"PB Holder" has the meaning given to that term in Article 24.3(c):


"PB Interest" has the meaning attributed to it in Article 24.1;


"PCG" means a Parent Company Guarantee substantially in the form, and on


the terms, provided in Annex D;








16


 "Percentage Interest" means for each Contractor Party, the undivided


percentage interest held by it from time to time in the rights, duties and


obligations of the Contractor under this Agreement;





"Petroleum" means Crude Oil and Natural Gas;


"Petroleum Account" has the meaning attributed to it in Article 22.3;





"PetroleumBRUNFI’s Entitlement" means the aggregate volumes of


t Royalty Oil, and/or Royalty Gas and the share of Profit Oil and/or Profit Gas


allocated to PetroleumBRUNEI (other than in its capacity as a Contractor


Party);


"PetroleumBRUNEI's Participation Percentage” has the meaning


attributed to it in Article 24.3(b);


"Petroleum Field'1 means a geological feature (containing one or more


accumulations of Petroleum) all or part of which is within or potentially


within the Agreement Area, whether discovered by drilling pursuant to this


Agreement or otherwise;


"Petroleum Operations" means Exploration Operations, Development


Operations and Production Operations;





"Phase I" means the period described as such in Article 3.3(a);


"Phase 2" means the period described as such in Article 3.3(b);


"Plans" means any Approved Work Programmes, Approved Budgets,


Approved Gas Marketing Plans, Approved Appraisal Plans, Approved


Development Plans, Abandonment Plan and/or Gas Marketing Plan


applicable from time to time;





"Production" or "Production Operations" means al) activities other than


Development Operations performed in Brunei Darussalam during the


Development and Production Period for the ongoing and continuous


production, treatment, transport, storage and lifting of Petroleum and its by¬


products and includes all works and activities connected therewith, including


enhanced recovery operations such as recycling, recompression, pressure


maintenance, treatment of discharged water, water


abandonment.











17


'Profit Gas" means Allocable Production of Natural Gas less Cost Gas, as


described in Article 12.6;


"Profit Oil" means Allocable Production of Crude Oil less Cost Oil, as


described in Article 12.2 ;


"Project Assets" means any facilities, land, buildings, installations and other


assets together with equipment, machinery', tools, supplies, materials,


consumables and any other goods of similar nature (excluding any Petroleum


any by-products of Petroleum Operations) acquired (through purchase, lease


or otherwise) and held for use in Petroleum Operations;


"Projects" means projects for the development and production of natural gas


from petroleum fields in south east Asia, in which international energy


companies are equity investors and from which such companies sell natural


gas into local or international markets;


"Rate" means, at any time, the USD/YEN exchange rate in the Spot Market


at that time (expressed as a number of Japanese Yen per United States Dollar


(USD 1.00)) as displayed on Bloomberg page "Japanese Yen Spot”. If such


rate does not appear on Bloomberg page "Japanese Yen Spot", then the


period in which such rate does not appear on Bloomberg page "Japanese Yen


Spot" will be deemed not to be a relevant period for the purposes of


determining the Rate, provided that, if through the operation of this provision


there would not be such a rate at 3.00 p.m., Tokyo time, then


PetroleumBRUNEI will request the principal Euro-zone offices of each of the


Reference Banks to provide a quotation of its rate at which it will buy Yen in


USD at such time on such date. If at least two quotations are provided, the


rate will be the arithmetic mean of the quotations. If fewer than two


quotations are provided as requested, the rate will be the arithmetic mean of


the rates quoted by major banks in the Euro-zone at approximately 3.00 p.m.,


Tokyo time, on that date for purchases of Yen in USD:


"Reasonable and Prudent Operator" means an operator conducting itself in


a proper and workmanlike manner in accordance with methods and practices


customarily used in Good Oilfield Practice and with that degree of diligence


and prudence reasonably and ordinarily exercised by experienced operators


engaged in a similar activity under similar circumstances and renditions-








18


 "Recoverable Costs" means all Costs other than Non-Recoverable Costs and


shall include those referred to as Recoverable Costs in Sections 5, 6, 10 and


11 of the Accounting Procedures or elsewhere in this Agreement;





"Reference Banks" means five major banks selected by PetroleumBRUNEl


in the Euro-zone interbank market (or, if appropriate, money, swap or over-


the-counter index option market);


"Reference Crude Oil" shall mean Tapis or, if its price shall cease to be


published in the Reference Indices or if it is no longer sold in sufficient


quantities for its price to adequately reflect market conditions, the Parties


shall agree upon a freely and internationally traded blend of Crude Oil, having


similar characteristics and quality, which shall be used to calculate the


Reference Price. In default of agreement, such replacement Crude Oil shall


be determined by the Expert pursuant to Article 30;


"Reference Indices" means one of Platt's Oilgram Report, Reuters or Asian


Petroleum Price Index;


"Reference Price" means, in relation to any date, the price on such date or the


arithmetic average of the prices relating to the period during which such date


falls, of the Reference Crude Oil, as published in Reference Indices:


"Retained Exploration Area" means such areas within the Agreement Area


as the Parties shall have agreed in writing prior to the end of the Exploration


Period that the Contractor may retain notwithstanding the expiry of the


Exploration Period (such agreement not to be unreasonably withheld by any


Party):


"Royalty Gas" means the volume of Natural Gas expressed in Cubic Feet that


is twelve and one half (12.5) per cent, of Total Production of Natural Gas;


"Royalty Oil" means the volume of Crude Oil in Barrels that is twelve and


one half (12.5) per cent, of Total Production of Crude Oil;


"Service Contractor" means any person, firm, corporation or other entity


entering into a service contract with either the Contractor or actual or


ostensibly authorised representatives of the Contractor for the express purpose


of undertaking, performing and satisfying an obligation of r.mtmrtnr











19


under this Agreement and shall also include any person, firm, corporation or


other entity who subcontracts to furnish said services:


"Shortage Event" means a national shortage of Crude Oil in Brunei


Darussalam, such that Brunei Darussalam is (or would be but for this


provision and provisions to similar effect in other upstream arrangements in


Brunei Darussalam) required to import Crude Oil in order to supply its


domestic refining requirements;


"Site Restoration" means all activities required to return a site to its state as


of the Contract Date as described in the environmental impact study


performed by the Contractor pursuant to Article 27.2 and approved by


PetroleumBRUNEI or to render a site compatible with its intended after-use


(to the extent reasonable) after cessation of Petroleum Operations in relation


thereto and shall include, where appropriate, proper abandonment of wells or


other facilities, removal of equipment, structures and debris, establishment of


compatible contours and drainage, replacement of top soil, re-vegetation,


slope stabilisation, in-filling of excavations or any other appropriate actions in


the circumstances;


"Special Purpose Company” means a company whose primary purpose is to


carry’ out the Petroleum Operations as a Contractor Party' to this Agreement:


"Spot Market" means the global spot foreign exchange market which, for


these purposes, shall be treated as being open continuously from 5.00 a.m.,


Sydney time, on a Monday in any week to 5.00 p.m., New York time, on the


Friday of that week;


"Standard Terms" has the meaning attributed to it in Article 15.3(d);


"Target Formation" means geological formation identified as the primary'


objective for an Exploration Well, as specified in the relevant Approved


Work Programme;


"Target Production Date" means the later of:


(a) the date which is the sixth (6th) anniversary of the Commerciality Date


(in the ease of Crude Oil) or the eighth (8th) anniversary of the


Commerciality Date (in the case of Natural Gas); f











20


(b) the date specified as the Target Production Date in the relevant


Development Plan;


or such other date as agreed by PetroieumBRUNEI and Contractor:


"Taxes" means all taxes, duties or other fiscal payments, assessments, fees


and charges (other than those expressly provided for in this Agreement)


payable to PetroieumBRUNEI, the Government, or any Government agency


pursuant to Applicable Law;


"Ter' means one trillion Cubic Feet;


"Term1' means the term of this Agreement as described in Article 3.1;


"Third Party" means in relation to any Party' any individual, partnership,


association or body corporate other than any Affiliate of that Party';


"Third Party Contractor" means the party' or parties having the right to


explore for, develop and produce Petroleum in a contract area in Brunei


Darussalam other than the Agreement Area:


"Total Production" means the total volumes of Crude Oil (expressed in


Barrels) and Natural Gas (expressed in Cubic Feet) which are produced and


saved by the Contractor from within the Agreement Area and which reach the


Delivery Point, excluding any Petroleum flared, lost (subject to the provisions


of Article 12.10) or used in Petroleum Operations:


"Ultimate Parent Company” means in relation to a Contractor Party the


person that ultimately Controls that Contractor Party, regardless of whether


such control is exercised directly or through intermediate holding companies;


"Unavailability Event" occurs when the Contractor is unable to perform its


obligations under this Agreement for a period of more than twenty-eight (28)


calendar days and such failure:


(a) does not arise out of nor is it in connection with an Event of Force Majeure:


but





(b) arises as a result of the Contractor being unable to procure a Service


Contractor required to allow the Contractor to perform its obligations under


this Agreement in accordance with the Approved Work “ ~ ‘








21


applicable Calendar Year, due to there being a general, international and


demonstrable shortage of adequately qualified sendee contractors available


for the relevant task being sought to be performed by the Contractor;


"Unitisation Agreement" means an agreement between the Contractor and


Third Party Contractor setting out their respective rights and obligations in


respect of a Development on a unitised basis of a Petroleum Field located


partly within the Agreement Area and partly in an agreement area in Brunei


Darussalam held by the Third Party' Contractor pursuant to a production


sharing agreement;


"LIS. CPI” means the most current United States Consumer Price Index for


All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-


84=100 (not seasonally adjusted), officially published by the United States


Department of Labor or its relevant successor authority';


"US Dollar" or "USD" means-the official currency of the United States of


America;


"Valuation Date" means the last day of each Calendar Quarter provided that


upon each such Valuation Date the Spot Market is available, failing which,


the Valuation Date will fall upon the next day on which the Spot Market is


available;


"Viable Market" means, in relation to any Petroleum Field falling within


Article 10.3(b), a market or markets into which all of the Natural Gas


produced from such Petroleum Field can be sold by the Contractor on such


terms as w-ould generate a rate of return comparable to that of other Projects.


A Viable Market will be deemed to exist if one or more potential purchasers


are willing to make a commitment (conditional only on the Development of


that Petroleum Field) to purchase all such Natural Gas on terms and


conditions comparable to those offered for the natural gas from other Projects


and at a price that would generate a rate of return comparable to that enjoyed


by the equity participants in such Projects;


"War Event" means a declaration of war by the State of Brunei Darussalam


against another nation state or states;


"Weir means a borehole, made by drilling in the course of Petroleum


Operations, but does not include a seismic shot hole; "•'A





22


"Work Programme" means a programme of Petroleum Operations that the


Contractor prepares and submits for the approval of Petro 1 eumB RUN El in


accordance with Article 9.1.


In this Agreement:


(a) references to the singular shall include the plural and vice versa,


references to any gender shall include any other gender and references to


Articles, appendices, annexes, exhibits and sections are to the Articles,


appendices, annexes and exhibits of this Agreement and sections of the


relevant appendix. AJ1 appendices, annexes and exhibits form part of this


Agreement;


(b) except where expressly specified to the contrary in this Agreement,


references to an enactment or statutory provision is a reference to it as it


may have been, or may from time to time be, amended, modified,


consolidated or re-enacted;


(c) the headings are inserted for convenience only and do not affect the


construction of the Agreement;


(d) "person" includes any individual, firm, company or other incorporated or


unincorporated body;


(e) the words "include", "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: and


(f) the main body of this Agreement and any appendices, annexes and


exhibits are intended to be correlative and mutually explanatory- Should


however any discrepancy arise, then the provisions of the main body of


the Agreement shall prevail over those of any apper.......























23


 ARTICLE 2





AGREEMENT AREA AND SCOPE


The Contractor is hereby awarded the exclusive right to conduct Petroleum


Article 2.1


Operations in the Agreement Area in accordance with this Agreement.


Nothing in this Agreement shall grant to the Contractor the right to explore


for, develop or exploit any mineral resources other than Petroleum.


Article 2.2 The Contractor shall:


(a) carry out and be responsible for Petroleum Operations; and





00 report to PetroleumBRUNEI and apply for such consents and approvals as


are required by Applicable Law and this Agreement from PetroleumBRUNEI


or as it shall direct.





Article 2.3 The Contractor acknowledges and agrees that except as may be expressly


stated to the contrary' in this Agreement, the duties and obligations of the


Contractor pursuant to this Agreement shall be joint and several duties and


obligations of ail the Contracting Parties.





Article 2.4 The Contractor further acknowledges and agrees that the only payment for


the costs and expenses incurred by and the obligations assumed or carried out


by the Contractor hereunder shall be the Contractors E "












































24


 ARTICLE 3





COMMENCEMENT AND TERM OF AGREEMENT


Article 3.1 The Term of the Agreement shall start on the Commencement Date and end on


the earliest of;


(a) the date the Contractor relinquishes the whole or the last retained part of, the


Agreement Area pursuant to Article 4;


(c) (b) the date'of termination ofthis Agreement pursuant to Article 28; or





the thirtieth (30th) anniversary of the Commencement Date; unless the Parties


agree in writing to extend the Term, in which case, unless the Parties have agreed


otherwise, the provisions of this Agreement shall apply mutatis mutandis to any


Article 3.2 such extended Term.


Without limiting the generality of Article 3.1, the Parties acknowledge that where


the Development and Production Period for a Petroleum Field containing Natural


Gas would otherwise be less than twenty-four (24) years after the relevant


Commerciality Date, the Parties will, before the relevant Development Plan is


submitted to PetroleumBRUNEI, in good faith discuss an appropriate extension


of the Development and Production Period for such Petroleum Field,


PROVIDED that any such extension shall not result in the duration of the


Development and Production Period exceeding twenty-four (24) years after the


relevant Commerciality Date.


Article 3.3 The Exploration Period shall commence immediately following the


Commencement Date and consist of two (2) phases as follows:


(a) Phase 1: three (3) Agreement Years; and


(b) Phase 2: three (3) Agreement Years,


Article 3.4


subject to extension pursuant to Article 3.4 or earlier termination or


relinquishment pursuant to this Agreement


Subject to:








25


 (a) the written consent of PetroleumBRUNEI, such consent not to be unreasonably


withheld; and


(b) upon provision of evidence of the occurrence and reasons for the occurrence of


the relevant Unavailability Event which is reasonably satisfactory to


PetroleumBRUNEI,


the Exploration Period will be extended for a period equal to the duration of the


relevant Unavailability Event or such other period as the Parties may agree


between themselves in writing provided that the Contractor -continually uses its


reasonable endeavours to remedy the relevant Unavailability Event during the


period over which such Unavailability Event subsists.





Article 3.5 The Exploration Period shall be deemed extended for those parts of the


Agreement Area retained by the Contractor pursuant to Article 4.4(b), 4.4(c),


Article 3.6 4.4(d), 4.4(e) and 4.4(1) and for the respective periods contemplated thereby.


The Development and Production Period for any Development and Production


Field shall commence on the relevant Commerciality Date and shall expire on the


twenty-forth (24th) anniversary' of the commencement of such Development and


Article 3.7 Production Period, subject to earlier termination or relinquishment pursuant to


this Agreement.


The expiry of the Term pursuant to Article 3.1 shall be without prejudice to any


rights, obligations and/or liabilities of the Parties hereunder which have arisen


and/or accrued on or prior to the expiry of the Term. A
































26


 ARTICLE 4





RELINQUISHMENT





Article 4.1 Subject to Article 4.2. on the last day of Phase 1 of the Exploration Period, the


Contractor shall either:


(a) elect to relinquish fifty (50) per cent, of the original Agreement Area and enter


into Phase 2 of the Exploration Period; or


Article 4.2 (b) relinquish all of the Agreement Area.


The Contractor may seek to retain fifty (50) per cent, of the original Agreemem


Area which it is obliged to relinquish pursuant to Article 4.1 (the "Retention


(a) Area"), if:


the Contractor has fully satisfied all of its obligations under this Agreement in


respect of Phase 1 of the Exploration Period;


(b) retention of the Retention Area does not, in any way, restrict or diminish the


ability of the Contractor to fully perform its obligations in relation to Phase 2 of


(6) the Exploration Period; and


the Parties will, within six (6) months of the Contractor electing to retain the


Retention Area pursuant to this Article 4.2, attempt to negotiate a new Production


Sharing Contract with PetroleumBRUNEI in respect of the Contractor’s


Article 4.3 obligations and activities in the Retention Area.


If the Parties cannot agree upon the terms of a new Production Sharing Contract


for the Retention Area within six (6) months of the Contractor electing to retain


(a) the Retention Area pursuant to Article 4.2 with immediate effect:


the Contractor will automatically be deemed to have completely relinquished the


Retention Area;


(b) the Contractor will have no legal, equitable or any other interest in the Retention


Area; and








27


 fy) the Contractor will be required to satisfy its obligations in respect of Site


Restoration and Abandonment pursuant to Article 27 in relation to the Retention


(

PetroleumBRUNEl will be free at any time thereafter, in its absolute discretion,


to procure bids from third parties for a new Production Sharing Contract, licence,


concession or any other arrangement or instrument whatsoever for the Retention


Article 4.4 Area or otherwise be completely free to deal with the Retention Area in any way


it sees fit.


On the last day of Phase 2 of the Exploration Period, the Contractor shall





relinquish all areas necessary' to reduce the Agreement Area to those parts which


the Contractor is able to demonstrate to PetroleumBRUNEI's reasonable


(a) satisfaction consist only of:


a Petroleum Field in respect of which an Approved Development Plan or an


Approved Appraisal Plan applies on such day;


(b) a Petroleum Field in respect of which an Appraisal Plan or Development Plan or


Gas Marketing Plan has been submitted to PetroleumBRUNEl and its approval is


pending;


(c) a Gas Holding Area;


(e)


(d) a Retained Exploration Area;





a Petroleum Field which is subject to unitisation pursuant to Article 1 l.](c)(ii);


and


(0 a Petroleum Field which is, or may subsequently be, encountered by an


Exploration Well which is being drilled on that date, provided that unless the


Contractor within:


(i) Ninety (90) days after the release of the rig from the location of such


Exploration Well and in accordance with Article 10.1 confirms to


PetroleumBRUNEl that such drilling resulted in a discovery of a


Petroleum Field; and








28


 (ii) One hundred and eighty (180) days of the delivery of the report


required pursuant to Article 10.3 submits to PetroleumBRUNEI for


written approval the relevant Appraisal Plan or, as the case may be.


Gas Marketing Plan;


the area comprising the relevant Petroleum Field shall be deemed to have been





relinquished on the ninety-first (91st) day or the two hundred and seventieth


(270th) day following the release of the rig from the location of such Exploration


Well;





provided that if no part of the Agreement Area is retained unrelinquished


pursuant to Articles 4.4(a), (b), (c), (d), (e) and (f), then the Agreement Area shall


be reduced to zero.





Article 4.5 The Contractor's rights to any Retained Exploration Area shall be subject to the


terms agreed in conjunction with the grant of the said area and this Agreement.


Article 4.6 The Contractor may voluntarily relinquish the whole or any part of the


Agreement Area.


Article 4.7 In addition to the Contractor's rights and obligations in respect of relinquishment


described in Article 4.1, 4.2 or 4.6 above, upon the::


(a)


expiry of any Gas Holding Period, the Contractor shall (subject to its right to


submit an Appraisal Plan or a Development Plan pursuant to Article 10)


relinquish any relevant Gas Holding Area, save to the extent the Gas Holding


Area contains Petroleum Fields satisfying one of the four tests described in


Articles 4.4(a), 4.4(b), 4.4(e) and 4.4(f);


(b) expiry of the term of any agreement pursuant to which a Retained Exploration


Area was granted, the Contractor shall relinquish all or part of any Retained


Exploration Area;


Ce) occurrence of the conditions set out in Article 11.4(b) or Article 11.5(g) the


Contractor shall, unless the Parties agree otherwise in writing, relinquish the


relevant part of the Agreement Area.











29


 Article 4.8 Subject to Article 4.9, the Contractor shall relinquish any Development and


Production Field in relation to which no Production has taken place for twelve


Article 4.9 (12) months (the "NP Period").


The Contractor will not be required to relinquish any Development and


Production Field pursuant to Article 4.8 where:


(a) the failure to Produce from such Development and Production Field is due to an


Unavailability Event;


(b) the Contractor:


(i) provides PetroleumBRUNEI with such evidence of the relevant


occurrence of the relevant Unavailability Event which is


reasonably satisfactory to PetroleumBRUNEI; and


(ii) continually uses its reasonable endeavours to remedy the


relevant Unavailability Event during the period over which such


Unavailability Event subsists;


(c) PetroleumBRUNEI, acting reasonably on the basis of the evidence provided to it


by the Contractor pursuant to Article 4.9(b)(i) consents to an extension of the NP


Period, such extension to be equal to the period for which the relevant


Article 4.10 Unavailability Event subsists.


Relinquishment Criteria


(a) Minimum Work Obligation





No relinquishment pursuant to Article 4.1, 4.2, 4.5 or 4.6 may be


undertaken unless the payments set out in Article 8.3 (or any instrument


setting out the terms applicable to a Retained Exploration Area) have


been made.


(b) Configuration of Area





(i) Not less than four (4) months prior to the date of a


relinquishment pursuant to Article 4.1 or 4.6, the Contractor


shall submit to PetroleumBRUNEI a relinquishment notice


•• .i


i V V /





30


 setting out the area(s) of the Agreement Area it wishes to


relinquish. Such notice shall be accompanied by a map with the


description of precise co-ordinates of such area(s).





(ii) The area(s) shall be contiguous, possess such boundaries and be


of sufficient size and convenient shape so as to allow' petroleum


operations to be carried out efficiently in such relinquished area.


(iii) As soon as reasonably practicable (but not later than three (3)


months) after the Contractor submits the relinquishment notice,


PetroleumBRUNEI shall notify the Contractor whether or not the


relinquishment criteria have been met.


(c) Severance of Relinquished Area


On the date of issue of PetroleumBRUNEl’s approval pursuant to Article


4.10(b) (iii). the area the subject of the notice shall be severed from the


Agreement Area and this Agreement shall cease to apply to such area.


(d) Any relinquishment shall be without prejudice to any rights, obligations and/or


liabilities of the Parties under this Agreement that have arisen and/or accrued on,


or prior to, such relinquishment. ( r S





'*3-












































31


 ARTICLE 5





GENERAL RIGHTS AND OBLIGATIONS OF CONTRACTOR


Without prejudice to the other provisions of this Agreement the Contractor shall


. Article 5.1


for the purposes of Petroleum Operations and subject to Good Oilfield Practice,


this Agreement and Applicable Law have the right:


(a) of access to and egress from the Agreement Area;


(b) (subject, in the case of Natural Gas. to Article 14.2) to use, free of any payment


to PetroleumBRUNEI, such quantities of Petroleum produced from the


Agreement Area as are reasonably required for conducting Petroleum Operations


in the Agreement Area in accordance with Good Oilfield Practice;


(c) to lay pipelines, build roads, construct bridges, ferries, jetties, harbours,


platforms, aerodromes, landing fields, radio telephones and related


communication and infrastructure facilities and exercise other ancillary rights as


may be reasonably necessary for the conduct of Petroleum Operations;


(d) to store, lift and transport Petroleum and its by-products;


(e) to use all Data in accordance with Article 32;







waterways, telecommunication networks and other facilities as well as the right


of access, egress and occupation in respect of areas on or under the sea floor


and/or surface land which are located outside the Agreement Area, provided that


the Contractor, has agreed the terms of such use (including the terms of payment


or other consideration therefor) with the owner of the relevant facility or area;


the right to exercise and enjoy the rights granted by this Agreement during the


Term peaceably and quietly and without any interruption, provided that the


Contractor promptly makes all payments and complies with all its obligations


under this Agreement; and


(h) such other rights as are specified in this Agreement,











32


Provided that before exercising any such rights or undertaking any such


activities, the Contractor has applied for such approval or permission and paid (or


reimbursed PetroleumBRUNEI) any costs, fees or compensation that may be


required by Applicable Law.


The Contractor shall in accordance with this Agreement and Applicable Law:


except as otherwise expressly provided in this Agreement, conduct all Petroleum


Operations:


(i) diligently, expeditiously, efficiently and in accordance with


Good Oilfield Practice and any Plans, paying due attention to the


safety of persons, property and the environment;


(ii) in accordance with this Agreement; and


(iii) in a manner that will permit the maximum efficient and


economic Production of Petroleum:


ensure that all Data and other information required to be furnished to


PetroleumBRUNEI is so furnished;


ensure that all Project Assets comply with Good Oilfield Practice and are of


proper construction and kept in safe and good working order;


(d) procure that its subcontractors comply with Good Oilfield Practice; and


provide acceptable working conditions, living accommodation and access to


medical attention and nursing care for all personnel employed in Petroleum


Operations. . / C


4m 'i ^


 ARTICLE 6





JOINT MANAGEMENT COMMITTEE





Article 6-1 Within thirty (30) days of the Commencement Date, the Parties shall establish a


Joint Management Committee to coordinate and facilitate the relationship


between the Contractor and PetroleumBRUNEl and to ensure that the obligations


of the Parties are performed in an efficient manner.


article 6.2 The Joint Management Committee-shaU-be a-consultative body only and shall not


restrict or supplant the Contractor's right and duty to contact and seek the


approval of PetroleumBRUNEl in relation to any matter contemplated by this


Agreement.





Article 6.3 The Joint Management Committee shall comprise one (1) member nominated by


each Investor Party and a number of members nominated by PetroleumBRUNEl


equal to the aggregate number of Investor Party members. AH such members


shall be of managerial status. At least one (I) of the Contractor Parties' nominees


shall be the representative of the Operator in its capacity as such.


PetroleumBRUNEl shall nominate one (1) of its members to be the chairman.


Each member shall nominate an alternate to represent such member at meetings


of the Joint Management Committee if such member is unable to attend. The


Parties may replace their members and members may replace their alternates by


written notice to the other Parties.


Article 6.4 The Joint Management Committee shall meet at least once every Calendar


Quarter and at any other time at the request of PetroleumBRUNEl or the


Contractor. A quorum for a meeting will be at least two (2) members nominated


by each of PetroleumBRUNEl and the Contractor or their alternates present in


person PROVIDED that one of the members or alternates so present represents


the Operator.


Article 6.5 The Joint Management Committee shall generally provide a forum for the


exchange of views regarding Petroleum Operations on a range of matters


including:





(a) the Work Programme and Budget for the following Calendar Year;





34


(b) any Gas Marketing Plan;


(c) any Appraisal Plan;


(d) any Development Plan:


(e) any proposed Abandonment Plan;


(f) proposed revisions to any Approved Work Programme, Approved


Budget, Approved Gas Marketing Plan, Approved Appraisal Plan,


Approved Development Plan and/or Abandonment Plan;


(g) the progress of Petroleum Operations under an Approved Work


Programme and Approved Budget;


(h) any indicative work programme and the budget for the next five (5)


Calendar Years to be submitted to PetroleumBRUNEI in accordance


with Article 9.2; and


(i) any other long term planning considerations.


Article 6.6 The Joint Management Committee may form sub-committees at such time and


for such period as it considers necessary to advise it on such matters as are


deemed appropriate by the Joint Management Committee. The Joint


Management Committee shall at the time of formation of a sub-committee


specify its purpose, membership and the procedures to be followed by any such


sub-committee.


Article 6.7 The Joint Management Committee may establish a sub-committee tasked with


assisting the Contractor to meet the objectives for the employment of Brunei


nationals set out in Article 23.1. Such sub-committee will:


(a) develop a master plan for human resources development in Brunei;


(b) supervise the implementation by the Operator in Brunei of human


resources development tools such as: i:. i /t








35


(i) manpower planning;





(ii) competence profits and skills assessment;


(iii) individual development plans;


(iv) extensive training; and





(v) coach and godfather systems.































































































36


 ARTICLE 7





OPERATOR


Article 7.1 The Contractor Parties shall as soon as practicable after the Commencement Date


enter into the Joint Operating Agreement. The terms of the Joint Operating


Agreement shall prior to its execution (and any subsequent amendment) be


subject to Petro 1 eumBRUNEl's approval provided that the receipt or approval by


PetroIeumBRUNEI of the Joint Operating Agreement shall be without prejudice


its rights under this Agreement.


Article 7.2 The Contractor Parties shall pursuant to the Joint Operating Agreement appoint


one of their number to act as Operator and shall procure that the Operator


complies with all of the Contractor's obl igations hereunder.


Article 7.3 The appointment of and any subsequent change of Operator shall require the


prior written approval of PetroIeumBRUNEI.


Article 7.4 The Operator shall:


(a) establish a registered office (or, if the Operator is not a company incorporated in


Brunei Darussalam, a registered branch office) in Brunei Darussalam, which


shall have the authority' to represent the Operator hereunder.


(b) conduct and direct all Petroleum Operations in the Agreement Area from such


office in Brunei Darussalam for and on behalf of the Contractor, subject to the


terms of this Agreement


Article 7.5 PetroIeumBRUNEI may by notice in writing instruct the Contractor to replace


the Operator if:


(a) the Operator has committed a material breach of its duties and such breach (if


capable of remedy) remains unremedied thirty (30) working days after the date of


PetroleumBRUNEI's notice and for the purposes of this Article 7.5:


(i) breach of Article 32.2; and ^














37


(ii) the preparation by the Operator of false data, records or accounts


in connection with Petroleum Operations with intent to mislead


Petro leumB RUNEI,


shall be material breaches of the Operator's duties which are incapable of


remedy;


(b) an Insolvency Event should occur in relation to the Operator or any of its


Affiliates; or


(c) there is a change in a shareholder of the Operator or a shareholder of a company


directly or indirectly holding an interest in the Operator (an “Operator


Interest”) which results in a person or an entity which does not have a an


Operator Interest as at the date upon which PetroleumBRUNEI approves of the


appointment of the relevant Operator pursuant to Article 7.3 acquiring an


Operator Interest except where such change results from an initial public offering


of shares on a regulated investment exchange or the trading of a company’s stock


(including on a regulated investment exchange).


1





















































38


 ARTICLE 8





MINIMUM WORK AND EXPENDITURE OBLIGATION


^{jcle LI Phase J of the Exploration Period


(a) The Contractor's Minimum Work Obligation for Phase 1 of the Exploration


Period shall be:





(i) subject to such seismic data being provided to


PetroleumBRUNEI by Third Parties:





(A) re-proeess at least one thousand five hundred (1.500)


kilometres of seismic data, to the extent that such data:





(aa) is made available to the Contractor by PetroleumBrunei;


and


(bb) is capable of being reprocessed by the Contractor acting


in accordance with Good Oilfield Practice;


(B) the Contractor will reimburse PetroleumBRUNEI for





any costs incurred by PetroleumBRUNEI in reproducing


the seismic data referred to in Article 8.1(a)(i)(A)


provided that such cost is to be a Recoverable Cost to


the Contractor for the purposes of this Agreement;





(ii) acquire and process not less than seven-hundred and fifty(750)


kilometres of onshore 2D seismic data and five hundred (500)


kilometres of offshore 2D seismic data;





(iii) acquire and process not less than one hundred and fifty (150)


square kilometres of 3D offshore seismic data, provided that


such 3D programme may be convertible in to a dollar equivalent


onshore 2D seismic programme by the Contractor with the prior


written consent of PetroleutnBRUNEI acting in its absolute


discretion;











39


 (iv) drill at least two onshore Exploration Wells, each to a depth of


two thousand (2,000) meters.





(b) The Contractor’s minimum expenditure for Phase 1 of the Exploration Period


shall be USD twenty million and five-hundred thousand US dollars (20,500,000)


and must be consistent with the breakdown of such expenditure detailed in


(e) Annex C to this Agreement.


If the Contractor elects to enter Phase 2 of the Exploration Period, it shall at least


thirty (30) days prior to the end of Phase 1, notify PetroleumBRUNEI of its


Article 8.2 election in writing.


Phase 2 of the Exploration Period





(a) The Contractor's Minimum Work Obligation for Phase 2 of the Exploration


Period shall be:


(i) acquire and process not less than five hundred (500) kilometres


of onshore 2D seismic data and five hundred (500) kilometres of


offshore 2D seismic data; and


(ii) acquire and process not less than one hundred and fifty' (150)


square kilometres of offshore 3D seismic data, provided that


such 3D programme is convertible into a dollar equivalent


onshore 2D seismic programme by the Contractor with the prior


written consent of PetroleumBRUNEI acting in its absolute


discretion;


(iii) drill at least two onshore Exploration Wells, each to a depth of


two thousand (2,000) metres;





The Contractor's minimum expenditure for Phase 2 of the Exploration Period


shall be USD sixteen million U.S. dollars (16,000,000) and must be consistent


with the breakdown of such expenditure detailed in Annex C to this Agreement.














40


 -siT If upon the expiry of Phase I or Phase 2 as the case may be the Contractor has


i^8.3


not satisfied its obligations under Article 8.1(a) or Article 8.1(b) respectively it


shall within thirty (30) days at PetroleumBRUNErs option either:





pay to PetroleumBRUNEI the unspent balance Minimum Expenditure


Obligation; or





(b) pay to PetroleumBRUNEI the sum of three thousand US Dollars (US$3,000)


multiplied by the aggregate number of meters the Contractor is required to drill


pursuant to Article 8.l(a)(iv) and Article 8.2(a)(ii) but that the Contractor has not


drilled by that date (which amount shall not exceed the amount specified in


Annex C).





’Article 8.4 If during the course of drilling an Exploration Well required under Article


8.1(a)(iv) and Article 8.2(aXiii), the Contractor stops drilling operations having:


C. (a) reached the Target Formation; or


it





(b> encountered unsafe conditions, the Basement or other insurmountable technical


problems, such that a Reasonable and Prudent Operator would not elect to


continue such drilling: or


t (c) encountered Petroleum of potentially commercial significance, such that a


l


Reasonable and Prudent Operator would not elect to continue such drilling,


taking into account solely the geological potential of such Petroleum and the


Target Formation;





I' then provided that such Exploration Well had reached a depth of at least three


1- quarters of the target depth set out in Article 8.1(a)(iv) or Article 8.2(a)(iii) (as


f', the case may be) it shall be deemed to have been completed, notwithstanding it





not having reached the target depth.


; Article 8.5 Each Contractor Party shall deliver to PetroleumBRUNEI:





(a) within forty-five (45) working days from the Commencement Date; or


(b) if the Contractor provides a notice to PetroleumBRUNEI of its intention


to enter Phase 2 pursuant to Article 8.1(c), no later than thirty (30) days


prior to the end of Phase l,


 an irrevocable letter of Guarantee from a bank incorporated or licensed in Brunei


Darussalam substantially in the form and substance set out in Annex E, for an


initial sum (expressed in USD) equal to its Percentage Interest of the Guarantee


Amount for Phase 1 or Phase 2 as applicable. Any entity which hereafter


becomes a party to this Agreement shall provide, upon request by


PetroleumBRUNEI, a guarantee of its obligations hereunder in form and


substance acceptable to PetroleumBRUNEI.


Article 8.6 Notwithstanding Article 8.5, the Contractor Parties may deliver to


PetroleumBRUNEI a single irrevocable letter of Guarantee from a bank


incorporated or licensed in Brunei Darussalam substantially in the form and


substance set out in Annex E, for a sum (expressed in USD) equal to the


Guarantee Amount for Phase 1 or Phase 2 as applicable in satisfaction of the


Contractor Parties' obligations under Article 8.5.


Article 8.7 The letters of Guarantee specified in Article 8.5 shall terminate upon the


occurrence of the earlier of either:


(a) The Contractor having fulfilled its Minimum Expenditure Obligation for


Phase 1 or Phase 2 as applicable, as certified by PetroleumBRUNEI; or


(b) The expiration of Phase 1 or Phase 2 as applicable.





Article 8.8 If a Contractor Party is a Special Purpose Company:





(a) that Contractor Party' must procure a PCG from its Ultimate Parent


Company in respect of its obligations under this Agreement:





(b) and such Special Purpose Company is subject to a Change of Control:


(i) that Contractor Party must procure that a replacement PCG is


provided by its new Ultimate Parent Company as soon as


possible after such Change of Control; and





(ii) the PCG in force at the time of such Change of Control will


remain in force and will not expire until such time it is replaced


pursuant to Article (i)











42


le 8.9 If the Contractor exceeds it Minimum Work Obligations in respect of Phase 1


pursuant to Article 8.1(a)(ii), 8.1(a)(iii) or 8.1(a)(iv), such excess performance


may be carried forward to Phase 2 and set off against its Minimum Work


Obligations in respect of Phase 2 under Article 8.2(a)(i), 8.2(a)(ii) or 8.2 (a)(iii)


as applicable. For the avoidance of doubt:


(a) excess performance by the Contractor of its Minimum Work Obligations


under Article 8.1(aXii) may only be carried forward and set off against its


Minimum Work Obligations under Article 8.2 (a)(i);


(b) excess performance by the Contractor of its Minimum Work Obligations


under Article 8.1(a)(iii) may only be carried forward and set off against its


Minimum Work Obligations under Article 8.2(a)(ii);


(c) excess performance by the Contractor of its Minimum Work Obligations





under Article 8.1 (a)(iv) may only be carried forward and set off against its


Minimum Work Obligations under Article 8.2(a)(iii); and


(d) excess performance by the Contractor of its Minimum Work Obligations in


respect of Phase 1 which is carried forward pursuant to Articles 8.9 (a),


8.9(b) or 8.9(c) shall reduce the Minimum Expenditure Obligations for Phase


2 by an amount attributable to such excess performance calculated in


accordance with Annex C









































43


 ARTICLE 9





WORK PROGRAMME AND BUDGET


Article 9.1 No later than sixty (60) days after the Commencement Date, the Contractor shall


submit to PetroleumBRUNEl for written approval a Work Programme and


Budget for that Calendar Year. Thereafter, at least ninety (90) days prior to the


beginning of each succeeding Calendar Year, the Contractor shall submit to


PetroleumBRUNEl for written approval a W'ork Programme and Budget for the


next Calendar Year or part thereof, as the case may be.


Article 9.2 At the same time, the Contractor shall submit to PetroleumBRUNEl an indicative


work programme and budget for the next five (5) Calendar Years.


Article 9.3 Each Work Programme and Budget shall be prepared in accordance with Good


Oilfield Practice and shall contain:


(a) separate sections for Exploration Operations as well as for each Plan in respect of


which the Contractor proposes to carry out work during such Calendar Year or


part thereof, as the case may be;


(b) estimated expenditure for each separate item referred to in Article 9.3(a);


(c) the proposed timing of Petroleum Operations;




part thereof, as the case may be;


(e) a description of the work and the estimated associated costs of abandoning and/or


removing any Project Assets from, and restoring to their original condition, each


area in which the Contractor proposes to carry' out Petroleum Operations; and


(0 such other information as PetroleumBRUNEl shall notify the Contractor in a


timely manner that it reasonably requires.


Article 9.4 Each Work Programme and Budget shall be consistent with the Minimum Work


Obligation and Minimum Expenditure Obligation and with the contents of any


 Articled No later than forty five (45) days after the Commencement Date in the case of


the first Work Programme and Budget, and thirty (30) days prior to the beginning


of the Calendar Year in the case of subsequent Work Programmes and Budgets,


the Parties shall meet t. discuss the Work Programme and Budget. Prior to or at


such meeting, Petroleur.iBRUNEI shall either approve the Work Programme and


Budget or propose amendments thereto. The Parties shall discuss any proposed


amendments in good faith. If the Parties shall fail to reach agreement on the


proposed amendments within fourteen (14) days of the first meeting, the


Contractor shall incorporate PetroIeumBRUNEI's proposed amendments


provided that these do not increase the Budget proposed by the Contractor by


more than ten percent (! 0%).





Article 9.6 The Contractor shall diligently implement a Work Programme and Budget that


have been approved or amended, as the case may be.




































































45


 ARTICLE 10





PROCEDURES FOR APPRAISAL PLANS, GAS MARKETING


PLANS AND DEVELOPMENT AND PRODUCTION PLANS





jtoticle 10.1 The Contractor shall notify PetroleumBRUNEI of each discovery of Petroleum


promptly on becoming aware of the same.


Article 10.2 If the Contractor decides to conduct a drill stem or production test, it shall notify


PetroleumBRUNEI as soon as practicable of the time of such test prior to the


proposed test, and PetroleumBRUNEI shall have the right to have a


Article 10.3 representative present and to witness the conduct of any such test.





In the case of a discovery of a Petroleum Field the Contractor shall within one


hundred and eighty (180) days of the delivery of the report required pursuant to


Article 22.2(b), if the discovery is of a significant accumulation of:


(a) Crude Oil submit to PetroleumBRUNEI for approval an Appraisal Plan;





(b) Natural Gas submit to PetroleumBRUNEI for approval either:


(i) if a Viable Market shall exist for Natural Gas, an Appraisal Plan;


or


(ii) if no Viable Market shall exist for Natural Gas a Gas Marketing


Plan; and


(c) both Crude Oil and Natural Gas (and no Viable Market exists for Natural Gas)


submit to PetroleumBRUNEI for approval both an Appraisal Plan and a Gas


Article 10.4 Marketing Plan.


Gas Marketing Plans





(a) A Gas Marketing Plan shall:





(i) demonstrate to PetroleumBRUNEI's reasonable satisfaction there


is then no Viable Market for the Natural Gas concerned and the


reasons why that is the case;








46


 (ii) set out the conditions which the Contractor considers necessary


for a Viable Market to be established;


(iii) detail the work the Contractor proposes should be undertaken





(A) by the Contractor and its Affiliates and (B) by Third Parties


in order to assist in the establishment of a Viable Market;


(iv) estimate the period within which the Contractor thinks a Viable


Market may be established;


(v) describe any technical evaluation and/or other work relating to


the discovered Petroleum Field the Contractor proposes to carry


out; and


(vi) specify the estimated extent of the discovered Petroleum Field





and the composition of Petroleum found.





(b) PetroleumBRUNEI shall within 30 days of receipt of a Gas Marketing Plait either


approve it or propose amendments thereto. Any proposed amendments shall be


discussed in good faith between the Parties. If no agreement is reached on the


proposed amendments within 30 days of them being issued by


PetroleumBRUNEI, the Gas Marketing Plan shall be deemed rejected by


PetroleumBRUNEI.


(c) The Contractor may not later than:





(i) One hundred and eighty (180) days after the date on which the


first Gas Marketing Plan was rejected; or


(ii) the date falling thirty (30) days before the end of the phase of the


Exploration Period during which the discovery was made,


whichever is the earlier, submit to PetroleumBRUNEI a revised Gas


Marketing Plan.





(d) PetroleumBRUNEI shall within thirty' (30) days of receipt of the revised Gas


Marketing Plan either approve it or propose amendments thereto. Any proposed


amendments shall be discussed in good faith between the Parties. U





T





47


 agreement is reached on the proposed amendments within thirty (30) days of


them being issued by PetroleumBRUNEI, the revised Gas Marketing Plan shall


be deemed rejected by PetroleumBRUNEI and the Contractor shall either


forthwith submit an Appraisal Plan for or relinquish the Gas Holding Area.


Appraisal Plans


^jticie 10-5


(a) Each Appraisal Plan shall be prepared in accordance with Good Oilfield Practice


and shall contain:





(i) a description of the works proposed to be carried out by the


Contractor to delineate the discovered Petroleum Field;





(ii) the estimated timing and cost of the works referred to in Article


10.5(a) (i); and


(iii) such other information as PetroleumBRUNEI shall in a timely


manner notify the Contractor that it may reasonably require.





(b) The Contractor shall diligently implement any approved Appraisal Plan and the


Contractor shall no later than ninety (90) days after the implementation of such


Article 10.6 Appraisal Plan is completed, deliver to PetroleumBRUNEI the Appraisal Report.


Commercial ity


(a)


If an Appraisal Report shall demonstrate to PetroleumBRUNEI's reasonable


satisfaction that a discovered Petroleum Field is commercial, the Contractor shall


within two hundred and seventy (270) days of delivery of the Appraisal Report


submit to PetroleumBRUNEI for written approval a Development Plan for the


relevant Petroleum Field(s).





(b) If an Appraisal Report shall state that the Contractor is of the opinion that a


discovered Petroleum Field is non-commercial, the Contractor and


PetroleumBRUNEI shall meet to discuss in good faith ways to proceed with the


Development of such Petroleum Field on a commercial basis.


PetroleumBRUNEI shall be under no obligation to agree to any amendment of


this Agreement proposed by the Contractor to enhance the potential


commerciality of a discovered Petroleum Field. ^__ .


< (, M

i


48


Development Plans





Any Development Plan submitted by the Contractor pursuant to Article 10.6(a)


shall be in a form reasonably acceptable to PetroIeumBRUNEI and prepared in


accordance with Good Oilfield Practice having due regard to the optimum


efficient rate of Production appropriate to the Petroleum Field in question and


shall contain:


(i) a general description of the techniques and equipment proposed to


develop the field;


(iij a proposed work program and project budget for the Development:


(Hi) a description of the technical and economic feasibility of


alternative methods of development;


(iv) a general description of the Goods and Services required for the


Development that the Contractor proposes to purchase in Brunei


Darussalam;


(v) where any Petroleum Field extends beyond the Agreement Area, a


suggested unitisation plan;


(vi) an outline of how the Contractor proposes to finance the


Development;


(vii) a map delineating the proposed Development area;


(viii) descriptions of the nature and characteristic of the reservoir, data,


statistics, interpretations and conclusions on all aspects of the


geology, reservoir evaluation, petroleum engineering factors,


reservoir models, estimates of reserve in place, possible


production profiles and analysis of producible Petroleum;


(ix) estimates of reserves, production profiles, an evaluation of the


Petroleum Field's commercial life, and, following a request from


PetroIeumBRUNEI but at the Contractor's cost, an independent ^


third party reserves report; , , .(/


nil / -








49


(x) a description of the anticipated adverse impact on the environment


and measures to be taken for prevention or minimisation thereof


and for general protection of the environment in the conduct of


Development Operations;


(xi) a description of the measures to be taken for the health and safety


of persons employed in Petroleum Operations; and


(xii) such other information as PetroleumBRUNEI shall in a timely


manner notify the Contractor that it may reasonably require.


The Contractor shall implement promptly and without undue interruption an


approved Development Plan and shall not carry out any Development work for


the purpose of producing Petroleum from the Agreement Area except in


accordance with such Approved Development Plan.


Approval of Appraisal and Development Plans


The information described in paragraphs 10.5(a)(i) to (iii) and 10.7(a)(i) to (xii)


(inclusive) shall be presented, in relation to each Calendar Year covered by the


Appraisal Plan or Development Plan in question with a level of detail no less


specific than that which would apply to a Work Programme and Budget.


PetroleumBRUNEI shall within thirty (30) days of receipt of an Appraisal Plan


or Development Plan either approve it or propose amendments thereto.


Any amendments proposed by PetroleumBRUNEI shall be discussed in good


faith between the Parties. If no agreement is reached within thirty (30) days of


them being issued by PetroleumBRUNEI, the matter shall be referred to the


Expert for determination pursuant to Article 10.8 (d) below and Article 30.


The Expert shall be required to determine whether it is the original Appraisal or


Development Plan (as the case may be) submitted by the Contractor or the


Appraisal or Development Plan (as the case may be) as amended by


PetroleumBRUNEI that is most consistent with this Agreement, conforms most


closely to Good Oilfield Practice and: ^ \


if)


 (0 in the case of an Appraisal Plan, will best evaluate and delineate


the discovered Petroleum Field; or





(ii) in the case of a Development Plan, will produce Petroleum from


and deplete the discovered Petroleum Field in the most efficient


manner, having regard to the characteristics of such Petroleum


Field


Article 10.9 Amendments


(a) The Parties recognise that an Approved Gas Marketing Plan, an Approved


Appraisal Plan and/or an Approved Development Plan may require amendments


;.

In such circumstances either Party may propose revisions of any such plans. The


Parties shall discuss any proposed amendments in good faith.


l (c) If no agreement is reached on the proposed amendments, the Parties shall refer





for determination by the Expert in accordance with Article 30 the question of


whether the proposed amendments are required to ensure that the relevant plan


| (d) continues to reflect Good Oilfield Practice.


If the Expert shall determine that the proposed amendments are so required, they


shall be deemed incorporated into the relevant plan. Otherwise the relevant plan


Article 10.10 shall continue in force unamended.


A Joint Appraisal Plan or a Joint Development Plan prepared in relation to a


Petroleum Field and delivered pursuant to Article 31 shall satisfy the Contractor’s


obligation to deliver an Appraisal Plan or a Development Plan pursuant to this


Article 10.























SI


 ARTICLE 11





UNmSATION





Article 11.1 Unitisation of Petroleum Fields in Brunei Darussalam


(a) Where a Petroleum Field extends to areas adjacent to the Agreement Area held


by a Third Party Contractor and PetroIeumBRUNEI considers that any work


programmes proposed by the Contractor and the Third Party Contractor


independently of each other will not lead to an optimal evaluation of the


Petroleum Field, PetroIeumBRUNEI may by notice in writing require ihat the


Contractor and such Third Parly Contractor discuss in good faith a basis for


conducting a joint evaluation of the Petroleum Field and its potential


Development, including the establishment of a common database and an agreed


programme for further Exploration, appraisal and/or Development work in


relation to such Petroleum Field.





(b) Should the Contractor and Third Party Contractor agree to conduct joint


evaluation works they shall deliver to PetroIeumBRUNEI within one hundred


and eighty (180) days (or such longer period as may be agreed between the


Parties) of PetroleumBRUNEI's notice:


(i) a Joint Appraisal Plan; and





(ii) a draft Joint Appraisal Agreement.


(c) If following rheir good faith discussions, the Contractor and the Third Party





Contractor agree that there is no merit in conducting a joint evaluation of the


Petroleum Field, they shall notify PetroIeumBRUNEI of this and be under no


further obligation to conduct a joint evaluation of such Petroleum Field on a


unitised basis until either:





(i) the Contractor submits an Appraisal Plan; or





(ii) the Third Party Contractor submits pursuant to the terms of its


production sharing agreement a plan analogous to an Appraisal


Plan,


v V


£





52


 in respect of such Petroleum Field whereupon PetroleumBRUNEI may


issue a notice to the Contractor and the Third Party Contractor requiring


them to enter into the Joint Appraisal Documents on such terms as


PetroleumBRUNEI shall reasonably direct and following completion of


the work conducted pursuant to the Joint Appraisal Plan, prepare a Joint


Appraisal Report.





• Article 11 -2 If a Joint Appraisal Report shall conclude that a Joint Development of the


relevant Petroleum Field(s) is commercial, the Contractor and the Third Party


Contractor shall deliver to PetroleumBRUNEI within three hundred and sixty


(360) days (or such longer period as PetroleumBRUNEI may agree in writing) of


approval of the Joint Appraisal Report by PetroleumBRUNEI:





(a) a Joint Development Plan; and


(b) a draft Unitisation Agreement.





.Article 11.3 If a Joint Appraisal Report concludes that a Joint Development of the relevant


Petroleum Field(s) is not commercial, the Contractor shall implement the


ji.- • Appraisal Plan referred to in Article 11. l(c)(i) in accordance with Article 10.5(b).


P . If the Contractor and the relevant Third Party Contractor are unable to agree the


Article 11.4


terms of the Joint Development Documents within such three hundred and sixty


(a) (360) day period PetroleumBRUNEI may, in its sole discretion either:


itself prepare a Joint Development Plan in consultation with the Contractor and


the Third Party' Contractor, which the Contractor together with the Third Party


(b) Contractor shall implement; or





require the Contractor to relinquish the discovered Petroleum Field forthwith.


Article 11,5 International Unitisation


(a)


Where a discovered Petroleum Field shall straddle an international boundary, the


Contractor's rights and obligations under Article 10 shall be suspended pending


the conclusion of an international unitisation agreement. «• , t J


4











53


(b) PetroIeumBRUNEI may, if it so elects, but only after consulting with the


Contractor, represent the Contractor Parties in any international unitisation


negotiations.


(c) PetroIeumBRUNEI and the Contractor shall co-operate during the preparation


and negotiation of any international unitisation agreement.


(d) During the course of such negotiations PetroIeumBRUNEI shall:


(i) endeavour to involve the Contractor at each stage: and


(ii) make no commitment on any material provisions without the prior


agreement of the Contractor:


(e) The Contractor shall reimburse PetroIeumBRUNEI its reasonable costs and


expenses incurred in connection with the negotiation of such international


unitisation agreement;


(f) Subject to PetroIeumBRUNEI complying with its obligations of this Article 11.5,


all terms of an international unitisation agreement agreed by PetroIeumBRUNEI


shall bind the Contractor.


(g) If three (3) years after the commencement of negotiations pursuant to this Article


11.5, an international unitisation agreement acceptable to PetroIeumBRUNEI has


not been executed, the Contractor shall be allowed to carry out Development and


Production in respect to the relevant Petroleum Field(s) within the Agreement


Area, provided that the Contractor:


(i) at any time before the expiry of the above period notifies


PetroIeumBRUNEI that it is prepared to proceed with the Development


and Production in respect of the relevant Petroleum Field(s); and-


(ii) complies promptly with its obligations under Article 10.


If PetroIeumBRUNEI is not so notified or such obligations are not so complied


with, the Contractor shall, unless the Parties agree otherwise in writing,


relinquish the relevant Petroleum Field(s) forthwith.








54


 ARTICLE 12





COST RECOVERY AND PETROLEUM ALLOCATION


Article 12-1 All Recoverable Costs shall be included for the purposes of calculating Cost Oil





and/or Cost Gas, as the case may be, regardless of where Cost Oil and/or Cost


Gas is produced in the Agreement Area. Recoverable Costs shall be determined


in accordance with the Accounting Procedures.


/Article 12.2 Total Production of Crude Oil for each Calendar Quarter (or, if a Development


and Production Period begins or ends during a Calendar Quarter, a part of such


i Calendar Quarter) shall be split as follows:


























c Article 12.3 Subject to Article 12.12, for any Calendar Quarter:


' (a)





r


(b)


if the Recoverable Costs shall exceed the Oil Cost Pool, the unrecovered


Recoverable Costs shall be carried forward for recovery' out of the Cost Pool for


the next succeeding Calendar Quarter and added to the Recoverable Costs


L (c) expended in that Calendar Quarter until fully recovered; and


if the Cost Pool exceeds the amount of Cost Oil, the amount of the excess shall


be allocated to Profit Oil.


■' Article 12.4


The volume of Profit Oil allocable to PetroleumBRUNEI and the Contractor for


each Calendar Quarter shall be determined in the following manner:


(a) Profit Oil shall be split in the following increments: ^








55


 Average daily Contractor’s PetroleumBRUNEI’s


Total Production Share share


of Crude Oil





First ten thousand


(10.000) Barrels per


day in a Calendar


Quarter.


Between ten


thousand and one





(10.001) and twenty*


five thousand '


(25.000) Barrels per


day in a Calendar


Quarter.


Over twenty five





thousand and one


(25.001) Bands


average per day in a


Calendar Quarter.





provided that once the cumulative Total Production of Crude Oil shall


have exceededflBHBH^ands, then all Profit Oil





obtained thereafter in any Calendar Quarter or part thereof shall be split


on the basis f°r PetroIeurnBRUNEl and





Ifor the Contractor;





(b) the volume of Profit Oil allocated to the Contractor in any Calendar


Quarter shall be determined by multiplying the Contractor's Profit Oil


percentage shown in Article 12.4(aXa) by the total volume of Profit Oil


available for such Calendar Quarter; and





(c) the volume of Profit Oil allocated to PetroIeurnBRUNEl shall be


determined by subtracting the Profit Oil allocated to the Contractor under


Article 12.4(b) from the total Profit Oil available for such Calendar


Quarter.








56


 (a) Where in a Calendar Quarter the Contractor has recovered from the Oil Cost Poo)


all of its Exploration Costs and Appraisal Costs incurred during the Exploration


Period and the Market Value of Crude Oil as determined in accordance with


Article 15.2 exceeds the base price of Crude Oil, the Contractor shall make an


Excess Revenue Payment to PetroleumBRUNEI for every' Barrel of the


Contractor's share of Profit Oil for that Calendar Quarter, such Excess Revenue


Payment being equivalent amount by which such


Market Value exceeds the base price


(b) For the purpose of Article 12.5(a), the initial base price of Crude Oil shall be


>er Barrel.





(c) On the first day of the Calendar Quarter immediately following the first


anniversary of the Commencement Date the initial base price shall be increased


or decreased, as the case may be, by the application of U.S. CPI.


(d) Thereafter, on the date of each anniversary of such day, the base price that has


been set for the relevant Agreement Year shall be increased or decreased, as the


case may be, by application of U.S. CPI.


Article 12.6 Total Production of Natural Gas for each Calendar Quarter (or, if a Development


and Production Period begins or ends during a Calendar Quarter, a part of such


Calendar Quarter) shall be split as follow's:


























Article 12.7 Subject to Article 12.12, for any Calendar Quarter:





(a) the volume of Cost Gas shall be such portion of the Natural Gas Cost Pool as is


determined by dividing the Recoverable Costs by the Market Value;








57


 (b) if the Recoverable Costs shall exceed the Natural Gas Cost Pool, the unrecovered


Recoverable Costs shall be carried forward for recovery out of the Cost Pool for


the next succeeding Calendar Quarter and added to the Recoverable Costs


expended in that Calendar Quarter until fully recovered; and


(c) if the Cost Pool exceeds the amount of Cost Gas. the amount of the excess shall





be allocated to Profit Gas.





Article 12.8 The volume of Profit Gas allocable to PetroleumBRUNEI and the Contractor for


each Calendar Quarter shall be determined in the following manner:





(a) Profit Gas shall be split as follows:


Cumulative Contractor’s PetroleumBRUNEI’s


Total Production Share share


of Natural Gas


Less than or equal to 2 tcf


More than 2 tcf








(b) the volume of Profit Gas allocated to the Contractor in any Calendar Quarter


shall be determined by multiplying the Contractor's Profit Gas percentage shown


in Article 12.8(a) above by the total volume of Profit Gas available for such


Calendar Quarter; and


(c) the volume of Profit Gas allocated to PetroleumBRUNEI shall be determined by


subtracting the Profit Gas allocated to the Contractor under Article 12.8 (b)


above from the total Profit Gas available for such Calendar Quarter.





Article 12.9 Excess Revenue Payment - Gas





(a) Where in a Calendar Quarter the the Contractor has recovered from the Natural


Gas Cost Pool all of its Exploration Costs and Appraisal Costs incurred during


the Exploration Period and the value of the Adjusted JCC per Barrel exceeds


“Trigger the


make an Excess Revenue Payment to PetroleumBRUNEI for each MMBtu of the


Contractor's share of Profit Gas for that Calendar Quarter. The Excess Revenue


Payment shall be equal the difference by which


^ 4' !/








58


 Adjusted JCC exceeds the Trigger Price divided by the Conversion Metric, as set


out below:





ERP = CPG x CV x 0.5fAdiusted JCC - Trigger Priced


Conversion Metric


Where:





ERP = Excess Revenue Payment (expressed in dollars);


CPG = Contractor's share of Profit Gas for that Calendar Quarter


(expressed in Tcf);


CV = net calorific value of one cubic foot of gas, expressed in MMBtu;





Conversion Metric = the net calorific value of one barrel of JCC Crude


Oil, expressed in MMBtu per barrel;


Within forty-five (45) working days of receipt by PetroleumBRUNEI of


either (1) a Gas Marketing Plan under Article 10.4 or (2) an Appraisal


Plan under Article 10.5, PetroleumBRUNEI and Contractor must agree


upon values for both the CV and Conversion Metric using industry-


standard methods of evaluation (including, but not limited to, bomb


calorimetty-, oxygen bomb calorimetry or constant pressure calorimetry).


Should both parties fail to reach agreement on these values, then this


matter shall be referred to Expert Determination pursuant to the


provisions of Article 30.





(b) On the first day of the Calendar Quarter immediately following the first


anniversary of the Commencement Date, the initial Trigger Price shall be


increased or decreased, as the case may be, by the application of U.S. CPI.


(c) Thereafter, on the date of each anniversary of such day, the Trigger Price that has


been set for the relevant Agreement Year shall be increased or decreased, as the


case may be, by application of U.S. CPI.


(d) The Parties shall discuss and may agree a different Trigger Price where the





circumstances so justify, it being acknowledged that the Contractor may wish to











59


 seek a higher Trigger Price inter alia in the case of a stand-alone Development of


Non-Associated Gas with comparatively high input costs.





Article 12.10 Losses


i- •


(a) The Contractor shall be responsible for all losses of Petroleum that occurs


between the wellhead and the relevant Delivery Point and resulting from the


Contractor's Gross Negligence/Wilful Misconduct. Without prejudice to


PetroleumBRUNEI's other rights and remedies, PetroleumBRUNEI may, by


notifying the Contractor at any time, cause any such loss to be applied to reduce


the Contractor's share of Profit Oil or Profit Gas, as the case may be.


(b) Any loss of Petroleum occurring between the wellhead and the relevant Delivery


Point and resulting from any cause other titan the Contractor's Gross


Negligence/Wilful Misconduct shall be excluded from the calculation of Total


Production of Petroleum.


Article 12.11 Title to:





(a) Cost Gas;


(b) Cost Oil;





(c) the Contractor’s share of Profit Gas; and


(d) the Contractor's share of Profit Oil;





shall pass to the Contractor at the wellhead.


‘Article 12.12 Where in any Calendar Quarter both Crude Oil and Natural Gas are in


production, Article 12.3 and Article 12.7 shall be construed as applying in such a


manner that a portion of the Recoverable Costs is recovered from:-


(a) the Oil Cost Pool equal to the proportion the Crude Oil Quarterly Revenue bears


to the total of the Crude Oil Quarterly Revenue and the Natural Gas Quarterly


Revenue; and














60


(b) the Natural Gas Cost Pool equal to the proportion the Natural Gas Quarterly


Revenue bears to the total of the Natural Gas Quarterly Revenue and the Crude


Oil Quarterly Revenue. ^ i ^











































































































61


 ARTICLE 13





ROYALTY, TAXES AND BONUSES


Pursuant to Article 12.2 and 12.6 the Contractor shall make available to


Article 13.1


PetroleumBRUNEl Royalty Oil and Royalty Gas.


Article 13.2 Tax





(a) Each Contractor Party shall be severally liable to pay to the Government income


tax in accordance with the Income Tax (Petroleum) Act (Cap. 119).


' . (b)


The calculation of the gross proceeds and chargeable profits of each Contractor





Party for the purposes of the Income Tax (Petroleum) Act (Cap. 119) shall be


done using Individual Market Value, calculated in accordance with the


(c) Accounting Procedures.





The rate of the assessable income tax levied in respect of Petroleum Operations


under the Income Tax (Petroleum) Act (Cap. 119) is on the Commencement Date


without prejudice to any penalties payable under the


(d) Income Tax (Petroleum) Act (Cap. 319).





Except for the withholding tax in respect of payments of interest to non-residents


under the Income Tax Act (Cap. 35), there is no withholding tax payable in


respect of Petroleum Operations under Applicable Law on the Commencement


Article 13.3 Date.





The Contractor shall within thirty (30) days after the Commencement Date make


a bonus of to


the Government. This bonus payment shall be Non-Recoverabie Costs.





























62


 ARTICLE 14





NATURAL GAS


Article 14.1 In relation to any Gas Holding Area and throughout the term of any Gas Holding


Period the Contractor shall diligently perform the tasks described in the Gas


Marketing Plan and using all reasonable efforts to identify or develop a Viable


Market for Natural Gas during the course of the Gas Holding Period.


Article 14.2 Notwithstanding any other provision of this Agreement, the Contractor shall


obtain PetroleumBRUNEPs written approval before using Natural Gas in


Petroleum Operations by means of inter alia fuel, gas lift, storage, re-injection for


pressure maintenance or recycling operations to effect maximum commercial


recovery of Petroleum. For the avoidance of doubt, any Natural Gas so used in


Petroleum Operations shall not be part of Total Production.


Article 14.3 Flaring


(a) The Contractor shall minimise flaring of Natural Gas by means of re-injecting


Associated Gas not needed in the conduct of Petroleum Operations and not


capable of being produced commercially', into suitable underground strata or


storage in accordance with Good Oilfield Practice.


(b) The Contractor shall seek PetroleumBRUNEI's prior written approval to flare any


Natural Gas that cannot be re-injected due to specific reservoir considerations or


for other reasons that are accepted in Good Oilfield Practice.


(c) Before any flaring, the Contractor shall use all reasonable endeavours to extract


any natural gasoline and other liquids contained in Natural Gas, provided that


such extraction is in the opinion of PetroleumBRUNEI and the Contractor


commercially justifiable.


(d) Notwithstanding this Article 14.3, the Contractor shall be allowed, without


PetroleumBRUNEI's prior written approval, to flare Natural Gas in emergency


circumstances caused by materially unsafe conditions and requiring immediate


action, PROVIDED that:


(i) any such flared volumes of Natural Gas are kept to a minimum;


A


 (ii) the Contractor uses its best endeavours to bring such flaring to an


end as soon as reasonably practicable; and





(iii) the Contractor notifies PetroleumBRUNEI promptly after the


commencement of any such flaring.





Article 14.4 Market Value of Gas


(a) The Parties shall on an arm's length basis negotiate the sale of Natural Gas on a


joint-dedicated basis (unless all Parties shall agree otherwise or a sale on a joint


basis shall be prohibited by law) to a Natural Gas outlet with the objective of


maximising the economic value of Natural Gas for the Parties at prices and on


other terms which in the opinion of the Parties justify the Development,


Production and delivery' of Natural Gas to such outlet.


(b) For purposes of this Agreement, the weighted average of the agreed prices


actually obtained from such sales of Natural Gas during a Calendar Quarter shall


constitute the Market Value of Natural Gas for such Calendar Quarter.

































































64


 ARTICLE 15





SALE AND OFFTAKE OF CRUDE OIL





Article 15.1


(a) Subject to Article 16 and Article 25, each Contractor Party is authorised to


market, sell, lift and export its own share of the Contractor's Entitlement to Crude


Oil subject only to such restrictions (if any) on export (e.g. relating to the


(b) destination of sales) as may be established by Applicable Law.


Subject to the following provisions of this Article 15, PetroleumBRUNEI shall at


the relevant Delivery Point offtake in kind the entire PetroleumBRUNEPs


Entitlement to Crude Oil and may dispose of any such Crude Oil as it deems


Article 15.2 appropriate.


Market Value of Crude Oil


(a) Except for the purposes of Section 13 of the Accounting Procedures. Crude Oil





shall be valued in US Dollars on the basis of a Market Value determined pursuant


(b) to this Article 15.2.


The Market Value of Crude Oil for any Calendar Quarter shall equal the





weighted average price per Barrel multiplied by the aggregate volume of Crude


(c) Oil produced that Calendar Quarter.


The weighted average price per Barrel shall be determined from sales made by


Contractor Parties of their respective shares of the Contractor’s Entitlement


during that month and be calculated on the following basis:


(i) for sales at the Market Price, the actual prices received; and





(ii) for all Non-Arm's Length Sales, the greater of the Reference


Price on the date of the sale and the price actually received.


Article 15.3 Terms used in this Article 15 in relation to the valuation of Crude Oil shall have


the following meaning:











65


(a) "Arm's Length Sale" means, a sale of Petroleum by a Contractor Parry to a


Third Party, provided that any such sale:





(i) is not part of any collusion (including inter alia between


Contractor Parties, their Affiliates and/or Third Parties) intended


to, or effectively resulting in, reduction in the price of such sale;





(ii) is made in a freely convertible currency;





(iii) does not involve barter or price discounts or setoffs and, more


generally, is not motivated by considerations other than the usual


commercial incentives in petroleum sales for cash; and





(iv) is made on Standard Terms.





(b) "Market Price" means the net realised price per Barrel actually received by a


Contractor Party as a result of the Arm's Length Sale of Crude Oil from the


Agreement Area after making adjustments to reflect any differential between the


terms of the sale and those of a sale F.O.B. at the Delivery Point, to cure the


effect of any payment and credit terms unusual in F.O.B. Crude Oil sales made in


accordance with the Good Oilfield Practice and after deducting any such costs (if


any) as commissions and brokerage, expense of cargo inspection, survey, testing,


measurement, assays and sampling of Crude Oil, all vessel freight and associated


delivery' costs including light dues, lightering, pilotage, demurrage, multi port


discharge costs, port and agency costs, in-transit losses, insurance premiums (if


any) incurred by the relevant Contractor Party on Charterer's Liability' Insurance


and Protection and Indemnity' Insurance, and other expenses incurred by the


Contractor Party in the marketing, sale and/or transportation of Crude Oil


downstream of the Delivery Point (and after excluding any Recoverable Costs).


In the case where the Contractor Party sells Crude Oil from the Agreement Area


to an Affiliate, which in turn (and as near as practicable contemporaneously)


carries out an Arm’s Length Sale of such Crude Oil, the price received from such


Arm's Length Sale (as adjusted, if applicable, pursuant to this Article 15.3(b))


shall be deemed to constitute the Market Price while the price received from such


Affiliate shall be disregarded for purposes of Article 15.2(b) and of this Article


15.3(b).








66


 (C) "Non-Arm's Length Sale" means a sale of Petroleum by a Contractor Party to


its Affiliate and any other sale of Petroleum by a Contractor Party which is not an


(d) Arm's Length Sale;


"Standard Terms" means in relation to any Arm's Length Sale of Crude Oil





from the Agreement Area the following:


(i) the term of the sale contract is less than twelve (12) months; and


(ii) the Crude Oil price is not fixed for the term of the sale, but


instead is pegged to the price of a specific type of Crude Oil(s)


which is/are regularly published in a Reference Index.





Article 15.4 Calculation of Market Value


(a) The Contractor shall in respect of each Calendar Quarter determine the Market


Value and (if there have been Non-Arm's Length Sales of Crude Oil from the


Agreement Area during such period), each Reference Price and the Contractor


shall notify PetroleumBRUNEI of these within twenty (20) days of the end of


such Calendar Quarter together with such calculations and other supporting


evidence as PetroleumBRUNEI may reasonably require to review such


determination.





(b) Following notification, PetroleumBRUNEI shall within sixty (60) days notify the


Contractor if it disagrees with the Contractor's determination and specify the


basis for such disagreement, failing which the Market Value and Reference


Prices for such Calendar Quarter, as notified to PetroleumBRUNEI by the


Contractor pursuant to this Article 15.4(a) shall be deemed approved.





(c) Should PetroleumBRUNEI notify' the Contractor of that it disagrees with the


Contractor's determination, the Parties shall meet and discuss in good faith the


Contractor's determination. Should the Parties fail to reach agreement on the


Market Value and/or Reference Price within one hundred and twenty (120) days


of the end of the Calendar Quarter in question, the Parties shall submit the issue


for determination by an Expert pursuant to Article 30.











67


 During the period between the end of a Calendar Quarter and the final


determination (either by mutual agreement or through Expert determination) of


the Market Value for such Calendar Quarter, the Contractor’s proposed Market


Value for such Calendar Quarter shall be deemed to apply. An}' final Market


Value determined subsequently for such Calendar Quarter shall be promptly


applied to re-adjust the calculations made on the basis of the Contractor's


proposed Market Value.


(e) The Contractor shall until the Market Value is notified to PetroleumBRUNEI


pursuant to Article 15.4(a), use such provisional Market Value as the Contractor


shall determine and notify to PetroleumBRUNEI no later than ten (10) days


before the beginning of such Calendar Quarter. Such provisional Market Value


Article 15.5 shall reflect as nearly as possible the Market Prices expected to be received in the


relevant periods.


Unless the Parties agree otherwise in writing, if Petroleum Operations involve a


segregation of Crude Oil of different quality and'or other characteristics, this


Article 15 regarding valuation of Crude Oil shall apply separately to volumes of


Article 15.6 Crude Oil thus segregated.


Marketing by Contractor


(a) Subject to PetroleumBRUNEI giving the Contractor one hundred and twenty





(120) days notice in wiring, the Contractor shall market, sell, lift and export all


or part of PetroIeumBRUNEI’s Entitlement to Crude Oil. Any such notice served


by PetroleumBRUNEI shall specify the Crude Oil volumes required to be


(b) marketed, sold, lifted and exported as well as the expected duration of such


marketing arrangement.


No later than sixty (60) days after the date of PetroleumBRUNEI’s notice under


Article 15.6(a), the Parties shall agree the terms for the marketing arrangement.


(c) If the Parties are unable to agree on the marketing arrangement, the Contractor


shall implement the marketing plan forwarded by PetroleumBRUNEI provided


that the Contractor may deduct all reasonable and justified costs arising from


implementing such marketing plan from the sale revenues of


PetroleumBRUNEI’s Entitlement to Crude Oil.





68


 Article 15.7 Offtake





(a) Each of the Contractor Parties and PetroleumBRUNEI shall offtake their


respective shares of the Entitlement to Crude Oil on a regular basis. Subject to


Article 15.4, within thirty (30) days after the end of each Calendar Quarter,


PetroleumBRUNEI and each Contractor Party' shall finalise their respective


shares of the Entitlement to Crude Oil for such Calendar Quarter and, if


necessary', shall make appropriate adjustments to their respective shares of the


Entitlement to Crude Oil in the next succeeding Calendar Quarter.


The procedure for adjustments to the Contractor Parties' respective shares of the


(b)


Contractor's Entitlement to Crude Oil to account for reconciliation between the


provisional Market Value used for such Calendar Quarter as referred to in Article


15.4(e) and the Market Value for such Calendar Quarter finally determined


pursuant to Article 15.4 shall be detailed and mutually agreed by the Parties at


least ninety (90) days before the First Commercial Production Date.


Article 15.S The total Crude Oil liftings by each of the Contractor Parties and


PetroleumBRUNEI during any Calendar Year shall be made in such a manner as





to equal to the extent practicable their respective shares of the Entitlement to


Crude Oil. To achieve this objective, each of the Contractor Parties and


PetroleumBRUNEI shall no later than ninety (90) days before the First


Commercial Production Daie agree detailed arrangements for offtake procedures


in respect of inter alia Crude Oil liftings, nomination procedures and tanker


scheduling as well as a mutually acceptable method for balancing out overlift /


underlift positions. If there is no agreed detailed arrangements on or before the


stipulated date, PetroleumBRUNEI may suspend or postpone the First


Commercial Production Date or any other production dates until the parties agree


to a detailed arrangements on good faith and in accordance with Good Oilfield


Practice.























69


 ARTICLE 16





EMERGENCY SUPPLY





Article 16.1 Upon a reasonable notice to the Contractor and in order to ensure Crude Oil


supplies to the countries (other than Brunei Darussalam) which are from time to


time members of ASEAN Council of Petroleum (A SCOPE) or its successor


organisation in accordance with the Government's and/or PetroleumBRUNEI's


commitments to supply Crude Oil to any such countries as a result of an


agreement within ASCOPE or its successor organisation, PetroIeumBRUNEI


may require that the Contractor gives preference to selling the Contractor's


Entitlement to Crude Oil to prospective buyers and/or customers of the


Government and/or of PetroIeumBRUNEI in such countries, as the case may be,


PROVIDED that the price paid for Crude Oil so sold shall not be lower than the


relevant Market Price or the Reference Price in the case where no relevant


Market Price is available.


Article 16.2 War Event or Shortage





(a) Subject to Article 16.3, upon either (i) a War Event or (ii) a Shortage Event the


Government and/or PetroIeumBRUNEI shall have the first right to purchase all


or part of Crude Oil obtained from the Agreement Area in order to supply its


domestic refining requirements provided that, in a Shortage Event, the Contractor


is only obliged to supply Crude Oil under this provision only to the extent that


such Crude Oil (or the refined product it is to be processed into) is required for


domestic consumption in Brunei Darussalam.


fl>) The Contractor shall use its best endeavours to maintain and increase (provided


that any such increase is consistent with Good Oilfield Practice) to the extent


required by the Government and/or PetroIeumBRUNEI, as far as reasonably


possible with facilities that then exist the quantity of Crude Oil available for


supply under this Article 16.2.





(c) The price to be paid for up to twenty (20) per cent, of the Contractor's


Entitlement to Grade Oil in any Calendar Quarter: /














70


 (i) In a War Event shall equal twenty (20) per cent, of the relevant


Market Price or the Reference Price in the case where no





relevant Market Price is available. The price payable for any


further volumes of the Contractor's Entitlement to Crude Oil


supplied pursuant to this Article 16.2 shall equal the Market


Price or the Reference Price in the case where no Market Price is


available;


(ii) in a Shortage Event shall equal ninety' (90) per cent, of the


relevant Market Price or the Reference Price in the case where


no relevant Market Price is available. The price payable for any


further volumes of the Contractor's Entitlement to Crude Oil


supplied pursuant to this Article 16.2 shall equal the Market





Price or the Reference Price in the case where no Market Price is


available.





•Article 16.3 The Contractor's obligation under this Article 16 to supply Crude Oil on a


discounted basis following the occurrence of a War Event or a Shortage Event


may not exceed the ratio that the Contractor's share of production of Crude Oil in


the Calendar Quarter bears to the total production of Crude Oil in that Calendar


Quarter in Brunei Darussalam A


\





w












































71


 ARTICLE 17





PROCUREMENT





Article 17.1 Subject to Article 17.5, all procurement of Goods and Services:


(a) from a person which is a Brunei National, with a value in excess of one hundred


thousand United States Dollars (USD 100,000); and


(b) from a person which is not a Brunei National (including a person merely having a


registered office in Brunei Darussalam but not being incorporated under the laws


of Brunei Darussalam or having its headquarters or being domiciled in Brunei


Darussalam), with a value in excess of five hundred thousand United States


Dollars (USD 500,000),


Article 17.2


shall be on an arm's length basis and shall, unless otherwise approved by


PetroleumBRUNEI in writing, be obtained as a result of competitive bidding.


The Contractor shall assist in the development of the economy and skills base of


Brunei Darussalam. In doing so the Contractor shall in procuring Goods and


(a) Sendees seek to:


promote the transfer of non-proprietary technology from the Contractor or its


subcontractors to firms and companies in Brunei Darussalam with the objective


of developing local technical and managerial capabilities;


(c) (b) minimise the outflow of foreign currency; and





develop ancillary industries arising from Petroleum Operations to enhance the


growth of the economy of Brunei Darussalam.


Article 17.3 Local Procurement


(a) In conducting Petroleum Operations, the Contractor shall:


(i) give priority' to Goods and Services produced in Brunei


Darussalam or rendered by Bruneian nationals, provided that


such Goods and Services are offered on terms competitive with


those available on die international market particularly with





72


 regard to quality, price and availability at the time and in the


quantities required;


{ii) in arranging financing for Petroleum Operations, seek to consult


with financial institutions based in Brunei Darussalam (in


particular Brunei national financial institutions) with a view to


encouraging the participation (as part of a lender syndicate or


otherwise) of such financial institutions in such financing.





(b) Along with each Work Programme and Budget the Contractor shall submit to


PetroleumBRUNEI:


(i) a report setting out the basis upon which the Contractor plans to


evaluate bids for Goods and Services:





(ii) a list of Goods and Services required for Petroleum Operations,


which the Contractor considers are available in Brunei


Darussalam;


(iii) a list of Goods and Sendees required for Petroleum Operations,


which the Contractor considers are not available in Brunei


Darussalam;


(iv) a list of the subcontractors the Contractor expects to engage





during the forthcoming Calendar Year; and


(v) its strategy for the award of contracts for Goods and Sendees in


the forthcoming Calendar Year to Bruneian entities and its


progress in maximising the use of Bruneian Goods and Sendees


in the preceding Calendar Year.





(c) Upon receipt of the information described in Article 17.3(b) PetroleumBRUNEI


shall at any time after the Commerciality Date be entitled to:





(i) require the removal from the list referred to in Article I7.3(b)(iv)


of any sub-contractor that PetroleumBRUNEI shall reasonably


consider unsuitable or insufficiently qualified;











73


 (ii) require the addition the list referred to in Article 17.3(b)(iv) of a


sub-contractor that PetroleumBRUNEI shall deem to have the


necessary skills, experience and resources to enable it to provide


Goods and Services;


(iii) convene a meeting with the Contractor to consider which Goods


and Services (including insurance) the Contractor considers are


not available in Brunei Darussalam but which


PetroleumBRUNEI considers existing local businesses may


reasonably be capable of producing or rendering with some


development and assistance from the Contractor.


(d) Following a meeting convened pursuant to Article 17.3(c), the Contractor shall if


requested by PetroleumBRUNEI submit a five (5) Calendar Year plan setting out


its strategy for providing such assistance and for fulfilling its obligations under


(e) Article 17.2 in its overall contracting strategy.


The Contractor shall procure that its subcontractors comply with the provisions


of Article 17.2 and Article 17.3(a) and that similar provisions shall be inserted in


all contracts with its subcontractors entered into in connection with Petroleum


Article 17.4 Operations.


Procurement Rules


(a) The Contractor shall obtain PetroleumBRUNEI's prior written approval before


entering into a Material Contract not included or provided for in an Approved


Work Programme and Approved Budget. No such prior approval shall be


Cb) required for Material Contracts that have been so included.


Before inviting any tender for a Material Contract, the Contractor shall submit to


PetroleumBRUNEI a list of bidders which the Contractor proposes to invite to


tender and a statement confirming:


(i) that the Material Contract is provided for in the relevant


Approved Work Programme and Approved Budget;





(ii) die estimated value of the tender and/or contract; and








74


 (iii) the contracting schedule.





In addition to the above, if so requested by PetroleumBRUNEI. the Contractor


shall also submit to PetroleumBRUNEI:





(i) the proposed invitation to tender;


(ii) the technical specifications and the scope of work


(ill) a list of subcontractors being invited to tender; and





(iv) a draft of the contract that the Contractor proposes to enter into


with the successful sub-contractor.





PetroleumBRUNEI may require that the list of subcontractors being invited to


tender be amended to include additional persons w'hich are accredited by


PetroleumBRUNEI as well as financially sound and technically competent.





Subject always to its obligations in Article 17.2 and Article 17.3(a), the


Contractor shall evaluate all bids received in response to an invitation to tender


for a Material Contract on the basis of cost and operational and technical


acceptability.


Deemed Approval and Emergencies


Any PetroleumBRUNEI approval required under this Article 17 shall be deemed


to have been granted, if within thirty (30) days after the Contractor's application,


PetroleumBRUNEI has neither (i) given its written approval nor (ii) notified the


Contractor that PetroleumBRUNEI does not approve and the reasons for such


decision.


In extraordinary or emergency circumstances requiring immediate action, the


Contractor may enter into a Material Contract notwithstanding 'that the


requirements of Article 17.4 have not been complied with, provided that


PetroleumBRUNEI is promptly advised of such circumstances and Material


Contract and further provided that such Material Contract is one that a


Reasonable and Prudent Operator might reasonably be expected to enter into in


Article 17.6 PetroleumBRUNEI and the Contractor shall from time to time review the


practical application of this Article 17 and consider any changes required to





improve its efficient operation. .


J




















































































































76


 ARTICLE 18





RESEARCH AND DEVELOPMENT CONTRIBUTION


Article 18.1 The Contractor shall pay to PetroleumBRUNEI a research and development


contribution of two percent (2%) of the Market Value of:


(a) Cost Oil;


(b) the Contractor's share of Profit Oil;


(c) Cost Gas; and





(d) the Contractor's share of Profit Gas.


Article 18.2 Said contribution shall be payable within thirty' (30) days from the end of each


Calendar Quarter in which the Contractor sells the relevant volumes of Cost Oil,


Cost Gas. Profit Oil and Profit Gas.


Article 18.3 All research and development contribution payments made hereunder shall be


Non-Recoverable Costs, but shall, in accordance with Section 12.3(b)(ii) of the


Accounting Procedures, be deductible for purposes of income tax payable in


accordance with the Income Tax (Petroleum) Act (Cap. 119).


Article 18.4 The Contractor may by written notice to PetroleumBRUNEI request that a


research and development project it is undertaking be accepted in lieu of all or


part of research and development contribution payment.
































77


 ARTICLE 19





PAYMENTS AND CURRENCY MATTERS





Article 19.1 Payments





(a) All payments made between PetroleumBRUNEI (or the Government, as


the case may be) and the Contractor under this Agreement shall be in US


Dollars or any other currency mutually agreed in writing by the Parties,


to the bank account(s) designated by the Party receiving such payment.


(b) Where a payment is made in a currency other than US Dollars, such





payment shall be converted into US Dollars for purposes of the


Petroleum Account on the basis of the rate actually experienced in that


conversion. If no currency conversion has actually occurred, then:


(i) a currency translation into US Dollars in respect of a transaction


neither stated nor settled in Brunei Dollars, shall be recorded at


the midpoint of the closing buying and selling rates published in


the Financial Times in London or in another mutually agreed


independent publication on the last day for which such rates


were so published prior to the date on which the relevant


transaction occurred; and


(ii) a currency translation into US Dollars in respect of a transaction





stated or settled in Brunei Dollars, shall be recorded at the


midpoint of the closing buying and selling rates quoted by the


HSBC Bank in Brunei Darussalam (based on the Brunei


Association of Banks board rate) or published in a mutually


agreed independent publication on the last day for w'hieh such


rates were so quoted or published prior to the date on which the


relevant transaction occurred.





(c) Where so requested by PetroleumBRUNEI or any Government agency in


accordance with Applicable Law, the Contractor shall promptly prepare


and deliver to PetroleumBRUNEI or such Government agency, as the


case may be, any part of the Petroleum Account relating to a payment /








78


referred to in Article 19.1(a) translated into Brunei Dollars at the


midpoint of the buying and selling rates quoted by the HSBC Bank in


Brunei Darussalam (based on the Brunei Association of Banks board


rate) or published in a mutually agreed independent publication on the


last day for which such rates were so quoted or published in the Calendar


Quarter to which the relevant part of the Petroleum Account relates.


Article 19.2 Currency Matters


In performing its obligations under this Agreement, the Contractor shall subject


to Applicable Law have the following rights:





(a) the right to receive, retain and dispose of, within or outside Brunei


Darussalam, the entirety of proceeds received from selling the


Contractor's Entitlement or from other Petroleum Operations;


(b) the right to convert and exchange any of its funds into Brunei dollars or





any foreign currency;


(c) the right to import and export any of its funds (including all of its capital,


loan principal, profits and other income, such as fees earned from shared


facilities, arising out of Petroleum Operations) in Brunei dollars or any


foreign currencies to and from Brunei Darussalam; and





(d) the right to maintain and operate bank accounts w'ithin or outside Brunei


Darussalam in whatever currencies it may cboose.





Nv.
































79


 ARTICLE 20





ASSISTANCE PROVIDED BY PETROLEUMBRUNEI


^Uticle 20.1 PetroleumBRUNEI hereby agrees, subject to the constraints of its constitutional


powers and there being no conflict with any other duties imposed on it by


Applicable Law, to provide the Contractor with such assistance as it may


reasonably request in obtaining:


(a) all necessary permissions including rights of way and easements, visas


for the Contractor's personnel and those of its subcontractors who come


to Brunei Darussalam in connection with Petroleum Operations;


(b) land within Brunei Darussalam for installations and such other purposes


as may be agreed by the Parties to be necessary for Petroleum


Operations;


(c) all required Government approvals, permits and clearance authorisations


to enable the Contractor and its subcontractors to carry out Petroleum


Operations;


(d) access on fair and reasonable terms to any existing transportation,


processing or sales facilities and infrastructure in Brunei Darussalam for


any Petroleum produced pursuant to this Agreement;


(e) such rights outside Brunei Darussalam in connection with a unitisation


process under Article 11 as may be reasonably requested by the


Contractor; and


(f) the rights specified in Article 5.1(f) and Article 5.1(g),


provided that nothing in this Article shall (i) impose any obligation on


PetroleumBRUNEI to actually obtain any such approvals or rights or (ii) relieve


the Contractor from an obligation to pay any fees or costs thereof.


Assistance Payment


(a) In consideration of PetrokumBRUNEI’s assistance pursuant to Article


20.1, the Contractor shall pay to PetroleumBRUNEI:





80


(i) three hundred thousand US Dollars (US$300,000) per year


during the Exploration Period; and


(ii) two hundred thousand US Dollars (US$200,000) thereafter,


such payments to be made within thirty (30) days of the Commencement


Date in the first Agreement Year and thereafter prior to 30 January' each


Calendar Year.


(b) Any such payments shall be considered Non-Recoverable Costs, but


shall, in accordance with Section 12.3(bXiii) of the Accounting


Procedures, be deductible for purposes of income tax payable in


accordance with the Income Tax (Petroleum) Act (Cap. 119).

































































81


 ARTICLE 21





OWNERSHIP OF PROJECT ASSETS


^Article 21.1 Transfer of Title


All Project Assets which are purchased or created by the Contractor for use in


Petroleum Operations and are, as of the First Commercial Production Date,


located in Brunei Darussalam or brought within the jurisdiction of Brunei


Darussalam at any time after such date, shall become property of, and title


thereto shall pass to, PetroleumBRUNEI.


Article 21.2 Use of Project Assets


(a) The Contractor shall have the sole right to use Project Assets for





conducting Petroleum Operations free of charge for the duration of the





(b) Die prior wTitten approval of PetroleumBRUNEI shall be required for


any use of any Project Assets other than in Petroleum Operations.


(c) If PetroleumBRUNEI wishes to use any Project Assets it may do so after


consulting with the Operator, provided that such use does not


unreasonably interfere with the performance of Petroleum Operations in


the Agreement Area and such use shall be at PetroleumBRUNErs sole


risk and expense.


Article 21.3 Disposal of Project Assets





(a) Prior written approval of PetroleumBRUNEI shall be required for any


disposals of Project Assets.


(b) The Contractor shall promptly notify PetroleumBRUNEI of all planned


disposals of Project Assets. For the purpose of this Article, any transfer


of Project Assets to any place outside the Agreement Area other than that


for the purpose of repair, upgrade, maintenance and emergencies shall be


deemed to be a dispo sal of such Project Asset?











82


 (c) The Contractor shall have a right of first refiisal to purchase any Project


Assets, the title to which has become vested in PetroleumBRUNEI in


accordance with Article 21.1, and which PetroleumBRUNEI elects to


sell. The price payable to PetroleumBRUNEI shall be the market value


of such Project Assets.


(d) Should the Contractor sell any Project Assets in which title has passed to





PetroleumBRUNEI pursuant to Article 21.1 the proceeds of sale (after


deduction of the costs of sale) shall, to the extent the Recoverable Costs


of such Project Assets have not been fully recovered out of Cost Pool at


the time of such sale be credited to the Petroleum Account. Any


remaining proceeds shall be paid to PetroleumBRUNEI no later than


fourteen (14) working days after receipt of such proceeds from the


purchaser.





Article 21.4 The following types of Project Assets shall not transfer to PetroleumBRUNEI


pursuant to Article 21.1:


(a) those owned by Third Parties engaged as subcontractors by the





Contractor and imported into Brunei Darussalalm on a temporary' basis;


(b) those acquired by the Contractor from Third Parties for use in Petroleum


Operations on a "sale or return" basis which the Contractor shall have the


right to return to the supplier; and


(c) those leased to the Contractor by Third Parties for use in Petroleum





Operations,


subject to any net restocking proceeds from goods purchased on a "sale or return"


basis and any residual value obtained from early termination or premature


surrendering of a lease being allocated as provided in Article 21.3(d). '





Article 21.5 The Contractor shall maintain all Project Assets in good working condition at all


times subject to reasonable wear and tear. Unless otherwise agreed by


PetroleumBRUNEI in writing, all Project Assets subject to transfer to


PetroleumBRUNEI pursuant to Article 21.1 shall be free of all liens, security


interests and encumbrances. r








83


 ARTICLE 22





REPORTS, ACCOUNTS AND AUDITS


Article 22.1 Operational Reporting


In accordance with Good Oilfield Practice, the Contractor shall keep


PetroleumBRUNEI regularly and fully informed of all Petroleum Operations and


shall promptly provide PetroleumBRUNEI with data, samples, information,


interpretations and reports, including progress and completion reports reasonably-


required by PetroleumBRUNEI. Such information shall include:


(a) raw’ and processed seismic data and interpretations thereof;


(b) well data, including daily drilling reports, electric Jogs and other wireline


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


analyses thereof;


(c) all reports prepared from drilling data or geological or geophysical data,


including completed maps or illustrations derived therefrom;


(d) all well completion and well testing reports;


(e) reports dealing with location surveys and all other reports regarding well,


treating plant or pipeline locations;


(f) reservoir investigations and estimates regarding reserves, field limits and


economic evaluations relating to future Petroleum Operations;


(g) such reports on Petroleum Operations as may be requested by the


Government;


(h) contingency programs and reports dealing with environmental matters,


safety and accidents;


(i) design drawings, criteria, and specifications and construction records;


0) reports of technical audits and studies relating to Petroleum Operations;


■%. *





84


 (k) reports of all other investigations based on data from the Agreement


Area; and


(l) all other information or reports which may be required by the


Accounting Procedure.





Article 22.2 Other Reporting


In addition, the Contractor shall prepare and deliver to PetroleumBRUNEI:





(a) No later than sixty (60) days following the end of each Calendar Year, a


report covering Petroleum Operations performed in the Agreement Area


during such Calendar Year, such report to include:


(i) a statement showing all wells drilled, the depth of each such


well, and a map on which drilling locations are indicated;





(ii) a statement of the estimated quantities of Petroleum, fresh water


layers or significant quantities of other minerals encountered;


(iii) a genera] summary of all Petroleum Operations in the Agreement


Area;


(iv) a statement of the number of employees or consultants engaged


in Petroleum Operations in Brunei Darussalam, identified by


nationality; and


(v) a statement on the estimated Petroleum reserves remaining to be


recovered and the underlying analysis related to this statement.





(b) within thirty (30) days of a rig having been released from a drilling


location, a report which containing all available relevant Data and a


statement whether or not the drilling of the Exploration Well and any


subsequent testing resulted in a discovery of Petroleum of potential


interest;





(c) within sixty (60) days from the end of each Calendar Quarter, details of


Goods and Services sourced from persons in Brunei Darussalam;


& I








85


(d) within thirty (30) days of the end of each Calendar Quarter a form


showing all purchases, transfers and disposals of any Project Assets


during that Calendar Quarter;


(e) copies of such agreements with subcontractors as PetroleumBRUNEl


shall reasonably request; and


(f) at PetroleumBRUNEFs request after the completion of a Material





Contract a completion report on the project including details of the actual


expenditures and such other information as PetroleumBRUNEl shall


reasonably request.





Article 22.3 Petroleum Account


(a) The Operator shall in accordance with the terms of this Agreement


(including the Accounting Procedures), Good Oilfield Practice and


International Accounting Standards (IAS) prepare and keep at the


Operator's office in Brunei Darussalam, separate and complete accounts


(including all books, records, statements, invoices, cash vouchers, debit


notes, payrolls, timesheets and other documents, correspondence, records


as well as all reports prepared and delivered pursuant to Section 2 of the


Accounting Procedures) of all charges (including all Costs) and credits in


respect of all Petroleum Operations (the "Petroleum Account").


(b) As part of the Petroleum Account, the Contractor shall prepare and keep


a separate and complete register of all fixed assets acquired and held for


use in Petroleum Operations.


Article 22.4 Non Operator's Accounts





(a) Each of the Contractor Parties other than the Operator shall in


accordance with the Terms of this Agreement (including the Accounting


Procedures) and Good Oilfield Practice prepare and keep complete


accounts (including all books, records, statements and other financial and


accounting records (but excluding the Petroleum Account) in respect of


all transactions and joint venture activities relevant to sales and other


disposals of Petroleum from the Agreement Area as well as in respect of /





4


86


 any costs and expenses referred to in Section 13.3(b)(iv) of the


Accounting Procedures (the "Joint Venture Account").





(b) If any Contractor Party' does not maintain the Joint Venture Account in


Brunei Darussalam, it shall upon reasonable prior written notice from


PetroleumBRUNEl arrange for a copy of the Joint Venture Account to


be delivered to PetroIeumBRUNEI’s registered office address in Brunei


Darussalam.





Article 22.5 Access and Audit





(a) PetroleumBRUNEl shall have the right to access the Petroleum Account


and Joint Venture Account at any reasonable times and upon reasonable





prior notice and to make copies thereof. If requested by


PetroleumBRUNEl, the Contractor shall provide reasonable assistance


and logistical support (including suitable office space, equipment,


stationery and other like resources) to PetroleumBRUNEl.


(b) PetroleumBRUNEl shall in accordance with Section 3.1 of the


Accounting Procedures have the right to audit the Petroleum Account for


any Calendar Year and to require each Contractor Party' other than the


Operator to procure the production of an audit report in relation to such





Contractor Party's Joint Venture Account.





Article 22.6 The audit requirements in Article 22.5(b) are in addition to any audit and other


requirements that may be applicable to Contractor Parties under the Companies


Act (Cap. 39)(e.g. section 131), the Income Tax (Petroleum) Act (Cap. 119) (e.g.


sections 21 and 24) and/or the Income Tax Act (Cap. 35) (e.g. sections 55 and



































87


 ARTICLE 23





EMPLOYMENT AND TRAINING





For the purposes of this Article 23 only, the term "Brunei National" shall only


include natural persons who are citizens of Brunei Darussalam.


^Article 23.2 The Operator shall offer a mutually agreed number of Bruneian nationals the





opportunity for on-the-job training and practical experience in Petroleum


Operations during the Exploration Period.





'Article 23.3 Not later than six (6) months after the Commerciality Date the Operator shall:





?•; (a) meet with PetroleumBRUNEI to review the Operator's proposals


si -


s regarding the number, expertise and qualifications of the staff to be


t- ■


r.


i employed at the Operator's office in Brunei Darussalam which the


r Operator considers appropriate to fulfil the Contractor's obligations under


this Agreement;





(b) in consultation with PetroleumBRUNEI, establish and implement


training programmes for staff positions in each phase and level of





Petroleum Operations including skilled, technical, executive and


management positions, with a view to ensuring employment of Bruneian


nationals and gradual and progressive reduction of foreign personnel;


and





(c) diligently undertake an extensive hiring program, with the objective to


engage qualified Bruneian nationals at all levels of Petroleum


Operations, including in key technical and managerial roles.





Article 23.4 During the Development and Production Period, the Operator shall:





(a) continue to employ and train Bruneian nationals at every level of


Petroleum Operations. The Operator's objective shall be to ensure that


the number of Bruneian nationals employed in Petroleum Operation is


consistent the Operator's localisation programmes develc


Article 23.3;











88


(b) where appropriate opportunities exist accept secondees proposed by


Petro leumBRUNEI;


(c) minimise the employment of expatriates by ensuring that such personnel


are employed in positions for which it has not been possible to find a


suitably qualified Bruneian national; and


(d) obtain PetroleumBRUNEI's written consent prior to retaining any


expatriate personnel such consent not to be unreasonably withheld


subject to the Contractor providing PetroIeumBRUNEI with written


reasons which are reasonably satisfactory to PetroIeumBRUNEI as to


why the Contractor is unable to find a suitably qualified Brunei National


to fill the relevant vacancy. PetroIeumBRUNEI will respond to any


application made by the Contractor pursuant to this Article 23.4(d)


within thirty (30) days of such application being made provided that:


(i) PetroIeumBRUNEI may, acting in its absolute discretion, extend


such period for a further thirty (30) days by providing prior


written notice of such extension to the Contractor;


(ii) if PetroIeumBRUNEI requires more than sixty (60) days in


■which to make a decision in respect of an application made by


the Contractor pursuant to this Article 23.4(d), it will, prior to the


expiry of the second thirty (30) day period referred to in Article


23.4(d)(ii), provide a written request to the Contractor for an


additional period of time in which to make its decision (such


request to provide reasonable detail to the Contractor of the


reasons for PetroIeumBRUNEI seeking such extension); and


(iii) the Contractor may: ^


(A) not unreasonably withhold its consent to an application made


by PetroIeumBRUNEI pursuant to Article 23.4(dXii);


(B) in providing its consent to an application made by


PetroIeumBRUNEI pursuant to Article 23.4







89


 reasonable deadline upon PetroIeumBRUNEI by which time


PetroleumBRUNEI's decision must be made;





(iv) in the event PetroIeumBRUNEI withholds consent to any


expatriate personnel it shall provide its reasons for doing so in





writing.


Article 23.5 Upon execution of this Agreement and at such time as shall be determined by


V- PetroIeumBRUNEI, both die Operator and PetroIeumBRUNEI shall reasonably


endeavour, acting in good faith, to arrive at mutually agreeable terms concerning


the creation of a scholarship and training program for the benefit of Brunei


Nationals, to be established within Canada. Such individuals will receive


training, expertise and tuition in general petroleum indusuy practices, including,


but not limited to, techniques and methods involved in Exploration, Development


and Production Operations. The cost of establishing and maintaining such


program will be bom by the Contractor according to the following schedule:

































































90


 ARTICLE 24








PetroleumBRUNEI shall have the right at any time to acquire a Participating


f? Interest of tip to fifteen percent (15%) (the "PB Interest").


^Article 24.2 The PB Interest shall be free of any liens or security interests and shall be carried


throughout the Exploration Period. The Contractor shall be solely responsible for


i’Article 24.3 all Exploration Costs incurred in connection with the PB Interest.


PetroleumBRUNEI shall exercise its right to acquire the PB interest by


VI. delivering to the Contractor a notice (the "Participation Notice") specifying:


v-


h (a) the date of the Participation Notice;


I '•


t (b) the amount (expressed as a percentage) of the PB Interest that





L PetroleumBRUNEI wishes to acquire; and


l


I. (c) whether the PB Interest so specified should be transferred to


u


i: PetroleumBRUNEI or to any of its Affiliates and, if the latter, the name


and address of the designated Affiliate(such transferee being the "PB


Holder")..


i Article 24.4 Completion of PetroleumBRUNEI’s acquisition of the PB Interest shall occur on


the date (the "Participation Completion Date") falling thirty (30) days after the


service of the Participation Notice when the Parties shall execute, in a form


reasonably acceptable to PetroleumBRUNEI:


(a) a deed of assignment whereby each Contractor Party transfers to


PetroleumBRUNEI its pro rata share of the PB Interest; and


(b) a deed of adherence pursuant to which PetroleumBRUNEI shaft-become


a party to the Joint Operating Agreement which shall provide for such


amendments (if any) to the Joint Operating Agreement as


PetroleumBRUNEI shall consider reasonably necessary.


ArticJe 24.5 If the Participation Completion Date shall occur after the Contractor has incurred


any Appraisal Costs or Development Costs PetroleumBRUNEI<





91


 rata share of such costs and such payment shall be allocated amongst the


Contracting Parties pro rata to the Participating Interests they held immediately


prior to the Participation Completion Date.


I .


5


icicle 24.6 Following die Participation Completion Date, PetroleumBRUNEI shall pay its


f pro rata share of all Appraisal and Development Costs.


f The Contractor shall if so requested by PetroleumBRUNEI either:


[article 24.7


r (a) assist PetroleumBRUNEI to identify sources of third party- financing to


I assist PetroleumBRUNEI to meet its obligations pursuant to Article 24.5


r and Article 24.6; or


(b) permit PetroleumBRUNEI to defer payment of its liabilities pursuant to





Article 24.6 until after the First Commercial Production Date and


thereafter to repay these out of the proceeds of sale from eighty’ per cent


(80%) of PetroIeumBRUNEI's entitlement of Profit Oil and Profit Gas.


If, under Article 24.7, acting reasonably and in accordance with the standards of


i Good Oilfield Practice, the Contractor seeks debt finance (a "Contractor


r Loan") in order to allow PetroleumBRUNEI to defer payment of its liabilities


pursuant to Article 24.7 until after the First Commercial Production Date, the


Contractor shall be entitled to include the interest on such Contractor Loan as


Recoverable Costs the rate of interest charged on the loan by an internationally


recognised financial institution acting on an arm's length basis taken on an


average annual basis for the rate for the relevant Agreement Year, provided that


such financial institution referred to in Article 24.8 shall have a credit rating from


an internationally recognised rating agency equivalent to a Standard & Poors


rating of not less than AA and that such interest shall be calculated annually,


compounded annually.





Article 24.9 After the Participation Completion Date:


(a) PetroleumBRUNEI shall:


(i) enjoy all the benefits of the PB Interest (including its rights





under the Joint Operating Agreement);








92


subject to Article 24.2 meet all Appraisal, Development and


Operating costs relating to the PB Interest; and


fulfil its obligations under the Joint Operating Agreement.





 ARTICLE 25





DOMESTIC SUPPLY AND DOWNSTREAM OPERATIONS


/ The Contractor recognises the aspiration of Brunei Darussalam to develop


j^jcle 25.1


i domestic downstream petroleum industries including the need to ensure national


V. self-sufficiency and security' of supply in respect of petroleum products in Brunei


[: Darussalam.


particle 25.2 In recognition of the objectives mentioned in Article 25.1 and in accordance with


i;- .. its obligations under Article 14.1 the Contractor agrees:


£


(a) upon request to meet with PetroleumBRUNEI to discuss ways of co¬


operating in the areas of domestic Crude Oil refining. Natural Gas


processing and liquefaction, and/or petrochemical industry in Brunei


Darussalam; and


(b) provide a reasonable and independently verifiable estimate of the costs


(the "Study Costs") to conduct a feasibility study (a "Study") into the


possible establishment of one or more petrochemical industry(ies) in


Brunei Darussalam; and


(c) if, taking into account the Study Costs, PetroleumBRUNEI decides to


proceed with the Study such Study Costs will be shared as between the


Contractor and PetroleumBRUNEI on a basis to be agreed as between


the Contractor and PetroleumBRUNEI but subject to Contractor's share


of the Study Costs:


(i) being at least eighty (80) per cent, of the total of the Study Costs;





and


(ii) being Recoverable Costs


(d) if the Contractor and PetroleumBRUNEI cannot reach an agreement on


how to share the Study Costs pursuant to Article 25.2(c) within thirty


(30) days of the Contractor providing PetroleumBRUNEI with the value


of the Study Costs being provided to it pursuant to Article 25.2(b),











94


 PetroleumBRUNEI will be free to approach third parties to undertake the


Study and any project resulting from such Study.





Midcle 25 .3 PetroleumBRUNEI will use all reasonable endeavours to consult with the


Government to procure that the Contractor may, at its option, have a right to





participate in the implementation any petrochemical project which is subject of a


Study provided that the Contractor has satisfied its obligations under Article


25.2(c)(i).


t Domestic Supply Obligation


^Article 25.4


w (a) Subject to Article 25.4(c), PetroleumBRUNEI may by notice in writing


t- require the Contractor to make available to PetroleumBRUNEI or to one





of its designees for consumption within Brunei Darussalam a quantity of


Petroleum equal to ten percent (10%) of the Contractor's share of Profit


Oil and Profit Gas;





(b) The Contractor shall procure that the quantities of Crude Oil and Natural


Gas supplied by the Contractor for domestic consumption under Article


25.4(a) shall be made available to PetroleumBRUNEI or


PetroleumBRUNEI's designee, as the case may be, at the Deliveiy Point


or such other place as the Parties may agree in writing.





(c) The Contractor's obligation to supply Crude Oil pursuant to Article


25.4(a) is limited to the extent that such Crude Oil, and any products


derived from such Crude Oil, is consumed within Brunei Darussalam.


Article 25.5 Domestic Supply Prices








The prices payable for Natural Gas and Crude Oil supplied in any Calendar


Quarter by the Contractor pursuant to Article 25.4(a) shall be a price equal to


ninety (90) per cent, of its Market Price for the immediately preceding Calendar


Quarter. /£




















95


 ARTICLE 26





INSURANCE AND INDEMNITIES





f Article 26.1 The Contractor shall, during the term of this Agreement. maintain and obtain


insurance coverage for and in relation to Petroleum Operations for such amounts


and against such risks as is required by Applicable Law and that are customarily


or prudently insured in the international petroleum industry in accordance with


Good Oilfield Practice and shall furnish to PetroleumBRUNEI, certificates


evidencing that such coverage is in effect. Such insurance policies shall include


PetroleumBRUNEI as additional insured and shall waive subrogation against


PetroleumBRUNEI. The said insurance shall, without prejudice to the generality


of the foregoing, cover:


(a) loss or damage to all installations, equipment and other assets for so long


as they are used in or in connection with Petroleum Operations;


provided, however, that if for any reason the Contractor fails to insure


any such installation, equipment or assets, it shall replace any loss


thereof or repair any damage caused thereto;


(b) loss, damage or injury caused by pollution in the course of or as a result


of Petroleum Operations;


(c) loss of property or damage or bodily injury suffered by any third party in





the course of or as a result of Petroleum Operations for which the


Contractor may be liable;


(d) any claim for which PetroleumBRUNEI may be liable relating to the loss


of property or damage or bodily injury suffered by any third party in the


course of or as a result of Petroleum Operations for which the Contractor


is liable to indemnify PetroleumBRUNEI or the Government;


(e) with respect to Petroleum Operations offshore, the cost of removing


wrecks and cleaning up operations following any accident in the course


of or as a result of Petroleum Operations;











96


 (f) the Contractor's and/or the Operator’s liability to its employees and/or


consultants engaged in Petroleum Operations;


(g) loss arising out of a failure to control a well; and





p


i? (h) loss of all Petroleum up to the Delivery Point.


K


^Article 26.2 The Contractor shall require its subcontractors to obtain and maintain insurance


;■ against the risks referred to in Article 26.1 (except Article 26.1(h)) relating


i ‘


mutatis mutandis to such subcontractors.





^Article 26.3 The insurance cover required under Article 26.1 shall be obtained either from:





(a) local Islamic insurance institutions providing takaful insurance schemes;


r


t-


!• or





(b) if such cover shall not be available on terms that are competitive on


premium and level of cover, from reputable international insurers).





• Article 26.4 Claims





(a) The Contractor shall use its best endeavours to pursue any insurance


t claims.





(b) Following the loss of, or damage to, any Project Assets insured under


Article 26.1(a) against such loss or damage the Operator shall determine


whether the relevant Project Assets should be replaced, repaired or


abandoned. If the Operator decides to repair or replace, it shall do so


promptly.





(c) If the Contractor decides to neither repair nor replace, then all proceeds


of the relevant insurance claim shall, to the extent the Recoverable Costs


of the relevant Project Assets have not been fully recovered at the time of


the loss or damage, credited to the Petroleum Account against


Recoverable Costs in accordance with the Accounting Procedures. Any


remaining insurance proceeds shall be paid to PetroleumBRUNEI no


later than fourteen (14) working days from the





insurance proceeds.








97


 (d) In the case of a loss of any Petroleum produced from the Agreement


Area the proceeds of the relevant insurance coverage shall be considered


as sales revenue and shall be subject to the revenue allocation provisions


of this Agreement.





The Contractor shall indemnify defend and hold harmless the Government and


article 26.5


PetroleumBRUNEl from and against any loss, damages or liability of any kind


whatsoever arising in connection with any Petroleum Operations conducted by or


on behalf of the Contractor irrespective of any Gross Negligence/Wilful


Misconduct or breach of duty on the part of PetroleumBRUNEl and/or any of its


Affiliates and/or subcontractors and/or any of their officers, employees, agents or


s)/


servants.










































































98


 I





b ARTICLE 27


r.





HEALTH, SAFETY, ENVIRONMENT AND ABANDONMENT


^Article 27.1 The Contractor shall comply with Applicable Law and Good Oilfield Practice in


relation to all health, safety and environmental issues as well as


PetroleumBRUNEI's reasonable instructions given for the purpose of


maintaining health and safety' of personnel, the community' and die environment


in the area of Petroleum Operations.


Article 27.2 The Contractor shall cause a person or persons with special knowledge on


f environmental matters, to carry' out an environmental impact study in order:





(a) to determine at the time of the studies the prevailing situation relating to





the environment, human beings and local communities, the flora and


fauna in the Contract Area and in the adjoining or neighbouring areas;


and


(b) to establish the likely effect on the environment, human beings and local





communities, the flora and fauna in the Agreement Area and in the


adjoining or neighbouring areas in consequence of the relevant phase of


Petroleum Operations to be conducted under this Agreement and to


submit for consideration by PetroleumBRUNEI the methods


contemplated by the Contractor for minimising environmental damage


and carrying out Site Restoration activities. The costs of such study shall


be Recoverable Costs.


Article 27.3 The Contractor shall not dispose of w'ithin Brunei Darussalam any toxic and/or


hazardous materials without the prior written consent of PetroleumBRUNEI.





Article 27.4 The Contractor shall not, without the prior written consent of


PetroleumBRUNEI, operate in natural reserves, national parks, marine





sanctuaries, protected areas, and any areas defined as protected and/or restricted


areas by the Government


Abandonment


" Article 27.5











99


 (a) Upon the expiry- of the Term and/or the relinquishment of any part of the


Agreement Area pursuant to Article 4, the Contractor shall undertake


Site Restoration of those parts of the Agreement Area affected bv


Petroleum Operations.





(b) Prior to the First Commercial Production Date, PetroleumBRUNEI and


the Contractor shall agree upon a comprehensive plan and an estimate of


associated cost of carrying out Site Restoration of each area in which the


Contractor proposes to cany out Petroleum Operations (the


"Abandonment Plan").


(c) All Site Restoration shall be performed in accordance with Good Oilfield


Practice and the relevant Approved Work Programme and Approved


Budget, the Abandonment Plan (if any) and Applicable Law-.


(d) Upon completion of any Site Restoration the Contractor shall notify


PetroleumBRUMEI. Once PetroleumBRUNEI is satisfied that a Site


Restoration meeting the required standards has been completed, it shall


notify the Contractor thereof in writing, whereupon the Contractor shall


be deemed to have fulfilled its Site Restoration obligations hereunder;


(e) All Site Restoration costs shall be Recoverable Costs, unless such costs





are funded from the Abandonment Fund.





Article 27.6 Abandonment Fund





(a) On or before the First Commercial Production Date, PetroleumBRUNEI


and the Contractor shall jointly establish, maintain and administer a


special abandonment and removal fund deposited into a specific interest¬


bearing escrow US Dollar account in Brunei Darussalam and dedicated


to funding the costs of Site Restoration (the "Abandonment Fund"),





(b) In accordance with the Abandonment Plan and as part of the Approved


Budget for each Calendar Year after the establishment of the


Abandonment Fund the Contractor shall commence making monthly-


contributions to the Abandonment Fund in accordance with the following


formula-








100


 FT = EC X CP/PR - AB





where:





FT is the amount of funds to be transferred to the Abandonment Fund in the


relevant Calendar Month.


EC is the total estimated cost of abandonment operations.





CP is the cumulative Production of Petroleum from the end of the Calendar


Month in which the Abandonment Fund was established.


PR is the estimated proven recoverable reserves remaining to be recovered from


the end of the Calendar Month in which the Abandonment Fund was


established.


AB is the Abandonment Fund balance at the end of the previous Calendar Month.





(c) Contributions to the Abandonment Fund shall be Recoverable Costs.


(d) The Contractor shall be entitled to draw down the Abandonment Fund


for the sole purpose of funding its Site Restoration obligations.


(e) If following the completion of all Site Restoration activities there should





be any funds remaining in the Abandonment Fund such funds shall to the


extent that the contributions to the Abandonment Fund have been


previously recovered out of a Cost Pool be paid to PetroleumBRUNEI


within fourteen (14) days after the date upon which Site Restoration was


completed.





Article 27.7 Assumption of Control by PetroleumBRUNEI


V


Upon PetroleumBRUNEI notifying the Contractor that it intends to take control


of Petroleum Operations in any part of the Agreement Area following the


relinquishment by the Contractor of such part or in the whole Agreement Area


after the expiry of the Term the Parties shall as soon as practicable after the date


of such notice arrange a transfer from the Contractor to PetroleumBRUNEI of


custody over fee relevant part of Petroleum Account and all Data and Project


Assets relevant to the Petroleum Operations concerned. Upon /








10!


PetroleumBRUNEI notifying the Contractor in writing that such transfer has


been completed:





(a) the Abandonment Fund shall be transferred to PetroleumBRUNEI and


PetroleumBRUNEI shall assume complete control thereof;


(b) on receipt of written confirmation from PetroleumBRUNEI that the


Contractor has met in full its obligation to fund the Abandonment Fund


under Article 27.6, the Contractor shall be released from its Site


Restoration obligations for the area concerned and PetroleumBRUNEI


shall assume responsibility for all Petroleum Operations can-ied out in


such area after such date;


(c) PetroleumBRUNEI shall be entitled to all Petroleum, proceeds and other


benefits accruing thereafter;


(d) the Contractor Party shall have no liability in respect of any Petroleum


Operations carried on after the date of PetroleumBRUNEFs assumption


of control PROVIDED the Contractor shall remain liable for all claims,


losses, liability and damages which accrue before such date or which


arise out of, or in connection with, the Gross Negligence/Wilful


Misconduct of any of the Contractor Parties, their Affiliates or


subcontracto---












































102


 ARTICLE 28





TERMINATION


Article 28.1 PetroleumBRUNEI shall be entitled to terminate this Agreement forthwith by


notice in writing to the Contractor:


(a) If, following the resignation or removal of the Operator, the Contractor


should fail to appoint a successor within thirty' (30) working days; or


(b) if upon the expiry' of Phase 1 of the Exploration Period, the Contractor


shall not have completed the work described in Article 8.1(a); or


(c) if the First Commercial Production Date for a Development and


Production Field is not achieved by the Target Production Date.


Article 28.2 In addition PetroleumBRUNEI shall subject to Article 28.3 be entitled to


terminate this Agreement with respect of an individual Contractor Party (such


Contractor Party being the "Defaulting Party"):


(a) upon the occurrence of an Insolvency Event affecting that Defaulting


Party; or


(b) upon a material breach of this Agreement by that Defaulting Party.


Article 28.3 If this Agreement is terminated with respect to an individual Defaulting Party:


(a) Before the Participation Completion Date:


(i) PetroleumBRUNEI or its nominee will have the first right of


refusal over part of, or the whole of, fifteen (15) pet cent, of that


Defaulting Party’s Percentage Interest. If PetroleumBRUNEI or


its nominee exercises its first right of refusal under this Article


28.3(a), such part of or the whole of the Defaulting Party’s


Percentage Interest will be transferred to PetroleumBRUNEI or


its nominee as applicable at nil additional consideration.


(ii) To the extent that PetroleumBRUNEI or its nominee does not


exercise its first right of refusal under Article 28.3(a), such


 remaining Defaulting Party’s Percentage Interest will be


transferred to the Contractor Parties at nil additional


consideration pro rata to the Contractor Parties’ Percentage


Interests.





(b) After the Participation Completion Date, the Defaulting Party's Percentage


Interest will be transferred to the Parties at nil additional consideration pro


rata their Percentage Interests (minus the Defaulting Party's Percentage


Interest) in accordance with the Joint Operating Agreement.





Provided that this Article 28.3 will not apply, and PetroleumBRUNEI will not


have the right l: > terminate this Agreement in whole or in part, where:


(i) the Defaulting Party is the PB Holder; and





(ii) the PB Holder is an Affiliate of PetroleumBRUNEI.





Article 28.4 At the same time that a notice to terminate this Agreement is served pursuant to


Article 28.1, PetroleumBRUNEI shall give notice to the Defaulting Party and the


other Contractor Parties:


(a) where the Defaulting Party is in default of this Agreement, requiring the





other C ontractor Parties to remedy the breach by the Defaulting Party


provided that if such breach is not remedied within thirty (30) Working


Days of such notice, PetroleumBRUNEI may terminate this Agreement


with reject to all Contractor Parties; or


(b) where an Insolvency Event has occurred in relation to the Defaulting


Party, the Defaulting Parties Percentage Interest will be transferred on


basis prescribed in Article 28.3 as soon as reasonably practicable.





Article 28.5 During the thirty (30) Working Day period referred to in Article 28.4(a), the


Contractor Parties must use their reasonable endeavours to take all necessary


precautions and measures to mitigate any damage arising out of the relevant


breach of the Defaulting Party’s obligations under this Agreement, failing which,


PetroleumBRUNEI may, at its sole discretion and at the Contractor’s costs, take ^











104


 such precautions and measures itself. If any person employed by, or authorised


to act on behalf of, a Contractor Party shall:





(a) have offered, or given or agreed to give, to any person any gift or


consideration of any kind as an express inducement or reward for doing,


or forbearing to do, or for having done or forborne to do, any material


action in relation to the award of this Agreement; or


(b) have been found guilty by a court of an offence or offences under the





Prevention of Corruption Act (Cap. 131) or an offence or offences under


sections 161 to 165 or 213 and 215 of the Penal Code (Cap. 22);


then PetroleumBRUNEl shall be entitled to terminate this Agreement, but only as


to the applicable Contractor Party', by notice to such Contractor Party.


Article 28.6 If this Agreement should terminate prior to the First Commercial Production


Date as a result of a breach by the Contractor of any term hereof all Project


Assets that would have transferred to PetroleumBRUNEl on the First


Commercial Production Date but for such termination shall vest in


PetroleumBRUNEl forthwith.


Article 28.7 Any termination of the Agreement pursuant to this Article 28 shall be without


prejudice to any rights, obligations and/or liabilities of the Parties hereunder


which have arisen and/or accrued on, or prior to, such termination.





Article 28.8 If the circumstance or circumstances that would otherwise result in the


termination of this Agreement are the subject of a determination by the Expert


pursuant to Article 30, then termination shall not take place for so long as such


determination is pending or such proceedings continue and thereafter may only


take place when and if consistent with die Expert determination or arbitral award.


r























105


 ARTICLE 29





FORCE MAJEURE








Article 29.1 In this Agreement, an "Event of Force Majeure” shall include (but not be


limited to) acts of God or force of nature, landslides, lightning, earthquakes,


floods, fires, storms or storm warning, tidal waves, shipwrecks and perils to


navigation, acts of war or public enemy, labour disturbances which are not





caused by the Contractor breaching Applicable Law, riots, insurrections, civil


commotion, quarantine restrictions, epidemics, strikes, sabotage or accidents and


other similar events or circumstances beyond the reasonable control and not


caused by the fault or negligence of the Party seeking relief hereunder, which


events or circumstances prevent such Party from performing its obligations or


hinders or delays the performance of such obligations under this Agreement.


Article 29.2 Where the occurrence of an Event of Force Majeure renders it impossible to


perform, or hinders or delays the performance of, any obligation (other than an


obligation to make a payment) under this Agreement, then subject to Article 29.4


the failure or omission by the Party affected to perform such obligation shall not


for the duration of such event be treated as a failure or omission to comply with


this Agreement and any periods of time under this Agreement relating to the


performance of that obligation or to the taking of any other action which cannot


be taken without the performance of that obligation shall be suspended for the


duration of the Event of Force Majeure.





Article 29.3 Failure by a Party to perform an obligation hereunder as a consequence of


Applicable Law shall not be treated as a failure to comply with this Agreement


provided that it is proven that such failure or omission is the necessary


consequence of compliance with such Applicable Law. -





Article 29.4 Upon the occurrence of any Event of Force Majeure the affected Party shall


promptly:





(a) give notice of such event to the other Parties; and

















106


 (b) resume full performance of this Agreement as soon as possible such that


the affected Party shall use its best endeavours to overcome such event


and resume performance as soon as is practicable.


Article 29.5 If such Event of Force Majeure results in the suspension of all or a major part of


Petroleum Operations and continues for more than three (3) months, the duration


of this Agreement and any appropriate period thereof, shall be extended by a


period equal to the period of the suspension.





Article 29.6 The term of this Agreement shall be extended by a period equal to the duration of


the Event of Force Majeure and for such further period as may be determined by


PetroleumBRUNEI in its absolute discretion as is required for the Contractor to


resume Petroleum Operations. If such Event of Force Majeure occurs during the


Exploration Period, the duration of Phase 1 and/or Phase 2 as applicable will be


extended accordingly.

































































107


 ARTICLE 30





EXPERT DETERMINATION





Article 30.1 The Parties acknowledge that amicable settlement of any dispute is their


preferred form of dispute resolution. Where pursuant to this Agreement (or


otherwise by mutual agreement of the Parties) a dispute is subject to Expert


determination, such Expert determination shall be earned out in accordance with


the Rules for Expertise of the International Chamber of Commerce, provided


that:


, (a) a Party wishing to refer a matter for Expert determination shall notify all


the other Parties and with such notice give details of the matter which is


to be so referred;


(b) following such notice the Parties shall meet and endeavour to agree on an





Expert to whom the matter in dispute shall be referred for determination;


(c) the Expert shall be a recognised petroleum industry expert having


appropriate qualifications and at least ten (10) years experience in a field


of expertise relevant to the matter to be determined;


(d) in making his determination the Expert shall have regard for the terms of


this Agreement;





(e) unless the Parties otherwise agree in writing, no one shall be appointed


an Expert, if at the time of appointment (or at any time before he gives


his determination under such appointment) he is a director, officeholder


or an employee of, is directly or indirectly retained as a consultant to,


either of the Parties (or any Affiliate thereof) or is a holder of shares in


any Party or any Affiliates thereof (unless such Party or Affiliate, as the


case may be, is a company quoted on a recognised stock exchange and


his shareholding therein is less than one one-hundredth of a per cent.


(0.01) per cent, of the issued share capital of any class);





(f) if within fourteen (14) working days from the service of the notice


pursuant to Article 30.1(a) the Parties have either failed to meet or failed /


A








108


to agree upon an Expert then the matter may forthwith be referred by


either Party to the International Centre for Expertise of the International


Chamber of Commerce which shall appoint an Expert in accordance with


the Rules for Expertise of the International Chamber of Commerce but


always subject to Articles 30.1(c) and (d);


(g) the Parties shall each provide the Expert without delay with their


comments and documents which each considers relevant to the


determination of the matter in dispute. The Expert may make any


investigation, search and/or request for further information that he deems


relevant and the Parties shall each co-operate with any such investigation


and search, and respond fully and without delay to any such requests by


the Expert;


(h) the Expert shall notify the Parties of his determination (or his inability or


unwillingness to make such determination) of the matter in dispute


within thirty (30) days of accepting his appointment unless the Expert


shall notify the Parties that a further period is required; if following


receipt of such notice, all the Parties shall agree that the further period


requested by the Expert should be granted, the time for the Expert to


make his determination shall be deemed to be extended by the period


requested by the Expert;


(i) except as provided in for in the definition of "Reference Crude Oil",


Article 10.8(c), Article 10.9(c) and Article 15.4(c) Expert determination


shall not be compulsory but the Parties acknowledge that it may be an


appropriate form of dispute resolution for matters of a specific technical


nature and/or which require rapid determination;


0) unless the Parties otherwise agree in writing, the fees and'expenses


associated with an Expert shall be paid fifty (50) per cent, by the


Contractor and fifty (50) per cent, by PetroleumBRUNEI;


(k) where any matter is referred to an Expert, such Expert determination


shall not be final and binding and either Party may will'











109


 days of the date of such Expert determination refer the matter for final


settlement by arbitration in accordance with Article 31.





Article 30,2 Unless the Agreement prot'ides otherwise, the obligations of the Parties


hereunder shall not be altered or suspended by reason of any Expert





determination pursuant to this Article 30 being conducted during the Term of the


Agreement. A

















































































































no


 ARTICLE 31





GOVERNING LAW AND ARBITRATION





Article 31.1 The governing law of this Agreement shall be the laws of Brunei Darussalam.


Article 31.2 Subject to those matters which the Parties have agreed to refer to Expert


determination pursuant to Article 30, any dispute or controversy arising out of, or


in connection with, this Agreement which cannot be settled amicably, shall be


referred to, and finally settled by, arbitration under the Arbitration Rules of the


Singapore International Arbitration Centre by a panel of three (3) arbitrators, the


first to be appointed by PetroleumBRUNEI, the second by the Contractor and the


third, who shall be the chairman, to be jointly appointed by PetroleumBRUNEI


and the Contractor, all such appointments being subject to the Arbitration Rules


of the Singapore International Arbitration Centre.


Article 31.3 If either Party fails to appoint its nominee arbitrator pursuant to Article 31.2


above or PetroleumBRUNEI and the Contractor do not concur in the


appointment of the third arbitrator, either Party may serve the other with a notice


to make such appointment, and if the appointment is not made within twenty-one


(21) days of service of the notice, the Chairman of the Singapore International


Arbitration Centre shall, on application by the Party' who gave the notice, appoint


the relevant arbitrator who shall have the like powers to act as if he had been duly-


appointed in accordance with Article 31.2.





Article 31.4 Unless the Parties otherwise agree in writing, no one shall be appointed an


arbitrator, if at the time of appointment (or at any time before the panel of


arbitrators has issued the final arbitral award) he is a director, officeholder or an


employee of, is directly or indirectly retained as a consultant to, either of the


Parties (or any Affiliate thereof) or is a holder of shares in any Party or any


Affiliates thereof (unless such Party or Affiliate, as the case may he, is a


company quoted on a recognised stock exchange and his shareholding therein is


less than one hundredth of one (0.01) per cent.) of the issued share capital of any


class).





Article 31.5 The place of toe arbitration shall be Singapore. The language of the arbitration


shall be toe English language.





Ill


 Article 31.6 The costs of the arbitration proceedings (including attorneys' fees and costs) shall


be borne in the manner determined by the majority* of the arbitrators. Any costs


or fees incident to enforcing the arbitral award shall to the maximum extent


permitted by law be charged against the Party resisting such enforcement.


Article 31.7 The arbitral award shall be final and binding on the Parties and shall be


enforceable immediately. Any money to be paid under the award must be paid in


US Dollars free of any offset or deduction. By agreeing to arbitration under this


Article 31 the Parties waive irrevocably their right to any form of appeal, review


or recourse to any state court or other judicial authority-, in so far as such waiver


may be validly made.


Article 31.8 Judgement upon the arbitral award may be entered in any court having


jurisdiction over the person or the assets of the Party* owing the judgement, or


application may be made to such court for a judicial acceptance of the arbitral


award and an order of enforcement, as the case may be.


Article 31.9 Unless the Agreement provides otherwise the obligations of the Parties hereunder


shall not be altered or suspended by reason of any arbitration being conducted


pursuant to this Article 31 during the Term of the Agreemei


















































112


 ARTICLE 32





DATA AND CONFIDENTIALITY





32.1 Records and Data





(a) The Contractor shall in accordance with Good Oilfield Practice keep


adequate and complete records of Petroleum Operations and safeguard


all Data.


(b) All Data shall be the property of PetroleumBRUNEI.


(c) The Contractor shall throughout the Term retain and use free of charge





for the purposes of Petroleum Operations the Data, subject to


PetroleumBRUNEI having unrestricted access thereto.





(d) Upon the expiry of the Term, the termination of this Agreement or as


PetroleumBRUNEI may request at any time the Contractor shall transfer


all Data into the physical possession of PetroleumBRUNEI.


(e) The Contractor shall, subject to Article 32.2 be entitled to retain copies


of all non-physical Data.





Article 32.2 Restrictions Relating to Data





(a) The Contractor shall not at any time remove any Data from Brunei


Darussalam without the prior written consent of PetroleumBRUNEI, which


consent shall not be unreasonably withheld. PetroleumBRUNEI will


respond to any application made by the Contractor pursuant to this Article


32.2(a) within thirty (30) days of such application being made provided


that:


(i) PetroleumBRUNEI may, acting in its absolute discretion, extend


such period for a further thirty (30) days by providing prior


written notice of such extension to the Contractor:





(ii) if PetroleumBRUNEI requires more than sixty (60) days in


which to make a decision in respect of an application made by


the Contractor pursuant to this Article 32.2(a), it will, prior to tl





113


 expiry of the second thirty (30) day period referred to in Article


32.2(a)(i), provide a written request to the Contractor for an


additional period of time in which to make its decision (such


request to provide reasonable detail to the Contractor of the


reasons for PetroleumBRUNEI seeking such extension); and


(iii) the Contractor may:





(A) not unreasonably withhold its consent to an application made


by PetroleumBRUNEI pursuant to Article 32.2(a)(ii);


(B) in providing its consent to an application made by


PetroleumBRUNEI pursuant to Article 32.2(a)(ii). impose a


reasonable deadline upon PetroleumBRUNEI by which time


PetoleumBRUNEI's decision must be made.


(b) The prohibition in Article 32.2(a) shall not apply to non-physical Data of


which the Contractor retains exact copies in Brunei Darussalam.





(c) If the Contractor shall process or interpret raw Data outside Brunei


Darussalam, it shall return the processed and/or interpreted Data to


PetroleumBRUNEI immediately upon completion of die interpretation.


(d) If the Contractor shall store Data in an electronic data storage system it


shall ensure that PetroleumBRUNEI has access thereto and that a copy of


such system containing the Data be established in Brunei Darussalam


such that there shall be no breakdown, interruption or inaccessibility by


PetroleumBRUNEI to such Data at any time for whatever reason.


Article 32.3 Confidential Information





(a) Each of the Parties shall keep all Confidential Information strictly


confidential not disclose it without the prior written consent of the other


Parties, except as provided in Article 32.3(b).





(b) The Contractor may disclose the Confidential Information to Third


Parties without PetroleumBRUNEFs prior written consent only to the


extent such Confidential Information; v /^\/





114


(iv) is already in the public domain other than through an act or


omission of PetroleumBRUNEl;


(v) relates to areas within the Agreement Area which have been


relinquished by Contractor;


(vi) is required to be disclosed by PetroleumBRUNEl to a panel of


arbitration or to an Expert pursuant to Article 30 or Article 31; or


(vii) is required to be disclosed by PetroleumBRUNEl to a court of


competent jurisdiction or as may by required by Applicable Law'.


(d) PetroleumBRUNEl shall be entitled to disclose Data:


(i) W'ithout restriction five (5) years after the date on wftich such


Data were generated;


(ii) required by PetroleumBRUNEl for the purposes of promoting,


evaluating any other areas (unlicensed or otherwise) outside the


Agreement Area provided that reasonable notice has been given


to the Contractor;


(iii) to a Third Party Contractor carrying out petroleum operations in


respect of adjacent acreage within or outside the jurisdiction of


Brunei Darussalam, in the context of a possible unitisation


pursuant to Article 11, provided that in the case of any such


disclosure, PetroleumBRUNEl shall:


(A) give the Contractor three (3) months prior notice;


(B) disclose to the Contractor any non-interpreted Data


(w'hich are available to PetroleumBRUNEl and which are


of an equivalent nature and value) pertaining to the


petroleum operations of such Third Party Contractor in


respect of their adjacent acreage.


(e) The restrictions on the use and disclosure of Confidential Information


shall cease to apply to:








116


 (i) PetroIeumBRUNEI immediately; and





(ii) the Contractor five (5) years,


after the expiry of the Term or earlier termination of this Agreement.


(f) For the purposes of this Article, “Confidential Information” shall


mean:


(i) the terms of this Agreement





(ii) all Data; and


(iii) any information of a confidential nature relating to the


customers, business, finances, assets or affairs of any of the


Parties.


Article 32.4 Nothing in this Agreement shall require the Contractor to divulge, transfer title


to, and/or make available to PetroIeumBRUNEI, any proprietary technology that


is owned by the Contractor or any of their Affiliates. t















































117


 (i) is provided to the Contractor's employees for use for the


purposes of Petroleum Operations and subject to their execution


of suitable confidentiality agreements;


(ii) is provided to an Affiliate of the Contractor for use for the


purposes of Petroleum Operations and subject to suitable


confidentiality arrangements having been entered into by such


Affiliate;


(iii) is required to be disclosed by any Contractor Party in accordance


with any applicable law, regulation or rule (including any


regulation or rule of any regulatory agency, securities


commission or securities exchange on which the securities of


such Contractor Party or its Affiliates are listed);


(iv) is required to be disclosed by the Contractor to a panel of


arbitration or to an Expert pursuant to Article 30 or Article 31:


(v) is required to be disclosed by any Contractor Party to a court of


competent jurisdiction;


(vi) is already in the public domain other than through an act or


omission of the Contractor, any of its Affiliates.


(c) PetroleumBRUNEI may disclose Confidential Information to third


parties without the Contractor's prior written consent only to the extent


such Confidential Information:


(i) is required to be provided to the Government and/or related


Government agencies;


(ii) is provided to an Affiliate of PetroleumBRUNEI (other than the


Government or Government agencies) for use in Petroleum


Operations and subject to suitable confidentiality arrangements


having been entered into by such Affiliate;


(iii) is provided to PetroleumBRUNEI's employees or rnnsnhants-








115


 (iv) is already in the public domain other than through an act or


omission of PetroleumBRUNEl;


(v) relates to areas within the Agreement Area which have been


relinquished by Contractor;


(vi) is required to be disclosed by PetroleumBRUNEl to a panel of


arbitration or to an Expert pursuant to Article 30 or Article 31; or


(vii) is required to be disclosed by PetroleumBRUNEl to a court of





competent jurisdiction or as may by required by Applicable Law'.


(d) PetroleumBRUNEl shall be entitled to disclose Data:


(i) w'ithout restriction five (5) years after the date on which such


Data were generated;


(ii) required by PetroleumBRUNEl for the purposes of promoting,





evaluating any other areas (unlicensed or otherwise) outside the


Agreement Area provided that reasonable notice has been given


to the Contractor;


(iii) to a Third Party Contractor carrying out petroleum operations in





respect of adjacent acreage within or outside the jurisdiction of


Brunei Darussalam, in the context of a possible unitisation


pursuant to Article 31, provided that in the case of any such


disclosure, PetroleumBRUNEl shall:





(A) give the Contractor three (3) months prior notice;


(B) disclose to the Contractor any non-interpreted Data


(w'hich are available to PetroleumBRUNEl and which are


of an equivalent nature and value) pertaining to the


petroleum operations of such Third Party Contractor in


respect of their adjacent acreage.





(e) The restrictions on the use and disclosure of Confidential Information


shall cease to apply to:








116


 (i) PetroleumBRUNEI immediately; and





(ii) the Contractor five (5) years,


after the expiry' of the Term or earlier termination of this Agreement.


(f) For the purposes of this Article, “Confidential Information” shall





mean;





(i) the terms of this Agreement


(ii) all Data; and





(iii) any information of a confidential nature relating to the


customers, business, finances, assets or affairs of any of the


Parties.





Article 32.4 Nothing in this Agreement shall require the Contractor to divulge, transfer title


to, and/or make available to PetroleumBRUNEI, any proprietary technology that


is owned by the Contractor or any of their Affiliates. k
























































11?


 ARTICLE 33





ASSIGNMENT





Article 33.1 No Investor Party shall assign, mortgage, pledge or otherwise encumber its


Percentage Interest (or any of its rights and interests arising under this


Agreement) other than in accordance with this Article 33. Any purported


assignment made in breach of this Article 33 shall be void.


Article 33.2 An Investor Party may with PetroleumBRUNErs prior written consent assign,


transfer, mortgage, pledge or otherwise encumber all or part of its Percentage


Interest to another person (an “Assignment”). PetroleumBRUNEI will use its


reasonable endeavours to respond to any application by the Contractor for


PetroIeumBRUNEJ’s consent to an Assignment (an “Application”) as soon as


reasonably practicable but in any case no later than sixty (60) days after receiving


such application. If PetroleumBRUNEI does not respond to the Application


within such sixty (60) day period:


(a) PetroleumBRUNEI will be deemed not to have provided its consent to


such Assignment;





(b) notwithstanding paragraph (a) above, PetroleumBRUNEI will, as soon as


reasonably practicable after the expiry of such sixty (60) day period, send


a wTitten notice to the Contractor confirming that it has not consented to


the Assignment providing its reasons for such decision.


Article 33.3 Any assignment by a Contractor Party shall be expressly conditional upon the


assignee having delivered to PetroleumBRUNEI a Guarantee in respect of its


Percentage Interest as provided in Article 8.


Article 33.4 If a Third Part)' acquires or about or likely to gain control of the Ultimate Parent


Company of a Contractor Party, that Contractor Party (the ''Target") shall


immediately notify PetroleumBRUNEI, identifying the relevant Third Party and


providing details of any petroleum interests held by that Third Party and/or its


Affiliates in Brunei Darussalam or in any neighbouring states. If


PetroleumBRUNEI shall in its absolute discretion determine that the change of


control of the Target renders it unacceptable to PetroleumBRUNEI, it may bv








118


 notice in writing, singly oi together with the other Contractor Parties (if any)


purchase all of the Target's Percentage Interest at a price equal to the arms length


market value thereof, as agreed between the Parties or, in default of agreement,





determined by an Expert pursuant to Article 30; or





Article 33.5 PetroleumBRUNEI may by notice to the Contractor assign:





(a) any part of its Percentage Interest to an Affiliate or any Government


body;





(b) any part of its Participating Interest or any right to receive (i)


PetroJeumBRUNEJ's Entitlement and/or (ii) any payment owing to it


hereunder to a Third Party’ for the purposes of raising finance:





(c) or transfer any of its rights, interest, obligations or duties under this


Agreement to any Government body if so required by Applicable Law or





order of the Government.










































































119


 ARTICLE 34





MISCELLANEOUS PROVISIONS





Article 34.1 Notices


(a) All notices and other communications under this Agreement shall be in


English and only in writing.


(b) Notices shall be delivered personally at all times if possible, failing


which it shall be sent by registered mail and facsimile simultaneously.


(c) Any notice delivered personally or sent by registered mail shall be


deemed to have been received on delivery. Any notices sent by facsimile


shall be shall be deemed to have been received on the next day,


following the date of transmission, when the recipients offices are open


for business.


(d) Any notice to be given to any Part}- shall be sent to that Party at the


address specified below:


PetroleumBRUNEI


Brunei National Petroleum Company Sendirian Berhad


Unit 2.02,2nd Floor, Block D


Yayasan Sultan Haji Hassanal Bolkiah Complex


Jalan Pretty


Bandar Seri Begawan BS8711


Brunei Darussalam


Fax: +673 2230654


Attention: The Chief Executive





The Contractor


Loon Energy Inc


1950,700 4th Avenue SW


Calgary, Alberta


Canada T2P3J4








120


 Fax: +1 403 263 4247





Attention: The President


Copied to:





QAF Brunei Sdn Bhd


QAF Centre


Lot 66


Tapak Perindustrian Beribi B.S.B


BE1118, Brunei Darussalam


Fax: +673 2452150


Attention: The General Manager








Article 34.2 Announcements


(a) No public statements, announcements or circulars regarding this


Agreement or the activities of the Parties hereunder shall be made by or


on behalf of any Contractor Party without the prior written approval of


PetroleumBRUNEI, provided that a Contractor Party- may do so without


prior written approval of PetroleumBRUNEI the extent required by any


law to which the such Contractor Party' or its Ultimate Parent Company


is subject or by any recognised stock exchange rule where such


Contractor Party or its Ultimate Parent Company is listed.


(b) PetroleumBRUNEI may make such public statements, announcements or


circulars it proposes to issue regarding this Agreement or the activities of


the Parties as shall be required by Applicable Law. -


(c) If a Party' intends to make any announcement or statement as permitted


by Article 34.2(a) or (b), it shall:





(i) provide each other party with advance notice of its intention and


a copy of the announcement or statement to be made; and








123


 (ii) take into account any representations or objections which that


party shall make reasonably' in relation to it.





Article 34.3 Stabilisation


If an occurrence of events or circumstances not contemplated by the Parties





should fundamentally alter the equilibrium of this Agreement by placing an


excessive burden on one of the Parties in the performance of its obligations


hereunder and such circumstances are, in the reasonable opinion of the Party


adversely affected, likely to continue, that Party may, within a reasonable time


from becoming aware of such event and of its effect on the commerciality of the


Agreement, by notice indicating the grounds for its request, request a revision of


this Agreement such that no Party suffers excessive prejudice. Such request shall


not suspend the performance of this Agreement by such Party'. If any Party


makes such request, the other Parties shall (without obligation) consult each other


with a view to rectifying the affected Party's concerns through agreeing revisions


to this Agreement or otherwise.


Article 34.4 No partnership





Nothing in this Agreement, and no action taken under this Agreement, shall





create a partnership or establish a relationship of principal and agent betw een any


of the parties or otherwise authorise any party to bind any other party for any


purpose.


Article 34.5 Invalidity'


If at any time any provision of this Agreement is or becomes invalid, illegal or


unenforceable in any respect under the law of any jurisdiction that shall, so long


as the commercial purpose of this Agreement is still capable of performance, not


in any way affect or impair:


(a) the validity, legality or enforceability in that jurisdiction of any other


provision of this Agreement; or


(b) the validity, legality or enforceability under the law of any other





jurisdiction of that or any other provision of this Agreement.








122


Article 34.6 Entire Agreement


(a) This Agreement is the entire agreement of the Parties with respect to the


subject matter contained herein and supersedes all prior understandings


and negotiations of the Parties.


(b) In the event of inconsistency between the Joint Operating Agreement and


this Agreement, this Agreement shall prevail.


Article 34.7 Amendments


Neither this Agreement nor any Plan may be changed, altered, waived or





terminated without the written consent of the parties.


Article 34.8 Remedies and waivers


(a) No default by any Party in the performance of or compliance with any


provision of this Agreement shall be waived or discharged except with


the express written consent of each other Party. A waiver by a Party of a


default by another Party will not prevent the first Party from


subsequently requiring compliance with the waived obligation.





(b) No waiver by any Party of any default by another in the performance of


or compliance with any of the provisions of this Agreement shall operate


or be construed as a waiver of any other or further default whether of a


like or different character.


(c) No failure to exercise, nor delay or omission by any Party in exercising,


any right, power or remedy conferred on it under this Agreement or


provided by law shall (except with the express written consent of that


Party):


(i) affect that right, power or remedy; or


(ii) operate as a waiver of it.





(d) No single or partial exercise by any Party of any right, power or remedy


shall prevent any further exercise of that right, power or remedy or the


exercise of any other right, power or remedy.





123


• Article 34.9 Rights and remedies cumulative


The rights, powers and remedies conferred on the parties by this Agreement are


cumulative and not exclusive of any rights, powers and remedies provided by law


or otherwise.





Article 34.10 Third party rights





Except as provided in this Agreement, a person who is not a party to this


Agreement shall not be entitled to enforce or otherwise have the benefit of any


provision in it. /£


4
















































































124


 IN WITNESS WHEREOF, the Parties have caused the Production Sharing Agreement for


Block L Brunei Darussalam to be duly executed by their respective representatives as of the day


and year first above written








SIGNED BY


MOHAMMAD REDUAN BIN HAJIMOHD YUSOF


Acting Chief Executive Officer )





for and on behalf of


BRUNEI NATIONAL PETROLEUM


COMPANY SENDERIAN BERHAD








in the presence of:-


Witness:-





Name: Haji Iskandar bin Hajj Yahya


Position: Asset General Manager








AND


SIGNED BY





TIMOTHY M. ELLIOTT








for and on behalf of


LOON BRUNEI LIMITED








in the presence of:-


Witness:-





Name: Jock Graham


Position:











125


AND








SIGNED BY


DATO PADUKA CHUA PHENG SIONG }


Business Development General Manager





for and on behalf of


QAF BRUNEI SENDIRLAN BERHAD





in the presence of:-


Witness:-


Name: Ho Lee Suom


Position: Corporate Affairs General Manager





















































126


ANNEX A


ANNEX B


 BLOCK L ANNEX B





ACCOUNTING PROCEDURES





1. General provisions





1.1 Purpose


The purpose of these Accounting Procedures is to establish the principles and


procedures of accounting and reporting hereunder for determining costs and


expenditures incurred and proceeds received in Petroleum Operations, so that Parties'


Petroleum entitlements hereunder can be accurately determined pursuant to the terms


of the Agreement. More specifically, the purpose of these Accounting Procedures is


to establish the principles and procedures for:


(a) determining Recoverable Costs and Non-Recoverable Costs;


(b) classifying Recoverable Costs in accordance with the purposes for which they


are incurred hereunder;


(c) reporting obligations of the Contractor hereunder;


(d) requirements hereunder regarding audits and reviews; and


(e) other accounting anc reporting matters hereunder.


1.2 Definitions


The terms used in these Accounting Procedures shall have the same meaning as those


defined in the Agreement. In addition, the following terms shall be used in these


Accounting Procedures:


"Accrual Basis" shall mean the basis of accounting under which costs and benefits


are recorded for the period ii. which the liability for the cost is incurred or the right to


the benefit arises, regardles. of when such cost is invoiced or paid or when such


benefit is received;


“Article” shall mean an article of the Agreement, excluding any Annexes thereto;


"Collector" shall have the meaning attributed to that expression in die Income Tax


(Petroleum) Act (Cap. 119);


BLOCK L ANNEX B








"Employees" means (a) any personnel directly employed by the Operator under


employment contracts or engaged pursuant to consultancy agreements and, in each


case, engaged in the conduct of Petroleum Operations, (b) any personnel seconded to


the Operator by any of the Contractor Parties and/or their Affiliates pursuant to


secondment agreements and engaged in the conduct of Petroleum Operations or (c)


any personnel seconded to the Operator by PetroIeumBRUNEI pursuant to


secondment agreements and engaged in the conduct of Petroleum Operations, in each


case, irrespective of the location where such personnel work;


"Individual Market Value” shall mean in respect of any Contractor Party:


(a) in the case of Crude Oil, the weighted average price per Barrel of the actual





prices received by such Contractor Party from sales of its Percentage Interest


share of the Contractor's Entitlement to Crude Oil during the relevant basis


period subject to the conditions imposed under Article 15.2 in respect of


Market Value of Crude Oil; and





(b) in the case of Natural Gas, the weighted average price per MMBtu of the


actual prices received by such Contractor Party from sales of its Percentage


Interest share of the Contractor's Entitlement to Natural Gas during the


relevant basis period subject to the conditions imposed under Article 14.5 in


respect of Market Value of Natural Gas;





PROVIDED that the Individual Market Value of each Contractor Party shall, if


necessary, be adjusted so that the weighted average of Individual Market Values of


all Contractor Parties in respect of Crude Oil (or Natural Gas, as the case may be) in


any Calendar Quarter shall in all cases be equal to the Market Value as determined


for such Calendar Quarter in respect of Crude Oil pursuant to Article 15.2 (or, as the


case may be, in respect of Natural Gas pursuant to Article 14.5);


"LIBOR" means the London Interbank Offered Rate for one months US Dollars





deposits in the amount due and unpaid hereunder, as quoted by the Financial Times


(London). Where the rate is not quoted on a specific date, the latest quoted rate prior


to such date shall apply;





"Market Value of Production and Pricing Report" shall have the meaning


attributed to that expression in Section 2.1(d);


 BLOCK L ANNEX B





"Materials" shall mean all moveable Project Assets including equipment, machinery,


tools, supplies, materials, consumables and any other goods of similar nature, but


excluding any Petroleum produced in, or any by-products of, Petroleum Operations:


"Petroleum Account Audit Report" shall have the meaning attributed to that


expression in Section 3.1(e);


"Petroleum Account Report" shall have the meaning attributed to that expression in


Section 2.1(a);


"Production Report" shall have the meaning attributed to that expression in Section


2.1(c);


"Production Sharing Report" shall have the meaning attributed to that expression in


Section 2.1(e);


"Section" shall mean a section of these Accounting Procedures; and


"Wilful Misconduct” shall mean any act or failure to act (whether sole, joint or


concurrent) by any person or entity which was intended to cause, or which was in


reckless disregard of or wanton indifference to, harmful consequences such person or


entity knew, or should have known, such act or failure would have on the safety of


property of another person or entity.


1.3 Interpretation


References herein to the "Agreement" shall include these Accounting Procedures.


1.4 Inconsistency


In case of any inconsistency or conflict between a provision of these Accounting


Procedures and any other provisions of the Agreement, the latter shall prevail,


PROVIDED that the provisions of these Accounting Procedures shall prevail over


any inconsistent provisions of other Annexes and Exhibits to the Agreement.


1.5 Language, measurement unite and currency of Petroleum Account


(a) The Petroleum Account shall be prepared and kept in the English language bv


the Operator.


 BLOCK L ANNEX B








(b) Barrels, Btu and Cubic Feet shall be employed for measurements required


under the Agreement in respect of Petroleum. All such measurements shall be


in accordance with Good Oilfield Practice.


(c) The Petroleum Account shall be maintained in US Dollars, which shall be the


controlling currency of account for the purposes of cost recovery and


production sharing hereunder as well as for PetroleumBRUNEI's


participation pursuant to Article 24. Where necessary for clarification or as


required by Applicable Law, the Petroleum Account may also be kept in


other languages, measurement units and currencies.


1.6 Currency translation and exchange


(a) It is the intention of the Parties that no Party shall experience any gain or loss


at the expense or to the benefit of the other Party as a result of translation or


exchange of currency. Should there be any such gain or loss, it shall be


credited or charged, as the case may be, to the Petroleum Account.


(b) The Operator shall deliver to PetroleumBRUNEI a description of the


procedures adopted for the calculation of the exchange rate differences as


well as the respective policies for protection from exchange rate fluctuations


as and when requested by PetroleumBRUNEI.


(c) The Operator shall maintain, as part of the Petroleum Account, a record of all


exchange rates actually experienced in a conversion pursuant to Article


19.1(b) of the Agreement as well as of all gains and losses resulting from a


translation or exchange of currency. Any such rates, gains and losses shall be


so recorded separately and individually, under their own heading.


1.7 Payments


All amounts due by one Party to another Party under the Agreement (other than


pursuant to Article 24 thereof) shall, for each day such amounts are overdue, bear


interest compounded daily at LIBOR plus five (5) percent.


BLOCK L ANNEX B








mts and reports


(a) The Accrual Basis shall be used in preparing and keeping the Petroleum


Account, PROVIDED that a generally accepted accounting procedure for


month-end reversal of accruals shall be applied in order to avoid any


(b) duplication of charges or credits to the Petroleum Account as well as to


ensure the accuracy of recovery' of Recoverable Costs.


The Petroleum Account shall be retained by the Contractor until seven (7)


Calendar Years after the expiry of the Term.


(c) Within sixty (60) days from the Commencement Date, the Operator shall


submit to, and discuss with, PetroleumBRUNEI a proposed outline including


charts of accounts, operating records and reports in respect of the Petroleum


Account, which outline shall:


(i) reflect categories of Costs pursuant to Sections 5, 6, 8.1, 10 and 11


(where possible, identifying separately such categories of Costs


which are attributable to individual Petroleum Fields, Crude Oil


(including any segregated volumes). Associated Gas and Non-


Associated Gas as well as Cost categories not attributable thereto);


(ii) distinguish between proceeds from the sale of Petroleum and


incidental proceeds of the sort referred to in Section 7; and


(iii) otherwise be in accordance with the terms of the Agreement


applicable to the Petroleum Account.


Within forty-five (45) days of receiving the proposed outline,





PetroleumBRUNEI shall either notify the Operator that it approves of the


proposal or require revisions thereto. The Operator shall incorporate all


revisions suggested by PetroleumBRUNEI to the extent it is reasonably


practicable to do so. If the Operator reasonably considers it impracticable to


incorporate any of PetroleumBRUNEI's proposed changes, it shall notify


PetroleumBRUNEI of the reasons therefor. Any agreed outline may


thereafter be revised by mutual agreement. Following any such agreement,


the Operator shall promptly prepare and provide PetroleumBRUNEI with


copies of the amended charts of accounts, operating records and reports.


 BLOCK L ANNEX B





(d) In addition to accounts and reports specifically provided for in the Agreement


and these Accounting Procedures, the Operator shall prepare and deliver to


PetroleumBRUNEI within a reasonable period such information and data (as


well as clarification and guidelines in respect thereof) as PetroleumBRUNEI


may reasonably request and which is directly related to the Contractor's


obligations hereunder.


(e) It is understood that in addition to accounts and reports specifically provided


for in this Agreement, each oi the Contractor Parties shall be responsible for


keeping its own accounting records as well as for preparing and filing its own


reports (including, without limitation, individual income tax returns pursuant


to Section 12) in order to comply with Applicable Law.


(f) The Operator shall establish, maintain and administer separate bank


accounts) exclusively for the purposes of Petroleum Operations and shall


promptly give notice to PetroleumBRUNEI of any such bank accounts)


being opened, closed or otherv. ise subject to any change in status.


2. Reports


2.1 Periodic reports


Without limiting the generality of Section 1.8, the Contractor shall, as part of the


Petroleum Account, no later than thirty (30) days after the end of each relevant


Calendar Quarter and no later than sixty (60) days after the end of each relevant


Calendar Year deliver or procure the delivery to PetroleumBRUNEI the following


reports in respect of the relevant Calendar Quarter or Calendar Year, as the case may


be:


(a) Petroleum Account Report





A report (the "Petroleum Account Report”) containing the following


information:





(i) Costs incurred in the Calendar Quarter (Calendar Year) in question,


where appropriate, with a breakdown into the Contractor's respective


shares for the purposes of Section 12.4;


BLOCK L ANNEXB





(ii) Costs as provided in the corresponding Approved Work Programme


and/or Approved Budget and incurred in the Calendar Quarter


(Calendar Year) in question;





(iii) reasonable explanations of the variations between Costs referred to in


paragraphs (i) and (ii) above in this Section (a);


(iv) receipts for the Calendar Quarter (Calendar Year) in question; and


(v) latest forecast of cumulative Costs and receipts, if any, expected by


the end of the relevant Calendar Year.


Each Petroleum Account Report shall identify Recoverable Costs and Non-


Recxrverable Costs, separately in respect of individual Petroleum Fields, shall


be classified into categories of Costs pursuant to Sections 5.3, 6, 8.1, 10 and


12 and shall otherwise be presented in sufficient detail so as to provide


comparison with the corresponding Approved Work Programme and/or


Approved Budget. Recoverable Costs and Non-Recoverable Costs not


directly attributable to a specific Petroleum Field shall be shown separately.


Any information and data provided in a Petroleum Account Report in respect


of receipts shall distinguish between proceeds from the sale of Petroleum and


incidental proceeds of the sort referred to in Section 8.


(b) Cost Recovery Report





A report (the "Cost Recover}' Report") containing the following


information, where appropriate, with a breakdown into the Contractor's


respective shares for the purposes of Section 12.4:


(i) unrecovered Recoverable Costs, if any, carried forward from the


previous Calendar Quarter (Calendar Year);


(ii) Recoverable Costs incurred in the Calendar Quarter (Calendar Year)


in question;


(iii) total Recoverable Costs for the Calendar Quarter (Calendar Year) in


question being a total of Recoverable Costs referred to in paragraphs


(i) and (ii) of this Section 2.1 (b);


BLOCK L ANNEX B





(iv) volume and Market Value of Cost Oil and Cost Gas, taken and


disposed of by the Contractor in the Quarter (Calendar Year) in


question;


(v) Recoverable Costs recovered in the Calendar Quarter (Calendar


Year) in question;


(vi) total cumulative amount of Recoverable Costs recovered up to the





end of the Calendar Quarter (Calendar Year) in question;


(vii) amount of unrecovered Recoverable Costs, to be carried forward to


the next Calendar Quarter (Calendar Year) being a positive


difference after the deduction of Recoverable Costs referred to in


paragraph (v) from those referred to in (iii) of this Section 2.1 (b); and


(viii) Non-Recoverable Costs incurred in the Calendar Quarter (Calendar


Year) in question.


Each Cost Recovery Report shall, where possible, identify Recoverable Costs


and Non-Recoverable Costs separately in respect of individual Petroleum


Fields and shall be classified into categories of Costs pursuant to Sections 5,


6, 8.1, 10 and 12 and shall otherwise be presented in sufficient detail so as to


enable PetroleumBRUNEI to identify how the Recoverable Costs in respect


of particular Project Assets are being recovered for the purposes of Article


21. Recoverable Costs and Non-Recoverable Costs not directly attributable to


a specific Petroleum Field shall be shown separately. .





(c) Production Report


The Contractor shall from the date the first Petroleum is produced from a


Petroleum Field, prepare and deliver a report (the "Production Report") in


respect of each Calendar Quarter or Calendar Year, as the case may be,


containing the following information, where appropriate, with a breakdown


into the Contractor's respective shares for the purposes of Section 12.4:


(i) volume, quality and other characteristics of Crude Oil produced and


saved in the Calendar Quarter (Calendar Year) in question;


BLOCK L ANNEX B





(ii) volume, quality, composition and other characteristics of Associated


and Non-Associated Gas produced and saved in the Calendar Quarter


(Calendar Year) in question;


(iii) volumes of Crude Oil and Natural Gas used in Petroleum Operations


(separately for each type of use including re-injection):


(iv) volumes of Crude Oil and Natural Gas unavoidably lost;





(v) volumes of Natural Gas flared and vented;


(vi) size of Petroleum stocks held on the first day of each Calendar


Quarter (Calendar Year) in question; and


(vii) size of Petroleum stocks held on the last day of each Calendar


Quarter (Calendar Year) in question.





Any information provided in a Production Report shall, where possible, be


identify separately, in respect of individual Petroleum Fields, Crude Oil,


Associated Gas and Non-Associated Gas.


(d) Market Value of Production and Pricing Report


Subject to the provisions of Article 22.4, the Contractor shall from the date


the first Petroleum is produced from a Petroleum Field, prepare and deliver a


report (the "Market Value of Production and Pricing Report") in respect


of each Calendar Quarter or Calendar Year, as the case may be, containing


the following information, where appropriate, with a breakdown into the


Contractor's respective shares for the purposes of Section 12.4:


(i) volumes, prices and receipts realised for Crude Oil as a result of an


Arm’s Length Sale thereof (with any sales pursuant to Articles 16 and


25 being separately identified) carried out during the Calendar


Quarter (Calendar Year) in question;





(ii) volumes, prices and receipts realised for Crude Oil as a result of a


Non-Arm’s Length Sale thereof (with any sales pursuant to Article 25


. being separately identified) carried out during the Calendar Quarter


(Calendar Year) in question;


BLOCK L ANNEX B








(iii) relevant information available to the Contractor, insofar as required


for the purposes of the calculation and determination of the Market


Value of Crude Oil hereunder, concerning the Crude Oil prices


(including, without limitation, those of the Reference Crude Oil)


including an itemised list of all Crude Oil sales made (showing the


details of the purchasers, their relationship (if any) with any of the


Contractor Parties, the volumes sold, the unit price and total price for


each such sale, any costs, discounts and premia included in such


prices (along with details of any currency conversions) as well as


prices obtainable on spot and other world markets for the Reference


Crude Oil;


(iv) detailed breakdown of the Contractor's calculation and determination





hereunder of the Market Value of Crude Oil for the Calendar Quarter


(Calendar Year) in question;





(v) Market Value of Crude Oil stocks held on the first day of the


Calendar Quarter (Calendar Year) in question;


(vi) Market Value of Crude Oil stocks held on the last day of the


Calendar Quarter (Calendar Year) in question; and


(vii) all information of the type specified in paragraphs (iKv0 of this


Section 2.1(d) for Crude Oil as is applicable to Natural Gas.





Any information provided in a Market Value of Production and Pricing


Report shall, where possible, be identified separately in respect of individual


Petroleum Fields.


(e) Production Sharing Report


The Contractor shall from the date the first Petroleum is produced from a


Petroleum Field, prepare and deliver a report (the "Production Sharing


Report") in respect of each Calendar Quarter or Calendar Year, as the case


may be, containing the following information, where appropriate, with a


breakdown into the Contractor's respective shares for the purposes of Section


12.4:


BLOCK L ANNEX B








(i) based on Articles 12.4 and 12.8, the appropriate percentages of Profit


Oil and/or Profit Gas. as the case may be, of the Contractor and


PetroleumBRUNEI in the Calendar Quarter (Calendar Year) in


question;


(ii) total volume of (i) Petroleum produced, (ii) Petroleum lost, flared and


used in Petroleum Operations, (iii) Petroleum taken and disposed of


by the Contractor and/or PetroleumBRUNEI, as the case may be, as


Royalty Oil and Royalty Gas, (iv) Petroleum taken and disposed of


by the Contractor as Cost Oil and Cost Gas, in the Calendar Quarter


(Calendar Year) in question;


(iii) total volume of Profit Oil and/or Profit Gas, as the case may be, to be


shared between the Contractor and PetroleumBRUNEI in the


Calendar Quarter (Calendar Year) in question;


(iv) based on paragraphs (i) and (iii) of this Section 2.1(e), the volume of





Profit Oil and/or Profit Gas, as the case may be, due to the Contractor


and PetroleumBRUNEI in the Calendar Quarter (Calendar Year) in


question;


(v) actual volumes of Petroleum taken by the Contractor and





PetroleumBRUNEI in the Calendar Quarter (Calendar Year) in


question to satisfy their entitlements pursuant to paragraph (iv) of this


Section 2.1(e); and





(vi) adjustments, if any, to be made in the next Calendar Quarter


(Calendar Year) in the respective volumes of Profit Oil and/or Profit


Gas, as the case may be, due to the Contractor and


PetroleumBRUNEI on account of any differences between the


volumes specified in paragraphs (iv) and (v) of this Section 2.1(e) as


well as any cumulative adjustments outstanding from previous


Calendar Quarters (Calendar Years).


Any information and data provided in a Production Sharing Report shall,


where possible, be identified separately in respect of individual Petroleum


BLOCK L ANNEX B








2.2 Modification and Delivery of reports


The Parties may from time to time agree in writing on any modifications in the form


and contents as well as the time and manner of the delivery' of any of the reports


mentioned in Section 2.1 above as well as on any further information and data to be


reflected in such reports.


3. Audit


3.1 Petroleum Account Audit





Pursuant to Article 22.5, PetroleumBRUNEI (or its appointed firm of independent


auditors) may, within 24 months of the end of a Calendar Year and upon giving the


Operator not less than sixty (60) days notice in writing, audit the Petroleum Account


and records of the Operator for any Calendar Year for the purposes of examining and


verifying whether the Petroleum Account is true and correct and that it has been


prepared and kept in accordance with Good Oilfield Practice and the terms hereof,


including, inter alia, for the purpose of examining and verifying the determination of


Recoverable Costs (a "Petroleum Account Audit") or to perform such other auditing


procedures as PetroleumBRUNEI may reasonably consider appropriate. Any such


audit shall be subject to the follo wing terms:


(a) PetroleumBRUNEI may examine and verify all charges and credits relating


to any Petroleum Operations and any documentation forming part of the


Petroleum Account.


(b) Upon request by PetroleumBRUNEI, the Operator shall promptly make


available to PetroleumBRUNEI in Brunei Darussalam all information


relating to the Petroleum Account. The Operator shall provide the


information in electronic format or hard copy documents, if electronic format


is not available. ^


(c) The Operator shall provide PetroleumBRUNEI with:





(i) access to and the means to inspect, during normal business hours, all


of the Operator’s sites, plants, facilities, warehouses and offices


directly or indirectly serving Petroleum Operations and to question


personnel associated with Petroleum Operations; and k s


 BLOCK L ANNEX B








(il) such assistance and logistical support (including, without limitation,


suitable office space, equipment, stationery- and other like resources)


as PetroleumBRUNEI may reasonably require. -


(d) The Operator shall endeavour to produce information from the other


Contractor Parties reasonably necessary to support charges from those


Contractor Parties to the Petroleum Account.


(e) No later than six (6) months after the conclusion of a Petroleum Account


Audit, PetroleumBRUNEI shall issue to the Operator a report setting out the


results of such Petroleum Account Audit (the Audit Report). Upon receipt of


an Audit Report, the Operator shall within three (3) months' notify


PetroleumBRUNEI of the Operator's response to any exceptions set out in the


Audit Report, together with reasons and all evidence supporting such


exceptions. The Parties shall then negotiate in good faith to seek to settle any


outstanding exceptions. If within six (6) months after the date submission of


the Audit Report, the Parties cannot agree on any of the outstanding


exceptions, the Parties shall submit the matter for Expert determination in


accordance with Article 30.


3.2 Other Contractor Parties


(a) PetroleumBRUNEI may not audit the internal records of a Contractor Party


(other than the Operator) that has provided equipment, Materials or services


to Petroleum Operations. However, in addition to the information provided


by the Operator under Section 3.1(d), and upon request by


PetroleumBRUNEI within 24 months following the end of the same Calendar


Year as provided in Section 3.1 above, any such Contractor Party shall


provide PetroleumBRUNEI an annual report from an internationally


recognised independent firm of accountants. The report shall attest that all


charges billed by such Contractor Party to the Petroleum Account:





(i) represent a complete and accurate allocation of the costs of all


Materials and services supplied by said Contractor Party to


Petroleum Operations;





(ii) exclude any element of profit;


 BLOCK L ANNEX B





(iii) exclude any dupl ication of costs described in Sections 5 and 6; and


(iv) are consistent in application to all of its activities.


(b) The report shall be furnished to PetroleumBRUNEI within 3 months of date


of PetroIeumBRUNEPs request.


(c) No amounts paid to a Contractor Party, in respect of which


PetroleumBRUNEI has requested an audit shall be Recoverable Costs for so


long as said Contractor Party' does not furnish the audit report as provided


above.


3.3 Costs


The cost of any Petroleum Account Audit or audit done pursuant to Section 3.2 shall


be for the relevant Contractor Party's account and shall be Recoverable Costs.


3.4 Petroleum Account Deemed Correct


If PetroleumBRUNEI does not conduct a Petroleum Account Audit (or request an


audit pursuant to Section 3.2) with respect to a Calendar Year or does so but does not


issue an Audit Report setting out any exceptions within the time period referred to in


Section 3.1(e), the Petroleum Account for such Calendar Year shall conclusively be


presumed true and correct, absent a good faith mistake, fraud or Wilful Misconduct


4. Adjustments


4.1 Grounds for adjustments


The Contractor shall promptly apply to the Petroleum Account all adjustments


resulting from:





(a) agreed or otherwise finally settled exceptions in an Audit Report: ""


(b) inventories of Project Assets pursuant to Section 10.2;


(c) any reduction of Recoverable Costs pursuant to Section 7.1;


(d) application pursuant to Section 1.8(a) of a generally accepted accounting


procedure for month-end reversal of accruals;


 BLOCK L ANNEX B





(e) any claim brought by a third party;


(f) any requirement of Applicable Law; and/or


(g) other causes in accordance with the terms hereof.


4.2 Timing of adjustments


Any adjustments referred to in Section 4.3 above shall be applied to the Petroleum


Account no later than the close of business in Brunei Darussalam on the last day of


the Calendar Quarter in which any such adjustment was triggered.


43 Audit and review of adjustments


The validity' of the grounds and justification for any adjustments applied to the


Petroleum Account may be subject to confirmation in the course of a Petroleum


Account Audit.


5. Cost recovery


5.1 Order of cost recovery


In each Calendar Quarter, Exploration Costs shall be recovered first, Operating Costs


later and Development Costs last and each such category shall cover Costs for that


Calendar Quarter and those unrecovered from previous Calendar Quarters, with Costs


incurred earliest being recovered earliest within each category.


5.2 Determination of Recoverable Costs


(a) The Operator shall determine Recoverable Costs for each Calendar Quarter:





(i) using the Accrual Basis;


(ii) in the order provided in Section 5.1;


(iii) pursuant to Sections 5, 6, 7, 8, 9, 10 and 12 of these Accounting


Procedures; and


(iv) in accordance with all other terns of the Agreement.


BLOCK L ANNEX B








(b) If any costs or expense is not designated as a Recoverable Cost by these


Accounting Procedures or if there is uncertainty as to whether or not it is so


designated, the parties agree that PetroleumBRUNEI shall have the discretion


to determine whether or not such costs or expenses shall be a Recoverable


Cost,


5-3 Recoverable Costs








Recoverable Costs shall include the following:





(a) Costs incurred in negotiating, obtaining or renewing any approvals,


permissions or rights referred to Article 5.1;


(b) Costs of gross salaries, wages, allowances and benefits, including expatriate


allowances and other kinds of compensation and secondment costs payable to


or on behalf of Employees (all in accordance with the customary practice of


the Operator and/or its Affiliates) and pursuant to the applicable employment


contracts and/or secondment agreements, as the case may be, including cost


of:


(i) holiday, sickness, disability and other like Employee benefits;





(ii) payroll taxes or other fiscal payments relating to Employees that are


levied on employers;


(iii) pension and retirement benefits;


(iv) life and health insurance;





(v) educational schemes for Employees working and residing in Brunei


Darussalam; and


(vi) housing, living and other like Employee allowances payable to


Employees working and residing in Brunei Darussalam,





PROVIDED that the costs described in this Section 5.3(b) shall be pro rated


on the basis of the time actually spent by the relevant Employees performing


work directly related to Petroleum Operations (as determined by time sheets /


4


I





BLOCK L ANNEX B





or other time recording methods used by the Operator) and only the costs


related to the time so spent shall be Recoverable Costs;


(c) Costs incurred as premiums paid for insurance required for Petroleum


Operations under Article 26.1(a) as well as any Costs incurred in accordance


with Article 26.2 in replacing, repairing or otherwise rectifying any loss,


(d) damage, liability or other consequence of insured events, which are in excess


of the relevant insurance proceeds;





Costs incurred to replace or repair damage to, or losses of, Project Assets in


circumstances where such damage is not covered by the insurance required to


be taken out pursuant to Article 26.1 of the Agreement, PROVIDED that:


(i) such loss or damage is not caused by the Contractor's negligence; and


(ii) the Operator shall notify PetroleumBRUNEI of any such damage or


loss in excess of fifty thousand US Dollars (USD 50,000) as soon as


practicable after such loss or damage has become known to the


Operator;


(e) Subject to compliance with Article 17, properly incurred costs of services


provided by Third Parties;


(0 Subject to Section 5.3(t), properly incurred costs of services directly related


to the performance of Petroleum Operations provided by the Contractor


and/or its Affiliates technical and professional staff not located in Brunei


Darussalam (and the cost of which would not otherwise be covered by


Section 5.3(b)) including the cost of:


(i) services provided by the production, exploration, legal, financial,


procurement, transportation, insurance, accounting and rRdivisions


of the Contractor and/or its Affiliates; and


(ii) scientific or technical services such as engineering, laboratory


analysis, geophysical and geological interpretation, reservoir studies,


drilling supervision, petroleum engineering, petroleum transportation


studies and commercial analysis.


BLOCK L ANNEX B





(g) Any Taxes (but excepting those referred to in paragraphs (d), (e), (f), (g), (h),


(i), 0)» (k) and (1) of Section 8.1.) as a direct consequence of incurring any


Recoverable Costs identified in other provisions this Section 5;


(h) Contributions to the Abandonment Fund payable in accordance with Article


27.6 as well as any costs designated Recoverable Costs pursuant to Article


27.5(e);


(i) Training Employees based in Brunei Darussalam;


(j) Fuel, electricity, heat, or other energy sources, water and other utilities;


(k) Acquiring, leasing, installing, operating or otherwise using, repairing and


maintaining communications systems;





(l) Carrying out health, safety and environmental programs in Brunei


Darussalam;


(m) Carrying out geophysical and/or environmental surveys;


(n) Providing or having available pollution containment and removal equipment


and incurred in controlling, cleaning up and remedying any Petroleum


contamination;


(o) Legal services (other than services referred to in Section 5.3(f)) provided by-


third parties, unless such costs are considered Non-Recoverable pursuant to


paragraph (p) of Section 8.1;


(p) Bank charges for banking or similar types of services in relation to


establishing, maintaining and operating of any bank accounts directly related


to Petroleum Operations;


(q) Relocation of Employees, their immediate families (limited to their spouses


and dependents) and their personal and household effects:





(i) from a location of such Employee’s prior employment or permanent y


residence to Brunei Darussalam; and /fp


BLOCK h ANNEX B





(ii) from Brunei Darussalam to the location of such Employee's prior


employment or permanent residence;


(r) Subject to compliance with Article 17:





(i) and subject further to Sections 5.4 and 10, any costs incurred in


acquiring or otherwise furnishing Project Assets at net cost including,


without limitation, export broker's fees, applicable insurance costs,


transportation charges (up to the utilisation site), loading and


unloading fees, import duties, licence fees and demurrage associated


with the procurement of such Project Assets, less rebates and


discounts taken and in-transit losses not covered by insurance,


consumable Materials (including, without limitation, fuels, lubricants


and other Petroleum products);


(ii) restocking and consignment fees;


(iii) costs directly related to the disposal of Project Assets;





(iv) so far as is reasonably practical and consistent with efficient and


economical Petroleum Operations, only such Project Assets shall be


acquired or otherwise furnished for the purposes of Petroleum


Operations, and the costs thereof shall be charged to the Petroleum


Account, as may be required for immediate use in Petroleum


Operations.





(s) the cost of preparing Gas Marketing Plans;


(t) payment by the Contractor of PetroleumBRUNEI’s costs incurred pursuant to


Article 11.5;


(u) the cost of Petroleum Audits;





(v) the cost incurred by the Contractor (other than the Operator) in complying


with Section 3.2; and





(w) the cost of an independent reserve reports required pursuant to Article


10.7(a)fix). /(;,


i


 BLOCK L ANNEX B





5.4 Any services provided by the Contractor or its Affiliates (other than the Operator)


shall be provided pursuant to services agreements entered into between the Operator


and the relevant Contractor Party (or Affiliate) on an arms length basis in accordance


with Article 17.


5.5 Claims for such costs shall be supported by invoices, documentation, timesheets or


other evidence reasonably required by PetroleumBRUNEl.


5.6 Charges for facilities, Materials, utilities and services belonging to or provided by (as


the case may be) a Contractor Part}- or any of its Affiliates shall reflect the actual cost


of providing the relevant item on a no-gain-no-Ioss basis and shall not exceed the


average commercial rates charged by non-affiliated third parties then prevailing for


like facilities, Materials, utilities and services for use in the area where the same are


used hereunder. On request, the Operator shall furnish PetroleumBRUNEl a list of


rates and the basis of application.


6. Administrative overheads


6.1 General


In addition to Recoverable Costs referred to in Section 5.3 and subject to Section 6.2


below, Recoverable Costs shall also include administrative overheads charged by the


Operator to Petroleum Account as part of Operating Costs. Such administrative


overheads shall be deemed to cover such actual costs incurred by the Operator and its


Affiliates outside Brunei Darussalam for the purposes of Petroleum Operations that


cannot, without unreasonable efforts and/or expenditures or without the release of


confidential information proprietary to such the Operator or its Affiliates, be directly


charged pursuant to Section 5.3.


6.2 Determination


*«•


Any administrative overheads referred to in Section 6.1 above shall be calculated by


applying the percentages and rates set forth in the following table to the overall


amounts of Exploration Costs, Development Costs and Operating Costs incurred as


per the relevant Approved Budget:


 BLOCK L ANNEXB











Overall amounts of Exploration, Development and Operating Applicable


Costs incurred as per Approved Budget percentage or rate


Exploration Costs fUSDl


0 to 5 million 2.0


5 to 10 million 1.0


Above 10 million 0.5


Development Costs fUSDi


0 to 5 million 2.0


5 to 10 million 1.0


Above 10 million 0.5


Operating Costs (USD)


0 to 5 million 2.0


5 to 10 million 1.0


Above 10 million 0,5


i


BLOCK L ANNEX B





7. Incidental proceeds


7.1 Credits against Recoverable Costs


Recoverable Costs shall be reduced through the application of the following credits:


(a) any proceeds received by the Contractor from any insurance coverage


maintained in accordance with Article 26 or otherwise for the purposes of


Petroleum Operations:


(b) any proceeds received by the Contractor from any subcontractors under


warranties or otherwise in connection with defective Project Assets, the costs


of which are considered Recoverable Costs;


(c) any proceeds received by the Contractor from any sale of any Project Assets


in accordance with Article 21, to the extent the Recoverable Costs of such


Project Assets have been recovered out of the Cost Pool;


(d) any proceeds received by the Contractor from the sale or other disposal of


any intellectual property, the costs of developing which having been


designated Recoverable Costs, to the extent such costs have been recovered


out of the Cost Pool;


(e) any proceeds received by the Contractor from rendering any services relating


to Petroleum Operations or providing access to, and/or authorising the use of


any Project Assets, including on the basis of tariff arrangements with third


parties;


(f) any proceeds received by the Contractor as a result of any court or arbitration


judgements, settlement of claims or disputes, or otherwise arising in


connection with Petroleum Operations;


x


(g) any realised gains resulting from the exchange of currencies for the purposes


of Petroleum Operations;


(h) any excess funds remaining in the Abandonment Fund at the due completion


of all Petroleum Operations referred to in Article 27.5, to the extent that the


contributions to the Abandonment Fund made pursuant to Article 27.6 have


 BLOCK L ANNEX B





been recovered out of the Cost Pool at the time of due completion of such


Petroleum Operations;


(i) any interest accrued on any bank accounts) referred to in Section 1.8(f),


except for any interest accrued on the Abandonment Fund; and


(j) any other proceeds, offsets, credits or refunds received by the Contractor in


cash or in kind in connection with Petroleum Operations where the costs of


such Petroleum Operations are considered Recoverable Costs and always


excluding any of the proceeds which are referred to in Section 7.3.


7.2 Excess credits against Recoverable Costs


(a) If in any Calendar Quarter credits referred to in Section 7.1 above exceed the


amount of Recoverable Costs outstanding in such Calendar Quarter, such


excess shall be carried forward to the following Calendar Quarter.


(b) If credits referred to in Section 7.1 above exceed the amount of all


Recoverable Costs outstanding in Petroleum Operations at the end of the


Term, such accumulated excess shall promptly be paid to


PetroleumBRUNEI.


7-3 Treatment of certain interest proceeds


Any interest accrued on the Abandonment Fund shall be retained as part of the


Abandonment Fund and credited towards Petroleum Operations referred to in Article


27.5 or otherwise disposed of pursuant to Article 27.6(e).


7.4 Order of credits against Recoverable Costs


Any credits against Recoverable Costs pursuant to Section 7.1 received earliest shall


be applied against Recoverable Costs earliest, PROVIDED that in each Calendar


Quarter Operating Costs shall be so credited against first, Development Costs later


and Exploration Costs last


BLOCK L ANNEX B





7.5 Participation


The credits referred to in Section 7.1 above shall be taken into account in determining


the portion of Costs PetroleumBRUNEI would be expected to bear in the event that it


elects to exercise its option to participate pursuant to Article 24.


8. Costs and expenses not allowed For cost recovery


8.1 Non-Recoverable Costs


The following costs (whether directly as such or indirectly as part of any Recoverable


Costs) shall be referred to in this Agreement as Non-Recoverable Costs and shall be


excluded from the calculation of Cost Oil or Cost Gas:


(a) any costs incurred prior to the Commencement Date including costs in


respect of the preparation, negotiation or execution of this Agreement;


(b) any costs incurred in preparation, negotiation, signing or otherwise agreeing


any amendment, extension or other modification of the terms of this


Agreement (whether as part of this Agreement, as a side document or


otherwise);


(c) any costs incurred in obtaining, furnishing and maintaining any guarantees


required pursuant to the Agreement, including, without limitation, under


Articles 8.5 and 33.3;


(d) any Excess Revenue Payments;


(e) any Royalty Oil or Royalty Gas;


(f) any income tax payments under the Income Tax (Petroleum) Act (Cap. 119)


or other similar taxes on income charged in Brunei Darussalam, if any;


(g) any income tax, profits tax or other similar taxes on income charged"outside


Brunei Darussalam;


(h) any Taxes (other than those referred to in Section 8.1(f)) which are not


charged as a direct consequence of incurring any Recoverable Costs


identified in Sections 5.3 (except for Section 5.3(g)), 10 or 11;


4 d


BLOCK L ANNEX B





0) any taxes or fiscal payments charged outside Brunei Darussalam or Taxes, in


respect of which the Contractor is entitled to reimbursement or refund


0) hereunder or otherwise;


any bonus payments referred to in Article 13.3;


(k) any research and development contribution referred to in Article 18;


0) any payments to PetroleumBRUNEl referred to in Article 20.2;





(m) any costs incurred as annuity, royalty' or other such recurring payment


relating to the acquisition of a Percentage Interest where the corresponding


receipt would have been taxable under Section 12 of the Income Tax


(Petroleum) Act (Cap. 119) but for the application of Section I0(AX8)


thereof;


(n) any payments made from the Abandonment Fund;


(o) the costs (including the cost of legal advice) of any litigation, arbitration or


any other dispute resolution, determination or mediation proceedings in


respect of any disputes or controversies:


(i) incurred as a result of a breach by the Contractor of Applicable Law;





(ii) arising in connection with the Wilful Misconduct of any Contractor


Party, their Affiliates or subcontractors;


(iii) between any of the Contractor Parties and/or Affiliates; or


(iv) between a Contractor Party and PetroleumBRUNEl, the Government


or any Government agency, including, without limitation, any Expert


determination or arbitration proceedings referred to in Articles 30


and 31;


the costs of legal services if the cost of such services shall exceed fifty


thousand US Dollars (USD75,000), or in case of legal services in respect of


any Development Operations, one hundred thousand US Dollars


(USD150,000), without PetroleumBRUNETs specific and express prior


approval in writing; or


BLOCK 1. ANNEX B








any costs incurred as fines, penalties or other liabilities (whether as a result of


court or arbitration judgements, settlement of claims or disputes, or


otherwise), if such fines, penalties or liabilities:


(i) are imposed under any Applicable Law;





(ii) result from a Wilful Misconduct of any of the Contractor Parties, its


Affiliates or subcontractors;


(iii) are payable to, or are otherwise for the benefit of, any Contractor


Party and/or their Affiliates; and


(iv) are payable to, or are otherwise for the benefit of.


PetroleumBRUNEI, the Government and'or any Government agency,


including, without limitation, as a result of any Expert determination


or arbitration proceedings referred to in Articles 30 and 31;


any costs incurred as interest charges on borrowings, loans and advances, as


well as export credit premiums and all other borrowing costs and other sums


paid in relation to the arrangement, provision or securing of finance


(including, without limitation, costs of guarantees and professional or


advisory fees and expenses as well as any element of financial lease, deferred


payment or other arrangements, which is in the nature of interest) and all


losses resulting from any hedge arrangements or other derivatives;





(s) any costs recoupable under an indemnity;


0) any costs incurred by the Contractor under an indemnity given under the


Agreement;


(u) any costs incurred as payments to any pension, provident or other-society or


(V) fund (other than costs relating to Employees) unless and until ’otherwise


agreed with PetroleumBRUNEI in writing, such agreement being entirely at


PetroleumBRUNEl's sole discretion and always subject to the prior approval


of the Collector;


any costs of transportation of Project Assets from a location of Petroleum


Operations to another location, other than solely for tl


BLOCK L ANNEX B








Petroleum Operations (e.g. to the location of another project not subject to


this Agreement);





(w) any costs referred to in Sections 5.3(b) and 5.3(q) which have not been


incurred in accordance customary practice of the Operator and/or its


(x) Affiliates;


any costs which are incurred and/or determined


(i) in breach of the terms of this Agreement, including, without


limitation, in excess of ceilings and/or contrary to other requirements,


qualifications or restrictions provided under this Agreement (such as


inter alia those set out in Articles 9, 10, 14, 17, 26,27 and 28.4 and


in Sections 3.2(c), 5.3(f) and 6); or


(ii) under contracts and arrangements (or amendments, extensions or


other modifications thereto) which under the terms hereof are subject


to approval of PetroleumBRUNEI or result from a tendering


procedure that is subject to approval of PetroleumBRUNEI, and such


approval has not been obtained or deemed obtained;


(y) any costs in respect of which records are required to be maintained in


accordance with the terms of the Agreement and are not so maintained, or


which are required to be included in a report contemplated in Article 22.1 and


(z) Section 2.1 and which have not been so included or described;





any costs incurred as loss of profits, production, opportunity or as a


consequential or indirect loss;


(aa) any costs incurred in respect of Employees which are excessive and not in


accordance with the Operator's customary practice (e.g. lavish or extravagant


bonuses, pensions, holidays, vacations, travel, entertainment, severance


(bb) payments or other excessive Employee costs, expenses and benefits);





any costs incurred in carrying out archaeological surveys, unless and until


otherwise specifically and expressly agreed with PetroleumBRUNEI in


writing, such agreement being entirely at PetroleumBRUNEI’s sole


discretion; and


BLOCK L ANNEX B





(cc) any costs incurred as donations or gifts to any institution of public character


in Brunei Darussalam.


8.2 Other non-recoverable costs and expenses


For the avoidance of doubt, other costs and expenses that are not considered


Recoverable Costs shall include:





(a) any costs and expenses incurred in marketing, sales, insurance and


transportation of Petroleum beyond the Delivery' Point (e.g. such costs as


commissions and brokerage, expense of cargo inspection, survey, testing,


measurement, assays and sampling of Crude Oil, all vessel freight and


associated delivery costs including light dues, lightering, pilotage,


demurrage, multi-port discharge costs, port and agency costs, in-transit


losses, insurance premiums incurred on charterer's liability insurance and


protection and indemnity' insurance);


(b) any costs and expenses incurred after the expiry of the Term of the


Agreement;


(c) any costs and expenses incurred by any Contractor Party in connection with


an assignment of a Percentage Interest in accordance with Articles 24 and 33


and the Joint Operating Agreement:


(d) any costs and expenses incurred by any Contractor Party' and owed to another


Contractor Party pursuant to the Joint Operating Agreement, including as a


premium paid in connection with the reinstatement of its rights in an


exclusive operation thereunder;


(e) any costs and expenses incurred in creating any partnership or joint venture


arrangement other than any such arrangement created pursuant tqrthe Joint


Operating Agreement;


CD any costs and expenses incurred in performing audits carried out for the


benefit or at the request of any of the Contractor Parties, its Affiliates,


shareholders, creditors or other interested third parties, save for the audits and


reviews which are conducted in accordance with the terms of this Agreement


for the purposes of Petroleum Operations, including, without limitation,


BLOCK L ANNEX B








reviews of health, safety and environment, value assurance reviews, business


controls reviews and operational reviews as well as those audits and tax


inspections which are referred to in Article 22; and


(g) any costs and expenses incurred in canying out, or as payment for,


inventories pursuant to Section 10.2(d).


9. Non-duplication of charges and credits


Notwithstanding any provision to the contrary in these Accounting Procedures, it is


the Parties’ intention that there shall be no duplication of any charges and credits to


the Petroleum Account hereunder.


10. Materials, records and inventories


10.1 Conditions of Materials from Contractor Parties' and/or their Affiliates' stock


The Contractor and its Affiliates may, subject to obtaining the prior written consent


of PetroleumBRUNEI, furnish Materials for the purposes of Petroleum Operations


from their own stock on following conditions:


(a) New Materials (Condition 1)


Any new Materials furnished from the Contractor and/or its Affiliates' own


stock shall be classified as "Condition 1 Materials" and the Costs incurred in


their furnishing shall be determined on the basis of the lesser of ninety


percent (90%) of:


(i) their net book value;


(ii) or their net cost,


as determined in accordance with Section 5.3(r) above.


(b) Used Materials (Condition 2 and Condition 3)


(i) Any used Materials which are in sound and serviceable condition and


suitable for use without repair or reconditioning shall be classified as


"Condition 2 Materials" and the Costs incurred in their furnishing


BLOCK L ANNEX B





shall be determined on the basis of the lesser of seventy percent


(70%) of:


(A) their net book value; or


(B) the net cost for like Condition 1 Materials as determined


pursuant to Section 10.1(a).





(ii) Any used Materials not meeting the requirements for Condition 2,


but which can be made suitable for use after repair or reconditioning,


shall be classified as "Condition 3 Materials" and the Costs incurred


in their furnishing shall be determined on the basis of lesser of forty'


percent (40%) of:


(A) their net book value; or





(B) the net cost for like Condition 1 Materials as determined


pursuant to Section 10.1(a),


The costs of repair and reconditioning shall be taken into account in


determining their net book value or net costs (as the case may be),


PROVIDED that the costs incurred in furnishing such Condition 3


Materials plus the costs of their repair and reconditioning does not


exceed the costs incurred in furnishing the like Condition 2 Materials


and PROVIDED further that such Condition 3 Materials meet the


requirements for Condition 2 Materials upon being repaired or


reconditioned,


(c) Other Materials





The Costs incurred in furnishing used Materials which cannot be classified as


Condition 2 Materials or Condition 3 Materials, shall be decided jointly by


PetroleumBRUNBI arid supplying Contractor Party and shall be


commensurate with their use and condition.


(d) Warranty of Materials





The Contractor Parties and/or Ms Affiliates shall not be required to warrant


Materials supplied by them beyond the supplier's or manufacturer's warranty


BLOCK L ANNEX B





and, in the case of defective Materials, any shortfall from the adjustments


received from suppliers or manufacturers, or their agents, shall be credited


against Recoverable Costs pursuant to Section 7.1 at such time when the


adjustment is received.


10.2 Records and inventories of Project Assets


(a) The Contractor shall keep as part of the Petroleum Account detailed records


of Project Assets in accordance with Good Oilfield Practice. Such records


shall include information on quantities, location and condition of such Project


Assets and whether such Project Assets are leased, owned or otherwise held.


(b) The Contractor shall annually notify PetroleumBRUNEI of the particulars of


all Project Assets as of the date of such notice.


(c) The Contractor shall take periodic physical inventories of all Project Assets at


reasonable intervals but no less frequently than (i) annually in respect of


Materials (such as, without limitation, spare or replacement parts,


consumables and sundries) and (ii) once every three (3) consecutive Calendar


Years in respect of other Project Assets. The Contractor shall give


PetroleumBRUNEI sixty (60) day prior notice of its intention to take any


such inventory to allow PetroleumBRUNEI to be represented at such


inventory’. Concurrently with notifying PetroleumBRUNEI as provided above


in this Section 10.2(c), the Contractor shall agree with PetroleumBRUNEI on


the relevant inventory procedures (including, without limitation, the details


of the pricing metbod(s) intended to be used) to be adopted.


(d) When an assignment of a Percentage Interest takes place, a special inventory'


shall be taken by the Contractor at the request of the assignor and/or assignee,


PROVIDED that the cost of such inventory is borne by the assignor and/or


assignee and paid to the Contractor.


(e) The Contractor shall provide PetroleumBRUNEI with a full report of the


results of an inventory within sixty (60) days of having taken such inventory.


Any such report shall contain a reconciliation of the results of the inventory


with the Petroleum Account as well as a list of all surpluses, shortages,


damages and losses with a reasonable explanation of the reasons thereof. The


A A





BLOCK L ANNEXB





Contractor shall and in accordance with Section 4 adjust the Petroleum


Account based on any such report.





11. Further specification and classification of Recoverable Costs


Further to such other classifications as may be required hereunder, all Recoverable


Costs shall be without duplication classified in accordance with the purposes for


which they are incurred, as either Operating Costs or Capital Costs with Capital Costs


being further segregated into Exploration Costs and Development Costs.


Administrative overheads shall be fully allocated to Operating Costs. These


categories of Recoverable Costs are defined below in this Section 11.


11.1 Operating Costs


Operating Costs shall include all Recoverable Costs other than Capital Costs (being


Exploration Costs and Development Costs). Operating Costs shall include, without


limitation, the following Recoverable Costs:


(a) any Recoverable Costs of Materials (such as, without limitation, spare or


replacement parts, consumables and sundries);


(b) any Recoverable Costs incurred as contributions to the Abandonment Fund


pursuant to Article 27.6(b);


(c) any Recoverable Costs incurred as premiums paid for insurance required for


Petroleum Operations under Article 26.1(a) as well as any Recoverable Costs


incurred in replacing, repairing or otherwise rectifying any loss, damage,


liability or other consequence of an event insured under Article 26.1(a),


which are in excess of the relevant insurance proceeds; and


(d) all other Recoverable Costs as may be allocated to Operating Costs under this


Section 11.


 BLOCKL ANNEX B





] 1.2 Exploration Costs


Exploration Costs shall include the following Recoverable Costs:


(a) any Recoverable Costs of surveys and studies including aerial, geophysical,


geochemical, paleontological, geological, topographical and seismic surveys


and studies, soil tests, environmental impact studies, reservoir studies and


other similar studies and their respective interpretation;


(b) any Recoverable Costs of drilling, deepening, plugging-back, sidetracking,


testing, completion and re-completion of Exploration Wells or Appraisal


Wells PROVIDED that such Exploration Wells or Appraisal Wells are not


completed as production Wells;


(c) any Recoverable Costs of Materials used for Exploration Wells or Appraisal


Wells PROVIDED that such Exploration Wells or Appraisal Wells are not


completed as production Wells;


(d) any Recoverable Costs of labour and services used in carrying out the


activities referred to in paragraphs (a), (b) and (c) above of this Section 11.2;


(e) any Recoverable Costs of facilities used in support of activities referred to in


paragraphs (a), (b), (c) and (d) above of this Section 11.2, the Recoverable


Costs of each such facility separately identified;


(f) any Recoverable Costs of screening studies relating to new transportation


facilities and the handling or disposal of Petroleum and by-products of


Petroleum Operations (including, without limitation, sulphur, nitrogen and


helium);


(g) all other Recoverable Costs as may be allocated to Exploration Costs under


this Section 11.





11.3 Development Costs


Development Costs shall include the following Recoverable Costs other than


Operating Costs or Exploration Costs:


BLOCK L ANNEX B








W any Recoverable Costs of surveys and studies relating to environmental


research, transportation and handling of Petroleum and by-products of


Petroleum Operations, engineering and design, in each case as required for


preparation and implementation of an Approved Development Plan;





(b) any Recoverable Costs of drilling, deepening, plugging-back, sidetracking,


testing, completion and re-completion of production Wells, whether such


production Wells are dry or producing, or Injection Wells, including, without


limitation, installation of production casing and tubing;


(c) any Recoverable Costs of drilling, deepening, plugging-back, sidetracking,


testing, completion and re-completion of Exploration Wells or Appraisal


Wells, PROVIDED that such Exploration Wells or Appraisal Wells are


completed as production Wells;





(d) any Recoverable Costs of Materials used in the implementation of an


Approved Development and Production Plan or used for Exploration Wells


or Appraisal Wells, PROVIDED that such Exploration Wells or Appraisal


Wells are completed as production Wells;


(e) any Recoverable Costs of labour and services used in carrying out the


activities referred to in paragraphs (a), (b), (c) and (d) above of this Section


11.3;





(f) any Recoverable Costs of facilities used for production, processing,


transportation and storage of Petroleum and by-products of Petroleum


Operations, including, without limitation, platforms, pipelines, sea lines, flow


lines, production units, processing units, treatment units, wellhead equipment,


subsurface equipment, enhanced recovery systems, Petroleum and by¬


products storage facilities, terminals, piers, harbours and related facilities


access roads and such other facilities used in support of activities referred to


in paragraphs (a), (b), (c), (d) and (e) above of this Section 11.3, the


Recoverable Costs of each such facility separately identified; and





(g) any Recoverable Costs incurred after the Commencement Date and before the


Commercial! ty Date which would have constituted Operating Costs (as


defined in Section 11.1) had they been incurred after the Commerciality Date. /


BLOCK L ANNEX B





12. Taxation


The liability of each Contractor Party to pay income tax pursuant to Article 13.2 shall


be subject to the following terms (but always in accordance with the Income Tax


(Petroleum) Act (Cap. 119):


12.1 Tax base


The basis of each Contractor Party's individual income tax returns shall be its


chargeable profits determined pursuant to Section 12.3 for the relevant basis period


on the basis of the Petroleum Account. Any such income tax returns shall be filed in


Brunei Dollars and any resulting income tax liability may be assessed in US Dollars


or in Brunei Dollars. [If any such income tax liability is assessed in Brunei Dollars, it


shall be calculated in US Dollars and translated into Brunei Dollars on the date of


such assessment.]


12.2 Gross proceeds


Subject to the provisions of Section 12.4, each Contractor Party’s gross proceeds for a


basis period shall be based on the Petroleum Account and shall be the value


(calculated on the basis of the relevant Individual Market Value) of such Contractor


Party's Percentage Interest share of the Contractor’s Entitlement determined under the


Agreement for such basis period.


12.3 Chargeable profits


Subject to the provisions of Section 12.4, the chargeable profits of each Contractor


Party for a basis period on the basis of the Petroleum Account shall be the remainder


of the gross proceeds referred to in Section 12.2 after the following deductions shall


have been made:


(a) such Contractor Party's Percentage Interest share of all Recoverable Costs


recoverable in the relevant basis period (being Recoverable Costs carried


forward from preceding basis period(s) and/or incurred during the relevant


basis period) out of such Contractor Party’s Percentage Interest share of the


Cost Pool;


 BLOCK L ANNEX B








(b) such Contractor Party's share in the following liabilities both incurred


pursuant to the Agreement during the relevant basis period and those carried





forward from preceding basis period(s) in which such liabilities had not been


deducted for the purposes of the Income Tax (Petroleum) Act (Cap. 119) (to


the extent that any such deduction does not result in an income tax loss):





(i) such Contractor Party's contribution towards Excess Revenue


Payments made by the Operator pursuant to Articles 12.5 and 12.9,


which contribution shall be determined on the basis of such


Contractor Party's Percentage Interest share of the Contractor's Profit


Oil and Profit Gas and the value of such share (calculated on the


basis of the relevant Individual Market Value);


(ii) such Contractor Party's contribution towards the amounts paid by the


Operator as a research and development contribution pursuant to


Article 18, which contribution shall be determined as an appropriate


percentage of such Contractor Party's gross proceeds referred to in


Section 13.2;





(iii) such Contractor Party’s Percentage Interest share of the amounts paid


by the Operator to PetroleumBRUNEI pursuantto Article 20.2; and


(c) the amount representing the difference (if any) by which the amounts


deductible by such Contractor Party pursuant to paragraph (a) of this Section


13.3 in the immediately preceding basis period, have exceeded the amount of


such Contractor Party's gross proceeds calculated pursuant to Section 13.2 for


such basis period;





the deductions specified in paragraphs (a), (b) and (c) of this Section 12.3 being the


amounts referred to in section 10A(4) of the Income Tax (Petroleum) Act (Cap. 119).


12.4 Allocation bv reference to individual positions of Contractor Parties





In calculating the gross proceeds and chargeable profits of the Contractor Parties


pursuant to Sections 12,2 and 12.3, the amounts corresponding to the Contractor


Parties’ respective Percentage Interest shares referred to in Sections 1.2, 12.2 and 12.3


shall be adjusted (taking into account advice to that effect by any Contractor Party


submitted to the Collector as part of the relevant income tax return) to reflect


/


4


BLOCK L ANNEX B





disproportionate allocations (if any) between Contractor Parties of the Contractor's


Entitlement, Recoverable Costs and/or the Contractor's liabilities under the


Agreement, other than pro rata to their Percentage Interests, always PROVIDED that:


(a) any such disproportionate allocation occurs between Contractor Parties only;


(b) any such disproportionate allocation does not in any way cause a reduction of


the total income tax liability of all Contractor Parties as compared with the


position that would arise if no disproportionate allocation was made; and any


such adjustment shall be made only:


(i) where such adjustment reflects any such disproportionate allocation


made pursuant to (i) Article 24 or (ii) as provided in the Joint


Operating Agreement;


(ii) where such adjustment reflects any such disproportionate allocation


resulting from actual liftings of Petroleum by the Contractor Parties;


(iii) where such adjustment reflects any such disproportionate allocation


made pursuant to farm-in or similar arrangements in respect to this


Agreement, in which any of the Contractor Parties participates; and


(iv) in other cases as may be agreed with the Collector.


12.5 No prejudice to rights and powers of the Collector





Notwithstanding any other provision of these Accounting Procedures, the provisions


hereof shall be without prejudice to the rights and powers of die Collector under the


Income Tax (Petroleum) Act (Cap. 119). ,r~T Xt'


ANNEX C


 BLOCK L BREAKDOWN OF MINIMUM EXPENDITURE OBLIGATION ANNEX C





First Phase of Exploration Period:





Proposed Exploration and Physical Quantity Proposed Expenditure in





Related Activities US$_


Geological study Gravity, remote sensing, data


assimilation and field work


Re-proeessing of seismic data HP km depending on tape


availability


Seismic Surveys |





Amount of 2D ■P km on shore


HP km off shore


Amount of 3D ^Hsq. km off shore


Drilling 1 1


No. of exploration Pwells





wells


Meterage of each 2000 meters


well


2000 meters*


* budgeted as on shore well





but could be an off shore


wells in which case the well


cost would increase





Total meterage 4000 meters


Total minimum 20,500,000 US$


expenditure for the


Exploration Period











Second Phase of Exploration Period:





Physical Quantity Proposed Expenditure in


Proposed Exploration and


Related Activities


Geological study Field work


Re-processing of seismic data N/A


Seismic Surveys


Amount of 2D HI km on shore





9Pon off shore


Amount of 3D PP sq. km shore


Drilling


No. of exploration Pwells {


wells





Meterage of each 2000 meters -


well


2000 meters'


* budgeted as on shore well


but could be an off shore


wells in which case the well


cost would increase





Total meterage 4000 meters


Total minimum 16,000,000 US$


expenditure for the


Exploration Period








/'





ANNEX D


BLOCK L ANNEX D




















Parent Company Guarantee





Loon Energy Inc





and


Brunei National Petroleum Company Sendirian Berhad












































in relation to Loon Brunei Limited's obligations under a


production sharing contract for Block L in Brunei Darussalam ^


 BLOCK L ANNEX D








THIS GUARANTEE is made on • day of • 2006


BETWEEN:


(1) LOON ENERGY INC (the "Guarantor") a company incorporated under the laws of


Alberta, Canada, of 1950, 700 4th Avenue SW, Calgary, Alberta, T2P 334, Canada; and


(2) BRUNEI NATIONAL PETROLEUM COMPANY SENDIRXAN BERHAD, a company


incorporated under the Companies Act (Cap 39) haying its registered address at Unit


2.02, 2nd Floor, Block D, Yayasan Sultan Haji Hassanal Bolkiah Complex, Jalan Pretty,


Bandar Seri Begawan, Brunei Darussalam (the "Company").


WHEREAS


(A) This Guarantee is supplemental to a production sharing agreement made on 28th August


2006 (the "PSA") between the Company and Loon Brunei Limited, a company


incorporated under the laws of Cyprus, with its registered office at 27 Pindarou Street,


Alpha Business Centre, 1060 Nicosia, Cyprus (the "Subsidiary") pursuant to which the


Subsidiary has agreed, inter alia, to share in the exploration and production of


petrochemical reserves in Block L in Brunei Darussalam.


(B) The Guarantor has agreed to guarantee the due performance by the Subsidiary of its


obligations under the PSA in the manner hereinafter appearing.


THE PARTIES AGREE AS FOLLOWS:


1. In this Guarantee (including the recitals) words and expressions shall have the same


meanings as are respectively assigned to them in the PSA.


2. In consideration of the Company entering into die PSA with the Subsidiary, the Guarantor


for itself, its successors and assigns:


2.1 irrevocably and unconditionally guarantees to the Company as a continuing


guarantee the due and punctual performance by the Subsidiary of each and all of


the obligations, duties and undertakings of the Subsidiary under and pursuant to


the PSA when and if such obligations, duties and undertakings shall become due


according to the terms of the PSA and the due payment and discharge of all such


sums of money and liabilities due, owing or incurred or payable and unpaid by


the Subsidiary to the Company pursuant to the PSA or as a result of any breach


thereof (including all costs and expenses, including without limitation legal fees


and taxes incurred by the Company in connection with the Company seeking to


enforce any of the above) as if it were sole principal obligor and not merely a


guarantor; and


2.2 shall indemnify the Company in respect of any claim, demand, proceedings or


liability, loss, damage, costs or expenses arising out of any breath by the


Subsidiary of any term, obligation or warranty in the PSA or any failure by the


Subsidiary to perform each and all of the obligations, duties and undertakings of


the Subsidiary when and if such obligations, duties and undertakings become due


and performable according to the terms of the PSA.


3. The Guarantor shall not be exonerated or released from its obligations under this


Guarantee by time being given to the Subsidiary by the Company or by any consent,


concession waiver or any other arrangement granted or made by the Company to or with


the Subsidiary or by anything that the Company or the Subsidiary may do or omit or


neglect to do (including, but without limitation, the assertion or failure or delay to assert


any right or remedy of the Company or the pursuit of any rights or remedies by the


Company or the giving by the Subsidiary of any security or the release, modification or /


BLOCK L ANNEX D











exchange of any such security for the liability of any persons) which, but for this


provision, might exonerate the Guarantor or otherwise reduce its liabilities hereunder.


4. The Guarantor hereby authorises the Subsidiary and the Company to make any addendum


or variation however fundamental to the PSA, the due and punctual performance of which


addendum or variation shall be likewise guaranteed by the Guarantor in accordance with


the terms of this Guarantee. The obligations of the Guarantor hereunder shall in no way


be affected by any variation or addendum to the PSA.


5. This Guarantee is a continuing guarantee and, accordingly, shall remain in operation until


all obligations, warranties, duties and undertakings now or hereafter to be carried out or


performed by the Subsidiary under the PSA shall have been satisfied or performed in full


and is In addition to and not in substitution for any other security which the Company may


at any time hold for the performance of such obligations and may be enforced against the


Guarantor without first haying recourse to any such security and without taking any steps


or proceedings against the Subsidiary or any other person.


6. Neither the liability of the Guarantor hereunder nor the rights of the Company in relation


to this Guarantee shall be discharged or impaired by reason of the winding up, dissolution,


administration, ownership of the Guarantor or the Company or any other person or any


change in the ownership of the Subsidiary or by any other act, event or omission which


might, but for the provisions of this Guarantee, operate to discharge, impair or otherwise


affect any of the obligations or liabilities of the Guarantor hereunder or any of the rights,


remedies or powers conferred upon the Company.


7. All sums payable under this Guarantee shall be paid in full free and clear of and without


deduction of or withholding for or on account of any present or future taxes, duties and/or


other charges.


8. The Guarantor shall:





8.1 be entitled in any action or proceedings by the Company to raise any equivalent


rights in defence of liability as the Subsidiary would have against the Company


under the PSA so that except in relation to any costs and expenses (including


fees and taxes) incurred in enforcing this Guarantee, the liability of the Guarantor


shall be no greater than the liability which it would have had if it had been jointly


and severally liable with the Subsidiary to the Company as a party to the PSA;


and


8.2 subject to clause 8.1, remain liable to the Company under tfiis Guarantee for the





period referred to in clause 9.


9. Until all amounts which may be or become payable by the Subsidiary to the Company


under the PSA have been paid in full, the Guarantor shall, by virtue of any payment made


by it under this Guarantee, not:


9.1 be subrogated to any rights or security;





9.2 claim, rank, prove or vote as creditor of the Subsidiary or its estate in


competition with the Company; or


9.3 receive, claim or have the benefit of any payment, distribution or security from or


on account of the Subsidiary, or exercise any right of set-off as against the


Subsidiary.





10. Any notice shall be duly signed by or on behalf of a duly authorised officer of the person


giving the notice and left at or sent by recorded delivery post or by facsimile transmission


to it at the following addresses:


 BLOCK L ANNEX »








The Company


Address: Unit 2.02, 2nd Floor, Block D, Yayasan Sultan


Haji Hassanal Bolkiah Complex, 3alan Pretty,


Bandar Seri Begawan, Brunei Darussalam


Facsimile Number: +673 2230654


Attention: The Chief Executive Officer


The Guarantor





Address: 1950, 700 4th Avenue SW, Calgary, Alberta,


Facsimile Number: T2P 334, Canada


+1 403 264 8877


Attention: The Chief Executive Officer








Either party may change its address for notice to another address by prior notice to the


other party.


Any notice shall be deemed to have been received:


10.1 if sent by hand or recorded delivery post, when delivered;


10.2 if sent by facsimile, upon sending, subject to:


(a) confirmation of uninterrupted transmission by a transmission report; and


(b) there having been no telephonic communication by the recipient to the


sender (any such telephone communication to be confirmed in writing)


that the facsimile has not been received in legible form:


(i) within three hours after sending, if sent on a Business Day and


between the hours of 9.00 am and 4.00 pm; or


(ii) by noon on the next following Business Day if sent after 4.00 pm on


a Business Day but before 9.00 am on the following Business Day,


provided that any notice given by fax shall be confirmed by letter sent by


hand or post, but without prejudice to the original fax notice if received in


accordance with this clause 10.2(b).


11. If any dispute or difference arises between the Guarantor and the Company in connection


with this Guarantee which cannot be resolved by mutual agreement, it shall be referred to


the jurisdiction of the English Courts. This Guarantee shall be governed by and construed


in accordance with English law.








IN WITNESS whereof this Guarantee has been executed as a deed and delivered by the


Guarantor the day and year first before written.


BLOCK L ANNEX 1>








THIS DEED is made on )


2006 )


IN WITNESS whereof this agreement )


has been executed as a deed and


delivered on the date first above written


Signed as a deed by


LOON ENERGY INC acting by





{name of individual} and [name of


individual} duly authorised





under the laws of Alberta, Canada


on behalf of LOON ENERGY INC




















THIS DEED is made on )


2006 )


IN WITNESS whereof this agreement )


has been executed as a deed and


delivered on the date first above written


Signed as a deed by





BRUNEI NATIONAL PETROLEUM


COMPANY SENDIRIAN BERHAD


acting by


{name of individual] and [name of





individual] duly authorised


under the laws of Brunei Darussalam





on behalf of BRUNEI NATIONAL


PETROLEUM COMPANY SENDIRIAN


BERHAD


ANNEX F


m u i X-ij. v jl-j


BLOCK L ANNEX E





APPENDIX


{HEADED NOTEPAPER OF BENEFICIARY]











To: [Name and address of Issuing Bank]








[Date]





Bank Guarantee Ref No. • (the "Bank Guarantee")


We refer to the Bank Guarantee and certify that:





(a) we have provided the Production Sharing Agreement to the Borrower on the terms


and conditions approved by you at the time of issue of die Bank Guarantee;


(b) the terms of the Production Sharing Agreement are the same as those prevailing at the


time of issue of the Bank Guarantee (or, to the extent that they are not, any


amendments thereto have been approved by you);





(c) an aggregate amount (the "Payment Amount") of •{comprising *of principal and •


of interest and/or other charges) fell due for payment in • by • on • and remains due


and unpaid at the dale of this letter.


Accordingly, we hereby request payment under the Bank Guarantee of the Payment Amount.





Payment is to be made to our account (A/c No. •) with • at •.





Terms defined in the Bank Guarantee shall bear the same meaning in this letter.


Yours faithfully

















For and on behalf of


BLOCK L ANNEX E








FORM OF BANK GUARANTEE


[HEADED NOTEPAPER OF ISSUING BANK]








To: [Details]




















[Date] Vj





Dear Sirs, U


-A


I I In this letter:


-c


"Bank" means [details of Issuing Bank];








"Business Day" means a day (not being a Saturday, Sunday or public holiday) on which (i)


banks and foreign exchange markets are open for dealings in London and (ii) banks and


foreign exchange markets are open for dealings in [Brunei Darussalam];


"Payment Date" means die date for payment of a demand being [details - minimum Jive]


Business Days after the date of receipt of demand; <3


"Production Sharing Agreement" means the production sharing agreement dated 28*





August 2006 for Block L Brunei Darussalam between (1) Brunei National Petroleum


Company Sendiran Berhad (2) Loon Brunei Limited and (3) QAF Brunei Sdn Bhd.





1.2 Words and expressions defined in or having a meaning in die Production Sharing Agreement


shall, unless the context otherwise requires, have the same meaning when used in this


Agreement.





2. The Bank irrevocably and unconditionally guarantees to you on receipt of written demand,


the payment and discharge by the Contractor of all amounts payable or expressed to be


payable to you pursuant to the Minimum Expenditure Obligations in respect of [Phase


1/Phase 2] of the Exploration Period set out in [Article 8.1/Article 8.2] of the Production


Sharing Agreement This guarantee is given subject as follows:





(a) Any demand made hereunder shall be made in writing addressed to the Bank or its


offices at [details] (Attention: [details]) in the form provided in the appendix to this


guarantee;





(b) The maximum aggregate liability of the Bank hereunder in respect of the Minimum


Expenditure Obligations for [Phase 1/Phase 2] (inclusive of all principal, interest,


costs and expenses) is [USD 6,833,334/USD 5,333,333], 4^4














V A)7.f


i


BLOCK L ANNEX E





Any payment made hereunder shall be made on the Payment Date in [details - currency] by


payment to the account of the Beneficiary at a principal bank in [details] specified in the


demand.





4 This Guarantee will expire upon:





(a) the date upon which the Contractor has fulfilled its Minimum Expenditure Obligations


for [Phase 1/Phase 2] in accordance with [Article 8.1/Article 8.2] of the Production


Sharing Agreement;


(b) the end of [Phase 1/Phase 2]; or


(c) the Bank has paid the maximum aggregate liability as set out in paragraph 2(b) (as


reduced in accordance with paragraph 5).


5. This guarantee is not assignable or transferable in whole or in part.


6. This guarantee shall be construed in accordance with the laws of Brunei Darussalam. ,■











Yours faithfully














For and on behalf of


[ISSUING BANK]
























































2