PRODUCTION SHARING AGREEMENT A Contract for Exploration, Appraisal, Development And Production of Petroleum in Jordan Between THE NATURAL RESOURCES AUTHORITY OF THE HASHEMITE KINGDOM OF JORDAN And ………………………………………. NORTHERN HIGHLANDS BLOCK Dated :___________ TABLE OF CONTENTS ....................................................................................................................................................... PAGE PRODUCTION SHARING AGREEMENT........................................................................................... 4 PRODUCTION SHARING AGREEMENT........................................................................................... 4 RECITALS ............................................................................................................................................ 4 ARTICLE 1 ............................................................................................................................................. 5 DEFINITIONS ...................................................................................................................................... 5 ARTICLE 2 ........................................................................................................................................... 12 ANNEXES TO THE AGREEMENT ................................................................................................ 12 ARTICLE 3 ........................................................................................................................................... 13 GRANT OF RIGHTS AND TERM .................................................................................................. 13 ARTICLE 4 ......................................................................................................................................... 18 EXPLORATION, APPRAISAL AND DEVELOPMENT WORK AND EXPENDITURE OBLIGATIONS .................................................................................................................................. 18 First Exploration Term – Three(3) years .............................................................................................................. 18 Optional two years extension ................................................................................................................................. 19 ARTICLE 5 ........................................................................................................................................... 21 RELINQUISHMENTS ......................................................................................................................... 21 (a) Mandatory Relinquishments ........................................................................................................... 21 (b) Voluntary Relinquishments ............................................................................................................................. 21 ARTICLE 6 ........................................................................................................................................... 22 GOVERNMENT INTERACTION AND APPROVALS: TMC AND NSC .................................... 22 ARTICLE 7 ........................................................................................................................................... 25 CONDUCT OF OPERATIONS ........................................................................................................ 25 ARTICLE 8 ........................................................................................................................................... 27 NRA ASSISTANCE ............................................................................................................................ 27 ARTICLE 9 ........................................................................................................................................... 28 PRIVILEGES OF NRA ...................................................................................................................... 28 ARTICLE 10 ......................................................................................................................................... 29 TITLE TO ASSETS AND USE OF PROPERTY ............................................................................ 29 ARTICLE 11 ......................................................................................................................................... 31 PIPELINE(S) AND FACILITIES ..................................................................................................... 31 ARTICLE 12 ......................................................................................................................................... 32 OPERATIONS AFTER COMMERCIAL DISCOVERY .............................................................. 32 ARTICLE 13 ......................................................................................................................................... 34 RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING .......................... 34 (a) Cost Recovery Crude Oil................................................................................................................................. 34 (c) Valuation of Petroleum .................................................................................................................................... 36 (d) Sharing of tested hydrocarbons ........................................................................................................................ 39 ARTICLE 14 ......................................................................................................................................... 40 BONUSES, TAXES AND OTHER PAYMENTS ............................................................................ 40 (a) Signature and Other Production Bonuses ........................................................................................................ 40 (b) Training and Technology Transfer .................................................................................................................. 41 (c) Income Tax ...................................................................................................................................................... 41 ARTICLE 15 ......................................................................................................................................... 42 GAS ...................................................................................................................................................... 42 ARTICLE 16 ......................................................................................................................................... 44 SAVING OF PETROLEUM AND PREVENTION OF LOSS ....................................................... 44 ARTICLE 17 ......................................................................................................................................... 46 MARKETING OF NRA'S CRUDE OIL .......................................................................................... 46 ARTICLE 18 ......................................................................................................................................... 47 SUPPLY OF INTERNAL DEMAND ............................................................................................... 47 ARTICLE 19 ......................................................................................................................................... 48 NORTHERN HIGHLANDS BLOCK 1 RIGHT OF REQUISITION............................................................................................................... 48 ARTICLE 20 ......................................................................................................................................... 49 ARTICLE 21 ......................................................................................................................................... 51 PAYMENT AND PROVISION OF DATA ...................................................................................... 51 ARTICLE 22 ......................................................................................................................................... 52 PERFORMANCE BOND AND GUARANTEE .............................................................................. 52 ARTICLE 23 ......................................................................................................................................... 53 LOCAL CONTRACTORS, MANUFACTURED MATERIALS AND EMPLOYEES ............... 53 ARTICLE 24 ......................................................................................................................................... 54 LAWS AND REGULATIONS........................................................................................................... 54 ARTICLE 25 ......................................................................................................................................... 55 BOOKS OF ACCOUNT AND ACCOUNTINGS ............................................................................ 55 ARTICLE 26 ......................................................................................................................................... 57 RECORDS, REPORTS, INSPECTION AND CONFIDENTIALITY .......................................... 57 ARTICLE 27 ......................................................................................................................................... 59 RESPONSIBILITY FOR DAMAGES .............................................................................................. 59 ARTICLE 28 ......................................................................................................................................... 60 EXCHANGE RIGHTS AND OBLIGATIONS ................................................................................ 60 ARTICLE 29 ......................................................................................................................................... 62 SOLE RISK ......................................................................................................................................... 62 ARTICLE 30 ......................................................................................................................................... 65 UNITIZATION ................................................................................................................................... 65 ARTICLE 31 ......................................................................................................................................... 66 ASSIGNMENT .................................................................................................................................... 66 ARTICLE 32 ......................................................................................................................................... 68 POWER TO CANCEL ....................................................................................................................... 68 FORCE MAJEURE ............................................................................................................................ 69 ARTICLE 34 ......................................................................................................................................... 71 CONCILIATION, ARBITRATION AND EXPERT DETERMINATION .................................. 71 ARTICLE 35 ......................................................................................................................................... 74 SPECIAL CONSIDERATIONS CONCERNING THE NORTHERN HIGHLANDS BLOCK ................................................................................................................................................ 74 ARTICLE 36 ......................................................................................................................................... 75 DISCOUNT ON CRUDE SALES FOR THE NRA ......................................................................... 75 ARTICLE 37 ......................................................................................................................................... 76 OFFICE AND SERVICE OF NOTICE ............................................................................................ 76 ARTICLE 38 ......................................................................................................................................... 78 GENERAL ........................................................................................................................................... 78 ARTICLE 39 ......................................................................................................................................... 79 TEXT .................................................................................................................................................... 79 ANNEX A ............................................................................................................................................. 80 DESCRIPTION, LOCATION MAP AND CO-ORDINATES OF AREA ........................................... 80 ACCOUNTING PROCEDURES ......................................................................................................... 82 ARTICLE I ............................................................................................................................................ 83 GENERAL PROVISIONS ................................................................................................................. 83 ARTICLE II. ....................................................................................................................................... 86 EXPENDITURE AND RECEIPTS ................................................................................................... 86 ARTICLE III ....................................................................................................................................... 96 INVENTORIES AND INVENTORY STATEMENTS ................................................................... 96 ARTICLE IV. ........................................................................................................................................ 97 MEASUREMENT OF PRODUCTION AND PRODUCTION STATEMENT ............................ 97 NORTHERN HIGHLANDS BLOCK 2 VALUE OF PRODUCTION STATEMENT .................................................................................... 99 ARTICLE VI. ..................................................................................................................................... 100 COST RECOVERY STATEMENT ................................................................................................ 100 ARTICLE VII. .................................................................................................................................... 101 STATEMENT OF EXPENDITURES AND RECEIPTS .............................................................. 101 ARTICLE VIII. ................................................................................................................................... 102 PROFIT OIL AND LIFTINGS STATEMENT .................................................................................. 102 ANNEX C ........................................................................................................................................... 103 CHARTER OF OPERATING COMPANY ....................................................................................... 103 ANNEX D ........................................................................................................................................... 104 TAX IMPLEMENTATION PROVISIONS ....................................................................................... 104 ANNEX E ........................................................................................................................................... 105 BANK GUARANTEE ........................................................................................................................ 105 ANNEX F ........................................................................................................................................... 107 FORM OF PERFORMANCE BOND ................................................................................................ 107 ANNEX G ........................................................................................................................................... 108 FORM OF PARENT COMPANY GUARANTEE ............................................................................ 108 ANNEX H ........................................................................................................................................... 109 SHARING OF PROFIT OIL ............................................................................................................... 109 NORTHERN HIGHLANDS BLOCK 3 PRODUCTION SHARING AGREEMENT CONTRACTING PARTIES THE NATURAL RESOURCES AUTHORITY OF JORDAN (NRA) And ……………………………… For EXPLORATION, PRODUCTION AND DEVELOPMENT OF HYDROCARBONS WITHIN NORTHERN HIGHLANDS BLOCK IN JORDAN This Agreement is made in Amman, Jordan on the _________ day of __________, 2009, between the GOVERNMENT OF JORDAN represented by the NATURAL RESOURCES AUTHORITY OF JORDAN ("NRA") and established in the Hashemite Kingdom of Jordan ("JORDAN") by Law No. 12 of 1968, and ……………. ("CONTRACTOR"). -----------------------, as the “CONTRACTOR”) represented by it's ………………………………….. RECITALS WHEREAS, all Petroleum in its natural habitat in strata lying within the boundaries of JORDAN is the property of JORDAN; and WHEREAS, JORDAN wishes to promote the exploration and development of potential Petroleum resources in the Area and CONTRACTOR wishes to join and assist JORDAN in the exploration, development and production of the potential Petroleum resources in the Area; and WHEREAS, NRA is an Agency established to act for and on behalf of the Government of JORDAN under Law No. 12 of 1968 (published in the Official Gazette of the Hashemite Kingdom of JORDAN No. 2076, dated 16th February, 1968) and is concerned with exploration and production of Petroleum within the Kingdom of JORDAN; and WHEREAS, JORDAN has empowered NRA to negotiate and execute this Agreement; and WHEREAS, CONTRACTOR is authorized, pursuant to approval from the NRA, in line with this agreement, to carry out all Petroleum operations in Jordan, including, Exploration, Appraisal, Development and Production; and WHEREAS, CONTRACTOR is willing, and able (financially and technically), to undertake the obligations provided under this Agreement with respect to the Exploration and Development of Petroleum in the Area and CONTRACTOR and NRA mutually desire to enter into this Agreement with respect to the Area; NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS; NORTHERN HIGHLANDS BLOCK 4 ARTICLE 1 DEFINITIONS For purposes of this Production Sharing Agreement and the Annexes attached hereto, the following defined terms (Definitions) shall have the meanings set forth in this Article 1. "Affiliate" means, with respect to any person, any other person that (a) owns or controls the first person, (b) is owned or controlled by the first person, or (c) is under common ownership or control with the first person, where “own” means ownership of fifty percent (50%) or more of the equity interests or rights to distributions on account of equity of the person and “control‟ means the power to direct the management or policies of the person, whether by law, through the ownership of voting securities; by contract, or otherwise; "Agreement" means this production sharing agreement and the Annexes Attached hereto, including any amendments thereof agreed to In writing by the Parties. "Appraisal Program" means a program carried out following a Discovery Well in accordance with Article 3(c) (3). "Appraisal Well" means any well drilled for the purposes of an Appraisal Program. "Area" means the area as described and shown on the map in Annex A attached to this Agreement, as such Area may have been reduced from time to time by relinquishments made in accordance with Article 5 hereof. “Average Daily Production” means that quantity of Crude Oil calculated after the end of each Calendar Year by dividing the total amount of Crude Oil produced from the Contract Area and saved periodically at the Delivery Point during the preceding Calendar Year by the number of Days in that Calendar Year, or the total amount of Crude Oil produced from the Contract Area and saved periodically at the Delivery Point from the Effective Date until the Calendar Year end by the number of Days following and inclusive of the Effective Date until the Calendar Year end, as the case may be. “Average Monthly Production” means that quantity of Crude Oil calculated after the end of each Calendar Month by dividing the total amount of Crude Oil produced from the Contract Area and saved periodically at the Delivery Point during the preceding Calendar Month NORTHERN HIGHLANDS BLOCK 5 by the number of Days in that Calendar Month, or the total amount of Crude Oil produced from the Contract Area and saved periodically at the Delivery Point from the Effective Date until the Calendar Month end by the number of Days following and inclusive of the Effective Date until the Calendar Month end, as the case may be. "Barrel" shall consist of forty-two (42) United States gallons (equivalent to approximately 158.984 litres), liquid measure, when corrected to a temperature of sixty degrees (60º) Fahrenheit at atmospheric pressure. “BOPD” or “SBPD” means Barrels of Crude Oil per Day or Standard Barrels of Crude Oil per Day at standard conditions. “Calendar Month” means a month according to the Gregorian calendar. “Month” means a period counted as from any Day of a Calendar Month ending on the same Day of the following Calendar Month or, if such Day does not exist, on the last Day of such Calendar Month. "Calendar Half Year" means the period of six (6) consecutive months according to the Gregorian calendar starting on January 1st through to June 30th, or July 1st through to December 31st, inclusive. "Calendar Quarter" means the period of three (3) consecutive months according to the Gregorian calendar and commencing respectively with the first day of January, April, July and October. "Calendar Year" means the twelve (12) consecutive month period starting on January 1st through to December 31st inclusive, according to the Gregorian calendar. "Commercial Discovery" means a discovery of Petroleum which the CONTRACTOR determines to be worthy of commercial development, as set forth in Article 3(c)(4). “Contract” means this Production Sharing Agreement and its Annexes as may be amended or supplemented from time to time. “Contract Area” means the area equivalent to the NORTHERN HIGHLANDS BLOCK as defined in Annex A of this agreement, in Jordan. where CONTRACTOR is entitled to carry out activities under this Contract. The area extends from ground surface downward to unlimited depths. “CONTRACTOR” means in this agreement, the OPERATING Company that is responsible for undertaking the obligations stated within this Production Sharing Agreement. “Contractor’s NORTHERN HIGHLANDS BLOCK 6 Share of Crude Oil” means the volumes of Crude Oil attributable to the CONTRACTOR in the Contract Area as determined in Article 13 and Annex H. “Cost Recovery” means that recovery of costs by the CONTRACTOR set out in Article 13. "Cost Oil" means the cost recovery Crude Oil which CONTRACTOR is entitled to receive pursuant to Article 13(a). "Cost gas" means the cost recovery gas which CONTRACTOR is entitled to receive pursuant to Article 15. "Crude Oil" or “oil” means all hydrocarbons, including associated impurities, produced from any well in the Area which is in a liquid state at standard atmospheric conditions of temperature and pressure at the wellhead or separator or which is extracted in a liquid state at atmospheric conditions of temperature and pressure from Gas in a separator or in a plant. Such term shall also include distillate and condensate. "Development Expenditures" means the expenditures so defined in Article 13(a)(2)(ii). "Development" or "Development Operations" shall include all the operations and activities under this Agreement with respect to: (1) Drilling of development wells and all operations related thereto; (2) acquisition, design, construction, installation, connection and testing of equipment, lines, systems, facilities, pipelines and rights-of-way, plants, terminals and related operations necessary to produce and operate said wells and to take, save, treat, handle, store, transport and deliver Petroleum to the Delivery Point.; (3) Re-pressuring, recycling, pressure maintenance and other secondary or tertiary recovery projects. "Development Period" means the period referred to in Article 3(e). "Development Plan" means the plan referred to in Article 3(c)(4). "Discovery" means a discovery of Petroleum recoverable at the surface in a flow measurable by conventional international petroleum industry production testing methods. "Discovery Well" means the first well on any geological feature which after testing in accordance with good oil industry practices is, in NORTHERN HIGHLANDS BLOCK 7 the opinion of CONTRACTOR, capable of producing Petroleum at a rate that economically justifies the undertaking of an Appraisal or Production Program. The date of establishment of a Discovery Well is the date on which notification that a well is a Discovery Well is given to NRA by CONTRACTOR. "Effective Date" means the date following execution of this Agreement by all the parties, on which the last act necessary to give this Agreement the full force and effect of law has been taken. "Execution Date" means the date first above written. "Exploration Expenditures" means the expenditures so defined in Article 13(a)(2)(i). "Exploration" or "Exploration Operations" shall include geological, geophysical, aerial and other surveys and the interpretation thereof and the drilling of shot holes, core holes, stratigraphic tests, wells for the discovery of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase, hire or acquisition of supplies, materials and equipment therefore, as well as necessary preparations thereof. The verb "explore" means the act of conducting Exploration Operations. "Exploration Period" means the period of time after the Effective Date of this Agreement during which CONTRACTOR has the right to carry out Exploration Operations under the terms of Article 3 hereof. "Term" shall mean the First Exploration Term or the Optional Extension Exploration Term or any mutually agreed additional exploration terms as the case may be. "Exploration Well" means any well drilled for the purposes of discovering a Petroleum reservoir. An exploration well is a well drilled for the purposes of exploring a newly identified geologic structure or an existing structure which has no commercial production and all existing wells upon this structure have been abandoned. Re-entry of an existing producing well is not considered to be an exploration well. “Extended well test” is a well test during which hydrocarbons are produced (and perhaps sold) exceeding the normal duration of a usual drill stem test (a Drill Stem Test usually being of duration of a few days to 2 weeks). The extended well test is to be conducted for the purposes of monitoring the reservoir and better assessing the long term commercial viability of an accumulation. The nature and duration of any Extended Well test is to be agreed between both parties. “Force Majeure” means those events or circumstances set forth in Article 33. NORTHERN HIGHLANDS BLOCK 8 "Gas" means all hydrocarbons produced from any well in the Area together with all non-hydrocarbon substances contained therein, which are in a gaseous state at atmospheric conditions of temperature and pressure at the Delivery Point. Such term will exclude distillate and condensate. "Associated Gas" means Gas produced in association with Crude Oil. "Non-Associated Gas" means Gas produced from a reservoir containing insignificant quantities of Crude Oil. "Initial Commercial Production" means the date on which the first regular shipment of Crude Oil for export or sale, or the first regular sale of Gas is made by CONTRACTOR. "JOPC" means the Jordan Operating Petroleum Company ("Jordan Operating Company") as provided in Annex C. "JORDAN" means the Hashemite Kingdom of Jordan and includes the Government of the Hashemite Kingdom of Jordan. “NSC” means the NRA Steering Committee as provided in Article 6. "Operating Expenses" means the expenses so defined in Article 13(a) (2) (iii). “Operator or Operating Company” means the CONTRACTOR who responsible for all operations in the NORTHERN HIGHLANDS BLOCK These operations include, but are not limited to, undertaking the obligations stated in the agreed work program in this contract. “Parties” means GOVERNMENT, COMPANY and CONTRACTOR and any partners or affiliates to the Contractor. “Party” means any one of the Parties, including their respective successors and assignees. It is understood that these Parties shall perform their respective obligations toward each other in accordance with their legal position stated in the Preamble and in the relevant Articles of this Contract. “Partner” A company who owns a percentage of the Contractor‟s share within the NORTHERN HIGHLANDS BLOCK but is not the OPERATOR. "Petroleum" means Crude Oil of various densities, Gas, asphalt and all other hydrocarbon substances that may be found in and produced or otherwise obtained and saved from the Area under this Agreement and all substances that may be extracted there from, including by-products, but excluding basic sediments and water. NORTHERN HIGHLANDS BLOCK 9