Clause

Title

Page Number

1.

DEFINITIONS AND INTERPRETATION...............................................................................

2.

BONUSES AND SOCIAL PROJECTS.................................................................................

3.

SCOPE...............................................................................................................................

4.

TERM.................................................................................................................................

5.

COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY.............................

6.

RELINQUISHMENT OF AREAS.........................................................................................

7.

MINIMUM WORK PROGRAM AND BUDGET.......................................................................

8.

STATE PARTICIPATION...................................................................................................

9.

RIGHTS AND OBLIGATIONS OF THE PARTIES.................................................................

10.

RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION.....

11.

VALUATION OF CRUDE OIL.............................................................................................

12.

PAYMENTS.......................................................................................................................

13.

TITLE TO EQUIPMENT / DECOMMISSIONING...................................................................

14.

EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE.......................................

15.

BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES.........................................

16.

TAXES AND CUSTOMS.....................................................................................................

17.

INSURANCE.....................................................................................................................

18.

CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS.......................................................

19.

ASSIGNMENT...................................................................................................................

20.

TERMINATION.................................................................................................................

21.

FORCE MAJEURE.............................................................................................................

22.

LAWS AND REGULATIONS...............................................................................................

23.

NATURAL GAS.................................................................................................................

24.

REPRESENTATIONS AND WARRANTIES.........................................................................

25.

CONCILIATION AND ARBITRATION...................................................................................

26.

EFFECTIVE DATE.............................................................................................................

27.

REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS...................................

28.

OPERATOR.....................................................................................................................

29.

CONFLICT OF INTERESTS...............................................................................................

30.

NOTICES.........................................................................................................................

31.

LIABILITY.........................................................................................................................

32.

MISCELLANEOUS.............................................................................................................

SCHEDULE 1 CONTRACT AREA.......................................................................................................

SCHEDULE 2 ACCOUNTING PROCEDURE.......................................................................................

SCHEDULE 3 ALLOCATION AND LIFTING PROCEDURE PRINCIPLES...............................................

SCHEDULE 4 PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES...........................

SCHEDULE 5 SALE OF ASSETS PROCEDURE.................................................................................

SCHEDULE 6 FORM OF PARENTAL GUARANTEE...........................................................................

(1)

THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE represented by the AGÊNCIA NACIONAL DO PETRÓLEO OF SAO TOME AND PRINCIPE;  and 

(2)

GALP ENERGIA SÃO TOMÉ E PRÍNCIPE, UNIPESSOAL, LDA,  a company organized and existing under the laws of the Democratic Republic of Sao Tome and Principe whose registered office is at Avenida da Independência 392, II/III, Caixa Postal 638, São Tomé, São Tomé e Príncipe (the “Contractor”).

(A)

All Petroleum existing within the Territory of Sao Tome and Principe, as set forth in the Petroleum Legislation, is natural resources exclusively owned by the State.  

(B)

The Agência Nacional do Petróleo of Sao Tome and Principe, with the approval of the Government of Sao Tome and Principe, has the authority to enter into contracts for the conduct of Petroleum Operations in and throughout the area, the co-ordinates of which are described and outlined on the map in Schedule 1 of this Contract, which area is hereinafter referred to as the Contract Area.

(C)

The State wishes to promote Petroleum Operations in the Contract Area and the Contractor desires to join and assist the State in accelerating the exploration and exploitation of potential petroleum resources within the Contract Area.

(D)

In compliance of Article 20 of the Petroleum Law and in accordance with the Council of Ministers’ Resolution, which met in its 15th. Extraordinary Session, held on 31st. December 2013, the Agência Nacional do Petróleo, by its Announcement no. 02/2014 of 9th. January, published on domestic and international press, promoted a bid round for the award of exploration and production of oil and gas rights for the offshore area of the Democratic Republic of Sao Tome and Principe, to which concerns Block 6 object of this Contract, asking for the presentation of bids for Petroleum contracts.

(E)

This announcement was issued following a public statement made by the Agência Nacional do Petróleo in which, under Article 21 no. 2 of the Petroleum Law, it declared, in the National and International Press, having received direct negotiations proposals, having set a Term of (20) twenty 20 days as of the date of publication of the above mentioned announcement for the receipt of statements of interest on the part of third parties.

(F)

The bidding round referred in Recital (D) above has been open from 9th. January to 30th. January 2014, with three proposals having been placed for Block 6.

(G)

On 24th. January 2014, the Contractor presented to the Government, through the Agência Nacional do Petróleo and within the framework of that announcement, a statement of interest in the rights of exploration and production of oil and gas in the area of Block 6.

(H)

Within the deadline set for the announcement, two other interested entities have presented their respective statements of interest in the negotiation of the rights of exploration and production of oil and gas in the area of Block 6.

(I)

The statements of interest have been object of a technical report and a legal opinion from the Agência Nacional do Petróleo and an opinion of the Government.

(J)

In accordance with the opinion of the Government and the Council of Ministers’ Resolution (45th. Ordinary Session) of 4th. September 2014, the XV Constitutional Government resolved to authorize the Agência Nacional do Petróleo to request clarifications without any binding nature for Production Sharing Contracts. Therefore, the Government, on its 50th. Ordinary Session, of 9th. October 2014, resolved to go ahead for the phase of negotiations of the Production Sharing Contract with Petrogal regarding Block 6, provided that the interests of the State be safeguarded.

(K)

The Contractor has the necessary financial capability, technical knowledge and ability to carry out the Petroleum Operations hereinafter described in accordance with this Contract, the Petroleum Legislation and Good Oil Field Practice.

(L)

Pursuant to and in accordance with the Petroleum Legislation, this Contract has been entered into by and between the State and the Contractor for the purpose of Petroleum Operations in the Contract Area.

(M)

GALP ENERGIA SÃO TOMÉ E PRÍNCIPE, UNIPESSOAL, LDA is hereby designated as the Operator under clause 28 of this Contract.

1.

DEFINITIONS AND INTERPRETATION

1.1

Definitions provided in Petroleum Legislation (Petroleum Law, Oil Revenue Law and Petroleum Taxation Law) shall apply to this Contract. If not defined in the mentioned Petroleum Legislation, the words in the Contract beginning with capital letters shall have the following meaning:

(a) by means of the holding of shares or the possession of voting power, directly or indirectly, in or in relation to the first Person; or

(b) by virtue of any power conferred by the articles of association of, or any other document regulating, the first Person or any other Person,

(a) Reservoir, geological and geophysical studies and surveys;

(b) Drilling of production and injection wells; and

(c) Design, construction, installation, connection and initial testing of equipment, pipelines, systems, facilities, plants and related activities necessary to produce and operate said wells, to take, save, treat, handle, store, transport and deliver Petroleum, and to undertake re-pressurizing, recycling and other secondary or tertiary recovery projects;

(a) any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid state;

(b) any mixture of naturally occurring hydrocarbons, whether in a gaseous, liquid or solid state; or

(c) any Petroleum (as defined above) that has been returned to a Reservoir;

(a) the Exploration, Appraisal, Development, Production, transportation, sale or export of Petroleum;

(b) the construction, installation or operation of any structures, facilities or installations for the Development, Production and export of Petroleum, or decommissioning or removal of any such structures, facilities or installations;

1.2

Unless the context otherwise requires, reference to the singular shall include the plural and vice versa and reference to any gender shall include all genders.

1.3

The Schedules form an integral part of this Contract.

1.4

The table of contents and headings in this Contract are inserted for convenience only and shall not affect the meaning or construction of this Contract.

1.5

References in this Contract to the words “include”, “including” and “others” shall not be construed as a limitation.

1.6

In the event of any inconsistency between the main body of this Contract and any Schedule, the provisions of the former shall prevail.

2.

BONUSES AND SOCIAL PROJECTS

2.1

Signature Bonus

2.2

Production Bonuses

Cumulative Production (millions of Barrels or

Bonus (US$ million)

Barrels of Oil Equivalent)

100

5

150

7.5

350

10

500

10

2.3

The production bonuses provided for in clause 2.2 shall be payable to the State by deposit into the National Petroleum Account within 30 (thirty) days of such Production level being first attained in immediately available funds.

2.4

The signature and production bonuses provided for in this clause 2 shall not be recoverable as Cost Oil or deductible for Tax purposes.

2.5

Social Projects

Cumulative Production (millions of Barrels or
Barrels of Oil Equivalent)

Project
Value (US $ million)

50

1

100

2

150

5

2.6

The details of the social projects to be undertaken by the Contractor in accordance with clause 2.5 shall be determined by agreement between the Contractor and the Agência Nacional do Petróleo. Failing such agreement, the Contractor and the

2.7

The Contractor shall be responsible for the implementation of all agreed or chosen social projects, which shall be undertaken using all reasonable skill and care.

3.

SCOPE

3.1

This Contract is a production sharing contract awarded pursuant to the Petroleum Law and governed in accordance with the terms and provisions hereof. The conduct of Petroleum Operations and provision of financial and technical requirements by the Contractor under this Contract shall be with the prior approval of or in prior consultation with the Agência Nacional do Petróleo as required under this Contract or the Petroleum Law. The State hereby appoints and constitutes the Contractor as the company with exclusive right to conduct Petroleum Operations in the Contract Area.

3.2

During the term of this Contract, the total Available Crude Oil shall be allocated to the Parties in accordance with the provisions of clause 10, the Accounting Procedures and the Allocation and Lifting Procedure.

3.3

The Contractor, together with its Affiliates, shall provide all funds and bear all risk of Operating Costs and the sole risk in carrying out Petroleum Operations.

3.4

The Contractor shall engage in Petroleum Operations solely in accordance with the Petroleum Law, the Petroleum Taxation Law, Good Oil Field Practice and all other applicable laws and regulations.

4.

TERM

4.1

Subject to clause 20, the term of this Contract shall be for a period of 28 (twenty-eight) years from the Effective Date, with an 8 (eight) years Exploration and Appraisal period, as extended pursuant to clauses 5.1(b) and/or (c) (the “Exploration Period”) and a 20 (twenty) year Production period (the “Production Period”).

4.2

The Exploration Period shall be divided as follows:

4.3

The Contractor shall commence Petroleum Operations no later than 30 (thirty) days after the Agência Nacional do Petróleo has approved the first Work Program.

4.4

Provided the Contractor has fulfilled all of its obligations relative to the current phase of the Exploration Period as described in clause 7.2, the Contractor may enter the next

4.5

Provided the Contractor has fulfilled all of its obligations relative to the current phase of the Exploration Period as described in clause 7.2, the Contractor may terminate this Contract at the end of any phase during the Exploration Period in accordance with clause 20.7.

4.6

The Contractor shall have the right to produce Petroleum from each Development Area for a period of 20 (twenty) years from the date of approval by the Agência Nacional do Petróleo of the Field Development Program in the relevant area in accordance with clause 5.1. This Contract will terminate with respect to the relevant Development Area at the end of such 20 (twenty) year period unless the Agência Nacional do Petróleo grants an extension on application of the Contractor. The Contractor may, for any Development Area, be granted one or more extension periods, each one for a period of 5 (five) years, until all Petroleum has been economically depleted. In connection with any such extensions, the Parties agree to engage in good faith to re-negotiate the commercial terms of this Contract governing the applicable Development Area at least 5 (five) years prior to the expiration of the initial 20 (twenty) years period and at least 2 (two) years prior to the expiration of any subsequent extension period.

5.

COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY

5.1

The sequence of Petroleum Operations to establish a Commercial Discovery of Petroleum (other than Unassociated Natural Gas) shall be as follows:

(a)

the Contractor shall have a period of up to 45 (forty-five) days from the date on which the drilling of the applicable Exploration Well terminates to declare whether or not the Exploration Well has proven a Discovery;

(b)

the Contractor shall then have a period of 2 (two) years (unless otherwise agreed with the Agência Nacional do Petróleo) from declaration of a Discovery to declare the Discovery either on its own or in aggregation with other Discoveries is a Commercial Discovery, which may be extended for 1 (one) year, subject to approval of the Agência Nacional do Petróleo, if the results of those activities indicate that further Appraisal is necessary;

(c)

if the Contractor declares a Commercial Discovery it shall have a period of 2 (two) years (unless otherwise agreed by the Agência Nacional do Petróleo) from the time the Contractor declares a Discovery or aggregation of Discoveries is a Commercial Discovery to submit a Field Development Program to the Agência Nacional do Petróleo for approval;

(d)

in the event a Discovery is not determined to be a Commercial Discovery, upon expiration of the period set out in clause 5.1(b) the State may, provided it gives at least 18 (eighteen) months' notice, require the Contractor to promptly relinquish, without any compensation or indemnification whatsoever, the area

(e)

if a Field Development Program is approved by the Agência Nacional do Petróleo, the Contractor shall initiate field development and production according to the time schedule outlined in the Program.

5.2

Unassociated Natural Gas shall be developed in accordance with clause 23.4.

6.

RELINQUISHMENT OF AREAS

6.1

The Contractor must relinquish the Contract Area, or part thereof, in accordance with the following terms:

(a)

25% (twenty-five percent ) of the initial surface area of the Contract Area shall be relinquished at the end of Phase I of the Exploration Period;

(b)

a further 25% (twenty-five percent) of the initial surface area of the Contract Area shall be relinquished at the end of Phase II of the Exploration Period; and

(c)

the remainder of the Contract Area shall be relinquished at the end of Phase III of the Exploration Period, less:

(i)

any area which is the subject of an approved Appraisal program pursuant to clause 5.1(b) and a Development Area;

(ii)

areas for which the approval of a Field Development Program is pending, until finally decided; and

(iii)

any area reserved for a possible Unassociated Natural Gas Appraisal in relation to which the Contractor is engaged in discussions with the State in accordance with clause 23.4.

6.2

Any Retained Area and Relinquished Area shall be, as far as reasonable, single continuous units and delimited by meridians and parallels of latitude expressed in whole minutes of a degree to be approved by the Agência Nacional do Petróleo.

6.3

Any Relinquished Area shall revert to the State.

6.4

Subject to the Contractor's obligations under clause 7 and its Decommissioning obligations, the Contractor may, at any time, notify the Agência Nacional do Petróleo upon 3(three) months prior written notice that it relinquishes its rights over all or part of the Contract Area. In no event shall any voluntary relinquishment by the Contractor over all or any part of the Contract Area reduce the Minimum Work Obligations or Minimum Financial Commitment set out in clause 7.

7.

MINIMUM WORK PROGRAM AND BUDGET

7.1

Within 2 (two) months after the Effective Date and thereafter at least 3 (three) months

7.2

The minimum Work Program for each phase of the Exploration Period is as follows (the “Minimum Work Obligations”):

§

Carry out Geological and Geophysical studies

§

Perform Environmental Impact Assessments

§

Acquire, Process and Interpret 1200 km of 2D seismic or 750 km2 of 3D seismic, as elected by the Contractor

§

Carry out Geological and Geophysical studies

§

Perform Environmental Impact Assessments

§

Acquire, Process and Interpret 750 km2 of 3D seismic

§

Carry out Geological and Geophysical studies

§

Perform Environmental Impact Assessments

§

Drill one (1) Exploration Well with a minimum total vertical depth (TVDSS) of 4600m

7.3

Minimum Financial Commitments

(a)

The Contractor shall be obligated to incur the following minimum financial commitment (the “Minimum Financial Commitment”):

(b)

If the Contractor fulfills the Minimum Work Obligations set forth in clause 7.2 for each phase of the Exploration Period, then the Contractor shall be deemed to have satisfied the Minimum Financial Commitments for each such phase.

(c)

If the Contractor fails to complete the Minimum Work Obligations for any phase of the Exploration Period and such commitment has not been moved to the next phase (if any), with the consent of the Agência Nacional do Petróleo,

7.4

The Contractor shall be excused from any delay or failure to comply with the terms and conditions of clauses 7.2 and/or 7.3:

(a)

during any period of Force Majeure; or

(b)

if the Agência Nacional do Petróleo or any other State authority denies the Contractor any required permissions to perform the Petroleum Operations which constitute Minimum Obligations of the Work Program.

7.5

The time for performing any incomplete Minimum Work Obligations for any phase of the Exploration Period and the term of this Contract shall be extended by the following periods in the circumstances set out in clause 7.4:

(a)

with respect to clause 7.4 (a), for the period during which Force Majeure is in existence; and

(b)

with respect to clause 7.4 (b), for a 6 (six) months’ term to permit the Contractor to make a revised plan of drilling, or other work, which is satisfactory to the Agência Nacional do Petróleo.

7.6

If any circumstance described in clauses 7.4 and 7.5 is not resolved within the time periods specified above, then after consultation with Agência Nacional do Petróleo, the Contractor shall be liable to pay into the National Petroleum Account an amount corresponding to the unfulfilled work for that phase and, notwithstanding clause 20, this Contract shall automatically terminate.

7.7

Any unfulfilled Minimum Work Obligation in any phase of the Exploration Period may, with the written consent of the Agência Nacional do Petróleo, be added to the Minimum Work Obligation for the next succeeding phase.

7.8

The expenses or the work by the Contractor over and above the Minimum Work Obligations or the Minimum Financial Commitment for any phase shall be credited against and reduce the Minimum Work Obligation or the Minimum Financial Commitment for the next succeeding phase.

7.9

For the purposes of determining whether an Exploration Well or an Appraisal Well has been drilled in accordance with the Minimum Work Obligation, such a well shall be deemed drilled if the minimum total depth has been reached or if any one of the following events occurs prior to reaching the minimum total depth:

(a)

a Discovery is made and further drilling may cause irreparable damage to such Discovery;

(b)

basement is encountered;

(c)

the Agência Nacional do Petróleo and the Contractor agree the well is drilled for the purpose of fulfilling the obligation to complete the Minimum Work Obligation; or

(d)

technical difficulties are encountered which, in the judgment of the Contractor and in accordance with reasonable and prudent international oilfield practice, makes further drilling impracticable, uneconomic, unsafe or a danger to the environment.

7.10

The Exploration Period set forth in clause 7.2 may be extended for an additional 6 (six) months to conclude the drilling and testing of any well for which operations have been commenced up until the end of Phase III of that Period (with its extensions). This Contract shall automatically terminate if no Commercial Discovery has been declared by the Contractor during the Exploration Period, as may be extended.

7.11

Performance Bond 

(a)

Within 30 (thirty) days from the Effective Date, the Contractor shall submit a performance bond in a form approved by the Agência Nacional do Petróleo and from a reputable international financial institution approved by the Agência Nacional do Petróleo to cover the Minimum Financial Commitment for Phase I of the Exploration Period.

(b)

Should the Contractor satisfy in full the conditions for continuing Petroleum Operations at the end of Phase I of the Exploration Period pursuant to clause 7.2, a replacement performance bond in the same form and from the same international financial institution, unless otherwise agreed by the Agência Nacional do Petróleo, shall be submitted within 30 (thirty) days from the date of the extension to cover the Minimum Financial Commitment for Phase II of the Exploration Period.

(c)

Should the Contractor satisfy in full the conditions for continuing Petroleum Operations at the end of Phase II of the Exploration Period, pursuant to clause 7.2, a replacement performance bond in the same form and from the same international financial institution, unless otherwise agreed by the Agência Nacional do Petróleo, shall be submitted within 30 (thirty) days from the date of the extension to cover the Minimum Financial Commitment for Phase III of the Exploration Period.

7.12

The amount of the performance bond shall be reduced annually by deducting the verified expenditures the Contractor has incurred in the previous year of each phase and the performance bond shall terminate at the end of each phase if the Minimum Work Obligations or Minimum Financial Commitment for that phase have been satisfied in full.

7.13

Guarantee

8.

STATE PARTICIPATION

8.1

The State, either through the Agência Nacional do Petróleo or any other State Entity designated by the State, shall have, as of the Effective Date, a carried 10% (ten percent) participation in the Contractor’s rights and interests under this Contract. The Contractor shall fund, bear and pay all costs, expenses and amounts due in respect of Petroleum Operations conducted pursuant to this Contract.

8.2

In respect of its carried interest referred to in clause 8.1, the Agência Nacional do Petróleo or other State Entity designated by the State shall become a party to the Joint Operating Agreement.

8.3

Upon the commencement of commercial Production, the Contractor shall be entitled to receive 100% (one hundred percent) of Cost Oil in order to recover all costs, expenses and amounts paid in respect of Petroleum Operations pursuant to clause 8.1 and incurred on behalf of the Agência Nacional do Petróleo or other State Entity designed by the State.

8.4

The Agência Nacional do Petróleo or other State Entity designated by the State, shall be entitled to receive 10% (ten percent) of the Contractor's entitlement to Profit Oil as provided for in clause 10.1(d).

8.5

The Agência Nacional do Petróleo or other State Entity designated by the State, shall be entitled at any time, upon advance written notice to the Contractor, to convert its carried interest into a full working participating interest, whereupon, after reimbursement of any cost, expense or any other amount incurred by the Contractor pursuant to clause 8.1, the Agência Nacional do Petróleo, or other State Entity designated by the State, shall be entitled to  10% (ten percent) of all Available Crude Oil to which the Contractor is entitled under the terms of this Contract, pursuant to a schedule to be agreed between the Contractor and the Agência Nacional do Petróleo or other State Entity designated by the State.

9.

RIGHTS AND OBLIGATIONS OF THE PARTIES

9.1

In accordance with this Contract, the Agência Nacional do Petróleo shall:

(a)

pursuant to clause 14, jointly work with the Contractor’s professional staff in the fulfillment of Petroleum Operations under this Contract;

(b)

assist and expedite the Contractor’s execution of Petroleum Operations and Work Programs including through the assistance in supplying or otherwise making available all necessary visas, work permits, rights of way and easements as may be reasonably requested by the Contractor. All expenses incurred by the Agência Nacional do Petróleo, in providing such assistance at the Contractor’s request, shall be reimbursed to the Agência Nacional do Petróleo by the Contractor in accordance with clause 12. Such reimbursement shall be made against presentation of invoices and shall be in United States dollars. The Contractor shall include such reimbursements in the Operating Costs;

(c)

have the right to recover from the Contractor all costs which are reasonably incurred for purposes of Petroleum Operations;

(d)

have legal title to and shall keep the originals of all data and information resulting from Petroleum Operations including geological, geophysical, engineering, well logs, completion reports, production, operations and any other data and information that the Contractor may compile during the term of this Contract; provided, however, that the Contractor shall be entitled to keep copies and use such data and information during the term of this Contract; and

(e)

not exercise all or any of its rights or authority over the Contract Area in derogation of the rights of the Contractor otherwise than in accordance with the Petroleum Law.

9.2

In accordance with this Contract, the Contractor shall:

(a)

promptly pay to the State by deposit into the National Petroleum Account all fees, bonuses, and other amounts due to the State under the terms of this Contract;

(b)

provide all necessary funds for the payment of Operating Costs including funds required to provide all materials, equipment, facilities, supplies and technical requirements (including personnel) whether purchased or leased;

(c)

provide such other funds for the performance of Work Programs including payments to third parties who perform services to the Contractor in the conduct of Petroleum Operations;

(d)

prepare Work Programs and Budgets and carry out approved Work Programs in accordance with Good Oil Field Practice with the objective of avoiding waste and obtaining maximum ultimate recovery of Petroleum at a minimum cost;

(e)

exercise all the rights, comply with all the obligations under the Petroleum Law and any other applicable laws and pay the following fees to the State by deposit into the National Petroleum Account (all expressed in United States dollars):

On application for the Production Period:

$500,000

When requesting to assign or otherwise transfer any interest during

$100,000

Exploration Period:

When requesting to assign or otherwise transfer any interest during

$300,000

Production Period:

When requesting termination of the Contract

$100,000

On application for the Contractor to commence drilling:

$25,000

(f)

ensure that all leased equipment brought into the Territory of Sao Tome and Principe for the conduct of Petroleum Operations is treated in accordance with the terms of the applicable leases;

(g)

have the right of ingress to and egress from the Contract Area and to and from facilities therein located at all times during the term of this Contract;

(h)

promptly submit to the Agência Nacional do Petróleo for permanent custody the originals of all geological, geophysical, drilling, production, operating and other data, information and reports that the Contractor or its Associates may compile during the term of this Contract;

(i)

prepare estimated and final tax returns and submit the same to the relevant tax authority on a timely basis in accordance with the Petroleum Taxation Law;

(j)

have the right to lift Available Crude Oil in accordance with lifting and allocation procedures to be agreed by the Parties not later than 6 (six) months prior to the commencement of Production, in accordance with the principles set forth in Schedule 3, and to freely export and retain abroad the receipts from the sale of Available Crude Oil allocated to it under this Contract;

(k)

in accordance with clause 14 prepare and carry out plans and programs of the State for industry training and education of nationals of Sao Tome and Principe for all job classifications with respect to Petroleum Operations pursuant to and in accordance with the Petroleum Law;

(l)

employ only such qualified personnel as is required to conduct Petroleum Operations, in accordance with Good Oil Field Practice and in a prudent and cost effective manner, giving preference to qualified nationals of Sao Tome and Principe;

(m)

give preference to such goods, material and equipment which are available in Sao Tome and Principe or services that can be rendered by nationals of Sao Tome and Principe in accordance with the Petroleum Law and this Contract;

(n)

pay all charges and fees as are imposed by law in Sao Tome and Principe with its Associates as the case may be. The Contractor and its Associates shall not be treated differently from any other Persons engaged in similar petroleum operations in the Territory of Sao Tome and Principe;

(o)

indemnify and hold the State harmless, including the Agência Nacional do Petróleo, against all losses, damages, injuries, expenses, actions of whatever kind and nature including all legal fees and expenses suffered by the State or the Agência Nacional do Petróleo where such loss, damage, injury, expense or action is caused by the negligence or willful misconduct of the Contractor, its Affiliates, its sub-contractors or any other Person acting on its or their behalf or any of their respective directors, officers, employees, agents or consultants;

(p)

not exercise all or any rights or authority over the Contract Area in derogation of the rights of the State or in breach of the Petroleum Law; and

(q)

in the event of any emergency requiring immediate operational action, take all actions it deems proper or advisable to protect the interests of the Parties and any other affected Persons and any costs so incurred shall be included in the Operating Costs. Prompt notification of any such action taken by the Contractor and the estimated cost shall be given to the Agência Nacional do Petróleo within 48 (forty-eight) hours of becoming aware of the event.

10.

RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION

10.1

The allocation of Available Crude Oil shall be calculated on a Contract Area basis for Royalty Oil, Cost Oil and Profit Oil. The allocation of Available Crude Oil shall be in accordance with the Accounting Procedures, the Allocation and Lifting Procedures and this clause 10 as follows:

(a)

Royalty Oil shall be allocated to the State from the first day of Production, based on the daily total of Available Crude Oil from a Contract Area, set at a rate of 2% (two percent);

(b)

Cost Oil shall be allocated to the Contractor in such quantum as will generate an amount of Proceeds sufficient for recovery of Operating Costs in each Contract Area. All costs will be recovered in United States dollars through Cost Oil allocation;

(c)

Cost Oil shall be not more than 80% (eighty percent) of Available Crude Oil in each Contract Area less deduction of Royalty Oil in any accounting period;

(d)

Profit Oil, being the balance of Available Crude Oil after deducting Royalty Oil and Cost Oil, shall be allocated to each Party based on the before-tax, nominal rate of return calculated on a quarterly basis for the Contract Area in accordance with the following sliding scale:

Contractor’s Rate of Return for

Government Share

Contractor Share

Contract Area (%per annum)

of Profit Oil

of Profit Oil

<19%

0%

100%

>=19 %< 22%

10%

90%

>=22 %< 26%

20%

80%

>=26 %< 29%

40%

60%

>=29%

50%

50%

10.2

Beginning at the date of Commercial Discovery, the Contractor’s rate of return shall be determined at the end of each Quarter on the basis of the accumulated compounded net cash flow for each Contract Area, using the following procedure:

(a)

the Contractor’s net cash flow for a Contract Area for each Quarter is:

(i) The result of the sum of the Contractor’s Cost Oil and the share of Profit Oil of the Contract Area regarding Petroleum actually lifted in that Quarter at the Realizable Price;

(ii) Minus Operating Costs;

(b)

For this computation, it shall not be included in the calculation of a Contractor’s net cash flow neither any expense made before the date of Commercial Discovery for a Contract Area nor any Exploration Cost.

(c)

The Contractor’s net cash flows for each Quarter are compounded and accumulated for a Contract Area beginning at the date of Commercial Discovery according to the following formula:

(d)

The Contractor’s rate of return in any given Quarter for a Contract Area shall be deemed to be between the largest DA which yields a positive or zero ACNCF and the smallest DA which causes the ACNCF to be negative.

(e)

The sharing of Profit Oil from a Contract Area between the State and the Contractor in a given Quarter shall be in accordance with the scale in clause 10.1, paragraph (d) above using the Contractor’s deemed rate of return as per paragraph (c) in the immediately preceding Quarter.

(f)

In a given Contract Area, it is possible for the Contractor’s deemed rate of return to decline as a result of negative cash flow in a Quarter with the consequence that Contractor’s share of Profit Oil from that Contract Area would increase in the subsequent Quarter.

(g)

Pending finalization of accounts, Profit Oil from the Contract Area shall be shared on the basis of provisional estimates, if necessary, of a deemed rate of

10.3

The quantum of Available Crude Oil to be allocated to each Party under this Contract shall be determined at the Delivery Point.

10.4

Each Party shall lift and dispose of Available Crude Oil in accordance with the Allocation and Lifting Procedures as provided in Schedule 3. In the event of any reconciliation, the records of the Agência Nacional do Petróleo shall be the official, final and binding records.

10.5

Allocation of Royalty Oil and Profit Oil shall be in the form of delivery of Production of Petroleum to the Agência Nacional do Petróleo. The Agência Nacional do Petróleo or other appropriate authority shall issue receipts for such delivery within 30 (thirty) days of lifting such Royalty Oil and Profit Oil. These receipts are issued by the Agência Nacional do Petróleo or other appropriate authority on behalf of the Government of Sao Tome and Principe.

10.6

Any Party may, at the request of any other Party, lift such other Party’s Available Crude Oil, pursuant to clause 10.3, and the lifting Party, within 30 (thirty) days, shall transfer to the account of the non-lifting Party the Proceeds of the sale to which the non-lifting Party is entitled. Overdue payments shall bear interest at the LIBOR rate plus 2% (two percent).

10.7

The State may sell to the Contractor all or any portion of its allocation of Available Crude Oil from the Contract Area at the Realizable Price under mutually agreed terms and conditions.

10.8

The parties shall meet as and when agreed in the Allocation and Lifting Procedures to reconcile all Petroleum produced, allocated and lifted during the period in accordance with the Allocation and Lifting Procedures set forth in Schedule 3.

10.9

Notwithstanding the above, in lieu of lifting the State's Profit Oil and/or Royalty Oil, the State may elect to receive the State’s allocation of Profit Oil and/or Royalty Oil in cash based on the Realizable Price rather than through lifting, regardless of whether or not the Contractor sells the State's Profit Oil and/or Royalty Oil to a third party. This option shall be exercised upon 180 (one hundred eighty) days advance notice issued by the Agência Nacional do Petróleo to the Operator. If the State elects to receive cash in lieu of lifting, the Operator shall lift the State's allocation of Profit Oil and/or Royalty Oil and pay into the National Petroleum Account cash in respect of such lifting within 30 (thirty ) days from the last day of the month in which the lifting occurred. Every 6 (six) months, the State may elect to have an entity designated by the State to resume lifting the State’s allocation of Profit Oil and/or Royalty Oil, upon 180 (one hundred eighty) days notice to the Operator, prior to the date the State elects to have an entity, designated by the State, to resume lifting.

11.

VALUATION OF CRUDE OIL

11.1

Save as otherwise provided in this Contract, Crude Oil Production shall be valued in

(i)

collect samples of the new Crude Oil upon which the qualitative and quantitative analysis shall be performed as provided in clause 11.1(a);

(ii)

determine the approximate quality of the new Crude Oil by estimating the yield values from refinery modeling;

(iii)

market the new Crude Oil to which they are entitled and the other Party’s allocation of Available Crude Oil they may be entitled to lift, and payments therefore shall be made by the buyers to the Operator who will be responsible for its distribution to the other Parties in accordance with their entitlement; Cost Oil and Profit Oil and the Contractor's accounting shall reflect such revenues, in accordance with clause 10;

(iv)

provide information to a third party who shall compile the information and maintain all individual Party information confidential, with regard to the marketing of the new Crude Oil, including documents which verify the sales price and terms of each lifting; and

(v)

apply the actual F.O.B. sales price to determine the value for each lifting which F.O.B. sales pricing for each lifting shall continue, as the Realizable Price, after the trial marketing period until the Parties agree to a valuation of the new Crude Oil but in no event longer than 90 (ninety) days after conclusion of the trial marketing period.

11.2

If, in the opinion of either the Agência Nacional do Petróleo or the Contractor, an agreed price valuation method fails to reflect the market value of Crude Oil produced in the Contract Area, then such Party may propose to the other Party modifications to such valuation method once in every 6 (six) months but in no event more than twice in any Calendar Year. The Parties shall then meet within 30 (thirty) days of such proposal and mutually agree on any modifications to such valuation within 30 (thirty) days from such meeting. In the absence of an agreement, the issue shall be referred to a mutually agreed independent expert who shall have the appropriate international oil and gas experience and who will resolve and settle the matter in a manner as he shall in his absolute discretion think fit and the decision of the expert shall be final and binding on the Parties. If after a period of 30 (thirty) days, the Parties are unable to agree on the identity of the expert, such expert shall be appointed by the International Centre for Expertise in accordance with the provisions for the appointment of experts under the Rules for Expertise of the International Chamber of Commerce.  

11.3

Segregation of Crude Oils of different quality and/or grade shall, by agreement of the Parties, take into consideration, among other things, the operational practicality of segregation and the cost benefit analysis thereof. If the Parties agree on such segregation the following provisions shall apply:

(a)

any and all provisions of this Contract concerning valuation of Crude Oil shall separately apply to each segregated Crude Oil produced; and

(b)

each grade or quality of Crude Oil produced and segregated in a given year shall contribute its proportionate share to the total quantity designated in such year as Royalty Oil, Cost Oil and Profit Oil.

12.

PAYMENTS

12.1

The Contractor shall make all payments to the State, for which it is liable under this Contract, in United States dollars or such other currency agreed between the Contractor and the Agência Nacional do Petróleo. Payments shall be made into the National Petroleum Account in accordance with the Oil Revenue Law. Where a

12.2

The State shall make all payments to the Contractor for which it is liable under this Contract in United States dollars or such other currency agreed between the Contractor and the Agência Nacional do Petróleo. Where a payment is made in a currency other than United States dollars, the exchange rate used to convert the liability from United States dollar into that currency shall be the exchange rate published on the date of payment by the Central Bank of Sao Tome and Principe for dobras, and the Financial Times of London for other currencies. Overdue payments shall bear interest at the annual rate of LIBOR plus 2% (two percent) from the due date until the date of actual payment.

12.3

Any payments required to be made pursuant to this Contract shall be made within 30 (thirty) days following the last day of the month in which the obligation to make such payments is incurred.

13.

TITLE TO EQUIPMENT / DECOMMISSIONING

13.1

The Contractor shall finance the cost of purchasing or leasing all materials, equipment and facilities to be used in Petroleum Operations in the Contract Area pursuant to approved Work Programs and Budgets and such materials, equipment and facilities, if purchased, shall become the sole property of the State, free of all liens and other encumbrances, when the Contractor has recovered the cost of such materials, equipment and facilities (as the case may be) in accordance with this Contract or upon its termination, whichever occurs first. Except as otherwise provided for in the Petroleum Law, the Contractor shall have the right to use, free of any additional charge, all materials, equipment and facilities exclusively for Petroleum Operations in the Contract Area during the term of this Contract and any extensions thereof. Should the State or the Agência Nacional do Petróleo desire to use such materials, equipment and facilities outside the Contract Area, such use shall be subject to terms and conditions to be agreed by the Parties, provided that it is understood that Petroleum Operations in the Contract Area hereunder shall take precedence over such use by the State or the Agência Nacional do Petróleo. The Contractor shall only lease materials, equipment and facilities with the approval of the Agência Nacional do Petróleo, such approval not to be unreasonably withheld.

13.2

The Contractor’s right to use such purchased materials, equipment and facilities shall cease with the termination or expiration (whichever is earlier) of this Contract, including any extensions hereof.

13.3

The provisions of clause 13.1, with respect to the title of property passing to the State, shall not apply to leased equipment belonging to local or foreign third parties, and such equipment may be freely exported from the Territory of Sao Tome and Principe, in accordance with the terms of the applicable lease.

13.4

Notwithstanding clause 13.2, all fixed assets purchased or otherwise acquired by the Contractor for the purposes of Petroleum Operations hereunder, shall become the exclusive property of the State when the Contractor has recovered the cost of such materials, equipment and facilities (as the case may be) in accordance with this Contract or upon its termination, whichever occurs first. Upon termination of this Contract, the Contractor shall hand over possession of such fixed assets to the State in good working order and free of all liens and other encumbrances.

13.5

During the term of this Contract, any agreed sale of equipment, lands, fixed assets, materials and machinery acquired for the purpose of Petroleum Operations shall be conducted by the Contractor on the basis of the procedure for sale of assets as set forth in Schedule 5, subject to the consent of the Agência Nacional do Petróleo.

13.6

Decommissioning

13.7

Unless otherwise agreed with the Agência Nacional do Petróleo, the procedure for the Contractor providing funds to meet its Decommissioning obligations shall be as follows:

(a)

an amount shall be established on a Contract Area basis, commencing upon 4 (four) years after the commencement of  the Production Period, on a unit of production basis as follows:

(b)

All Decommissioning provisions shall be held in a Decommissioning reserve fund which shall be an interest bearing escrow account jointly established by the Parties at a first class commercial bank or at another financial institution in accordance with the Petroleum Law. The bank or financial institution shall have a long term rating of not less than “AA” by Standard and Poor’s Corporation or an “Aa2” rating by Moody’s Investor Service or an equivalent rating by another mutually agreed rating service.

(c)

For the purposes of calculating the present value of Decommissioning costs, the following formula shall be used:

13.8

The Decommissioning reserve fund shall be used solely for the purposes of paying for Decommissioning activities. No Party may mortgage, pledge, encumber or otherwise usurp such Decommissioning reserve fund for any purpose whatsoever, except as expressly provided herein or in the Petroleum Law. The Decommissioning reserve fund may be invested in investments approved in advance by the Contractor and the Agência Nacional do Petróleo.

13.9

The Contractor shall annually meet any shortfall between the actual Decommissioning costs and the Decommissioning reserve fund for any Contract Area, with such amount to be deposited into the escrow account within 30 (thirty) days after the end of each Calendar Year.

13.10

Any balance remaining in any Decommissioning fund after all Decommissioning costs in the Contract Area have been met shall be distributed between the Agência Nacional do Petróleo and the Contractor in the same proportion as the allocation of Available Crude Oil at the time of Decommissioning operations.

13.11

Decommissioning expenditures incurred under these Decommissioning provisions are cost recoverable as Contract Area non-capital costs under the Accounting Procedures and deductible for Tax purposes under the Petroleum Taxation Law.

14.

EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE

14.1

Each Calendar Year the Contractor shall submit a detailed program for recruitment and training for the following Calendar Year in respect of its personnel from Sao Tome and Principe in accordance with the Petroleum Law.

14.2

Qualified nationals from Sao Tome and Principe shall be employed in all non-specialized positions.

14.3

Qualified nationals from Sao Tome and Principe shall also be employed in specialized positions such as those in exploration, drilling, engineering, production, environmental safety, legal and finance. Notwithstanding the applicable laws, rules and regulations, the Contractor shall have the right to employ non-nationals of Sao Tome and Principe in such specialized positions where qualified individuals from Sao Tome and Principe are not available, provided that the Contractor shall recruit and train nationals from Sao Tome and Principe for such specialized positions such that the number of expatriate staff shall be kept to a minimum.

14.4

Pursuant to clause 9.2 (k), qualified professionals of the Agência Nacional do Petróleo shall be seconded to work with the Contractor. Such personnel and the Contractor's national personnel from Sao Tome and Principe shall not be treated differently with regard to salaries and other benefits. The Contractor and the Agência Nacional do

14.5

The Parties shall mutually agree on the organizational chart of the Contractor which shall include nationals of Sao Tome and Principe in key positions.

14.6

No national of Sao Tome and Principe who is employed shall be dismissed without the previous written consent of the Agência Nacional do Petróleo, except in the case of serious misbehavior on the part of the employee, in which case a prior mere written notice to the Agência Nacional do Petróleo shall be required. For the purposes of this clause, a serious misbehavior means a specific act which corresponds to a violation and a very serious inadequate conduct which has been investigated and evidenced through documents.

14.7

The Contractor shall spend 0.25% (point twenty-five percent) of the Operating Costs in each Year of the Exploration Period subject to a minimum of US $ 100,000 (one hundred thousand United States dollars) and a maximum of US $ 200,000 (two hundred thousand United States dollars) in each Calendar Year on scholarships for the training of nationals of Sao Tome and Principe at institutions to be selected by the Agência Nacional do Petróleo. In connection with the review of the annual Work Program and Budgets, the Agência Nacional do Petróleo may propose additional budgets for training and the Agência Nacional do Petróleo and the Contractor may mutually agree as to such proposal.

14.8

The Contractor shall spend US $ 300,000 (three hundred thousand United States dollars) in each Calendar Year during the Production Period on scholarships for the training of nationals of Sao Tome and Principe at institutions to be selected by the Agência Nacional do Petróleo. In connection with the review of the annual Work Program and Budgets, the Agência Nacional do Petróleo may propose additional budgets for training and the Parties may mutually agree as to such proposal.

14.9

Amounts payable under clauses 14.7 and 14.8 shall be recoverable as Contract Area non-drilling exploration costs under the terms of the Accounting Procedures.

15.

BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES

15.1

Books and Accounts

(a)

The Contractor shall be responsible for keeping complete books of accounts consistent with Good Oil Field Practice and modern petroleum industry and accounting practices and procedures. The books and accounts maintained under and in accordance with this Contract shall be kept in United States dollars. All other books of accounts, as the Operator may consider necessary, shall also be kept in United States dollars. Officials of the Agência Nacional do Petróleo and the Contractor shall have access to such books and accounts at all times upon reasonable notice. The accountants of the Agência Nacional do Petróleo shall participate in the preparation of all books and accounts maintained under and in accordance with this Contract.

(b)

All original books of accounts shall be kept at the registered address or principal place of business of the Contractor in Sao Tome and Principe.

15.2

Audits

(a)

The Agência Nacional do Petróleo shall have the right to inspect and audit the accounting records relating to this Contract or to Petroleum Operations for any Calendar Year by giving 30 (thirty) days advance written notice to the Operator. The Operator shall facilitate the work of such inspection and auditing; provided, however, that such inspection and auditing shall be carried out within 3 (three) Calendar Years following the end of the Calendar Year in question. If not, the books and accounts relating to such Calendar Year shall be deemed to be accepted by the Parties. Any exception must be made in writing within 90 (ninety) days following the end of such audit and failure to give such written notice within such time shall establish the correctness of the books and accounts by the Parties.

(b)

The Agência Nacional do Petróleo may undertake the inspection and audit in clause 15.2(a) either through its own personnel or through a qualified firm of chartered accountants appointed for such purpose by the Agência Nacional do Petróleo; provided, however, that transport, accommodation and food costs for personnel of the Agência Nacional do Petróleo shall be borne by the Contractor as a general administrative cost, as long as these are reasonable and are duly documented and shall be recoverable. The costs of the qualified firm of chartered accountants shall be borne by the Agência Nacional do Petróleo.

(c)

Notwithstanding the expiry of said period of 3 (three) Calendar Years, if the Contractor or any of its employees or any Person acting on its behalf has acted with negligence or engaged in willful misconduct, the Agência Nacional do Petróleo shall have the right to conduct a further audit to the extent required to investigate such negligence or willful misconduct in respect of any earlier periods and all costs of such investigation shall be for the account of the Contractor and shall not be cost recoverable.

15.3

Materials

15.4

Home Office Overhead Charges

Expenditure Tranche
(USD millions)

% of recoverable expenses

< 200

1,00%

The next 200 OR >200 e <400

0,75%

The next 100 OR >400 e <500

0,50%

>500

0,00%

16.

TAXES AND CUSTOMS

16.1

Taxes

16.2

The Realizable Price established in accordance with clause 11 shall be used in determining the amount of profits of the Contractor and its resulting Tax liability under the Petroleum Taxation Law.

16.3

Customs

17.

INSURANCE

17.1

The Contractor shall obtain and maintain such insurance as it customarily obtains in accordance with Good Oil Field Practice with respect to Petroleum Operations with an insurance company of good repute approved by the Agência Nacional do Petróleo, in the names of the Parties and with limits of liability not less than those required in accordance with Good Oil Field Practice. The premium for such policies shall be included in Operating Costs. All policies shall name the Agência Nacional do Petróleo as a co-insured with a waiver of subrogation rights in favor of the Contractor. Without prejudice to the generality of the foregoing, such insurance shall cover:

(a)

any loss or damage to all assets used in Petroleum Operations;

(b)

pollution caused in the course of Petroleum Operations for which the Contractor or the Operator may be held responsible;

(c)

property loss or damage or bodily injury suffered by any third party in the course of Petroleum Operations for which the Contractor, the Operator, the State or the Agência Nacional do Petróleo may be held liable;

(d)

the cost of removing wrecks and cleaning up operations following an accident in course of Petroleum Operations; and

(e)

the Contractor's and/or the Operator's liability to its employees and to other persons engaged in Petroleum Operations.

17.2

In case of any loss or damage to property, all amounts paid by an insurance company shall be received by the Contractor for the conduct of Petroleum Operations. The Contractor shall determine whether the lost or damaged property should be repaired, replaced or abandoned. If the decision is to repair or replace the property in question, the Contractor shall immediately take steps to replace or repair such lost or damaged property. Any excess cost of repair or replacement above the amount reimbursed by the insurance company shall be regarded as an Operating Cost. If the cost of repair is less than the amount reimbursed by the insurance company, the difference shall be deducted from Operating Costs. If the decision is to neither repair nor replace then the proceeds of any coverage shall be credited to Operating Costs. In the event that the loss or damage is attributable to the Contractor’s negligence or willful misconduct, the excess cost of replacement or repair shall not be reimbursed as an Operating Cost.

17.3

The Contractor shall obtain and maintain an insurance policy covering any and all damages caused to third parties as a direct or indirect result of Petroleum Operations under this Contract.

17.4

All insurance policies obtained and maintained pursuant to this clause 17 shall be based upon Good Oil Field Practice and shall be obtained in Sao Tome and Principe, with the exception of those relating to risks for which the Contractor cannot obtain local coverage with an insurance company holding a long term rating not inferior to “AA” by Standard and Poor’s Corporation or a “Aa2” rating by Moody’s Investor Service or an equivalent rating by any other mutually agreed rating service, in which case coverage may be obtained outside the Territory of São Tomé and Príncipe. The Contractor shall not extend the duration of insurance contracts hired outside the territory of São Tomé and Príncipe whenever an insurance company which meets the above mentioned requirements becomes existent in São Tomé and Príncipe.

17.5

In entering into contracts with any sub-contractor or other Person for the performance of Petroleum Operations, the Contractor shall require, whenever possible, such sub-contractor or other Person to take out adequate insurance in accordance with this clause 17, and properly indemnifying the State and its organs and agencies and the Contractor for any damage done and fully indemnifying and holding the State and its organs and agencies and the Contractor harmless against claims from any third parties.

17.6

The Contractor shall also maintain all other insurance policies required under the laws of Sao Tome and Principe.

18.

CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

18.1

Notwithstanding clauses 18.4 and 18.5, the Contractor and the Agência Nacional do Petróleo shall keep information furnished to each other in connection with Petroleum Operations and all plans, maps, drawings, designs, data, scientific, technical and financial reports and other data and information of any kind or nature relating to Petroleum Operations – including any discovery of Petroleum – as strictly confidential  and shall ensure that their entire or partial contents shall under no circumstances be disclosed in any announcement to the public or to any third party without the prior written consent of the other. In relation to geologic data, reservoir engineering or production engineering and the reports and other materials submitted to public authorities, the confidentiality obligations shall have the following duration as of the moment they become available to the Contractor:

·

2 (two) years for data which is not available for commercial purposes which are the Contractor’s property and come from the contract area at stake;

·

10 (ten) years for commercially available data as of the moment it becomes available to the Contractor;

·

5 (five) years for all the other data.

(a)

Affiliates;

(b)

sub-contractors, auditors, financial consultants or legal advisers, provided that such disclosures are required for the effective performances of the aforementioned recipients’ duties related to Petroleum Operations and provided further that they are under a similar undertaking of confidentiality as that contained in this clause 18;

(c)

comply with statutory obligation or the requirements of any governmental agency or the rules of a stock exchange on which a Party’s stock is publicly traded in which case the disclosing Party will notify the other Party of any information so disclosed prior to such disclosure;

(d)

financial institutions involved in the provision of finance for the Petroleum Operations hereunder provided, in all such cases, that the recipients of such data and information agree in writing to keep such data and information strictly confidential;

(e)

a third party bone fide purchaser, provided that the party receiving such information executes an undertaking similar to the undertaking contained in this clause 18 to keep the information disclosed to it strictly confidential; and

(f)

in accordance with and as required by the Oil Revenue Law.

18.2

The Parties shall take the necessary measures in order to make their directors, officers, employees, agents and representatives comply with the same obligation of confidentiality provided for in this clause 18.

18.3

The provisions of this clause 18 shall terminate 5 (five) years after the termination or expiration of this Contract.

18.4

The Contractor shall use its best endeavors to ensure that it, its Affiliates and

18.5

No announcement of a Discovery or Commercial Discovery may be made by the Contractor otherwise than in accordance with this clause 18 and unless and until the Government has made a prior announcement of such Discovery or Commercial Discovery in the national and international media.

19.

ASSIGNMENT

19.1

Notwithstanding clauses 19.5 and 19.7, the Contractor may not sell, assign, transfer, encumber, convey or otherwise dispose of part or all of its rights, interest and/or obligations under this Contract to any third party without the prior written consent of the Agência Nacional do Petróleo.

19.2

All changes in Control of a Contractor Party shall be subject to the prior approval of the Government. Where a change in Control occurs without the prior approval of the Government, the Government may terminate this Contract in respect of such Contractor Party. This clause 19.2 does not apply if the change of Control is the direct result of an acquisition of shares or other securities of a publicly traded company on a recognized stock exchange. Change of Control includes a Person ceasing to be Controlled (whether or not another Person becomes in Control), and a Person obtaining Control (whether or not another Person was under Control).

19.3

When an assignment, transfer or other disposition of any rights under this Contract, other than a transfer pursuant to clause 19.5 is anticipated, the assigning Contractor Party must notify in writing the Agência Nacional do Petróleo as soon as practicable. The Government, acting through the Agência Nacional do Petróleo or other nominee, shall then have the right to purchase the assigning Contractor Party's interest under this Contract proposed to be assigned, transferred or otherwise disposed of on the same terms and conditions as those offered to a bone fide transferee. Such right shall be in addition to any preference right granted under any applicable Joint Operating Agreement.

19.4

If the written consent by the Agência Nacional do Petróleo is granted, the assigning Contractor Party shall be relieved of its obligation and liabilities under this Contract to the extent that the assignee or transferee accepts the assumption of such obligations and liabilities under this Contract.

19.5

The Contractor may sell, assign, transfer, convey or otherwise dispose of part or all of its rights and interest under this Contract to an Affiliate with a prior written notice to the Agência Nacional do Petróleo, provided that the relevant Contractor Party and the Affiliate shall remain jointly and severally liable for all obligations and liabilities under this Contract, notwithstanding such assignment, transfer, conveyance or other disposal. If the Affiliate ceases at any time to be an Affiliate of the transferring Contractor Party, the Affiliate shall immediately re-assign or re-transfer to the original Contractor Party all rights and obligations transferred to it under this Contract. Transfers of interests to an Affiliate of a Contractor Party shall not change the nationality of the Contractor Party for the purpose of determining jurisdiction of

19.6

Any request for consent pursuant to clause 19.1 made by a Contractor to the Agência Nacional do Petróleo shall include the deed of assignment and other relevant information relating to financial and corporate standing of the assignee, and its capability to contribute to the Petroleum Operations under this Contract as required under the Petroleum Law.

19.7

As long as strictly for the purposes of financing of Petroleum Operations, the Contractor may grant, as security, its rights under this Contract, provided that such transaction does not conflict with the interests and rights of the State of São Tomé and Príncipe under this Contract and pursuant to the applicable legislation.

20.

TERMINATION

20.1

The State, by decision of the Government, shall be entitled to terminate this Contract with the Contractor (or in respect of any Party making up the Contractor) if any of the following events occurs:

(a)

the Contractor defaults in the performance of any of its material obligations set forth in clause 9;

(b)

the Contractor fails to execute the Minimum Work Obligations;

(c)

the Contractor assigns, transfers, conveys, encumbers or disposes of its rights, interests and/or obligations under this Contract, otherwise than in accordance with clause 19 and/or the Petroleum Law;

(d)

the Contractor is adjudged insolvent or bankrupt by a court of competent jurisdiction or acknowledges or claims that it is unable to pay its debts or makes an application for bankruptcy protection that is not discharged within 30 (thirty) days;

(e)

the Contractor ceases to carry on its business as carried on at the date of this Contract or liquidates or terminates its corporate existence;

(f)

the warranties made by the Contractor under clause 24 are found to have been untrue when made;

(g)

the Contractor fails to make any payment to the State when due;

(h)

the Contractor fails to submit the insurance or performance bond, when due;

(i)

the Contractor fails to initiate field development and production in accordance to the time schedule outlined in the approved Field Development Program (clause 5.1 (e)), except if that occurs for acceptable and duly demonstrated reasons; (ii) or if after production of Petroleum is initiated in the Contract Area, production of Petroleum ceases for a period of more than 4 (four) months for causes which are not acceptable, not attributable to Force Majeure or without the consent of the Agência Nacional do Petróleo;

(j)

the events provided for in the articles 34, 35 or 36 of the Petroleum Law.

20.2

If the cause for termination is an event specified in clause 20.1 (a), (b), (f), (g), (h), (i) and/or (j), the Agência Nacional do Petróleo shall give written notice thereof to the Contractor requiring it to remedy such default within a maximum deadline of 30 (thirty) days of receipt of the Agência Nacional do Petróleo’s notice or such additional days as the Agência Nacional do Petróleo deems, in its sole discretion, appropriate in the circumstances. If upon the expiration of the said period, such default has not been remedied or removed, the Government may, by written notice issued by the Agência Nacional do Petróleo to the Contractor, declare this Contract terminated.

20.3

Termination for any of the events specified in clause 20.1 (c), (d) and/or (e), shall be with immediate effect and the Government may, by written notice to the Contractor issued by the Agência Nacional do Petróleo, declare this Contract terminated. Termination as to one Contractor Party shall not constitute termination as to the other Contractor Party(ies).

20.4

Where only one Contractor Party is in breach of this Contract, the State shall have the option to assume the interests, rights and obligations of such defaulting Contractor Party under this Contract. If the State elects not to exercise this option, the interests, rights and obligations shall be assigned to the remaining Contractor Parties who shall be liable jointly and severally.

20.5

In the event that any other Contractor Party(ies) fail(s) to meet any and all liabilities of the terminated Contractor Party as provided in clause 20.4, the State reserves the right to terminate this Contract in respect to such Contractor Party(ies) upon written notice.

20.6

Without prejudice to all other rights of the State, the Contractor shall upon the termination of this Contract permit inspection, copying and auditing of its accounts and records for the Petroleum Operations by the Agência Nacional do Petróleo and/or its agents.

20.7

The Contractor shall have the right, at its sole discretion, to relinquish its rights and to terminate this Contract without further obligations or liabilities, upon completion of the stipulated Minimum Work Obligations and Minimum Financial Commitment at the end of any phase of the Exploration Period, upon giving a 30 (thirty) day advance notice to the Agência Nacional do Petróleo. This clause 20.7 shall not release the Contractor from any unfulfilled obligations incurred prior to the termination of this Contract, nor from any liabilities arising from acts or omissions taking place prior to the termination of this Contract.

20.8

This Contract shall automatically terminate if no Commercial Discovery is made in the Contract Area at the end of Exploration Period, as extended.

21.

FORCE MAJEURE

21.1

Any failure or delay on the part of any Party in the performance of its obligations or duties (other than the obligation to pay money) under this Contract shall be excused to the extent attributable to Force Majeure. A Force Majeure situation includes delays,

21.2

If the Petroleum Operations are delayed, curtailed or prevented by an event of Force Majeure, then the time for carrying out the obligation and duties thereby affected, and rights and obligations hereunder, shall be extended for a period equal to the period of such delay.

21.3

The Party who is unable to perform its obligations as a result of the Force Majeure shall promptly notify the other Parties not later than 48 (forty-eight) hours after the establishment of the commencement of the event of Force Majeure, stating the cause and motive, and the Parties shall do all that is reasonably within their powers to remove such cause.

21.4

The Contractor’s failure or inability to find Petroleum in commercial quantities for reasons other than as specified in clause 21.1 shall not be deemed an event of Force Majeure.

22.

LAWS AND REGULATIONS

22.1

This Contract shall be governed by and construed in accordance with the laws of the Democratic Republic of Sao Tome and Principe.

22.2

Subject to clause 25.8 and without prejudice to the principles of public international law, no term of this Contract, shall prevent or limit the State from exercising its sovereign rights.

23.

NATURAL GAS

23.1

If the Contractor discovers a commercially viable quantity of Natural Gas, it shall have the right to develop, commercialize, recover the costs and share the profits of a development of such Natural Gas under this Contract on terms to be mutually agreed. Such terms when agreed shall become an integral part of this Contract.

23.2

Notwithstanding clause 23.1, the Contractor may utilize, at no cost, Natural Gas required as fuel for Petroleum Operations such as gas recycling, gas injection or any other Crude Oil enhancing recovery schemes, for the necessary stimulation of wells aimed at the maximum Crude Oil recovery in the field discovered and developed by the Contractor and such usage shall be with prior written consent of the Agência Nacional do Petróleo, which consent shall not be unreasonably withheld. This shall be included in a Field Development Program.

23.3

The recovery of Crude Oil through an efficient, economic and technically acceptable method shall always be paramount in all decisions regarding Associated Natural Gas. However, prior to the commencement of Production of Crude Oil from the Contract Area, the Contractor shall submit to the Agência Nacional do Petróleo, a program for the utilization of any Associated Natural Gas that has been discovered in the Contract Area, which shall be subject to the approval of the Agência Nacional do Petróleo.

23.4

If the Contractor discovers sufficient volumes of Unassociated Natural Gas that could justify commercial development, the Contractor shall immediately report the volume of potentially recoverable Natural Gas to the Agência Nacional do Petróleo and shall promptly investigate and submit proposals to the Agência Nacional do Petróleo for the commercial development of such Natural Gas taking in consideration local strategic needs as may be identified by the Agência Nacional do Petróleo within 2 (two) years of the date of the relevant discovery. Any cost in respect of such proposals or investigation presented by the Contractor to the Agência Nacional do Petróleo shall be included in Operating Costs. The Contractor and the Agência Nacional do Petróleo will determine the plan and time needed, which shall be no more than 5 (five) years, unless otherwise established by the Agência Nacional do Petróleo, to progress a commercial development project, which shall include the terms for recovery of Operating Costs and sharing of Natural Gas production, which terms when agreed shall form an integral part of this Contract. If the Contractor fails to justify a commercial development within the agreed timeframe and if the Agência Nacional do Petróleo determines that a sufficient volume of Unassociated Natural Gas exists, the Agência Nacional do Petróleo shall have the right to propose to the Contractor a commercial development of such Natural Gas. The Contractor shall have the right to participate in the commercial development under the terms provided for in clause 23.1. If the Contractor declines to participate in the commercial development of such Natural Gas as presented by the Agência Nacional do Petróleo and if the Field Development Program does not hinder or jeopardize current Petroleum Operations, the Agência Nacional do Petróleo may develop the Natural Gas in the manner presented to the Contractor.

24.

REPRESENTATIONS AND WARRANTIES

24.1

In consideration of the State entering into this Contract, the Contractor hereby represents and warrants to the State as follows:

(a)

The Contractor has the power to enter into and perform this Contract and has taken all necessary actions to execute, deliver and perform this Contract in accordance with the terms herein contained and has been granted all necessary concessions, licenses, permits and authorizations to initiate Petroleum Operations.

(b)

The execution, delivery and performance of this Contract by the Contractor will not contravene any of the provisions of:

(i)

any law or regulations or order of any governmental authority, agency or court applicable to or by which the Contractor may be bound; and

(ii)

any mortgage, contract or other undertaking or instrument to which the Contractor is a party or to which it is bound upon or any of its respective revenues or assets.

(c)

Full disclosure has been made to the Agência Nacional do Petróleo.

(d)

As of the Effective Date, all facts in relation to the Contractor and its financial condition and affairs are material and properly ought to be made known to the Agência Nacional do Petróleo and have been made known in full.

(e)

The Contractor, together with its Affiliates, has sufficient funds both in foreign and local currencies to carry out Petroleum Operations under this Contract.

(f)

The representations and warranties set out in this clause 24 shall remain in full force and effect for the duration of this Contract.

25.

CONCILIATION AND ARBITRATION

25.1

Should there be a difference or dispute between the Parties concerning the interpretation or performance of this Contract (a “Dispute”) such that the dispute cannot be resolved by mutual agreement, the Parties may refer the matter to an independent expert for an opinion to assist the Parties in reaching a mutual agreement.

25.2

Where an independent expert is used, the Agência Nacional do Petróleo and the Contractor shall furnish the expert with all written information which he may reasonably requires. The cost of the expert’s services, if appointed, shall be equally shared between the Agência Nacional do Petróleo and each Contractor Party.

25.3

If the Dispute cannot be settled by amicable agreement or through an independent expert or if a Party does not agree to the use of an independent expert, then either the Agência Nacional do Petróleo or the Contractor may serve on the other a demand for arbitration in accordance with this clause 25. The procedures set forth in this clause 25 shall be the exclusive procedures for arbitration of any and all disputes arising under or involving the interpretation of this Contract. No other arbitration tribunal under any other procedure, agreement or international treaty shall have jurisdiction over such Disputes between the Parties.

25.4

If the Parties have not reached an agreement after 3 (three) months of the date of a notice of a dispute by one Party to another, unless the Parties mutually agree to an extension, any Party to the Dispute may refer the Dispute for resolution by final and binding arbitration to the International Centre for the Settlement of Investment Disputes (“CIRDI”, the “Centre” or “ICSID”) established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington, March 18, 1965 (the “ICSID Convention”); or to the Additional Facility of the Centre, if the Centre is not available; or in accordance with the Arbitration Rules of the United Nations Commission for International Commercial Law (UNCITRAL), if neither the Centre nor the Additional Facility of the Centre consider having jurisdiction to resolve the dispute or are unavailable.

25.5

Seat and Language of Arbitration

25.6

Number and Identity of Arbitrators

(i)

The claimant and the respondent shall each appoint one arbitrator (and if there is more than 1 (one) claimant or more than 1 (one) respondent, then the claimants and/or the respondents shall collectively appoint a single arbitrator) within 30 (thirty) days as of the date of a request for arbitration is presented, by giving notice in writing of such appointment to the Secretary-General of the Centre and the other Party or Parties to the Dispute.

(ii)

If either the claimant or the respondent fails to comply with the time limit in the preceding paragraph, the Chairman of the Administrative Council of the Centre shall appoint the arbitrator or arbitrators that have not yet been appointed, at the request of either the claimant or the respondent and after consulting with the claimant and the respondent as far as possible. The Chairman of the Administrative Council of the Centre shall give notice in writing of such appointment or appointments to the Secretary-General of the Centre and to the claimant and the respondent.

(iii)

The 2 (two) arbitrators so appointed shall, within thirty (30) days of their appointment, agree upon the person to be appointed as the President of the tribunal, and give notice of such appointment to the Secretary-General of the Centre and to the claimant and the respondent.

(iv)

If the 2 (two) arbitrators fail to agree upon the person to be the President of the tribunal, the Chairman of the Administrative Council of the Centre shall appoint the President, at the request of either the claimant or the respondent, and after consulting with the claimant and the respondent as far as possible. The Chairman of the Administrative Council of the Centre shall give notice in writing of such appointment to the Secretary-General of Centre and to the claimant and the respondent.

(v)

None of the arbitrators shall be a citizen of the countries of any of the Parties to the Dispute (or in the case where the Party is a company or another entity, any country or countries of nationality of such Party, including the country of its ultimate parent that controls the group of companies to which it belongs).

25.7

Rules of Arbitration

25.8

Binding Nature of Arbitration

25.9

Costs of Arbitration

25.10

Payment of Awards

26.

EFFECTIVE DATE

26.1

This Contract shall come into force on the date (the “Effective Date”) of receipt by the State of the Contractor’s deposit into the National Petroleum Account of the signature bonus specified in clause 2.1, payable after the execution and delivery to the Contractor of an instrument of ratification of the Contract executed by the Prime-Minister on behalf of the Government. Record of such receipt shall be annexed to this Contract as proof of the Effective Date.

26.2

Failure by the Contractor to meet its obligation to pay the signature bonus in accordance with the terms of clause 2.1 shall mean that this Contract shall be null and void.

27.

REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS

27.1

The Parties agree that the commercial terms and conditions of this Contract have been negotiated and agreed having due regard to the existing fiscal terms in accordance with the provisions of the Petroleum Law and the Petroleum Taxation Law in force at the time of the Effective Date. If such fiscal terms are materially changed to the detriment of the Contractor, the Parties agree to review the terms and conditions of this Contract affected by such changes and to align such terms and conditions with the fiscal terms as at the Effective Date.

27.2

If at any time or from time to time, there is a change in legislation or regulations which materially affect the commercial benefits afforded to the Contractor under this Contract, the Parties will consult each other and shall agree to such amendments to this Contract as are necessary to restore as near as practicable such commercial benefits which existed under this Contract as of the Effective Date.

28.

OPERATOR

28.1

GALP ENERGIA SÃO TOMÉ E PRÍNCIPE, UNIPESSOAL, LDA is hereby designated as the Operator under this Contract to execute, for and on behalf of the Contractor, all Petroleum Operations in the Contract Area pursuant to and in accordance with this Contract and the Petroleum Law.

28.2

The Operator, for and on behalf of the Contractor, shall have the exclusive control and administration of Petroleum Operations under this Contract. The Operator, for and on behalf of the Contractor, and within the limits defined by the Agência Nacional do Petróleo, by this Contract and the Petroleum Law, shall have the authority to execute all contracts, incur in expenses, make commitments, and implement other actions in connection with the Petroleum Operations.

29.

CONFLICT OF INTERESTS

29.1

The Contractor represents and warrants that it did not engage any person, firm or company as a commission agent for purposes of this Contract and that it has not given or offered to give nor will it give or offer to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of significant value, as an inducement or reward for doing or forbearing to do any action or take any decision in relation to this Contract, or for showing or forbearing to show favor or disfavor to any person in relation thereto.

29.2

The Contractor further represents and warrants that no loan, reward, offer, advantage or benefit of any kind has been given to any Official or to any person for the benefit of such Official or person or third parties, as consideration for an act or omission by such Official in connection with the performance of such person's duties or functions or to induce such Official to use his or her position to influence any act or decisions of the administration with respect to this Contract. Any breach of this representation shall cause this Contract to be declared invalid and voidable by the State administration.

30.

NOTICES

30.1

Any notice or other communication required to be given by a Party to another shall be in writing (in Portuguese and in English) and shall be considered as duly delivered if given by hand delivery in person, by courier or by facsimile at the following addresses:

30.2

All notices and other communications shall be deemed to have been duly delivered upon actual receipt by the intended recipient.

30.3

Each Party shall promptly notify the other of any change in the above addresses.

31.

LIABILITY