JOINT OPERATING AGREEMENT AMONG BPZ EXPLORACION & PRODUCCION S.R.L. AND BPZ NORTE OIL S.R.L. FOR THE EXPLORATION - EXPLOITATION LICENCE BLOCK Z-1 OFFSHORE, PERU

Exhibit 10.4

EXECUTION VERSION

JOINT OPERATING AGREEMENT

AMONG

BPZ EXPLORACION & PRODUCCION S.R.L.

AND

BPZ NORTE OIL S.R.L.

FOR THE

EXPLORATION - EXPLOITATION LICENCE

BLOCK Z-1

OFFSHORE, PERU

EXECUTION VERSION

TABLE OF CONTENTS

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JOINT OPERATING AGREEMENT

This Joint Operating Agreement is signed on April 27, 2012 and shall be effective as of the Effective Date between:

BPZ Exploracion and Produccion S.R.L., a company organized and existing under the laws of Peru (“BPZ E&P”); and

BPZ Norte Oil S.R.L., a company organized and existing under the laws of Peru (“Newco”).

And is premised on the fact that:

(A)                              BPZ E&P and Newco beneficially own Participating Interests of 51% and 49%, respectively, of the rights and obligations of Contractor under that certain License Contract for Hydrocarbon Exploration and Production on ▇▇▇▇▇ ▇-▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ dated as of 30 November 2001; and

(B)                                The Parties desire to define their respective rights and obligations with respect to their operations under the Contract.

In consideration of the premises set out above and the provisions set out below, the Parties agree as follows:

ARTICLE 1 - DEFINITIONS

As used in this Agreement, the following words and terms shall have the meaning ascribed to them below:

Accounting Procedure means the rules, provisions and conditions set forth and contained in Attachment A to this Agreement.

AFE means an authorization for expenditure pursuant to Article 6.7.

Affiliate means a Person that Controls, or is Controlled by, or which is Controlled by another Person that also Controls a Party.

Agreed Interest Rate means interest compounded on a quarterly basis, at the rate per annum equal to the three (3) months term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published by The Wall Street Journal or if not published, then by the Financial Times of London, plus five (5) percentage points, applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding calendar month. If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

Agreement means this agreement, together with the Attachments attached to this agreement, and any extension, renewal or amendment hereof agreed to in writing by the Parties.

Anti-Bribery Laws and Obligations means for each Party (i) the Laws/Regulations relating to combating bribery and corruption; and (ii) the laws relating to combating bribery and

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corruption in the countries of such Party’s place of incorporation, principal place of business, and/or place of registration as an issuer of securities, and/or in the countries of such Party’s ultimate parent company’s place of incorporation, principal place of business, and/or place of registration as an issuer of securities.

Appraisal Operations means operations or activities, including acquiring G&G Data, drilling Appraisal ▇▇▇▇▇, and conducting front end engineering and design (FEED) and other engineering, infrastructure, and market studies, carried out after a Discovery is made that are intended to evaluate the quantitative and qualitative parameters of such Discovery and assessing whether such Discovery is a Commercial Discovery, but excluding Testing conducted in the bore of the well that made such Discovery.

Appraisal Plan means an overall plan and cost estimate for Appraisal Operations concerning a Discovery.

Appraisal Well means any well (other than an Exploration Well or a Development Well) whose purpose at the time of commencement of drilling such well is to appraise the extent or the volume of Hydrocarbon reserves contained in an existing Discovery.

Area or Contract Area means as of the Effective Date the surface area which is described in Attachment B to this Agreement. The perimeter or perimeters of the Area shall correspond to that area covered by the Contract, as such area may vary from time to time during the term of validity of the Contract.

Business Day means a day (other than a Saturday or a Sunday) on which banks in Peru, Panama, Canada and United States of America are customarily open for business.

Calendar Quarter means a period of three (3) months commencing with January 1 and ending on the following March 31, a period of three (3) months commencing with April 1 and ending on the following June 30, a period of three (3) months commencing with July 1 and ending on the following September 30, or a period of three (3) months commencing with October 1 and ending on the following December 31 according to the Gregorian calendar.

Calendar Year means a period of twelve (12) months, commencing with January 1 and ending on the following December 31, according to the Gregorian calendar.

Carry Agreement means that certain carry agreement entered into among BPZ E&P and Newco, attached as Attachment C and made a part of this Agreement.

Carry Obligations means the obligations of the carrying party/parties under that certain Carry Agreement regarding the bearing of the costs and liabilities of BPZ E&P for Joint Operations.

Cash Premium means the payment made pursuant to Article 7.5(B) by a Non-Consenting Party to reinstate its rights to participate in an Exclusive Operation.

Commercial Discovery means any Discovery which, in the opinion of the Operating Committee, justifies the commercial exploitation of such Hydrocarbons and is sufficient to make a declaration of Commercial Discovery under Clause 4.8 of the Contract.

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Completion means an operation or set of operations intended to complete a well through the Christmas tree as a producer of Hydrocarbons in one or more Zones, including, but not limited to, the setting of production casing, perforating, stimulating the well and production Testing conducted in such operation. Complete and other derivatives shall be construed accordingly.

Consenting Party means a Party who agrees to participate in and pay its share of the cost of an Exclusive Operation.

Consequential Loss means any losses, damages, costs, expenses or liabilities caused (directly or indirectly) by any of the following arising out of, relating to, or connected with this Agreement, the operations or the activities carried out under this Agreement: (i) reservoir or formation damage; (ii) inability to produce, use or dispose of Hydrocarbons; (iii) loss or deferment of income, business opportunity, pure economic loss or profit; (iv) punitive damages; or (v) indirect damages or losses whether or not similar to the foregoing.

Contract means that certain Exploration-Exploitation License Contract with Perupetro S.A. in respect of ▇▇▇▇▇ ▇-▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of Peru, the public deed of which is dated November 1, 2001 and any amendment, extension or renewal thereto.

Control means the ownership, indirectly or directly, of more than fifty percent (50%) of the voting rights of a legal entity.

Day means a calendar day unless otherwise specifically provided.

Decommissioning means all work required for the abandonment of Joint Property in accordance with good and prudent petroleum industry practices and field conservation principles as are generally followed in the international petroleum industry under similar circumstances, and Laws/Regulations, including, where required, plugging of ▇▇▇▇▇, abandonment, disposal, demolition, removal and/or cleanup of facilities, and any necessary site remediation and restoration.

Deepening means an operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the deepest Zone proposed in the associated AFE (if required), whichever is the deeper. Deepen and other derivatives shall be construed accordingly.

Default Notice shall have the meaning ascribed in Article 8.1.

Default Period means the period beginning five (5) Business Days after the date that the Default Notice is issued in accordance with Article 8.1 and ending when all the Defaulting Party’s defaults (including payment of accrued interest) pursuant to Article 8.1 have been remedied in full.

Defaulting Party shall have the meaning ascribed in Article 8.1.

Development Plan means a plan for the development of Hydrocarbons from a Field Exploitation Area.

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Development Well means any well drilled for the production of Hydrocarbons pursuant to a Development Plan.

Discovery means the discovery of an accumulation of Hydrocarbons whose existence until that moment was unproven by drilling.

Dispute means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement or the operations carried out under this Agreement, including any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement.

Effective Date means the date of the public deed signed by the Parties and Perupetro S.A. that amends the Contract to grant Newco its Participating Interest in the Contract.

Entitlement means a quantity of Hydrocarbons (excluding all quantities used or lost in Joint Operations), of which a Party has the right and obligation to take delivery pursuant to the Contract and this Agreement, as modified by any lifting, balancing or other agreements relating to disposition of Hydrocarbons entered into pursuant to Article 9.

Environmental Loss means any loss, damages, costs, expenses or liabilities (other than Consequential Loss) caused by a discharge of Hydrocarbons, pollutants or other contaminants into or onto any medium (such as land, surface water, ground water and/or air) arising out of, relating to, or connected with this Agreement or the operations carried out under this Agreement, including any of the following: (i) injury or damage to, or destruction of, natural resources or real or personal property; (ii) cost of pollution control, cleanup and removal; (iii) cost of restoration of natural resources; and (iv) fines, penalties or other assessments.

Exclusive Operation means those operations and activities carried out pursuant to this Agreement, the costs of which are chargeable to the account of less than all the Parties.

Exclusive Well means a well drilled pursuant to an Exclusive Operation.

Exploitation Period means any and all periods of exploitation during which the production and removal of Hydrocarbons is permitted under the Contract.

Exploration Period means any and all periods of exploration set out in the Contract.

Exploration Well means any well whose purpose at the time of the commencement of drilling is to explore for an accumulation of Hydrocarbons whose existence was at that time unproven by drilling.

Field Exploitation Area means that part of the Area, which is established for development of a Commercial Discovery pursuant to the Contract.

Force Majeure has the meaning ascribed to it in clause 1.6 of the Contract.

G & G Data means only geological, geophysical and geochemical data, remote sensing data, and other similar information that is not obtained through a well bore.

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Government means the government of the Republic of Peru and any region, province, municipality, instrumentality, or other political body or subdivision of Peru, any ministry, department, agency, commission, court, authority, or other quasi-governmental entity thereof, whether domestic, foreign or multinational, that exercises executive, legislative, judicial, regulatory or administrative functions of government or that pertains to government, and any official of any of them, including the Government Oil & Gas Company.

Government Oil & Gas Company means Perupetro ▇.▇.

▇▇▇▇▇ Negligence / Willful 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.

HSE means health, safety, and the environment.

HSE Plan means the plan in respect of HSE prepared in accordance with Article 5.12.

Hydrocarbons mean all substances which are subject to and covered by the Contract, including Liquid Hydrocarbons and Natural Gas.

Joint Account means the accounts maintained by Operator in accordance with the provisions of this Agreement and of the Accounting Procedure for Joint Operations.

Joint Operations means those operations and activities carried out by Operator pursuant to this Agreement, the costs of which are chargeable to all Parties.

Joint Property means, at any point in time, all ▇▇▇▇▇, facilities, equipment, materials, information, funds and property (other than Hydrocarbons) held for use in Joint Operations.

Laws/Regulations mean those laws, statutes, rules and regulations governing activities under the Contract.

LIBOR means the London Interbank Offered Rate for three (3) months U.S. dollar deposits as published by The Wall Street Journal or if not published, then by the Financial Times of London.

Liquid Hydrocarbons means all crude oils, condensates, natural gas liquids, and other hydrocarbons, which are in a liquid state at standard atmospheric pressure and which are subject to and covered by the Contract.

Minimum Work Obligations means those work and/or expenditure obligations specified in the Contract which must be performed during the then current phase or period of the Contract in order to satisfy the obligations of the Contract.

Natural Gas means all Hydrocarbons which are in a gaseous state at standard atmospheric temperature and pressure (including wet gas, dry gas and residue gas), and which are subject to and covered by the Contract, but excluding Liquid Hydrocarbons.

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Non-Consenting Party means a Party who elects not to participate in an Exclusive Operation.

Non-Operator means the Party or Parties to this Agreement other than Operator.

Operating Committee means the committee constituted in accordance with Article IV.

Operating Services Agreement means that certain operating services agreement to be entered into between Operator and Newco.

Operator means a Party to this Agreement designated as such in the Contract and this Agreement.

Operator Indemnitee means Operator, its Affiliates, or their respective directors, officers, and employees. Operator Indemnitees means all of them.

Participating Interest means as to any Party the undivided interest of such Party (expressed as a percentage of the total interests of all Parties) in the rights and obligations derived from the Contract and this Agreement.

Party means any of BPZ E&P or Newco, and Parties means all of BPZ E&P and Newco.

Person means an individual, corporation, company, joint venture, partnership, limited partnership, limited liability company, trust, estate, Government or any other legal entity.

Plugging Back means a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone. Plug Back and other derivatives shall be construed accordingly.

Public Official means (i) any officer, employee, director, principal, consultant, agent or representative, whether appointed or elected, of any government (whether central, federal, state or provincial), ministry, body, department, agency, instrumentality or part of any of them, or any public international organization, or any state or government owned or controlled entity, agency, enterprise, joint venture, or partnership (including a partner or shareholder of such an enterprise); (ii) any person acting in an official capacity for or on behalf of (a) any government, ministry, body, department, agency, instrumentality or part of any of them, or (b) any public international organization, or (c) any political party or political party official or candidate for office. For the purposes of this definition “government” includes the Government.

Recompletion means an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore. Recomplete and other derivatives shall be construed accordingly.

Reworking means an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations, but exclude any routine repair or maintenance work, or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well. Rework and other derivatives shall be construed accordingly.

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Secondee has the meaning set out in the Secondment Agreement attached as Attachment C.

Secondment has the meaning set out in the Secondment Agreement attached as Attachment C.

Security means (i) an irrevocable standby letter of credit or irrevocable bank guarantee issued by a bank; (ii) an on-demand bond issued by a surety corporation; (iii) an irrevocable guarantee issued by a corporation or government; (iv) any financial security required by the Contract or this Agreement; and (v) any financial security agreed from time to time by the Parties; provided that the bank, surety, corporation or government issuing the guarantee, standby letter of credit, bond or other security (as applicable) has a net worth sufficient to pay its obligations in all reasonably foreseeable circumstances, or a long term debt rating of at least BBB by Standard & Poor’s, or Baa by ▇▇▇▇▇’▇ Investors Service, or an equivalent rating by a successor entity to either agency.

Senior Supervisory Personnel means, with respect to a Party, any director or officer of such Party, and any individual who functions for such Party or one of its Affiliates at a management level equivalent or superior to any individual functioning as such Party’s senior manager(s), who has authority over such Party’s seismic acquisition, drilling, construction, or production and related operations and activities in Peru sufficient to direct the manner in which such operations and activities are conducted, but excluding all individuals functioning at a level below such functional senior manager.

Sidetracking means the directional control and intentional deviation of a well from vertical or the [planned/existing] trajectory so as to change the bottomhole location unless done to straighten the hole or to drill around junk in the hole or to overcome other mechanical difficulties. Sidetrack and other derivatives shall be construed accordingly.

Supervision Committee has the meaning set out in the Licence.

Technical Operations Manager means a Party to this Agreement designated as such in the Operating Services Agreement.

Testing means an operation in a well bore intended to evaluate the capacity of a Zone to produce Hydrocarbons. Test and other derivatives shall be construed accordingly.

▇▇▇ Indemnitee means Technical Operations Manager, its Affiliates, or their respective directors, officers, and employees. ▇▇▇ Indemnitees means all of them.

Urgent Operational Matters has the meaning ascribed to it in Article 5.12(A)(1).

Work Program and Budget means a work program for Joint Operations and budget for such work program as described and approved in accordance with Article VI.

Zone means a stratum of earth containing or thought to contain an accumulation of Hydrocarbons separately producible from any other accumulation of Hydrocarbons.

ARTICLE 2 - EFFECTIVE DATE AND TERM

This Agreement shall have effect from the Effective Date and shall continue in effect until the Contract terminates and all materials, equipment and personal property used in connection

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with the Joint Operations or Exclusive Operations have been disposed of, and final settlement has been made among the Parties.

Notwithstanding the preceding sentence:

2.1(A)               Article 10 shall remain in effect until all Decommissioning obligations under the Contract have been satisfied; and

2.1(B)                 the liability and payment obligations under Article 3.3(B) and 3.3(C), Article 5.5, Article 8; the confidentiality obligations underArticle 15.2; the dispute resolution provisions under Article 18; and the indemnity obligations under Article 5.6(A), Article 7.3(A), Article 7.8(F), Article 10.1(E)(2), Article 14.2, and Article 19.1(C) shall remain in effect until all obligations have been extinguished and all Disputes have been resolved.

Termination of this Agreement shall be without prejudice to any rights and obligations arising out of or in connection with this Agreement which have vested, matured or accrued prior to such termination.

ARTICLE 3 - SCOPE

3.1                          SCOPE

3.1(A)               The purpose of this Agreement is to establish the respective rights and obligations of the Parties with regard to operations under the Contract, including without limitation the joint exploration for, appraisal, development, and production of Hydrocarbons from the Area, subject to Article 9, the disposition of Hydrocarbons (including treatment, storage, and handling of produced Hydrocarbons upstream of the delivery point), the determination of Entitlements at the delivery point, the activities of the Parties as “Contractor” under the Contract, and Decommissioning.

3.1(B)                 Without limiting the generality of Article 3.1(A), the following activities are outside of the scope of this Agreement and are not addressed herein:

(1)                                  Construction, operation, maintenance, repair and removal of facilities downstream from the point of delivery of the Parties’ shares of Hydrocarbons under the lifting, balancing and disposition agreements provided for in Article 9;

(2)                                  Transportation of Hydrocarbons beyond the point of delivery of the Parties’ shares of Hydrocarbons under the lifting, balancing and disposition agreements provided for in Article 9;

(3)                                  Marketing and sales of Hydrocarbons, except as expressly provided in Article 7.5, Article 8.4 and Article 9;

(4)                                  Acquisition of rights to explore for, appraise, develop or produce Hydrocarbons outside of the Area (other than as a consequence of annexation or unitization with an adjoining contract area under the terms of the Contract); and

(5)                                  Exploration for, appraisal, development or production of minerals other than Hydrocarbons, whether inside or outside of the Area.

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3.2                          PARTICIPATING INTEREST

3.2(A)               The Participating Interests of the Parties as of the Effective Date are:

3.2(B)               If a Party transfers all or part of its Participating Interest pursuant to the provisions of this Agreement and the Contract, the Participating Interests of the Parties shall be revised accordingly.

3.3                          OWNERSHIP, OBLIGATIONS AND LIABILITIES

3.3(A)             Unless otherwise provided in this Agreement or agreed by the Parties, all the rights and interests in and under the Contract, all Joint Property and any Hydrocarbons produced from the Area shall, subject to the terms of the Contract, be owned by the Parties in accordance with their respective Participating Interests.

3.3(B)               Unless otherwise provided in this Agreement or agreed by the Parties, the obligations of the Parties under the Contract and all liabilities and expenses incurred by Operator in connection with Joint Operations shall be charged to the Joint Account, and all credits to the Joint Account shall be shared by the Parties, as among themselves, in accordance with their respective Participating Interests.

3.3(C)               Unless otherwise provided in this Agreement (including the Carry Agreement) or agreed by the Parties, each Party shall pay when due, in accordance with the Accounting Procedure, its Participating Interest share of Joint Account expenses, including cash advances and interest, accrued pursuant to this Agreement. The Parties agree that time is of the essence for payments owing under this Agreement. A Party’s payment of any charge under this Agreement shall be without prejudice to its right to later contest the charge.

3.3(D)              In connection with the nomination of representatives to the “Supervision Committee” established under clause seven (7) of the Contract:

(1)                                  BPZ E&P and its Affiliates shall collectively nominate one (1) Contractor representative and an alternate;

(2)                                  Newco and its Affiliates shall collectively nominate one (1) Contractor representative and an alternate; and

(3)                                  In even numbered Calendar Years Newco shall nominate the third Contractor representative and an alternate, and in odd numbered Calendar Years BPZ E&P shall nominate the third Contractor representative and an alternate.

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ARTICLE 4 - OPERATING COMMITTEE

4.1          ESTABLISHMENT OF OPERATING COMMITTEE

To provide for the overall supervision and direction of Joint Operations, the Parties establish an Operating Committee composed of representatives of each Party holding a Participating Interest. Each Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee. Each Party shall as soon as possible after the date of this Agreement give notice in writing to each other Party of the name and address of its representative and alternate representative to serve on the Operating Committee. Each Party shall have the right to change its representative and alternate representative at any time by giving written notice of such change to the other Parties.

4.2          POWERS AND DUTIES OF OPERATING COMMITTEE

The Operating Committee shall have the power and duty to authorize and supervise Joint Operations that are necessary or desirable to fulfill the Contract and properly explore and exploit the Area in accordance with this Agreement and in a manner appropriate in the circumstances.

4.3          AUTHORITY TO VOTE

The representatives of a Party, or in their absence their alternate representatives, shall be authorized to represent and bind such Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each Party’s representative shall have a vote equal to the Participating Interest of the Party such person represents. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Party may also bring, at its cost and expense, to any Operating Committee meetings such technical and other advisors as it may deem appropriate.

4.4          SUBCOMMITTEES

The Operating Committee shall establish a technical subcommittee, a legal/regulatory subcommittee and a finance/audit subcommittee, and may establish such other subcommittees as the Operating Committee may deem appropriate. The functions of such subcommittees shall be in an advisory capacity or as otherwise determined unanimously by the Parties. Each Party shall have a right to appoint one or more representatives to each subcommittee.

4.5          NOTICE OF MEETING

4.5(A)     Operator may call a meeting of the Operating Committee by giving notice to the Parties at least fifteen (15) Days in advance of such meeting.

4.5(B)      Any Party may request a meeting of the Operating Committee by giving notice to all the other Parties. Upon receiving such request, Operator shall call such meeting for a date

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not less than fifteen (15) Days or more than forty-five (45) Days after receipt of the request.

4.5(C)      The notice periods above may only be waived with the unanimous consent of all the Parties.

4.6          CONTENTS OF MEETING NOTICE

4.6(A)     Operator shall include in each notice of a meeting of the Operating Committee:

(1)           The date, time and location of the meeting;

(2)           An agenda of the matters and proposals to be considered and/or voted upon; and

(3)           copies of all proposals to be considered at the meeting (including all appropriate supporting information not previously distributed to the Parties).

4.6(B)      A Party, by notice to the other Parties given not less than seven (7) Days prior to a meeting, may add additional matters to the agenda for a meeting.

4.6(C)      On the request of a Party, and with the unanimous consent of all Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda.

4.7          LOCATION OF MEETINGS

All meetings of the Operating Committee shall be held in Lima, Peru or elsewhere as may be decided by the Operating Committee. The Operating Committee or a subcommittee as applicable may decide to hold a meeting by teleconference, videoconference, or such other means that permits all persons participating in the meeting to orally communicate with each other concurrently.

4.8          CHAIRMAN’S DUTIES FOR MEETINGS

4.8(A)     With respect to meetings of the Operating Committee and any subcommittee, the duties of the chairman of the Operating Committee shall include, but not be limited to:

(1)           Timely preparation and distribution of the agenda;

(2)           Organization and conduct of the meeting; and

(3)           Preparation of a written record of votes during and minutes of each meeting.

4.8(B)      In even numbered Calendar Years BPZ E&P shall have the right to appoint, and in odd numbered Calendar Years Newco shall have the right to appoint, the chairman of the Operating Committee and the chairman of each subcommittee.

4.9          VOTING PROCEDURE

4.9(A)     Except as otherwise expressly provided in this Agreement, decisions, approvals and other actions of the Operating Committee or any subcommittee thereof on all proposals coming before it shall be decided by the affirmative vote of two or more of the Parties

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that are not Affiliates, then having collectively more than sixty-five percent (65%) of the Participating Interests.

4.9(B)      The decisions, approvals and actions of the Operating Committee on all proposals concerning the following shall always be decided by the affirmative vote of two or more of the Parties that are not Affiliates, then having collectively at least ninety percent (90%) of the Participating Interests:

(1)           Subject to Article 7, any declaration of a Commercial Discovery;

(2)           Subject to Article 7, any Development Plan;

(3)           Subject to Article 6, any Work Program and Budget or AFE for Joint Operations;

(4)           Any modifications of an approved Development Plan, an approved Work Program and Budget, or an approved AFE that causes the total cost of such approved Development Plan, or approved Work Program and Budget, or approved AFE to increase by ten percent (10%) or more;

(5)           Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting, or Reworking Development ▇▇▇▇▇;

(6)           Construction and/or installation of processing, treatment, compression, gathering, storage, handling, transportation, and other facilities within the scope of this Agreement;

(7)           Exercise of the right under Article 4.3(b) of the Contract;

(8)           Voluntary relinquishment or surrender of all or any part of the Contract Area;

(9)           Voluntary termination of the Contract;

(10)         Sale, lease, change, transfer or any other form of disposal of the whole or substantial part of the assets held by the Parties under the Contract, except for the disposals of assets in the ordinary course of business or through the disposal of assets which are no longer useful;

(11)         Creation of liens or encumbrances of any type, on Joint Property except for liens and encumbrances arising pursuant to Laws/Regulations; and

(12)         Unitization of any part of the Contract Area.

4.10        RECORD OF VOTES

The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each representative shall sign and be provided a copy of such record at the end of such meeting and it shall be considered the final record of the decisions of the Operating Committee.

4.11        MINUTES

The secretary shall provide each Party with a copy of the minutes of the Operating Committee meeting within fifteen (15) Days after the end of the meeting. Each Party shall have fifteen (15)

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Days after receipt of such minutes to give notice of its objections to the minutes to the secretary. A failure to give notice specifying objection to such minutes within said fifteen (15) Day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Article 4.10 shall take precedence over the minutes described above.

4.12        VOTING BY NOTICE

4.12(A)  In lieu of a meeting, any Party may submit any proposal to the Operating Committee for a vote by notice. The proposing Party or Parties shall notify Operator who shall give each representative notice describing the proposal so submitted. Each Party shall communicate its vote by notice to Operator and the other Parties within one of the following appropriate time periods after receipt of Operator’s notice:

(1)           Twenty-four (24) hours in the case of operations which involve the use of a drilling rig that is standing by in the Contract Area and such other operational matters reasonably considered by Operator to require by their nature urgent determination (such operations and matters being referred to as “Urgent Operational Matters”); and

(2)           Seven (7) Days in the case of all other proposals.

4.12(B)  Except in the case of Article 4.12(A)(1), any Party may by notice delivered to all Parties within three (3) Days of receipt of Operator’s notice request that the proposal be decided at a meeting rather than by notice. In such an event, that proposal shall be decided at a meeting duly called for that purpose.

4.12(C)  Except as provided in Article 10, any Party failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal.

4.12(D)  If a meeting is not requested, then at the expiration of the appropriate time period, Operator shall give each Party a confirmation notice stating the tabulation and results of the vote.

4.13        EFFECT OF VOTE

All decisions taken by the Operating Committee pursuant to this Article 4, shall be conclusive and binding on all the Parties, except in the following cases:

4.13(A)  If pursuant to this Article 4, a Joint Operation, other than an operation to fulfill the Minimum Work Obligations, has been properly proposed to the Operating Committee and the Operating Committee has not approved such proposal in a timely manner, then any Party shall have the right for the appropriate period specified below to propose in accordance with Article 7, an Exclusive Operation involving operations essentially the same as those proposed for such Joint Operation.

(1)           For proposals related to Urgent Operational Matters, such right shall be exercisable for twenty-four (24) hours after the time specified in Article 4.12(A)(1) has expired or after receipt of Operator’s notice given pursuant to Article 4.13(D), as applicable.

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(2)           For proposals to develop a Discovery, such right shall be exercisable for ten (10) Days after the date the Operating Committee was required to consider such proposal at a meeting called pursuant to Article 4.6 or a vote by notice pursuant to Article 4.12.

(3)           For all other proposals, such right shall be exercisable for five (5) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 4.6 or Article 4.12.

4.13(B)  If a Party voted against any proposal that was approved by the Operating Committee and that could be conducted as an Exclusive Operation pursuant to Article 7, then such Party shall have the right not to participate in the operation contemplated by such approval. Any such Party wishing to exercise its right of non-consent must give notice of non-consent to all other Parties within five (5) Days (or twenty four (24) hours for Urgent Operational Matters) following Operating Committee approval of such proposal. If a Party exercises its right of non-consent, the Parties who were not entitled to give or did not give notice of non-consent shall be Consenting Parties as to the operation contemplated by the Operating Committee approval, and shall conduct such operation as an Exclusive Operation under Article 7; provided, however, that any such Party who was not entitled to give or did not give notice of non-consent may, by notice provided to the other Parties within five (5) Days (or twenty four (24) hours for Urgent Operational Matters) following the notice of non-consent given by any non-consenting Party, require that the Operating Committee vote again on the proposal in question. Only the Parties that were not entitled to or have not exercised their right of non-consent with respect to the contemplated operation shall participate in such second vote of the Operating Committee, with voting rights proportional to their respective Participating Interest. If the Operating Committee approves again the contemplated operation, any Party that voted against the contemplated operation in such second vote may elect to be a Non-Consenting Party with respect to such operation, by notice of non-consent provided to all other Parties within five (5) Days (or twenty four (24) hours for Urgent Operational Matters) following the Operating Committee’s second approval of such contemplated operation.

4.13(C)  If the Consenting Parties to an Exclusive Operation under Article 4.13(A) concur, then the Operating Committee may, at any time, pursuant to this Article 4, reconsider and approve, decide or take action on any proposal that the Operating Committee declined to approve earlier, or modify or revoke an earlier approval, decision or action.

4.13(D)   Once a Joint Operation for the drilling, Deepening, Testing, Sidetracking, Plugging Back, Completing, Recompleting, Reworking or plugging of a well, has been approved and commenced, such operation shall not be discontinued without the consent of the Operating Committee; provided, however, that such operation may be discontinued, if:

(1)           an impenetrable substance or other condition in the hole is encountered, which in the reasonable judgment of Operator, causes the continuation of such operation to be impractical; or

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(2)            other circumstances occur, which in the reasonable judgment of Operator, cause the continuation of such operation to be unwarranted and after notice the Operating Committee within the period required under Article 4.12(A)(1) approves discontinuing such operation.

On the occurrence of either of the above, Operator shall promptly notify the Parties that such operation is being discontinued under this Article, and any Party shall have the right to propose in accordance with Article 7 an Exclusive Operation to continue such operation.

ARTICLE 5 - OPERATOR

5.1          DESIGNATION OF OPERATOR AND ENGAGEMENT OF TECHNICAL OPERATIONS MANAGER

5.1(A)     BPZ E&P is designated as Operator, accepts the rights, duties and obligations of Operator, and agrees to act as such in accordance with the provisions of the Contract and this Agreement.

5.1(B)      Operator shall enter into the Operating Services Agreement under which Operator will delegate to Technical Operations Manager, and Technical Operations Manager will assume the rights, duties and obligations of Operator under this Agreement with respect to, types of Joint Operations that are technical and operational in nature. The types of Joint Operations that are technical and operational include, without limitation, the following:

(1)           Acquisition and processing of G&G Data, including sources, specifications and standards;

(2)           Interpretation of G&G Data, including preparation of regional evaluation studies of country, basin, and block scale of related petroleum systems, definition of exploration targets, prospects and leads, and analysis of exploration risk and reserve potential;

(3)           Designing, drilling, Deepening, Sidetracking, Testing, Completing, Plugging Back, Recompleting, and Reworking of ▇▇▇▇▇, including with respect to well location and depth, well data and information, production tests and completion intervals;

(4)           Interpretation and analysis of well data and information (including petrophysical evaluation), integration of well data and information with G&G Data, preparation of maps, economic evaluations;

(5)           Preparation of Appraisal Plans and Development Plans;

(6)           Engineering, construction, installation, operation, maintenance and repair of platforms, and processing, treatment, compression, gathering, storage, handling, transportation, and other, equipment and facilities;

(7)           Production, handling, separation, storage, loading and transportation of Hydrocarbons upstream of the delivery point;

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(8)           Trading of data;

(9)           Procurement of services, equipment, materials and supplies necessary to perform the types of Joint Operations set out in Article 5.1(B)(1)-(8);

(10)         In accordance with Article 6, preparation of the portions of the proposed Work Programs and Budgets and proposed AFEs that relate to the types of Joint Operations and Exclusive Operations delegated to Technical Operations Manager, cooperation with Operator to integrate such portions with the portions of the proposed Work Programs and Budgets that relate to the types of Joint Operations retained by Operator, and submission jointly with Operator of the integrated proposed Work Programs and Budgets to the Operating Committee; and

(11)         Any additional type of Joint Operation that the Parties unanimously agree is technical and operational, but not administrative, regulatory, governmental, or community issues.

5.1(C)      If there is a Dispute among the Parties as to whether a specified type of Joint Operation is technical and operational then any Party may refer the Dispute to an independent expert pursuant to Article 18.3 for determination of whether in accordance with petroleum industry practices generally followed in the international petroleum industry such specified type of Joint Operation is technical and operational, but not administrative, regulatory, governmental, or community issues. If the expert determines that such specified type of Joint Operation is technical and operational, but not administrative, regulatory, governmental, or community issues, then the specified type of Joint Operation shall be deemed to be included in this Article 5.1(B).

5.1(D)     To the extent that Technical Operations Manager is required to charge a margin in connection with the contracted operations under the Operating Services Agreement, Newco shall despite Article 3.3(C) fully bear and pay for such margin and other costs related to the margin.

5.2          RIGHTS AND DUTIES OF OPERATOR

5.2(A)     Subject to the provisions of this Agreement and the Operating Services Agreement, Operator shall have all of the rights, functions and duties of Operator under this Agreement and the Contract, shall have charge of Joint Operations and shall conduct all Joint Operations. Operator may employ independent contractors and agents, including Affiliates of Operator, Non-Operators, or Affiliates of a Non-Operator, in such Joint Operations.

5.2(B)      In the conduct of Joint Operations the Operator shall:

(1)           Perform Joint Operations in accordance with the Contract, the Laws/Regulations, and this Agreement, and consistent with approved Work Programs and Budgets (and if applicable approved AFEs), and the decisions of the Operating Committee not in conflict with this Agreement;

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(2)           Conduct Joint Operations in a diligent, safe, and efficient manner in accordance with good and prudent petroleum industry practices and field conservation principles generally followed by the international petroleum industry under similar circumstances;

(3)           Exercise due care with respect to the receipt, payment and accounting of funds in accordance with good and prudent practices generally followed by the international petroleum industry under similar circumstances;

(4)           Charge to the Joint Account in accordance with this Agreement and the Accounting Procedure any damage, loss, cost, or liability arising out of, incident to, or resulting from Joint Operations;

(5)           Subject to Article 5.6 and the Accounting Procedure, neither gain a profit nor suffer a loss as a result of being the Operator, provided that Operator may rely upon Operating Committee approval of specific accounting practices not in conflict with the Accounting Procedure;

(6)           Perform the duties for the Operating Committee set out in Article 4, and prepare and submit to the Operating Committee in a timely manner proposed Work Programs and Budgets (and if applicable AFEs), Appraisal Plans, Development Plans and Decommissioning plans, as provided in Article 6;

(7)           Acquire all permits, consents, approvals, and surface or other rights that may be required for or in connection with the conduct of Joint Operations;

(8)           Upon receipt of reasonable advance notice, permit representatives of any Party to have at all reasonable times during normal business hours and at such Party’s own risk and cost reasonable access to Joint Operations, to observe Joint Operations, to inspect Joint Property, to conduct HSE audits, and to conduct financial audits and to observe taking of inventory as provided in the Accounting Procedure;

(9)           Undertake to maintain the Contract in full force and effect consistent with good and prudent petroleum industry practices generally followed by the international petroleum industry under similar circumstances. Operator shall timely pay and discharge all costs and liabilities incurred in connection with Joint Operations and use its reasonable endeavors to keep the Joint Property free from all liens, charges, and Encumbrances arising out of Joint Operations;

(10)         Pay in cash, and/or make available in kind, to the Government on behalf of the Parties, in accordance with the Contract and the Laws, all periodic payments, royalties, any domestic supply obligations, taxes, fees and other payments relating to Joint Operations but excluding any taxes measured by the incomes of the Parties;

(11)         Carry out the obligations of Operator under the Contract, including preparing and furnishing such reports, records and information as may be required under the Contract;

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(12)         Have, in accordance with the decisions of the Operating Committee, the right and obligation to represent the Parties in all dealings with the Government with respect to matters arising under the Contract and Joint Operations. Operator shall notify the other Parties as soon as possible of the time, place, and agenda of such meetings. Subject to the Contract and any necessary Government approvals, Non-Operators shall have the right to attend any meetings with the Government with respect to such matters, and may participate to the extent permitted by the Government. Nothing contained in this Agreement shall restrict any Party from holding discussions with the Government with respect to any matter peculiar to its particular business interests arising under the Contract or this Agreement, but in such event such Party shall promptly advise the Parties, if possible before and in any event promptly after such discussions; provided that such Party shall not be required to divulge to the other Parties any proprietary information involved in such discussions or any matters not affecting the other Parties;

(13)         Subject to Article 9.3 and any decisions of the Operating Committee, assess (to the extent lawful) alternatives for the disposition of Natural Gas from a Discovery;

(14)         In case of an emergency (including a significant fire, explosion, Natural Gas release, Crude Oil release, or sabotage; incident involving loss of life, serious injury to an employee, contractor, or third party, or serious property damage; strikes and riots; or evacuations of Operator personnel): (i) take all necessary and proper measures for the protection of life, health, the environment and property; and (ii) as soon as reasonably practicable, report to Non-Operators the details of such event and any measures Operator has taken or plans to take in response thereto;

(15)         Establish and implement under Article 5.12 an HSE Plan, which complies with the Contract, Laws/Regulations relating to HSE, this Agreement, good and prudent petroleum industry practices and field conservation principles as are generally followed in the international petroleum industry under similar circumstances and decisions of the Operating Committee;

(16)         Establish and implement anti-bribery and anti-corruption policies and procedures consistent with Article 19.1;

(17)         Prior to appointing or engaging any independent contractor (other than Technical Operations Manager under the Operating Services Agreement) conduct appropriate and proportionate due diligence concerning relevant criteria, including such contractor’s ability to perform the proposed work properly, on time, within budgeted cost, and in compliance with applicable legal and contractual requirements;

(18)         Include in its contracts with independent contractors (including any Party and Affiliates of any Party) and to the extent practical and lawful, provisions that:

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(a)           Permit Operator, on behalf of the Parties, to enforce contractual warranties and indemnities against such contractors and their sub-contractors, and to recover from such contractors and sub-contractors losses and damages suffered by the Parties that are recoverable under their contracts;

(b)           Require such contractors to obtain and maintain insurance required by Article 5.7(G);

(c)           Require such contractors to comply with applicable Laws, including registration to do business, immigration, import/export, local preference, national content, tax withholding and payment, and the HSE Plan; and

(d)           Require such contractors to establish and implement reasonable and proportionate anti-bribery and anti-corruption programs consistent with the undertakings contemplated by Article 19.1.

For clarity, it is acknowledged and agreed that Section 5.2(B)(18)(c) shall not apply to the Operating Services Agreement.

5.3          PERSONNEL OF OPERATOR

5.3(A)     Operator shall engage and/or retain only such employees, Secondees, contractors, consultants and agents as are reasonably necessary to conduct Joint Operations.

5.3(B)      Subject to the Contract, this Agreement and the Operating Services Agreement, Operator shall determine the number of its employees, Secondees, contractors, consultants and agents, the selection of such persons, the hours of work and (except for Secondees) their compensation.

5.3(C)     Newco shall have the right to propose Secondment for any of the following positions: [             ], [             ], and [             ]. No Secondment may be implemented except (i) by Newco for the positions set out above, or in situations requiring particular expertise or involving projects of a technical, operational or economically challenging nature; and (ii) in the manner set out in Articles 5.3(C)(1) to (7).

(1)           Any Non-Operator may propose Secondment to Operator for a designated purpose related to Joint Operations. Any proposal for Secondment must include the following data concerning the Secondment:

(a)           Designated purpose and scope of Secondment, including duties, responsibilities, and deliverables;

(b)           Duration of the Secondment;

(c)           Number of Secondees and minimum expertise, qualifications, and experience required;

(d)           Work location and position within Operator’s organization of each Secondee; and

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(e)                                  Estimated costs of the Secondment.

(2)                                  If a proposed Secondment meets the requirements of Article 5.3(C)(1), Operator shall as soon as reasonably practicable approve (such approval not to be unreasonably withheld) or reject any Secondment proposed by a Non-Operator. Without prejudice to the Operator’s right to conduct Joint Operations under this Agreement, the Contract and the Operating Services Agreement, Operator shall consider such Secondment proposal in light of the: (i) expertise and experience required for the relevant Joint Operations; (ii) expertise and experience of Operator’s personnel; and (iii) potential benefits of such Secondment to the conduct of Joint Operations.

(3)                                  Any proposal for one or more Secondment positions approved by Operator is subject to: (i) the Operating Committee’s authorization of an appropriate budget for such Secondment positions; and (ii) the relevant Non-Operator continuing to make available to Operator Secondees qualified to fulfill the designated purpose and scope of such Secondment.

(4)                                  As to each approved and authorized Secondment position, Operator shall request the relevant Non-Operator to nominate, by a specified date, qualified personnel to be the Secondee for such position. Such Non-Operator may nominate for each Secondment position one or more proposed Secondees, whom such Non-Operator considers reasonably qualified to fulfill the designated purpose and scope of such position.

(5)                                  Following the deadline for submitting nominations, Operator shall consider the expertise and experience of each such nominee in light of the expertise and experience required for the approved and authorized Secondment position, and shall select from the nominees the best qualified person, unless Operatorreasonably demonstrates that no nominee is qualified to fulfill the designated purpose and scope of such Secondment.

(6)                                  Operator shall have the right to terminate the Secondment for cause under the Secondment Agreement provided for under Article 5.3(D).

(7)                                  Although each Secondee shall report to and be directed by Operator each Secondee shall remain at all times the employee of the Party (or its Affiliate) nominating such Secondee.

5.3(D)                Operator and the Non-Operator that employs, or whose Affiliate employs, the Secondee shall enter into a separate Secondment Agreement relating to such Secondment consistent with this Article 5.3.

5.3(E)                  Operator shall charge to the Joint Account the costs related to Secondment and Secondees that are within the approved Work Program and Budget.

5.3(F)                 If a Secondee acting as a Senior Supervisory Personnel of Operator or its respective Affiliates engages in Gross Negligence and/or Willful Misconduct that proximately causes the Parties to incur damage, loss, cost, or liability for claims, demands or causes

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of action referred to in Article 5.6(A), then all such damages, losses, costs, and liabilities shall be allocated to the Non-Operator that employs or whose Affiliate employs such Secondee, in an equivalent manner and to the same extent liability for Gross Negligence and/or Willful Misconduct is allocated to Operator under Article 5.6.

5.4                               INFORMATION SUPPLIED BY OPERATOR

5.4(A)               Subject to the Operating Services Agreement, Operator shall provide the other Parties in a timely manner with copies of the following information, data and reports relating to Joint Operations (to the extent charged to the Joint Account) in digitized format and if not available in digitized format then in hard-copy as they are currently produced or compiled from the Joint Operations:

(1)                                  All logs or surveys;

(2)                                  Proposed well design and any revisions for each well;

(3)                                  Daily drilling reports;

(4)                                  All Tests and core data and analysis reports;

(5)                                  Final well recap report;

(6)                                  Plugging reports;

(7)                                  Seismic sections and if applicable shot point location maps;

(8)                                  Final, and if requested by any Party intermediate, geological and geophysical maps, interpretations and reports;

(9)                                  Engineering studiesand monthly and annual progress reports on development operations, which progress reports shall at least set out the then current development schedule, the status of each such development operation from inception to date, its cumulative costs to date and the cumulative commitments undertaken;

(10)                            Daily production reports, weekly production summary and production activity reports, and monthly reports on well, reservoir, field and infrastructure performance;

(11)                            Reservoir studies, annual reserve estimates, and annual forecasts of production capability, infrastructure capactiy, and scheduled outages, provided that Operator makes no representations about the accuracy of its identification of reserves and that each party retains full responsibility for making its own assessment of reserves for internal and reporting purposes;

(12)                            Before filing with the Government, copies of all material reports relating to Joint Operations or the Contract required, or anticipated, to be furnished by Operator to the Government, and copies of such reports as filed;

(13)                            As reasonably requested by a Party, other material studies and reports relating to Joint Operations;

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(14)                            Data, reports forecasts and schedules under agreements provided for in Articles 9.2 and 9.3;

(15)                            Copies of accounting information and reports to be furnished under Article 6.7 and the Accounting Procedure;

(16)                            Monthly and annual HSE key performance data and reports;

(17)                            Such additional information as a Party may reasonably request, provided that the preparation of such information will not unduly burden the personnel of Operator, that the requesting Party or Parties pay the costs of preparation of such information, and that only Parties who pay such costs will receive such additional information; and

(18)                            Other reports as directed by the Operating Committee.

5.4(B)                 Operator shall give the other Parties access at all reasonable times during normal business hours to all information, data and reports (other than information, data and reports provided to the Parties under Article 5.4.A) acquired in the conduct of Joint Operations and for which a Party may reasonably request. Any Party may make copies of such other data at its sole expense.

5.5                               SETTLEMENT OF CLAIMS AND LAWSUITS

5.5(A)               Operator shall promptly notify the Parties of any and all material claims or suits and such other claims and suits as the Operating Committee may direct which arise out of Joint Operations or relate in any way to Joint Operations. Operator shall represent the Parties and defend or oppose the claim or suit. Operator may in its sole discretion compromise or settle any such claim or suit or any related series of claims or suits which are contemplated in the approved annual Work Program and Budget, or which, if not contemplated by the approved annual Work Program and Budget, are for an amount not to exceed the equivalent of U.S. dollars fifty thousand (U.S. $50,000) exclusive of legal fees. Operator shall obtain the approval and direction of the Operating Committee on amounts in excess of the above stated amount, which are not included in the approved annual Work Program and Budget. Each Party shall have the right to be represented by its own counsel at its own expense in the settlement, compromise or defense of such claims or suits.

5.5(B)                Any Party shall promptly notify the other Parties of any claim made against it by a third party which arises out of or may affect the Joint Operations, and such Party shall defend or settle the same in accordance with any directions given by the Operating Committee. Those costs, expenses and damages, which are incurred pursuant to such defense or settlement and which are attributable to Joint Operations, shall be reimbursed by Operator to such Party and charged to the Joint Account.

5.5(C)                 Notwithstanding Article 5.5(A) and Article 5.5(B), each Party shall have the right to participate in any such suit, prosecution, defense or settlement conducted in accordance with Article 5.5(A) and Article 5.5(B) at its sole cost and expense; provided always that no Party may settle its Participating Interest share of any claim without first

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satisfying the Operating Committee that it can do so without prejudicing the interests of the Joint Operations.

5.6                               LIMITATION ON LIABILITY OF OPERATOR AND ▇▇▇ INDEMNITEES

5.6(A)               Except as set out in Article 5.6(C):

(1)                                  No Operator Indemnitees or ▇▇▇ Indemnitees shall bear (except as a Party to the extent of its Participating Interest share) any damage, loss, cost, expense or liability resulting from performing (or failing to perform) its duties, obligations and functions under this Agreement, and Operator Indemnitees are hereby released from liability to the other Parties and among them under this Agreement and the Operating Services Agreement, as applicable, for any and all damages, losses, costs, expenses and liabilities arising out of, incident to or resulting from such performance or failure to perform, even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), Gross Negligence and/or Willful Misconduct, strict liability or other legal fault of any Operator Indemnitee or the ▇▇▇ Indemnitees.

(2)                                  The Parties shall in proportion to their Participating Interests defend and indemnify Operator Indemnitees from any and all damages, losses, costs, expenses (including reasonable legal costs, expenses and attorneys’ fees) and liabilities incident to claims, demands or causes of action brought by or on behalf of any person or entity, which claims, demands or causes of action arise out of, are incident to or result from Joint Operations, even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), Gross Negligence and/or Willful Misconduct, strict liability or other legal fault of any Operator Indemnitee or ▇▇▇ Indemnitees.

5.6(B)                 Nothing in this Article 5.6 shall be deemed to relieve Operator from its obligation to perform its duties, obligations and functions under this Agreement, or the Party designated as Operator from its Participating Interest share of any damage, loss, cost, expense or liability arising out of, incident to or resulting from Joint Operations.

5.6(C)                 Notwithstanding Article 5.6(A), if any Senior Supervisory Personnel of Operator or its Affiliates engage in Gross Negligence and/or Willful Misconduct that proximately causes the Parties to incur damage, loss, cost, expense or liability for claims, demands or causes of action referred to in Articles 5.6(A), then, in addition to its Participating Interest share, Operator alone shall bear the first U.S. dollars ten million (U.S. $10,000,000) of such damages, losses, costs, expenses and liabilities.

Notwithstanding the foregoing, under no circumstances shall any Operator Indemnitee or ▇▇▇ Indemnitee (except as a Party to the extent of its Participating Interest) bear any Consequential Loss or Environmental Loss.

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5.7                               INSURANCE OBTAINED BY OPERATOR

5.7(A)               Operator shall procure and maintain or cause to be procured and maintained for the Joint Account all insurance in the types and amounts required by the Contract and Laws/Regulations.

5.7(B)                 Operator shall procure and maintain any additional insurance, at reasonable rates, as the Operating Committee may from time to time require. In the event that such further insurance is, in Operator’s reasonable opinion, unavailable or available only at an unreasonable cost, Operator shall promptly notify the Parties in order to allow the Operating Committee to reconsider such further insurance.

5.7(C)                 Each Party will be provided the opportunity to underwrite any or all of the insurance to be obtained by Operator under Articles 5.7.A and 5.7.B, through such Party’s Affiliate insurance company or, if direct insurance is not so permitted, through reinsurance policies to such Party’s Affiliate insurance company, and each such Party shall furnish to Operator details of the proposed insurance. If Operator in its discretion is satisfied with the security and creditworthiness of such insurance or reinsurance arrangements, and that the premiums for such insurance or reinsurance will not be significantly higher than market rate and will be recoverable under the Contract, then Operator shall procure such insurance or reinsurance from such Party.

5.7(D)                Subject to the Contract and applicable Laws/Regulations, any Party may elect not to participate in the insurance to be procured under Article 5.7(B) provided such Party:

(1)                                  Promptly notifies Operator to that effect;

(2)                                  Does not interfere with Operator’s negotiations for such insurance; and

(3)                                  Provides to the Operator before the relevant operations begin (and at least annually during the continuance of such operations) a current certificate of adequate coverage or other evidence of financial responsibility which fully covers such non-participating Party’s Participating Interest share of the risks that would be covered by the insurance procured under Article 5.7(B), and which the Operating Committee may determine to be acceptable. No such determination of acceptability shall in any way absolve a non-participating Party from its obligation to meet each cash call or billing (except, under Article 5.7(E), regarding the costs of the insurance policy in which such Party has elected not to participate) including any cash call or billing with respect to damages and losses and/or the costs of remedying the same in accordance with the terms of this Agreement, the Contract and applicable Laws/Regulations. If such non-participating Party obtains other insurance, such insurance shall contain

(a)                                  a waiver of subrogation in favor of all the other Parties, Operator and their insurers but only with respect to their interests under this Agreement;

(b)                                 provide that thirty (30) Days written notice be given to Operator prior to any material change in, or cancellation of, such insurance policy;

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(c)                                  be primary to, and receive no contribution from, any other insurance maintained by or on behalf of, or benefiting Operator or the other Parties; and

(d)                                 contain adequate territorial extensions and coverage in the location of the Joint Operations; and

(4)                                  is responsible for all deductibles, coinsurance payments, self-insured exposures, and uninsured or underinsured exposures relating to its interests under this Agreement.

5.7(E)                  The cost of insurance in which all the Parties are participating shall be for the Joint Account and the cost of insurance in which fewer than all the Parties are participating shall be charged to the Parties participating in proportion to their respective Participating Interests. Subject to the preceding sentence, the cost of insurance with respect to an Exclusive Operation shall be charged to the Consenting Parties.

5.7(F)                  Operator shall, with respect to all insurance obtained pursuant to this Article 5.7:

(1)                                 use reasonable endeavors to procure or cause to be procured such insurance prior to or concurrent with, the commencement of relevant operations and maintain or cause to be maintained such insurance during the term of the relevant operations or any longer term required under the Contract or applicable Laws/Regulations;

(2)                                 promptly inform the participating Parties when such insurance is obtained and supply them with certificates of insurance or copies of the relevant policies when the same are issued;

(3)                                 arrange for the participating Parties, according to their respective Participating Interests, to be named as co-insureds on the relevant policies with waivers of subrogation in favor of all the Parties but only to the extent of their interests under this Agreement;

(4)                                 use reasonable endeavors to ensure that each policy shall survive the default or bankruptcy of the insured for claims arising out of an event before such default or bankruptcy and that all rights of the insured shall revert to the Parties not in default or bankruptcy; and

(5)                                 duly file all claims and take all necessary and proper steps to collect any proceeds and credit any proceeds to the participating Parties in proportion to their respective Participating Interests.

5.7(G)                 Operator shall use reasonable efforts to require all contractors performing work with respect to Joint Operations to:

(1)                                 obtain and maintain any and all insurance in the types and amounts required by any applicable Laws/Regulations or any decision of the Operating Committee;

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(2)                                  name the Parties as additional insureds on such contractors’ insurance policies and obtain from their insurers waivers of all rights of recourse against the Parties and their insurers; and

(3)                                  provide Operator with certificates evidencing such insurance prior to the commencement of their services.

5.8                               COMMINGLING OF FUNDS

5.8(A)                Operator may not commingle with such Party’s own funds or any funds for operations and activities not related to the Contract, the monies that Operator receives from or for the Joint Account pursuant to this Agreement. However, Operator reserves the right to make future proposals to the Operating Committee with respect to the commingling of funds to achieve financial efficiency.

5.8(B)                The Operating Committee may decide that monies Operator receives for the Joint Account shall be deposited in an interest-bearing account.

5.8(C)                 Interest earned shall be allocated among the Parties on an equitable basis taking into account the date of the funding by each Party and its share of the Joint Account monies. Operator shall apply such earned interest to the next succeeding cash call or, if directed by the Operating Committee, pay it to the Parties.

5.9                               RESIGNATION OF OPERATOR

Subject to Article 5.11, Operator may resign as Operator at any time by so notifying the other Parties at least one hundred and twenty (120) Days prior to the effective date of such resignation.

5.10                        REMOVAL OF OPERATOR

5.10(A)         Subject to Article 5.11, Operator shall be removed upon receipt of notice from any Non-Operator if:

(1)                                 An order is made by a court or an effective resolution is passed for the reorganization under any bankruptcy law, dissolution, liquidation, or winding up of Operator;

(2)                                  Operator decides to dissolve, liquidate, wind up, or otherwise terminate its existence;

(3)                                  Operator becomes insolvent, bankrupt or makes an assignment for the benefit of creditors; or

(4)                                  A receiver is appointed for a substantial part of Operator’s assets.

5.10(B)       Subject to Article 5.11, Operator may be removed by the decision of the Non-Operators if Operator has committed a material breach of this Agreement and has either failed to commence to cure that breach within thirty (30) Days of receipt of a notice from the Non-Operators detailing the alleged breach or the alleged failure to diligently pursue the cure to completion. Any decision of the Non-Operators to give notice of breach to

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Operator or to remove Operator under this Article 5.10(B) shall be made by an affirmative vote of one hundred percent (100%) of the Non-Operators excluding the vote of any Party which is an Affiliate of the Operator, if any. However, if Operator disputes such alleged commission of or failure to cure a material breach in accordance with Article 18.2 and Operator continues to perform its obligations under this Agremeent (except with respect to the alleged material breach), then Operator shall not be removed and no successor Operator may be appointed pending final adjudication or settlement of such dispute.

5.10(C)           If Operator together with any Affiliate of Operator becomes the holder of a Participating Interest of less than twenty-five percent (25%), then Operator shall be required to promptly notify the other Parties. The Operating Committee shall then vote within thirty (30) Days of such notification on whether or not a successor Operator should be named pursuant to Article 5.11.

5.11                        APPOINTMENT OF SUCCESSOR

When a change of Operator occurs pursuant to Article 5.9 or Article 5.10:

5.11(A)     The Operating Committee shall meet as soon as possible to appoint a successor Operator pursuant to the voting procedure of Article 4.9. However, no Party may be appointed successor Operator against its will.

5.11(B)      If an Operator is removed, other than in the case of Article 5.10(C), neither Operator nor any Affiliate of Operator shall have the right to vote for itself on the appointment of a successor Operator, nor be considered as a candidate for the successor Operator.

5.11(C)     A resigning or removed Operator shall be compensated out of the Joint Account for its reasonable expenses directly related to its resignation or removal, except in the case of Article 5.10(B).

5.11(D)      The resigning or removed Operator and the successor Operator shall arrange for the taking of an inventory of all Joint Property and Hydrocarbons, and an audit of the books and records of the removed Operator. Such inventory and audit shall be completed, if possible, no later than the effective date of the change of Operator and shall be subject to the approval of the Operating Committee. The liabilities and expenses of such inventory and audit shall be charged to the Joint Account.

5.11(E)      The resignation or removal of Operator and its replacement by the successor Operator shall not become effective prior to receipt of any necessary Government approvals.

5.11(F)      Upon the effective date of the resignation or removal, the successor Operator shall succeed to all duties, rights and authority prescribed for Operator. The former Operator shall transfer to the successor Operator custody of all Joint Property, books of account, records and other documents maintained by Operator pertaining to the Area and to Joint Operations. Upon delivery of the above-described property and data, the former Operator shall be released and discharged from all obligations and liabilities as Operator accruing after such date.

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5.12                        HEALTH, SAFETY AND ENVIRONMENT (“HSE”)

5.12(A)         Operator shall in the conduct of Joint Operations:

(1)                                  Prepare and establish an HSE Plan designed to achieve safe and reliable conduct of operations and activities, to avoid significant and unintended impact on the safety and health of people, on property, and on the environment, and to comply with Laws relating to HSE;

(2)                                  Carry out the HSE Plan in conformance with the Laws/Regulations relating to HSE and in a manner consistent with standards and procedures generally followed in the international petroleum industry under similar circumstances;

(3)                                     Plan and conduct Joint Operations consistent with the HSE Plan; and

(4)                                     Design and operate Joint Property consistent with the HSE Plan.

5.12(B)      The Operating Committee shall at least annually review and approve the HSE Plan, the implementation of the HSE Plan, and the effectiveness of the Plan.

5.12(C)       In the conduct of Joint Operations, Operator shall establish and implement a program for regular HSE assessments. The purpose of such assessments is to periodically review HSE systems and procedures, including actual practice and performance, to verify that the HSE Plan is in place and fulfills the requirements of Article 5.12(A), that the HSE Plan is being properly implemented and that the HSE Plan, as carried out, is effective. Operator shall, at a minimum, conduct such an assessment before entering into significant new Joint Operations and before undertaking any major changes to existing Joint Operations. Upon reasonable notice given to Operator, any Party shall have the right to participate in such HSE assessments.

5.12(D)      Operator shall require its contractors, consultants and agents undertaking activities for the Joint Account to manage HSE risks in a manner consistent with the HSE Plan.

5.12(E)       Operator shall establish and enforce rules consistent with those generally followed in the international petroleum industry under similar circumstances that, at a minimum, prohibit within the Contract Area the misuse of prescribed drugs and the possession, use, distribution, or sale of any of the following:

(1)                                     Firearms, explosives, or other weapons without the prior written approval of senior management of Operator;

(2)                                     Alcoholic beverages without the prior written approval of senior management of Operator; and

(3)                                     Illicit or non-prescribed controlled substances.

5.12(F)        Without prejudice to a Party’s rights under Article 5.2(B)(8), with reasonable advance notice, Operator shall permit at all reasonable times during normal business hours each Non-Operator (at its own risk and cost) to conduct an audit of the HSE Plan, its implementation and effectiveness. Where there are two or more Non-Operators, the

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Non-Operators shall make a reasonable effort to conduct joint or simultaneous HSE audits in a manner that will result in a minimum of inconvenience to Operator.

ARTICLE 6 - WORK PROGRAMS AND BUDGETS

6.1                               PREPARATION AND APPROVAL

6.1(A)           If not previously approved, Operator and Technical Operations Manager shall as soon as possible jointly prepare and deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed for the remainder of the current Calendar Year and, if appropriate, for the following Calendar Year. Within thirty (30) Days of such delivery, the Operating Committee shall meet to consider and to endeavor to agree on a Work Program and Budget. At least sixty (60) Days prior to the annual submittal date pursuant to the Contract, Operatorand Technical Operations Manager shall deliver to the Parties a proposed annual Work Program and Budget detailing the Joint Operations Operator and Technical Operations Manager propose to be performed and the estimated costs forecast to be charged to the Joint Account during the following Calendar Year. Within fifteen (15) Days of such delivery the Operating Committee shall meet to consider and to endeavor to agree on a Work Program and Budget.

6.1(B)            During the preparation of the proposed Work Programs and Budgets, Appraisal Plans and Development Plans contemplated in this Article 6, Operator and Technical Operations Manager shall consult with the Operating Committee, the appropriate subcommittees, and each other regarding the contents of such Work Programs and Budgets, Appraisal Plans, and Development Plans. The Technical Operations Manager shall be responsible for the preparation and the presentation of the proposed Work Programs and Budgets that relate to the types of operations delegated to it under Article 5(1)B and the Operator shall be responsible for the preparation and the presentation of all other matters. For sake of clarity Operator and Technical Operations Manager shall consult and cooperate with each other in the preparation and the presentation of Work Programs and Budgets.

6.1(C)                 Each annual Work Program and Budget shall with respect to the applicable Calendar Year contain inter alia:

(1)                                 An itemized list of the operations and activities to be conducted, described in sufficient detail to afford ready identification of the nature, scope, location, timing, and duration of each such operation and activity, including:

(a)                             designating whether such line item is intended to satisfy the Minimum Work Obligations of the Contract, the commitments of a previously approved appraisal Work Program and Budget, and/or the commitments of a previously approved Development Plan; and

(b)                            specifying whether such line item is firm or contingent and the conditions under which the Operating Committee may decide to make a contingent line item firm;

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(2)           An estimate of the costs corresponding to each such line item enumerated in sufficient detail to be readily tracked and charged under the Accounting Procedure and consistent with the Contract;

(3)           An estimate of funds to be expended by Calendar Quarter;

(4)           During the Exploration Period, a forecast of annual operations and activities and corresponding estimated costs through the end of the Exploration Period;

(5)           Information with respect to the estimated manpower requirements of Operator and costs and Operator’s allocation procedures under the Accounting Procedure;

(6)           Reasonable and necessary supporting information; and

(7)           Any additional information and detail as the Operating Committee may deem suitable.

6.1(D)   Within fifteen (15) Days of such delivery, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate), and either approve or reject the proposed Work Program and Budget (including any agreed modifications) under Article 4.9; provided that no Work Program and Budget may provide for Appraisal Operations that exceed the scope of, or conflict with, any previously approved Appraisal Plan, and/or provide for Development Operations that exceed the scope of, or conflict with, any previously approved Development Plan, unless such previously approved plans, programs, and budgets are amended at or before the adoption of the annual Work Program and Budget.

6.1(E)    Any Joint Operations that cannot be efficiently completed within a single Calendar Year may be proposed in a multi-year Work Program and Budget. Upon approval by the Operating Committee, such multi-year Work Program and Budget shall, subject only to revisions approved by the Operating Committee afterwards: (i) remain in effect as between the Parties (and the associated cost estimate shall be a binding pro-rata obligation of each Party) through the completion of such Joint Operations; and (ii) be reflected in each annual Work Program and Budget. If the Contract requires that Work Programs and Budgets be submitted to the Government for approval, such multi-year Work Program and Budget shall be submitted to the Government either in a single request for a multi-year approval or as part of the annual approval process, under the Contract.

6.1(F)    Approval of a Work Program and Budget by the Operating Committee shall authorize Operator to submit such Work Program and Budget to the Government for approval (if required) under the Contract. If the Government requests changes to such Work Program and Budget as a condition to granting its approval under the Contract, Operator shall promptly notify the Parties of the Government’s proposed changes and shall submit a revised Work Program and Budget to the Operating Committee for further consideration.

6.1(G)    If a Work Program and Budget is not approved by the Operating Committee at least two (2) Business Days before the last date for Government approval under the Contract,

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Operator may submit to the Government a Work Program and Budget for the applicable Calendar Year, setting out those Joint Operations, which are:

(1)          consistent with the scope of, and not in conflict with, the Minimum Work Obligations of the Contract, the commitments of a previously approved appraisal Work Program and Budget, and/or the commitments of a previously approved Development Plan; and

(2)          reasonably necessary to keep the Contract in full force and effect, to satisfy the Minimum Work Obligations of the Contract, to meet the commitments of a previously approved appraisal Work Program and Budget, and to meet the commitments of a previously approved Development Plan, that in each case are required to be carried out during the relevant Calendar Year. In determining the Joint Operations that are reasonably necessary for the purposes of the preceding sentence:

(a)          with respect to types of Joint Operations delegated to Technical Operations Manager under the Operating Services Agreement, Technical Operations Manager shall choose between those competing proposals; and

(b)          with respect to types of Joint Operations not delegated to Technical Operations Manager under the Operating Services Agreement, Operator shall choose between those competing proposals.

In this event, the Operating Committee shall be deemed to have approved such Work Program and Budget. Operator shall be reimbursed by the Parties for its Participating Interest share of costs deemed approved under this Article 6.1(G).

6.1(H)   A Party may at any time, by notice to the other Parties, propose that a Work Program and Budget be amended. To the extent that such amendment is approved by the Operating Committee, the relevant Work Program and Budget shall, subject to obtaining any requisite Government approval under the Contract, be deemed amended accordingly; provided that, any such amendment shall not deauthorize or invalidate any commitment or expenditure already made by Operator in accordance with any previous authorization given under this Agreement.

6.1(I)     If a Work Program and Budget, as proposed, revised and/or amended, is approved by the Operating Committee and satisfies the requirements of the Contract, including (if required) being approved, or deemed to be approved, by the Government, Operator shall, subject to complying with Articles 6.7 and 6.8, be authorized to conduct the Joint Operations set out in such approved Work Program and Budget.

6.2                         EXPLORATION AND APPRAISAL

6.2(A)   Subject to Article 6.7, approval of any Work Program and Budget that includes:

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(1)           An Exploration Well, whether by drilling, Deepening or Sidetracking, shall include approval for all expenditures necessary for drilling, Deepening or Sidetracking, as applicable, and Testing and Completing an Exploration Well.

(2)           An Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include approval for all expenditures necessary for drilling, Deepening or Sidetracking, as applicable, and Testing and Completing such Appraisal Well.

6.2(B)   Any Party desiring to propose a Completion attempt, or an alternative Completion attempt, must do so within the time period provided in Article 4.12(A)(1) by notifying all other Parties. Any such proposal shall include an AFE for such Completion costs.

6.2(C)   If a Discovery is made, Operator shall deliver any notice of Discovery required under the Contract and shall as soon as possible submit to the Parties a report containing available details concerning the Discovery and Operator’s recommendation as to whether the Discovery merits appraisal.

6.2(D)   If the Operating Committee determines that the Discovery merits appraisal, Operator shall within forty-five (45) Days, deliver to the Parties a proposed Appraisal Plan for such Discovery, which shall in addition to the information required under Article 6.1(C) contain:

(1)             A delineation of the proposed Appraisal Area; and

(2)             Any other information concerning the proposed Appraisal Operations requested by a Party,

together with the proposed appraisal Work Program and Budget (or a multi-year appraisal Work Program and Budget under Article 6.1(E) to carry out the first Calendar Year of the Appraisal Plan, and provisional Work Programs and Budgets to carry out the remainder of the Appraisal Plan.

6.2(E)    Within fifteen (15) Days after receipt of the the proposed Appraisal Plan and associated proposed appraisal Work Program and Budget, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate) and then either approve or reject the proposed Appraisal Plan (including any proposed modifications) and the first annual (or multi-year) appraisal Work Program and Budget.

6.2(F)    If Operating Committee approves the Appraisal Plan and the associated appraisal Work Program and Budget, Operator shall, as soon as possible, take such steps as may be required under the Contract to secure approval of such Appraisal Plan and the associated appraisal Work Program and Budget for the first Calendar Year by the Government. In the event the Government requires changes in the appraisal Work Program and Budget for the first Calendar Year as a condition to granting its approval under the Contract, then Operator shall promptly notify the Parties of the Government’s proposed changes and may submit a revised Appraisal Plan and associated appraisal Work Program and Budget for the first Calendar Yearto the Operating Committee for further consideration.

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6.2(G)    If the Appraisal Plan is approved by the Government, the associated appraisal Work Program and Budget for the first Calendar Year shall be deemed to be incorporated into and form part of the then current annual Work Program and Budget.

6.3                         DEVELOPMENT

6.3(A)   If the Operating Committee determines that a Discovery may be a Commercial Discovery, Operator shall, as soon as practicable after such determination, deliver to the Parties a proposed Development Plan for such Discovery, which shall in addition to the information required under Article 6.1(C) contain, inter alia:

(1)          A delineation of the proposed Exploitation Area; and

(2)          An estimated date for the commencement of production;

(3)          A production forecast of estimated production of each type of Hydrocarbon to be produced by Calendar Year for the estimated productive life of the Commercial Discovery;

(4)          A description of all material facilities to be constructed as Joint Property;

(5)          An estimated decommissioning Work Program and Budget; and

(6)          Any other information related to development operations and production operations requested by the Operating Committee;

together with the proposed development Work Program and Budget (or a multi-year development Work Program and Budget under Article 6.1(E) for the first Calendar Year of the Development Plan, and work schedule for the remainder of the Development Plan.

6.3(B)    As soon as practicable after receipt of the proposed Development Plan and associated proposed development Work Program and Budget, each Party shall furnish to Operator and the other Parties any comments, suggestions, or proposed amendments it may have for the proposed Development Plan.

Within sixty (60) Days after receipt of the proposed Development Plan and associated proposed development Work Program and Budget, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate) and then either approve or reject the proposed Development Plan (including any proposed modifications) and the associated first annual (or multi-year) Work Program and Budget.

6.3(C)    If the Operating Committee determines that the Discovery is a Commercial Discovery and approves the corresponding Development Plan, Operator shall, as soon as possible, deliver any notice of Commercial Discovery required under the Contract and take such other steps as may be required under the Contract to secure approval of the Development Plan and associated development Work Program and Budget for the first Calendar Year by the Government. In the event the Government requires changes in the Development Plan and associated development Work Program and Budget for the

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first Calendar Year, then Operator shall promptly notify the Parties of the Government’s proposed changes and may submit a revised Development Plan and associated development Work Program and Budget for the first Calendar Year to the Operating Committee for further consideration.

6.3(D)   If the Development Plan is approved by the Government, the associated development Work Program and Budget for the first Calendar Year shall be incorporated into and form part of the then current annual Work Program and Budget. Operator shall periodically review the Development Plan and development Work Program and Budget and propose amendments as may be prudent, and the Operating Committee shall consider, modify (if necessary), and approve or reject those proposed amendments under Article 4.9.

6.4                         PRODUCTION

6.4(A)   At least one hundred eighty (180) Days before first commercial production, Operator shall deliver to the Parties a proposed production Work Program and Budget that shall in addition to the information required under Article 6.1(C) contain the projected production schedule for the remainder of the Calendar Year in which first commercial production begins and, if fewer than six (6) Months remain in the current Calendar Year, for the next Calendar Year. At least sixty (60) Days prior to the annual submittal date pursuant to the Contract, Operator shall deliver to the Parties a proposed production Work Program and Budget that shall in addition to the information required under Article 6.1(C) contain the projected production schedule for the next Calendar Year and if required under the Contract and/or this Agreement Decommissioning plans including estimated costs of Decommissioning.

6.4(B)   Within thirty (30) Days after receipt of the proposed production Work Program and Budget, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate) and then either approve or reject the proposed production Work Program and Budget.

6.4(C)   If the Operating Committee approves the production Work Program and Budget, Operator shall, as soon as possible, take such steps as may be required under the Contract to secure approval of such production Work Program and Budget by the Government. Approval of a production Work Program and Budget by the Operating Committee shall authorize Operator to submit such Work Program and Budget to the Government for approval (if required) under the Contract. If the Government requests changes to such production Work Program and Budget Year as a condition to granting its approval under the Contract, then Operator shall promptly notify the Parties of the Government’s proposed changes and shall submit a revised production Work Program and Budget to the Operating Committee for further consideration.

6.4(D)   If a production Work Program and Budget is not approved by the Operating Committee before the date by which approval is required under the Contract, Operator may submit to the Government a Work Program and Budget for the applicable Calendar Year, setting out those Joint Operations that are:

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(1)           consistent with the scope of, and not in conflict with, the commitments of a previously approved Development Plan; and

(2)           necessary to keep the Contract in full force and effect and meet the commitments of a previously approved Development Plan that are required to be carried out during the relevant Calendar Year.

6.5                         DECOMMISSIONING

6.5(A)   Operator shall deliver an estimated Decommissioning Work Program and Budget with the delivery of each draft Development Plan under Article 6.3(A). At least one hundred and eighty (180) Days before the end of the Calendar Year that immediately precedes the Calendar Year in which Operator forecasts it will begin making cash calls for Decommissioning, Operator shall deliver to the Parties a revised draft Decommissioning Work Program and Budget along with reasonable and necessary supporting information.

6.5(B)   Within thirty (30) Days after receipt of the proposed Decommissioning Work Program and Budget, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate), and then either approve or reject the proposed Decommissioning Work Program and Budget.

6.5(C)   If the Operating Committee approves the Decommissioning Work Program and Budget, Operator shall, as soon as possible, take such steps as may be required under the Contract to secure approval of such Decommissioning Work Program and Budget by the Government. If the Government requests changes to such Decommissioning Work Program and Budget Year as a condition to granting its approval under the Contract, then Operator shall promptly notify the Parties of the Government’s proposed changes and may submit a revised Decommissioning Work Program and Budget to the Operating Committee for further consideration. Approval of a Decommissioning Work Program and Budget by the Operating Committee shall authorize Operator to submit such Work Program and Budget to the Government for approval (if required) under the Contract.

6.5(D)   If a Decommissioning Work Program and Budget is not approved by the Operating Committee before the date by which approval is required under the Contract, Operator may submit to the Government a Work Program and Budget for the applicable Calendar Year, setting out those Joint Operations that are necessary to keep the Contract in full force and effect and meet the commitments of a previously approved Development Plan that are required to be carried out during the relevant Calendar Year.

6.6                         CONTRACT AWARDS

Subject to the Contract, Operator shall award each contract for Joint Operations on the following basis (the amounts stated are in thousands of U.S. dollars):

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Procedure A

6.6(A)   Operator shall award the contract to the best qualified contractor as determined by cost, quality and ability to perform the contract properly, on time, within budgeted cost, and in compliance with applicable legal and contractual requirements, without the obligation to tender and without informing or seeking the approval of the Operating Committee, except that before entering into contracts with Affiliates of Operator exceeding U.S. dollars one hundred thousand (U.S. $100,000), Operator shall obtain the approval of the Operating Committee.

Procedure B

6.6(B)   Operator shall:

(1)           Provide the Parties with a list of the entities whom Operator proposes to invite to tender for the said contract;

(2)           Add to the tender list any entity whom a Party reasonably requests to be added within seven (7) Days of receipt of such list;

(3)           Complete the tendering process within a reasonable period of time;

(4)           Inform the Parties prior to awarding the contract, of the entities to whom the contract will be awarded, provided that before awarding contracts to Affiliates of Operator, which exceed U.S. dollars one hundred thousand (U.S. $100,000), Operator shall obtain the approval of the Operating Committee;

(5)           Circulate to the Parties a competitive bid analysis stating the reasons for the choice made; and

(6)           Upon the request of a Party, provide such Party with a copy of the final version of the contract.

Procedure C

6.6(C)   Operator shall:

(1)           Provide the Parties with a list of the entities whom Operator proposes to invite to tender for the contract;

(2)           Add to such list any entity whom a Party reasonably requests to be added within seven (7) Days of receipt of the tender list;

(3)           Prepare and dispatch the tender documents to the entities on the tender list and other Parties;

(4)           After the expiration of the period allowed for tendering, consider and analyze the details of all bids received;

(5)           Prepare and circulate to the Parties a competitive bid analysis, stating the recommendation of Operator as to the entity to whom the contract should be

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awarded, the reasons for the recommendation, and the technical, commercial and contractual terms to be agreed upon;

(6)           obtain the approval of the Operating Committee to the recommended bid, including bid assessment and award criteria; and

(7)           upon the request of a Party, provide such Party with a copy of the final version of the contract.

6.7                         AUTHORIZATION FOR EXPENDITURE (“AFE”) PROCEDURE

6.7(A)   Prior to incurring any commitment or expenditure for a Joint Operation which commitment or expenditure is estimated to be in excess of U.S. dollars one hundred thousand (U.S. $100,000) for any line item in an approved Work Program and Budget, Operator shall send to each Party an AFE containing Operator’s best estimate of the total funds required to carry out such work, the estimated timing of commitments and/or expenditures, and any other necessary supportive information.

6.7(B)    Any AFE for work subject to the AFE procedure in Article 6.7(A), that when aggregated with all other commitments and expenditures with respect to the corresponding line item(s) of an approved Work Program and Budget, are less than the limits set out in Article 6.8(A), shall be for informational purposes only. Before incurring any commitments or making any expenditures for work subject to the AFE procedure in Article 6.7(A) that when aggregated with all other commitments and expenditures with respect to the corresponding line item(s) of an approved Work Program and Budget, are more than the limits set out in Article 6.8(A), Operator shall submit a supplemental AFE for such corresponding to the line item(s) for approval by the Operating Committee. A Party may vote to disapprove a supplemental AFE issued under this Article only if (i) the proposed terms of any third party contract described in the supplemental AFE do not approximate fair market terms; or (ii) in such Party’s good faith opinion, any material technical specifications contained in the supplemental AFE that are not in the approved Work Program and Budget are imprudent or are not supported by the known data about the formations being drilled.

A Party’s vote shall be considered a vote to approve the supplemental AFE unless the Party specifically describes one or more of the two reasons listed above as the basis for its vote of disapproval. If the Operating Committee approves a supplemental AFE for an expenditure or commitment within the applicable time period under Article 4.12(A), the Work Program and Budget shall, subject to obtaining any necessary consent required under the Contract, be deemed to be revised accordingly and Operator shall be authorized to enter into such commitment or incur such expenditure and conduct the corresponding Joint Operation under this Agreement; provided that no revised Work Program and Budget may provide for Appraisal Operations that exceed the scope of, or conflict with, any previously approved Appraisal Plan, and/or provide for Development Operations that exceed the scope of, or conflict with, any previously approved Development Plan, unless such previously approved plans, programs and budgets are amended at or before the adoption of the supplemental AFE. If the Operating

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Committee fails to approve a supplemental AFE for a commitment or expenditure within the applicable time period, the corresponding Joint Operation shall be deemed rejected. Operator shall promptly notify the Parties if the proposed Joint Operation has been rejected, and, subject to Article 7, any Party may afterwards propose to conduct the operation as an Exclusive Operation under Article 7. If a Joint Operation is rejected under this Article 6.7(B) or an operation is approved for differing amounts than those provided for in the applicable line items of the approved Work Program and Budget, the Work Program and Budget shall, subject to obtaining any necessary consent required under the Contract, be deemed to be revised accordingly; provided that no revised Work Program and Budget may provide for Appraisal Operations that exceed the scope of, or conflict with, any previously approved Appraisal Plan, and/or provide for Development Operations that exceed the scope of, or conflict with, any previously approved Development Plan, unless such previously approved plans, programs and budgets are amended at or before the adoption of the supplemental AFE.

6.7(C)   Each AFE furnished by Operator shall:

(1)           Identify the corresponding Joint Operation by specific reference to the applicable line items in the Work Program and Budget;

(2)           Describe the Joint Operation in detail;

(3)           Contain Operator’s best estimate of the total commitments and expenditures required to carry out such Joint Operation;

(4)           Outline the proposed work schedule;

(5)           Provide a forecast schedule of commitments and expenditures, if known; and

(6)           Be accompanied by such other supporting information as is necessary for an informed decision, or as may be requested by a Party.

6.8                         OVEREXPENDITURES OF WORK PROGRAMS AND BUDGETS

6.8(A)   For commitments and expenditures with respect to any line item of an approved Work Program and Budget, Operator shall be entitled to incur in connection with the corresponding Joint operation without further approval of the Operating Committee a combined over-commitment and over-expenditure for such line item up to ten percent (10%) of the authorized amount for such line item; provided that the cumulative total of all over-commitments and over-expenditures for a Calendar Year shall not exceed five percent (5%) of the total annual Work Program and Budget in question.

6.8(B)    At such time Operator reasonably estimates that the total amount of the commitments and expenditures actually incurred plus the commitments to be incurred with respect to such line item exceeds the limits of Article 6.8(A), Operator shall furnish to the Operating Committee a reasonably detailed estimate of the total commitments and expenditures required to carry out the Joint Operation corresponding to such line item, together with supporting information.

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(1)          Within thirty (30) Days after receipt of such proposal, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify (if appropriate), and then either approve or reject the proposed revised Work Program and Budget (including any agreed modifications); provided that no revised Work Program and Budget may provide for Appraisal Operations that exceed the scope of, or conflict with, any previously approved Appraisal Plan, and/or provide for Development Operations that exceed the scope of, or conflict with, any previously approved Development Plan, unless such previously approved plans, programs, and budgets are amended at or before the adoption of the revised Work Program and Budget.

(2)          If the Operating Committee approves the revised Work Program and Budget, Operator shall, as soon as possible, take such steps as may be required under the Contract to secure approval of such revised Work Program and Budget by the Government. If the Government requires changes to such revised Work Program and Budget Year as a condition to granting its approval under the Contract, then Operator shall resubmit the proposed changes to the revised Work Program and Budget to the Operating Committee for further consideration.

6.8(C)   Pending approval of the Operating Committee (and the Government, if applicable) to any such over-commitment or over-expenditure Operator:

(1)             shall not be authorized and shall not make any commitment with respect to such line item; and

(2)             shall use all reasonable endeavors to mitigate any overexpenditure with respect to such line item.

Operator shall promptly give notice of the amounts of over-commitments and over-expenditures when actually incurred.

6.8(D)   The requirements contained in this Article 6 shall be without prejudice to the rights and duties of Operator to make immediate expenditures, incur commitments and/or take actions for emergencies under Article 5.2(B)(14); provided that Operator shall promptly report the particulars of the emergency to the Parties, together with the future actions it intends to take and its estimate of the cost of expenditures and commitments incurred or to be incurred. As soon as practicable, Operator shall submit any necessary budget revision concerning such emergencies to the Operating Committee for approval and incorporation into the relevant Work Program and Budget.

ARTICLE 7 - OPERATIONS BY LESS THAN ALL PARTIES

7.1                         LIMITATION ON APPLICABILITY

7.1(A)   No operations may be conducted in furtherance of the Contract except as Joint Operations under Article 5 or as Exclusive Operations under this Article 7. No Exclusive Operation shall be conducted (other than the tie-in of Exclusive Operation facilities with

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existing production facilities pursuant to Article 7.9), which conflicts with a previously approved Joint Operation, or with a previously approved Exclusive Operation.

7.1(B)    Operations which are required to fulfill the Minimum Work Obligations, except exploration activities pledged pursuant to Article 11.3, must be proposed and conducted as Joint Operations under Article 5 and may not be proposed or conducted as Exclusive Operations under this Article 7. Except for Exclusive Operations relating to Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompletions or Reworking of a well originally drilled to fulfill the Minimum Work Obligations or the Carry Obligations, except exploration activities pledged pursuant to Article 11.3, no Exclusive Operations may be proposed or conducted until (a) the Minimum Work Obligationsare fulfilled and (b) the earlier of the date the Carry Obligations are fulfilled and April 1, 2014.

7.1(C)    No Party may propose or conduct an Exclusive Operation under this Article 7, unless and until such Party has properly exercised its right to propose an Exclusive Operation pursuant to Article 4.13, or is entitled to conduct an Exclusive Operation pursuant to Article 10.

7.1(D)   Any operation that may be proposed and conducted as a Joint Operation, other than operations pursuant to an approved Development Plan or included in a Minimum Work Program, may be proposed and conducted as an Exclusive Operation, subject to the terms of this Article 7.

7.2                         PROCEDURE TO PROPOSE EXCLUSIVE OPERATIONS

7.2(A)   Subject to Article 7.1, if any Party proposes to conduct an Exclusive Operation, such Party shall give notice of the proposed operation to all Parties, other than Non-Consenting Parties who have relinquished their rights to participate in such operation pursuant to Article 7.4(B) or Article 7.4(F) and have no option to reinstate such rights under Article 7.4(C). Such notice shall specify that such operation is proposed as an Exclusive Operation, and shall include the work to be performed, the location, the objectives, and estimated cost of such operation.

7.2(B)    Any Party entitled to receive such notice shall have the right to participate in the proposed operation.

(1)          For proposals to Deepen, Test, Complete, Sidetrack, Plug Back, Recomplete or Rework related to Urgent Operational Matters, any such Party wishing to exercise such right must so notify Operator and the proposing Party within twenty-four (24) hours after receipt of the notice proposing the Exclusive Operation.

(2)          For proposals to develop a Discovery, any Party wishing to exercise such right must so notify Operator and the Party proposing to develop within sixty (60) Days after receipt of the notice proposing the Exclusive Operation.

(3)          For all other proposals, any such Party wishing to exercise such right must so notify Operator and the proposing Party within ten (10) Days after receipt of the notice proposing the Exclusive Operation;

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7.2(C)    Failure of a Party to whom a proposal notice is delivered to properly reply within the period specified above shall constitute an election by that Party not to participate in the proposed operation.

7.2(D)    If all Parties properly exercise their rights to participate, then the proposed operation shall be conducted as a Joint Operation. Operator shall commence such Joint Operation as promptly as practicable and conduct it with due diligence.

7.2(E)    If less than all Parties entitled to receive such proposal notice properly exercise their rights to participate, then:

(1)           Immediately after the expiration of the applicable notice period set out in Article 7.2(B), Operator shall notify all Parties of the names of the Consenting Parties and the recommendation of the proposing Party as to whether the Consenting Parties should proceed with the Exclusive Operation.

(2)           Concurrently, Operator shall request the Consenting Parties to specify the Participating Interest each Consenting Party is willing to bear in the Exclusive Operation.

(3)           Within twenty-four (24) hours after receipt of such notice, each Consenting Party shall respond to Operator stating that it is willing to bear a Participating Interest in such Exclusive Operation equal to:

(a)           Only its Participating Interest as stated in Article 3.2(A);

(b)           A fraction, the numerator of which is such Consenting Party’s Participating Interest as stated in Article 3.2(A) and the denominator of which is the aggregate of the Participating Interests of the Consenting Parties as stated in Article 3.2(A); or

(c)           The total of its Participating Interest as contemplated by Article 7.2(E)(3)(b) plus all or any part of the difference between one hundred percent (100%) and the total of the Participating Interests subscribed by the other Consenting Parties. Any portion of such difference subscribed for by more than one Party shall be distributed to each subscriber on a pro-rata basis.

(4)           Any Consenting Party failing to advise Operator within the response period set out above shall be deemed to have elected to bear the Participating Interest set out in Article 7.2(E)(3)(b) as to the Exclusive Operation.

(5)           If within the response period set out above, the Consenting Parties subscribe less than one hundred percent (100%) of the Participating Interest in the Exclusive Operation, the Party proposing such Exclusive Operation shall be deemed to have withdrawn its proposal for the Exclusive Operation, unless within twenty-four (24) hours of the expiry of the response period set out in Article 7.2(E)(3), the proposing Party notifies the other Consenting Parties that the proposing Party shall bear the unsubscribed Participating Interest.

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(6)           If one hundred percent (100%) subscription to the proposed Exclusive Operation is obtained, Operator a shall promptly notify the Consenting Parties of their Participating Interests in the Exclusive Operation.

(7)           As soon as any Exclusive Operation is fully subscribed pursuant to Article 7.2(E)(6) Operator (subject to Article 7.10(D)), shall commence such Exclusive Operation as promptly as practicable and conduct it with due diligence in accordance with this Agreement.

(8)           If such Exclusive Operation has not been commenced within ninety (90) Days or five (5) Days if a drilling rig is standing by on location (excluding any extension specifically agreed by all Parties or allowed by the force majeure provisions of Article 16 after the date of the notice given by Operator under Article 7.2(E)(6), the right to conduct such Exclusive Operation shall terminate. If any Party still desires to conduct such Exclusive Operation, notice proposing such operation must be resubmitted to the Parties in accordance with Article 4, as if no proposal to conduct an Exclusive Operation had been previously made.

7.3                         RESPONSIBILITY FOR EXCLUSIVE OPERATIONS

7.3(A)           The Consenting Parties shall bear in accordance with the Participating Interests agreed under Article 7.2(E) the entire cost and liability of conducting an Exclusive Operation and shall indemnify the Non-Consenting Parties from any and all costs and liabilities incurred incident to such Exclusive Operation (including Consequential Loss and Environmental Loss) but excluding costs and liabilities for which the Operator or Technical Operations Manager is solely responsible under Article 5.6 and shall keep the Area free and clear of all liens and encumbrances of every kind created by or arising from such Exclusive Operation.

7.3(B)    Notwithstanding Article 7.3(A), each Party shall continue to bear its Participating Interest share of the cost and liability incident to the operations in which it participated, including plugging and abandoning and restoring the surface location, but only to the extent those costs were not increased by the Exclusive Operation.

7.4                         CONSEQUENCES OF EXCLUSIVE OPERATIONS

7.4(A)    With regard to any Exclusive Operation, for so long as a Non-Consenting Party has the option under Article 7.4(C) to reinstate the rights it relinquished under Article 7.4(B), such Non-Consenting Party shall be entitled to have access concurrently with the Consenting Parties to all data and other information relating to such Exclusive Operation other than data obtained in an Exclusive Operation for the purpose of acquiring G & G Data. If a Non-Consenting Party desires to receive and acquire the right to use such G & G Data, then such Non-Consenting Party shall have the right to do so by paying to the Consenting Parties its Participating Interest share as set out in Article 3.2(A) of the cost incurred in obtaining such G & G Data.

7.4(B)    Subject to Article 7.4(C), each Non-Consenting Party shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to

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exclusively own, in proportion to their respective Participating Interests in any Exclusive Operation:

(1)           All of each such Non-Consenting Party’s right:

(a)           to participate in further operations to drill, Deepen, Recomplete, Rework, Sidetrack, Test in the well, or Deepened or Sidetracked portion of a well, in which the Exclusive Operation was conducted; and

(b)           under the Contract to take and dispose of Hydrocarbons produced and saved from the well, or from a Deepened or Sidetracked portion of a well, in which the Exclusive Operation was conducted; and

(2)           All of each such Non-Consenting Party’s right to:

(a)           participate in any Discovery made during such Exclusive Operation;

(b)           participate in any Discovery appraised under an Appraisal Plan conducted in the course of such Exclusive Operation; and

(c)           take and dispose of Hydrocarbons produced and saved from any Appraisal Well or Development Well drilled during such Exclusive Operation.

7.4(C)    A Non-Consenting Party shall have only the following options to reinstate the rights it relinquished pursuant to Article 7.4(B):

(1)           If the Consenting Parties decide to appraise a Discovery made in the course of an Exclusive Operation, the Consenting Parties shall submit to each Non-Consenting Party the approved appraisal program. For fifteen (15) Days (or twenty four (24) hours for Urgent Operational Matters) from receipt of such appraisal program, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such appraisal program. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the expense and liability of such appraisal program, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium set out in Article 7.5(B);

(2)           If the Consenting Parties decide to develop a Discovery made or appraised in the course of an Exclusive Operation, the Consenting Parties shall submit to the Non-Consenting Parties a Development Plan substantially in the form intended to be submitted to the Government under the Contract. For thirty (30) Days from receipt of such Development Plan or such lesser period of time prescribed by the Contract, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such Development Plan. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to (i) bear its Participating Interest share of the liability and expense of such Development Plan and such future operating and producing costs; and (ii) to pay

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the lump sum amount as set out in Article 7.5(A); and (iii) to pay, at the choice of the Non-Consenting Party exercising such option, either the Cash Premium set out in Article 7.5 (B) or the In Kind Premium set out in Article 7.5(C);

(3)           When the Consenting Parties initiate first commercial production from a Discovery developed as an Exclusive Operation, the Consenting Parties shall submit to the Non-Consenting Parties the Development Plan approved under the Contract together with a detailed statement of the costs incurred implementing the Development Plan for such Discovery. For thirty (30) Days from the date of first commercial production, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such Development. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to (i) bear its Participating Interest share of the liability and expense of future Development, operating and producing costs; and (ii) to pay the lump sum amount as set out in Article 7.5(A) and (iii) to pay, at the choice of the Non-Consenting Party exercising such option, either the Cash Premium set out in Article 7.5(B) or the In Kind Premium set out in Article 7.5(C);

(4)           If the Consenting Parties decide to Deepen, Complete, Sidetrack, Plug Back or Recomplete an Exclusive Well and such further operation was not included in the original proposal for such Exclusive Well, the Consenting Parties shall submit to the Non-Consenting Parties the approved AFE for such further operation. For fifteen (15) Days (or twenty four (24) hours for Urgent Operational Matters) from receipt of such AFE, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such operation. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such further operation, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium set out in Article 7.5(B);

A Non-Consenting Party shall not be entitled to reinstate its rights in any other type of operation.

7.4(D)   If a Non-Consenting Party does not properly and in a timely manner exercise such option to reinstate, including paying in a timely manner in accordance with Article 7.5 all amounts due to the Consenting Parties, such Non-Consenting Party shall have forfeited the options as set out in Article 7.4(C) and the right to participate in the proposed program, unless such program, plan or operation is materially modified or expanded (in which case a new notice and option shall be given to such Non-Consenting Party under Article 7.4(C)).

7.4(E)    A Non-Consenting Party that wishes to exercise its option under Article 7.4(C) shall notify the Consenting Parties that it agrees to bear its share of the liability and expense of such appraisal program, Development Plan or further operation, as the case may be, and to reimburse the amounts set out in Articles 7.5(A) and 7.5(B) that such Non-

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Consenting Party had not previously paid. A Non-Consenting Party shall become a Consenting Party with regard to an Exclusive Operation at such time as the Non-Consenting Party gives notice pursuant to Article 7.4(C); provided that such Non-Consenting Party shall in no way be deemed to be entitled to any lump sum amount Cash Premium paid incident to such Exclusive Operation. The Participating Interest of such Non-Consenting Party in such Exclusive Operation shall be its Participating Interest set out in Article 3.2(A). The Consenting Parties shall contribute to the Participating Interest of the Non-Consenting Party in proportion to the incremental Participating Interest that each agreed to bear under Article 7.2(E). If all Parties participate in the proposed operation, then such operation shall be conducted as a Joint Operation pursuant to Article 5.

7.4(F)    Subject to the Contract, if after the expiry of the period in which a Non-Consenting Party may exercise its option to participate in a Development Plan the Consenting Parties desire to proceed, then the Party proposed by the Consenting Parties to act as operator for such development, shall give notice to the Government under the appropriate provision of the Contract requesting a meeting to advise the Government that the Consenting Parties consider the Discovery to be a Commercial Discovery. Following such meeting such proposed operator for such development shall apply for a Field Exploitation Area (if applicable in the Contract). Unless the Development Plan is materially modified or expanded prior to the commencement of operations under such plan (in which case a new notice and option shall be given to the Non-Consenting Parties under Article 7.4(C)), each Non-Consenting Party to such Development Plan shall:

(1)           If the Contract so allows, elect not to apply for ▇▇ ▇▇▇▇▇ Exploitation Area covering such development and forfeit all interest in such Field Exploitation Area, or

(2)           If the Contract does not so allow, be deemed to have:

(a)           Elected not to apply for ▇▇ ▇▇▇▇▇ Exploitation Area covering such development;

(b)           Forfeited all economic interest in such Field Exploitation Area;

(c)           Assumed a fiduciary duty to exercise its legal interest in such Field Exploitation Area for the benefit of the Consenting Parties.

In either case such Non-Consenting Party shall be deemed to have withdrawn from this Agreement to the extent it relates to such Field Exploitation Area, even if the Development Plan is modified or expanded subsequent to the commencement of operations under such Development Plan and shall be further deemed to have forfeited any right to participate in the construction and ownership of facilities outside such Field Exploitation Area designated solely for the use of such Field Exploitation Area.

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7.5                         PREMIUM TO PARTICIPATE IN EXCLUSIVE OPERATIONS

7.5(A)    Within thirty (30) Days of the exercise of its option under Article 7.4(C), each such Non-Consenting Party shall pay in immediately available funds to the Consenting Parties that took the risk of such Exclusive Operations (in proportion to the incremental Participating Interest that each agreed to bear under Article 7.2(E) in such Exclusive Operation in which such Non-Consenting Party is reinstating its rights) a lump sum amount payable in the currency designated by such Consenting Parties. Such lump sum amount shall be equal to such Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in every Exclusive Operation relating to the Discovery, or well, as the case may be, in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.

7.5(B)    In addition, if a Cash Premium is due, then within thirty (30) Days of the exercise of its option under Article 7.4(C) each such Non-Consenting Party shall pay in immediately available funds, in the currency designated by the Consenting Parties who took the risk of such Exclusive Operations, to the Consenting Parties (in proportion to Participating Interests that each agreed to bear under Article 7.2(E) in such Exclusive Operations in which such Non-Consenting Party is reinstating its rights) a Cash Premium equal to the total of:

(1)           Two Hundred percent (200%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Exploration Well which made the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party; plus

(2)           Two Hundred percent (200%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Exploration Well which made the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.

7.5(C)    In addition, if an In Kind Premium is due, each Non-Consenting Party exercising its option under Article 7.4(C), shall be deemed to grant to the Consenting Parties, and the Consenting Parties, in proportion to their Participating Interests, shall be deemed to accept an In Kind Premium, until such time as the In Kind Premium has been fully satisfied. The In Kind Premium shall be the right to own, take in kind and separately dispose of Hydrocarbons produced out of one hundred percent (100%) of the Non-Consenting Party’s Entitlement to future production from the Field Exploitation Area for the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B); provided that if under the Contract and/or

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Laws/Regulations the Non-Consenting Party would be liable for the payment of royalties, taxes or other governmental charges attributable such Entitlement, then the percentage of such Non-Consenting Party’s Entitlement allocated to satisfaction of the In-Kind Premium shall be reduced to the extent necessary to enable such Non-Consenting Party to pay such royalties, taxes and other governmental charges when due. The value in U.S. Dollars of the In Kind Premium shall equal a total of:

(1)           Two Hundred percent (200%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Appraisal Well(s) which delineated the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party; plus

(2)           Three Hundred percent (300%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Development Well(s) and facilities used to develop and/or produce the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.

7.5(D)    The In Kind Premium shall be deemed fully satisfied when the aggregate value (determined in U.S. Dollars in accordance with Article 7.5(E) below) of the Hydrocarbons received by the Consenting Parties as In Kind Premium equals the sum of the amounts calculated in U.S. Dollars pursuant to Article 7.5(C)). After such satisfaction the Consenting Parties’ right to receive such In Kind Premium shall terminate, and such Non-Consenting Party shall own, take and dispose of its Entitlement from such Field Exploitation Area. Production from other fields standing by in the Contract Area, outside such Field Exploitation Area shall not be used to satisfy the In Kind Premium. Any obligation of the Non-Consenting Party to satisfy the In Kind Premium shall terminate with the cessation of production from the Field Exploitation Area (or well, as the case may be) which the In Kind Premium encumbers, and in such event, no cash payment, in lieu of production, shall be due from the Non-Consenting Party for the unsatisfied balance of the In Kind Premium.

7.5(E)    Within ninety (90) Days after the Completion of any Exclusive Operation, the Operator shall furnish to each Non-Consenting Party that has granted an In Kind Premium in respect of such Exclusive Operation an inventory of the equipment in and connected to the well, and an itemized statement of the cost of such Exclusive Operation, including equipping the well for production. Each Calendar Quarter during the period of satisfying an In Kind Premium, Operator shall furnish to the Non-Consenting Parties that have granted such In Kind Premium an itemized statement of all costs and liabilities incurred in the Exclusive Operation(s), establishing the value of such In Kind Premium together with a statement of the quantity of Hydrocarbons produced to satisfy such In Kind

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Premium and the amount of proceeds realized from the sale of such production during the preceding Calendar Quarter.

7.5(F)    For the purpose of determining satisfaction of the In Kind Premium, the value of the Hydrocarbons received by a Consenting Party as In Kind Premium shall be the weighted average price which such Consenting Party receives from the sale of such Hydrocarbons to non-affiliated purchasers, in arms-length transactions. For sales to Affiliates, the price so used shall be the price at which Hydrocarbons of a similar grade, gravity and quality (adjusted for differentials in accordance with regularly established practice) were sold generally on world markets, during the particular period of sale, in free and fair arms-length transactions, with due adjustments being made for differing geographical locations. Notwithstanding the fact that royalty or any other payment obligation to the Government is based on an “official” or “Government” stated price, the price used for calculation of the satisfaction of the In Kind shall be the price determined in accordance with this Article 7.5(E).

(1)           In determining the quantity of Hydrocarbons produced for purposes of the In Kind Premium, the Consenting Parties shall use the quantity fiscalized and upon which Royalties are paid to PeruPetro and, if unavailable, industry accepted methods such as but not limited to metering or periodic well tests.

(2)           During the period of time Consenting Parties are entitled to an In Kind Premium, such Consenting Parties shall be responsible for the payment of all royalties, charges, taxes, and all other burdens established by Contract directly related to such In Kind Premium.

(3)           Any amount realized from the sale or other disposition of equipment, which was acquired in connection with an Exclusive Operation, shall be credited against the satisfaction of the In Kind Premium.

(4)           On satisfaction of the In Kind Premium, the right of such Non-Consenting Party to own, take In Kind and separately dispose of its Entitlement granted under Article 7.5(C), shall be reinstated automatically as of 7:00 a.m. on the Day following the Day on which such satisfaction occurs.

(5)           Notwithstanding anything contained herein to the contrary, the Non-Consenting Party electing to reinstate its Participating Interest in accordance with Article 7.4 and 7.5 may prepay all or a portion of any amounts owing in respect of the In Kind Premium in cash at any time.

7.6                         ORDER OF PREFERENCE OF OPERATIONS

7.6(A)    Except as otherwise specifically provided in this Agreement, if any Party desires to propose the conduct of an operation that will conflict with an existing proposal for an Exclusive Operation, such Party shall have the right exercisable for five (5) Days, or twenty-four (24) hours for Urgent Operational Matters, from receipt of the proposal for the Exclusive Operation, to deliver to all Parties entitled to participate in the proposed

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operation such Party’s alternative proposal. Such alternative proposal shall contain the information required under Article 7.2(A).

7.6(B)    Each Party receiving such proposals shall elect by delivery of notice to Operator within the appropriate response period set out in Article 7.2(B) to participate in one of the competing proposals. Any Party not notifying Operator and the proposing Parties within the response period shall be deemed to have voted against the proposal.

7.6(C)    The proposal receiving the largest aggregate Participating Interest vote shall have priority over all other competing proposals. In the case of a tie vote, then

(1)           with respect to Joint Operations delegated to Technical Operations Manager under the Operating Services Agreement Technical Operations Manager shall choose between those competing proposals; and

(2)           with respect to Joint operations not delegated to Technical Operations Manager under the Operating Services Agreement Operator shall choose between those competing proposals.

Operator shall deliver notice of such result to all Parties entitled to participate in the operation within five (5) Days of the end of the response period, or twenty-four (24) hours for Urgent Operational Matters.

7.6(D)    Each Party shall then have two (2) Days (or twenty-four (24) hours for Urgent Operational Matters) from receipt of such notice to elect by delivery of notice to Operator and the proposing Parties whether such Party will participate in such Exclusive Operation, or will relinquish its interest pursuant to Article 7.4(B). Failure by a Party to deliver such notice within such period shall be deemed an election not to participate in the prevailing proposal.

7.7                         STAND-BY COSTS

7.7(A)    When an operation has been performed, all tests have been conducted and the results of such tests furnished to the Parties, stand by costs incurred pending response to any Party’s notice proposing an Exclusive Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back, Recompleting, Reworking or other further operation in such well (including the period required under Article 7.6 to resolve competing proposals) shall be charged and borne as part of the operation just completed. Stand by costs incurred subsequent to all Parties responding, or expiration of the response time permitted, whichever first occurs, shall be charged to and borne by the Parties proposing the Exclusive Operation in proportion to their Participating Interests, regardless of whether such Exclusive Operation is actually conducted.

7.7(B)    If a further operation in a well or related to Urgent Operational Matters is proposed while the drilling rig to be utilized is on location, any Party may request and receive up to five (5) additional Days after expiration of the applicable response period specified in Article 7.2(B)(1) within which to respond by notifying Operator that such Party agrees to bear all stand by costs and other costs incurred during such extended response period. Operator may require such Party to pay the estimated stand by costs in advance as a

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condition to extending the response period. If more than one Party requests such additional time to respond to the notice, stand by costs shall be allocated between such Parties on a Day-to-Day basis in proportion to their Participating Interests.

7.8                         USE OF PROPERTY

7.8(A)    When applicable, the Parties participating in an Exclusive Operation under this Agreement shall be permitted to use, at their own risk but free of cost, all casing, tubing and other equipment in the well that is not needed for operations by the owners of the wellbore, but the ownership of all such equipment shall remain unchanged. On abandonment of a well in which operations with differing participation have been conducted, the Parties abandoning the well shall account for all equipment in the well to the Parties owning such equipment by tendering to them their respective Participating Interest shares of the value of such equipment less the cost of salvage.

7.8(B)    No Party (whether owning interests in the platform or not) shall be permitted to use spare slots in a platform constructed pursuant to this Agreement without the prior written consent of all platform owners, which shall not be unreasonably withheld, for purposes of (i) drilling Exploration ▇▇▇▇▇ and/or Appraisal ▇▇▇▇▇ and running tests in the Contract Area and (ii) running production from such ▇▇▇▇▇ in the event they are successful (except production resulting from initial well tests).

7.8(C)    No Party may drill Development ▇▇▇▇▇ from the platform without the prior written consent of all platform owners, which shall not be unreasonably withheld. If all owners of the platform participate in the drilling of a well, then no fee shall be payable under this Article 7.8 (C). Otherwise, each time a well is drilled from a platform, the Consenting Parties in the well shall pay to the owners of the platform until all ▇▇▇▇▇ drilled by such Parties have been plugged and abandoned a monthly fee equal to (1) that portion of the total cost of the platform (including costs of material, fabrication, transportation and installation), divided by the number of months of useful life established for the platform under the tax law of the host country, that one well slot bears to the total number of slots on the platform plus (2) that proportionate part of the monthly cost of operating, maintaining and financing the platform that the well drilled under this Article 7.8(C) bears to the total number of ▇▇▇▇▇ served by such platform. Consenting Parties who have paid to drill a well from a platform under this Article 7.8(C) shall be entitled to Deepen or Sidetrack that well for no additional charge if done prior to moving the drilling rig off of location.

7.8(D)    Spare capacity in equipment that is constructed pursuant to this Agreement and used for processing or transporting oil and gas after it has passed through primary separators and dehydrators (including without limitation treatment facilities, gas processing plants and pipelines) shall be available for use by any Party for Hydrocarbons production from the Area on the terms set forth below. All Parties desiring to use such equipment shall nominate capacity in such equipment on a monthly basis by notice to Operator at least ten (10) days prior to the beginning of each month. Operator may nominate capacity for the owners of the equipment if they so elect. If at any time the capacity nominated

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exceeds the total capacity of the equipment, the capacity of the equipment shall be allocated in the following priority: (1) first, to the owners of the equipment up to their respective Participating Interest shares of total capacity, (2) second, to the owners of the equipment desiring to use capacity in excess of their Participating Interest shares, in proportion to the Participating Interest of each such Party and (3) third, to Parties not owning interests in the equipment, in proportion to their Participating Interests in the Agreement. Owners of the equipment shall be entitled to use up to their Participating Interest share of total capacity without payment of a fee under this Article 7.8(D). Otherwise, each Party using equipment pursuant to this Article 7.8(D) shall pay to the owners of the equipment monthly throughout the period of use an arm’s-length fee based upon third party charges for similar services in the vicinity of the Area. If no arm’s-length rates for such services are available, then the Party desiring to use equipment pursuant to this Article 7.8(D) shall pay to the owners of the equipment a monthly fee equal to (1) that portion of the total cost of the equipment, divided by the number of months of useful life established for such equipment under the tax law of the host country, that the capacity made available to such Party on a fee basis under this Article 7.8(D) bears to the total capacity of the equipment plus (2) that portion of the monthly cost of maintaining, operating and financing the equipment that the capacity made available to such Party on a fee basis under this Article 7.8(D) bears to the total capacity of the equipment.

7.8(E)    Payment for the use of equipment under Articles 7.8(B), (C) or (D) shall not result in an acquisition of any additional interest in the equipment or platform by the paying Parties. However, such payments shall be included in the costs which the paying Parties are entitled to recoup under Article 7.5.

7.8(F)    Parties electing to use spare capacity in equipment pursuant to Articles 7.8(B), (C) or (D) shall indemnify the owners of the equipment or platform against any and all costs and liabilities incurred as a result of such use (including any Consequential Loss and Environmental Loss), but excluding costs and liabilities for which the Operator or Technical Operations Manager are solely responsible under Article 5.6.

7.9                         SPECIAL CONSIDERATION

If, during the tie-in of Exclusive Operation facilities with the existing production facilities of another operation, the production of Hydrocarbons from such other pre-existing operations is temporarily lessened as a result, then the Consenting Parties shall compensate the parties to such existing operation for such loss of production in the following manner. Operator shall determine the amount by which each Day’s production during the tie-in of Exclusive Operation facilities falls below the previous month’s average daily production from the existing production facilities of such operation. The so-determined amount of lost production shall be recovered by all Parties who experienced such loss in proportion to their respective Participating Interest. Upon completion of the tie-in, such lost production shall be recovered in full by Operator deducting up to one hundred percent (100%) of the production from the

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7.10        CONDUCT OF EXCLUSIVE OPERATIONS

ARTICLE 8 - DEFAULT

8.1          DEFAULT AND NOTICE

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8.2          OPERATING COMMITTEE MEETINGS AND DATA

8.3          ALLOCATION OF DEFAULTED ACCOUNTS

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8.4          REMEDIES

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8.5          SURVIVAL

The obligations of the Defaulting Party and the rights of the non-defaulting Parties shall survive the surrender of the Contract, Decommissioning of Joint Operations and termination of this Agreement.

8.6          NO RIGHT OF SET OFF

Each Party acknowledges and accepts that a fundamental principle of this Agreement is that each Party pays its Participating Interest share of all amounts due under this Agreement as and when required. Accordingly, any Party which becomes a Defaulting Party undertakes that, in respect of either any exercise by the non-defaulting Parties of any rights under or the application of any of the provisions of this Article 8, such defaulting Party hereby waives any right to raise by way of set off or invoke as a defense, whether in law or equity, any failure by any other Party to pay amounts due and owing under this Agreement or any alleged claim that such Party may have against the other Parties, whether such claim arises under this Agreement or otherwise. Each Party further agrees that the nature and the amount of the remedies granted to the non-defaulting Parties hereunder are reasonable and appropriate in the circumstances.

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ARTICLE 9 - DISPOSITION OF PRODUCTION

9.1          RIGHT AND OBLIGATION TO TAKE IN KIND

Except as otherwise provided in this Article 9 or in Article 8, each Party shall have the right and obligation to own, take in kind and separately dispose of its Entitlement.

9.2          DISPOSITION OF LIQUID HYDROCARBONS

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9.3          SEPARATE AGREEMENT FOR NATURAL GAS

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ARTICLE 10 - DECOMMISSIONING

10.1        ABANDONMENT OF ▇▇▇▇▇ DRILLED AS JOINT OPERATIONS

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10.2        ABANDONMENT OF EXCLUSIVE OPERATIONS

This Article 10 shall apply mutatis mutandis to the abandonment of an Exclusive Well or any well in which an Exclusive Operation has been conducted (in which event all Parties having the right to conduct further operations in such well shall be notified and have the opportunity to conduct Exclusive Operations in the well in accordance with the provisions of this Article 10).

10.3        ABANDONMENT SECURITY

If under the terms of the Contract or applicable law, the Parties are or become obliged to pay or contribute to the cost of ceasing operations, then the following provisions shall apply:

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“Discounted Net Cost” means that portion of each Party’s anticipated before tax cost of ceasing operations in accordance with applicable law, which remains after deduction of salvage value. Such portion should be calculated at the anticipated time of ceasing operations and discounted at the Discount Rate to December 31 of the Calendar Year in question.

“Discounted Net Value” means the value of each Party’s estimated Entitlement which remains after payment of estimated liabilities and expenses required to win, save and transport such production to the delivery point and after deduction of estimated applicable taxes, royalties, imposts and levies on such production. Such Entitlement shall be calculated using estimated market prices and including taxes on income, discounted at the Discount Rate to December 31 of the Calendar Year in question. No account shall be taken of tax allowances expected to be available in respect of the costs of ceasing operations.

“Discount Rate” means the rate per annum equal to the three (3) months term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits applicable to the date falling thirty (30) Business Days prior to the start of a Calendar Year as published by The Wall Street Journal or if not published then by the Financial Times of London.

ARTICLE 11 - SURRENDER, EXTENSIONS AND RENEWALS

11.1        SURRENDER

11.2        EXTENSION OF THE TERM

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11.3        PRESERVING OPERATION

ARTICLE 12 - TRANSFER OF INTEREST OR RIGHTS

12.1        OBLIGATIONS

Should a Transfer subject to this Article or a Change in Control occur without satisfaction (in all material respects) by the transferor or the Party subject to the Change in Control, as applicable, of the requirements hereof, then each other Party shall be entitled to enforce specific performance of the terms of this Article, in addition to any other remedies (including damages) to which it may be entitled. Each Party agrees that monetary damages alone would not be an adequate remedy for the breach of any Party’s obligations under this Article.

“Cash Transfer” means any Transfer where the sole consideration (other than the assumption of obligations relating to the transferred Participating Interest) takes the form of cash, cash equivalents, promissory notes or retained interests (such as production payments) in the Participating Interest being transferred; and

“Cash Value” means the portion of the total monetary value (expressed in U.S. dollars) of the consideration being offered by the proposed transferee (including any cash, other assets, and tax savings to the transferor from a non-cash deal) that reasonably should be allocated to the Participating Interest subject to the proposed Transfer or Change in Control.

“Change in Control” means any direct or indirect change in Control of a Party (whether through merger, sale of shares or other equity interests, or otherwise) through a single transaction or series of related transactions, from one or more transferors to one or

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12.2        TRANSFER

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