Bengara-Ii Block Exploration Joint Venture Joint Operating Agreement

















































































































































Annex—”A” JV Accounting Procedure






Bengara-IIBlock Exploration




This Agreement, the “Agreement”or “JOA”, is effective the 1st day of January, 2000 between CONTINENTALENERGY CORPORATION (“CEC”) a Canadian, British Columbia corporation, APEX(BENGARA-II) Ltd. (“Apex Bengara”) a British Virgin Islands corporation, andGEOPETRO RESOURCES COMPANY (“GeoPetro”) a U.S.A., California corporation. Allof the aforementioned are parties to this Agreement are hereinafter referred toindividually as “Party” and collectively as “Parties” and each Party occupiesan address as set forth in Article-33.


Whereas;Apex (Bengara-II) Ltd. was incorporated as an International Business Company inthe British Virgin Islands under the International Business Companies Act onSeptember 9, 1997 registration number 247888. Apex Bengara was incorporatedwith and still has an authorized share capital of US$ 50,000 consisting of50,000 common shares of US$ 1.00 par value each all of which are issued,outstanding and fully paid up.


Whereas;The sole business and asset of Apex Bengara is a 100% entitlement and ownershipholding in a Production Sharing Contract (PSC) to which it is party with Pertamina,the state oil company of the Republic of Indonesia. The PSC provides ApexBengara with exclusive rights to explore for and if found develop, exploit andproduce oil and gas from the 4,867 square kilometers Bengara-II Block locatedmostly onshore in East Kalimantan, Indonesia. The Bengara-II PSC was signed onDecember 4. 1997 and has a 30-year term.


Whereas;Pursuant to a share purchase and transfer agreement dated effective August 1,1998 (the “SPTA”) CEC purchased all 50,000 common shares of Apex Bengararepresenting a 100% ownership of Apex Bengara and the underlying Bengara-II PSCfrom four private vendors (collectively known as the Original Apex Vendors).


Whereas;Pursuant to a Farm Out Agreement dated effective January 1, 2000 CEC did farmout a 40% undivided interest in Apex Bengara and the underlying Bengara-II PSCto GeoPetro.


Whereas;The undersigned Parties to this Agreement desire to associate themselves as a “JointVenture” on the terms and conditions contained in this Agreement for the purposesof jointly conducting drilling, exploitation, development and productionoperations in the Bengara-II Block pursuant to the Bengara-II PSC.






1.1          In this Agreement, unless the contextotherwise requires:


“AFE” means authority for expenditure as setout in Article-13;


“Apex Bengara” means Apex (Bengara-II) Ltd.the Operator for the Joint Venture, the 100% holder of the Bengara-II PSC andalthough a Party to this JOA, not an owner of a Percentage Interest in theJoint Venture.


“Appraisal Operations” means the drilling ofAppraisal Wells and other activities for the purpose of evaluating thequantities or qualities of Petroleum in a Petroleum Pool encountered by aDiscovery Well;


“Appraisal Well” means any well drilled asAppraisal Operations;


“AWP&B” means that certain Work Programand Budget submitted by Operator to Pertamina annually in October of each year,as may be amended, for Pertamina’s approval and containing Budget costestimations for the amount of funds required to conduct the Work Program andthereby carry out Petroleum Operations during the forthcoming calendar yearwithin the Permit Area as required pursuant to the Permit;


“Bengara-II Block” refers to the 4,867 squarekilometer geographic area created by the Bengara-II PSC and located mostlyonshore but partially offshore in East Kalimantan, Indonesia and also knownherein as the Permit Area, the




exploration of and commercial exploitation ofany Petroleum found there which is the objective of the Joint Ventureconstituted in this JOA.


“Bengara-II PSC” means a production sharingcontract dated December 4, 1997 pursuant to which Pertamina, the state oilcompany of the Republic of Indonesia has granted exclusive rights to ApexBengara to explore for and if found develop, exploit and produce Petroleum froma Permit Area known as the Bengara-II Block.


“Barrel”, as also defined in the PSC, means aquantity or unit of oil equal to forty-two (42) United States gallons at thetemperature of sixty (60) degrees Fahrenheit.


“Barrel of Oil Equivalent” or “BOE”, as alsodefined in the PSC, means six thousand (6,000) standard cubic feet of NaturalGas based on the gas having a calorific value of one thousand (1,000) BritishThermal Units per cubic foot (BTU/ft3).


“Budget” means a statement itemizing the costestimates for and schedule of funding required to conduct Petroleum Operationsto be carried out within the Permit Area according to a corresponding WorkProgram during a specific and defined period, and must also include all of theOperator’s administrative, office and personnel costs (including appropriateapprovals of any personnel policies), whether for a special purpose or as partof and including the Budget portion of the AWP&B;


“Cash Call” means an invoice issued by theOperator to a Party for its Percentage Interest share of JV Costs incurred orto be incurred;


“Committee” means the committee establishedunder Article-7;


“Consenting Party” has the meaning set out inArticle-15;


“Defaulting Party” has the meaning set out inArticle-16.1;


“Development Well” means a well drilled insearch of Petroleum other than and insofar as it is not an Exploration Well oran Appraisal Well;


“Discovery Well” means the first well whichfinds and recovers to the surface Petroleum from a previously unknown oruntested Petroleum Pool or where a sufficient indication is proven to thesatisfaction of all Parties that a Petroleum Pool exists, then a well may bedeclared a Discovery Well notwithstanding that the well did not test to thesurface Petroleum;


“CEC” means Continental Energy Corporation aParty to this JOA and a JV Participant.


“Exploration” means all activities aimed atthe discovery, location and delineation of Petroleum Pools and all activitiesnecessary, expedient, conducive or incidental thereto and includes but is notlimited to the drilling of Exploration Wells and Appraisal Wells;


“Exploration Well” means any well drilled insearch of Petroleum with the objective of discovering any previously unknownPetroleum Pool;


“Farm Out Agreements” or “FOA” means theseparate written agreements between any of the Parties which is the principleinstrument of conveyance of which a Party received its Percentage Interest inthe Joint Venture;


“GeoPetro” means GeoPetro Resources Company aParty to this JOA and a JV Participant.


“Information” means all information availablewith respect to JV Activities and the Permit Area, subject to Pertamina and PSCrestrictions thereon, including, but not limited to, all surveys, maps,mosaics, aerial photographs, electromagnetic tapes, sketches, drawings,memoranda, drill cores, logs of such sub-surface cores, geophysical orgeological maps, sampling and analytical reports, notes and other relevant informationand data;


“Joint Account” refers to the responsibilityof the Joint Venture and the Parties to jointly share the costs of financing ajoint venture account to pay for all costs and expenses incurred in respect ofthe Joint Venture on behalf of all of the Parties according to their PercentageInterest;




“Joint Operating Agreement” or “JOA” meansthis Agreement including any amendments or restatements hereof;


“Joint Venture” or “JV” means the jointventure between the Parties in terms of this Joint Operating Agreement which isformally named “Bengara-II Block Exploration Joint Venture”;


“JV Accounting Procedure” means the procedureset out in Annex-A to this Agreement;


“JV Accounts” in relation to the JointVenture, means all Records relating to the payment or receipt of moneysmaintained by the Operator in relation to JV Costs and transactions enteredinto in the course of JV Activities, and all supporting documents includinginvoices, statements of expenditure, receipts and sales records;


“JV Activities” means all activitiesconducted for the purposes of the Joint Venture under the terms of thisAgreement, including but not necessarily limited to Petroleum Operations underthe Permit as herein defined;


“JV Costs” means all costs incurred by theJoint Venture pursuant to this JOA in connection with JV Activities andincludes all PSC Costs and Operating Costs, Capital Costs and Non-Capital Costsas defined in the JV Accounting Procedure. JV Costs shall be accounted for inaccordance with the JV Accounting Procedure or the PSC Accounting Procedure orin the case where not therein provided for, in accordance with generallyaccepted accounting practices in the U.S.A.;


“JV Participant” means a Party to this JOAwho also owns a Percentage Interest share of the Joint Venture. Apex Bengara,as Operator, is a Party to this JOA but is not a JV Participant;


“JV Property” means the JV’s Apex BengaraShares; the Information; custody and control of all fixtures, machinery,equipment, constructions, physical assets, inventory and supplies acquired forthe Joint Venture, subject to the provisions for Pertamina ownership of same asper the Bengara-II PSC, Section-X; and any other property or rights of anydescription, whether real or personal, acquired for the Joint Venture;


“Indonesian Tax Laws”, means all the currenttax laws including all the appropriate regulations as amended and as currentlyin effect in the Republic of Indonesia which may affect the Joint Venture, theOperator, JV Activities, the Permit and Petroleum Operations within the PermitArea;


“Majority Vote” means a resolution of theCommittee having the affirmative vote of two or more unrelated Parties havingaggregate Percentage Interests exceeding 65%;


“Net Value” in relation to Petroleumproduction means the gross proceeds from sale thereof on an arm’s length basisless:


a)                                      allcosts reasonably incurred in the lifting, handling and transportation of theproduction; and


b)                                     allgovernmental royalties and levies in relation to the production;


“Non-Consent Operation” means an operationcarried out by less than all Parties pursuant to Article-15;


“Non-Consent Party” has the meaning set outin Article-15;


“Non-SR-Parties” means the Parties not participatingin a Sole Risk Operation;


“Operator” means the Party acting as operatorin terms of this Agreement and in its capacity as operator namely Apex Bengara;


“Paying Quantities” means:


a)                                      inthe case of a well not completed and equipped for production, the anticipatedoutput from the well of that quantity of Petroleum which, considering thecompletion costs, equipping costs transportation costs and the costs ofoperating the well for the recovery of Petroleum and the kind and quality ofproduction, the price to be received therefor and the royalties and otherburdens payable with respect thereto, would in the opinion of the Committeewarrant incurring the completion costs and equipping costs of the well; and




b)                                     inthe case of a well completed and equipped for production, the output from thewell of that quantity of Petroleum which, considering the same factors as in(a) above except completion costs and equipping costs, would warrant thecontinued production from the well;


“Percentage Interest” in relation to a Partymeans the respective proportion expressed as a percentage, by which that party,subject to this Agreement:


a)                                      isobliged to contribute to JV Costs;


b)                                     isentitled to receive in kind and to dispose of from its own account Petroleumderived from the Permit;


c)                                      isbeneficial owner as a tenant in common of an undivided share of all JVProperty; and


d)                                     participatesin all other rights and liabilities accruing to or incurred by the Parties inor arising out of this Agreement;


“Permit” means the Bengara-II PSC and bydefinition for the purposes hereof shall include any renewal, extension oramendment thereof and also any other permit, license, lease, facility, WorkProgram, Budget, Pertamina approval, Plan of Development or other holding,approval, permission, regulatory determination or tenement for the time beingheld by Apex Bengara or the JV or on behalf of the Parties in substitutiontherefor either in part or in whole or granted, issued or otherwise arising inconsequence of the holding by Apex Bengara of the Permit or otherwise acquiredby the Parties for the purpose of the Joint Venture;


“Permit Area” means the area within thestatutory mining territory of Indonesia covered by the Bengara-II PSC grantedby Pertamina which is the subject Joint Venture working area of this JOA, andis constituted in the Bengara-II PSC and is described and defined in Exhibits “A”and “B” attached thereto the PSC;


“Permit Year” means each consecutive periodof 12 months commencing on the effective date of the Bengara-II PSC, December4, 1997, counted from said date or from an anniversary thereof;


“Pertamina” means “Perusahaan TambanganMinyak dan Gas Bumi” the Indonesian language name of the state owned oilcompany of the Republic of Indonesia exclusively responsible for granting,coordinating, regulating and administering the Bengara-II PSC and other similarproduction sharing contracts throughout the nation. For the purposes of thisJOA and the Joint Venture the term “Pertamina” is also defined to include ALLother Indonesian local, provincial or national governmental authorities ordepartments of any kind which may also exert some form of control or influencewithin their respective jurisdiction over the Bengara-II PSC, the Permit, theOperator, Apex Bengara and/or the Joint Venture and Petroleum Operations and JVActivities.


“Petroleum” has the same meaning as in thePSC, and includes naturally occurring hydrocarbons commonly produced from wellsincluding crude oil, condensate, natural gas and natural gas liquids;


“Petroleum Operations” means all exploration,development, extraction, producing, transportation, marketing, abandonment,site restoration operations and any other work or activities planned, conducted,authorized or contemplated by the Joint Venture under both the Permit and thisJOA and pertaining to the Permit Area, including Exploration, AppraisalOperations, Production Operations, Non-Consent Operations and Sole RiskOperations as elsewhere herein defined;


“Petroleum Pool” means a Petroleum reservoirrelated to the same individual geological structural features or stratigraphicconditions or both;


“Point of Export”, as also defined in thePSC, means the outlet flange of the loading arm after final sales meter at theexport terminal, or some other point(s) mutually agreed by the PSC parties andthe JV, as appropriate.


“Prescribed Rate” means the rate of interestbeing 2% greater than the prevailing United States “prime rate” lending rate atany time made effective for amounts greater than $100,000 for one year periods;


“Production Operations” means commercialpetroleum lifting and recovery operations and all activities necessary,expedient, conducive or incidental thereto including without limitation, thedrilling, completion and work-over of




Development Wells; and the sampling,production, processing, refining, treatment, transportation, handling, storage,loading and delivery of Petroleum;


“PSC” means production sharing contract andunless the context requires otherwise also refers specifically to the Bengara-IIPSC;


“PSC Costs” means expenditures made andobligations incurred in carrying out Petroleum Operations under the Bengara-IIPSC as determined in accordance with the Accounting Procedure attached theretoas Exhibit “C” which shall by definition be included within JV Costs. PSC Costsshall include Operating Costs; Capital Costs and Non-Capital Costs as definedin both the PSC and JV Accounting Procedures.


“Records”, in relation to the Joint Venture,means all books, records, invoices, documents and other papers maintained bythe Operator in relation to JV Activities or transaction effected in the courseof JV Activities;


“Related Body Corporate” means a relatedcorporation or other entity that controls, or is controlled by a Party to thisJOA, or a company or other entity which controls or is controlled by a companyor other entity which controls a Party to this JOA, it being understood thatcontrol shall mean ownership by one company or entity of at least fifty onepercent (51%) of the voting stock, if the other company is a corporationissuing stock, or the controlling rights or interests, if the other entity isnot a corporation;


“Security Interest” means a JV Participant’sownership of Apex Bengara common shares in the same percentage as, butsubordinate in rights to, his JV Percentage Interest share constitutedhereunder as further described in Article-2.5.


“Sole Risk Operation” means an operationcarried out by one or more Parties within the Permit other than as JVActivities;


“Special Majority Vote” means a resolution ofthe Committee having the affirmative vote of two or more unrelated Partieshaving aggregate Percentage Interests exceeding 80%;


“SR Costs” in relation to the Sole RiskOperation, means all costs and expenses reasonably and properly incurred by SR-Partiesin carrying out the Sole Risk Operation;


“SR Interest” in relation to a SR-Party and aSole Risk Operation, means the participating interest of that party in the SoleRisk Operation;


“SR Parties” in relation to a Sole RiskOperation, means the Parties participating in the Sole Risk Operation;


“PSC Accounting Procedure” means theprocedure set out in Exhibit-C to the Bengara-II PSC which Apex Bengara as theOperator is obliged to follow with respect to accounting for all costs incurredin the performance of Petroleum Operations pertaining to the Permit. In certainrespects there are significant differences in the required PSC AccountingProcedure with respect to generally accepted accounting principles commonlypracticed in the U.S.A.;


“PSC Accounts” in relation specifically tothe Bengara-II PSC, means all accounts and financial statements and recordsrelating to the payment or receipt of moneys maintained by Apex Bengara as theOperator in relation to transactions entered into in the course of PetroleumOperations under the Permit and pertaining to the Permit Area together with allsupporting documents including invoices, statements of expenditure, receiptsand sales records; all principally for use as required by Pertamina for CostRecovery documentation and Pertamina reporting as prescribed in the PSCAccounting Procedure and which would normally, but not necessarily, include JVAccounts.


“Unanimous Vote” means a resolution of theCommittee having the affirmative vote of all of the Parties to the JointVenture taken at a meeting or in writing at which all Parties are present orare represented and cast their respective votes all having aggregate PercentageInterests totaling 100%;


“Withdrawal Notice” means a notice ofintention to withdraw from the Joint Venture;


“Withdrawing Party” means a Party which hasserved, or which, under the terms of this Agreement, has been deemed to haveserved, a Withdrawal Notice on the other Parties;




“Work Obligation” means the minimum work andexpenditure requirements from time to time being conditions of grant of thePermit; and


“Work Period” means the period the subject ofan approved Work Program and Budget.


“Work Program” means a statement itemizingthe nature and schedule of Petroleum Operations to be carried out within thePermit Area under a corresponding Budget during a specific and defined period,whether for a special purpose or as part of and including the Work Programportion of the AWP&B;


1.2          Inthis Agreement unless the context otherwise requires:


a)                                      thesingular shall include the plural and vice versa;


b)                                     wordsimporting persons shall include corporations;


c)                                      referencesto other paragraphs of this Agreement are denoted as “Article”;


d)                                     theheading shall not affect the interpretation or construction of this Agreement;


e)                                      referenceto any statute shall mean that statute as amended or modified or replaced fromtime to time and includes orders, ordinances, regulations and rules and by-lawsmade in terms of or pursuant to the relevant legislation;


f)                                        referenceto a Party includes a reference to its successors and assigns in accordancewith this Agreement; and


g)                                     referenceto currency shall be to US Dollars, the lawful currency of the United States ofAmerica, unless the context requires otherwise.




2.1                               TheParties hereby associate themselves as a “Joint Venture” (or “JV”) inaccordance with the provisions of this JOA for the purpose of carrying outPetroleum Operations upon the Bengara-II Block and the Permit Area, inaccordance with and pursuant to the Permit, and establishing the Joint Ventureas a commercial Petroleum exploration and production enterprise.


2.2                               TheJoint Venture shall be called the Bengara-II Block Exploration Joint Venture orsuch other name as the Parties may from time to time agree.


2.3                               TheJoint Venture shall be 100% owned by the JV Participants in the respective JVPercentage Interest proportions set forth in Article-4.1.


2.4                               TheJoint Venture shall own and its sole commercial enterprise shall be a 100%ownership constituted by this JOA in and of Apex Bengara and through it a 100%ownership of its underlying rights to the Bengara-II PSC, the Permit and thePermit Area.


2.5                               EachJV Participant shall own a Percentage Interest in the Joint Venture constitutedby the JOA and as stated in Article-4.1 hereof, provided that:


(a)                                  ThePercentage Interest of each JV Participant in the Joint Venture shall besecured by a “Security Interest” consisting of one common share certificate ofApex Bengara common shares, duly issued and registered in the name of the JVParticipant and representing a corresponding undivided share ownershippercentage in Apex Bengara together with a corresponding percentage interest inthe respective underlying Bengara-II PSC such that the respective amount of JVPercentage Interest owned by any JV Participant as set forth in this JOA shallbe equivalent to the same JV Participant’s Security Interest share ownership inApex Bengara and shall also be equivalent to the deemed PSC interest owned bythe JV Participant.


(b)                                 Notwithstandingthe foregoing, the Apex Bengara common shares certificate held by any JVParticipant shall be for the purposes of constituting only a “Security Interest”in the Joint Venture.




(c)                                  Forso long as the applicable JOA is in force and effect the Security Interestrepresented by the share certificate and the Farmee’s rights and obligationsthereunder shall be subordinate to the Working Interest constituted in the JOA.


(d)                                 EachJV Participant Party hereby expressly agrees that his respective PercentageInterest in the Joint Venture as created herein and defined in Article-4.1shall take precedence over and above those rights and obligations normallyattributable to such Party and any other shareholder as solely an owner ofcommon shares. Such precedence shall continue until such time as this JOA isdissolved or otherwise terminates, expires or becomes ineffective. To theextent necessary to achieve such precedence this JOA shall be deemed by the JVParticipant Parties to also constitute a binding Apex Bengara shareholdersagreement and covenant between the Parties as Apex Bengara common shareholdersthat their respective rights as set forth in this JOA take precedence over andshall govern their respective relationships to each other and to Apex Bengaraas Apex Bengara common shareholders.


(e)                                  Immediatelyupon this JOA becoming so dissolved or otherwise ineffective then the JVPercentage Interest shall likewise terminate and the rights, obligations andentitlements of the former JV Participants shall devolve to and vest in theirrespective Security Interest common shares and from that point in time forwardsthe JV Participants relations with one another and ownership in the ApexBengara and underlying PSC’s shall be as common shareholders subject only tothe memorandum and articles of association of Apex Bengara and the BritishVirgin Islands International Corporations Act.


2.6                               Itis the intent of the Parties to maintain this Joint Venture and the PSC and thePermit in full force and effect and meet the PSC prescribed annual explorationwork commitments for at least the full duration and term of the explorationperiod of the PSC and in the event commercial petroleum production isestablished within the Permit Area then the Parties shall maintain this JointVenture in full force and effect for the complete term of the PSC and thePermit and any extensions thereof provided commercially exploitable Petroleumis being produced from within the Permit Area.


2.7                               Oncethis Joint Venture begins commercial petroleum production, as recognized byPertamina, each JV Participant may convert its Percentage Interest into adirect interest in the PSC, subject to approval of Pertamina, and all Partiesshall cooperate in obtaining such approval.




3.1                               Theobligations of the Parties in terms of this Agreement and in relation to JVActivities, to each other and to third parties shall be several and not jointnor shall they be joint and several.


3.2                               Nothingin this Agreement shall make a Party the partner of any other Party nor, exceptas expressly provided in this Agreement, constitute any Party the agent orlegal representative of any other or create any fiduciary relationship betweenthem.


3.3                               NoParty shall have any authority to act on behalf of any other Party, except asexpressly provided in this Agreement. Where a Party acts on behalf of any otherwithout authority, such Party shall indemnify the other from any losses,claims, damages and liabilities arising out of any such act.


3.4                               AParty shall not engage in or be concerned in any activity upon or with respectto the Permit except as otherwise provided in this Agreement.


3.5                               TheParties hereby expressly agree and acknowledge that the Operator holds only abare legal interest in and/or bare legal title to the Bengara II PSC and thatall beneficial ownership therein and all beneficial interest and duties andobligations associated therewith is vested solely in the JV Participants andnot to any extent in the Operator.






4.1                               ThePercentage Interests of the Parties and their respective percentage ownershipin the Joint Venture, the Security Interest and their net resulting beneficialinterest in the underlying Bengra-II PSC all as created herein and subject tothe terms and conditions of this Agreement as of its effective date are:


Name of


Percentage Interest
In this JOA & the
Joint Venture


Security Interest
In Apex
Common Shares


Net Beneficial
Interest in the


Apex Bengara
























JV Total











5.1                               TheParties shall own all JV Property (other than the Apex Bengara Shares) astenants in common in proportion to their respective Percentage Interests.


5.2                               TheParties fully understand and recognize that certain items procured by and paidfor by the Joint Venture and normally considered to be included in thedefinition of JV Property may in fact be subject to ownership rights ofPertamina in accordance with the provisions of the PSC and the Permit. In anysuch circumstances where there is any conflict of interpretation between thisJOA and the Permit with regard to what constitutes JV Property or Pertaminaproperty or property which is deemed to be Pertamina property but is under thecustody and control of the Operator on behalf of the Joint Venture for so longas the Permit is in effect then the interpretation of the PSC and the Permitshall apply and the meaning of the terms JV Property herein shall be modifiedand interpreted accordingly.


5.3                               EachParty shall from time to time at the request of another Party deliver suchtransfers and other documents as are necessary to record and protect thePercentage Interest from time to time of the other Parties in the Permit andthe JV Property. Until such transfers are effected, each Party holding JVProperty from time to time shall hold the JV Property in trust for all of theParties proportionately to their then respective Percentage Interests.




6.1                               EachParty warrants to each other Party that it has full right, power and authorityto enter into and implement this Agreement and that it has taken all necessaryaction to authorize the execution and implementation of this Agreement.




7.1                               TheParties hereby establish the Committee whereby management of JV Activities isvested.


7.2                               Exclusivemanagement, direction, guidance, policy-making authority and control of JVActivities and other matters affecting the Permit and the Joint Venture shallbe vested wholly and irrevocably in the Committee.


7.3                               TheCommittee is authorized to make all decisions on the nature and extent of and themanagement of JV Activities including varying or vetoing any decision,commitment or other action of the Operator and directing the Operator on themanagement and conduct of JV Activities. All decisions of the Committee shallbe binding on the Parties.


7.4                               TheCommittee may constitute and appoint and charge sub-committees consisting ofOperator’s personnel and any of the personnel of the Parties for the purposesof studying and reviewing certain issues and reporting on same to theCommittee.


7.5                               Thefollowing provisions shall, subject to Article-4.2, apply to the Committee:


(a)                                  eachParty shall be entitled to appoint one member;


(b)                                 eachParty may remove any member appointed by it and appoint another. Notice of anyappointment or removal shall be given to the other Parties;




(c)                                  eachmember may have an alternate to act for it. An alternate shall be deemed amember of the Committee and shall be appointed and removed in terms of thisclause;


(d)                                 aquorum for a meeting shall be constituted when the Parties present at themeeting and the Parties which are not present but which have, in accordancewith paragraph (h), given notice that they intend to vote by facsimile haveaggregate Percentage Interests sufficient to pass at least a Majority Vote, andin the event the agenda of such meeting requires resolution of an issue sorequiring then at least a Special Majority Vote or a Unanimous Vote;


(e)                                  therepresentative of the Party holding the largest Percentage Interest hereundershall act as Chairman; if any Chairman shall be unable or unwilling to attendCommittee meetings, the Party or Parties which nominated the Chairman shallfill the vacancy;


(f)                                    thevoting power of each Party shall be in proportion to the Percentage Interest ofthat Party at the date of the meeting;


(g)                                 eachParty shall cast its votes as a block vote proportionate to the Party’sPercentage Interest and exercisable by one member representing each Party;


(h)                                 ifa Party is unable to be represented in person at a meeting, that Party may voteat the meeting by letter or facsimile either prior to the scheduledcommencement of the meeting, or after that time if that Party advises theOperator’s representative by telephone before votes are taken of its intentionto cast a written vote and if the vote is actually received by the Operatorbefore votes are taken;


(i)                                     atall Committee meetings, a member shall act solely as the representative of theParty which appointed him and shall have full power and authority to representand bind that Party;


(j)                                     Committeemeetings shall be held at least twice per year and any Party may convene ameeting at any other time by notice stating the matter to be considered inaccordance with the procedure outlined in this section;


(k)                                  Committeemeetings shall be held where the Committee decides, and failing a decision,then in the Operator’s office;


(l)                                     noticeof each Committee meeting shall be given to all members by the Chairman andshall be accompanied by an agenda. The agenda may be furnished separately byfacsimile up to 21 days before the meeting. Matters not included in the agendafor a meeting shall not be decided at the meeting unless all Parties agree;


(m)                               atleast 21 days notice shall be given of each meeting. No notice of meeting shallbe necessary when members representing each Party are present and agree uponthe meeting being held and the agenda, time and place for the meeting;


(n)                                 theChairman shall prepare full and accurate minutes covering business conductedand decisions reached at meetings and submit them to the Parties for approval.Each Party shall promptly notify the Chairman and the other Parties of anychanges that it believes should be made. A Party that does not give any suchnotice within 30 days of receipt of the minutes shall be deemed to haveapproved those minutes. Following the approval of the minutes, the Chairmanshall sign an appropriate number of original copies as a true and correctrecord and forward one copy to each Party;


(o)                                 anydecision on any matter falling within the jurisdiction of the Committee madewithout a meeting and evidenced by writing including facsimile transmission,signed by each Party, or by a member appointed by each Party shall be bindingon the Parties;


(p)                                 theCommittee shall appoint an auditor and cause an audit of the Joint VentureAccounts annually to be performed in accordance with generally acceptedaccounting principles and auditing standards acceptable to North Americansecurities regulatory authorities and distribute copies of such annual audit tothe Parties, and


(q)                                 theCommittee shall appoint an independent engineer to annually audit and determinethe amount of proven, probable and possible reserves, if any, and estimate theamount of any possible resources contained in defined prospects recognizedwithin the Permit Area in accordance with reserves and resource classifications




determined by the American Society forPetroleum Engineers and distribute copies of such annual reserves and resourcesaudit to the Parties.


7.6                               Exceptwhere otherwise expressly provided in this Agreement, decisions of theCommittee shall be made and decided by a Majority Vote at a duly convenedmeeting.


7.7                               ASpecial Majority Vote, as defined in Article-1.1, shall be required for anydecision in relation to:


(a)                                  approvalof the Joint Venture and commitment thereby of the Joint Venture to any andeach Annual Work Program & Budget prior to its submission to Pertamina asrequired under and pursuant to the Permit;


(b)                                 theperiodic relinquishment of a portion of the surface area of the Permit Area asrequired by and provided for in the PSC; and


(c)                                  approvalof the Joint Venture and commitment thereby of the Joint Venture to any andeach Plan of Development prior to its submission to Pertamina as required underand pursuant to the Permit.


7.8                               Notwithstandingany other provisions of this JOA, a Unanimous Vote of the Committee representedby 100% of the Percentage Interest owner Parties shall be required for anyCommittee decision or decision of the Parties in relation to or pertaining to:


(a)                                  dissolutionof the Joint Venture created hereunder;


(b)                                 thesurrender of the entire Permit back to Pertamina;


(c)                                  thewithdrawal of the Joint Venture from the entire Permit by sale, election orwhatever reason; and


(d)                                 modification,amendment, termination, or any other variation without limitation of this JointOperating Agreement.




8.1                               AllJV Activities shall be carried out by the Operator, subject to the control anddirection of the Committee. The Operator may carry out JV Activities throughits employees, servants, agents and contractors. Notwithstanding anythingcontained herein to the contrary, with respect to any JV or Permit relatedmatters, the Operator shall act solely as an agent for the Committee and isaccountable and subordinate to the Committee and has no independent powerwhatsoever.


8.2                               JVActivities carried out by the Operator shall be carried out on behalf of and atthe expense of all the Parties in proportion to their respective PercentageInterests.


8.3                               Forthe purposes of JV Activities, the Operator shall, subject to Budget and WorkPrograms approved by the Committee and Pertamina, and always subject to theCommittee’s authority in general, have and may exercise all of the rights aswould be available to the Operator if the Operator was carrying out JVActivities on its own behalf, including, subject to this Agreement and at theexpense of the Joint Account, the Operator shall and may:


(a)                                  retain,supervise and control employees, consultants, experts, servants, agents andindependent contractors;


(b)                                 acquirematerials, supplies, machinery, equipment and services;


(c)                                  procurespecial design, technical, geological, geophysical, engineering, accounting,auditing, legal and other professional services from outside experts andconsultants;


(d)                                 performobligations imposed on the Joint Venture by or with respect to the Permit;


(e)                                  manageand conduct all Petroleum Operations within the Permit Area and otherwisepertaining to the Permit;


(f)                                    payrates, duties, charges and levies payable on or in connection with JV Propertyand do all things necessary to maintain the JV Property in good standing;




(g)                                 prepareand file reports or returns required by law or by Pertamina on or with respectto JV Property or JV Activities;


(h)                                 disbursefunds of the Joint Venture on JV Costs;


(i)                                     applyfor and obtain pipeline licenses, production licenses, access authorities,rights of way, water rights and other rights as required to keep the Permit ingood standing and conduct Petroleum Operations;


(j)                                     enterinto contracts binding the Joint Venture;


(k)                                  doall things reasonably necessary to comply with relevant legislation and therequirements of relevant authorities in the conduct of JV Activities;


(l)                                     maintainplant and equipment and JV Property in good working order and condition;


(m)                               representthe Joint Venture before government authorities and courts with respect to allmatters concerning the Joint Venture;


(n)                                 prepare,sign, file and receive any affidavit, certificate, authorization, report orother document concerning the Joint Venture; and


(o)                                 performany act necessary or advisable in the Operator’s judgment to protect theinterests of the Joint Venture, without prejudice to the right of each Party totake such steps as it considers necessary to protect its own interest and to beseparately represented in any proceedings that relate to or are connected withits Percentage Interest, if any.


8.4                               TheOperator shall determine the number of employees, their selection and the termsof their employment in connection with JV Activities. All employees andcontractors used in connection with JV Activities shall be the employees andcontractors of the Operator. The Operator shall employ for JV Activities onlysuch employees, agents and contractors as it reasonably estimates to berequired for the proper conduct of JV Activities.


8.5                               Forthe purpose of carrying out JV Activities, the Operator shall have sole custodyand control of JV Property.


8.6                               TheOperator shall not be liable to any Party for any losses sustained or liabilityincurred by any Party except to the extent that such losses or liabilityresults from the Operator’s Willful Misconduct.


8.7                               EachParty to the extent of its Percentage Interest shall indemnify the Operatoragainst any liability, loss or damage incurred by the Operator in the conductof JV Activities except for liability, loss or damage incurred by reason of theOperator’s bad faith.


8.8                               EachParty shall give to the Operator such assistance as the Operator may reasonablyrequire in the performance of its duties.




9.1                               ApexBengara shall be the Operator until it is removed or resigns in accordance withthe provisions of this clause.


9.2                               TheOperator shall be removed immediately upon the occurrence of any of thefollowing:


(a)                                  ifthe Operator becomes bankrupt or insolvent or commits or suffers any act ofbankruptcy or insolvency or makes any assignment for the benefit of itscreditors; or


(b)                                 aMajority Vote of the Committee to remove such Operator.


9.3                               TheOperator may resign at any time as Operator upon at least 3 months’ priorwritten notice to the Parties.


9.4                               Ifthe Operator resigns or is removed pursuant to the terms of this clause, then areplacement shall be immediately appointed by a Majority Vote of the Committee.




9.5                               Atthe effective date of resignation or removal of an Operator, the Operator shalldeliver to the replacement Operator possession of all JV Property and all JVAccounts and Records of the Joint Venture and all Information not otherwise inthe possession of the replacement Operator.


9.6                               Uponevery change of Operator the Committee shall procure that the JV Accounts ofthe Joint Venture are audited at the cost of the Joint Venture.




10.1                        TheOperator shall manage and conduct all JV Activities with the skill, diligenceand care normally exercised by qualified persons in the performance ofcomparable work and in accordance with accepted industry methods and practices.


10.2                        TheOperator shall manage and conduct all Petroleum Operations in accordance withthe Permit with the skill, diligence and care normally exercised by qualifiedpersons in the performance of comparable work and in accordance with acceptedindustry methods and practices.


10.3                        TheOperator shall promptly carry out all instructions and directions of theCommittee.


10.4                        TheOperator shall represent itself, all of its shareholders and the Joint Ventureto Pertamina in respect of the Permit.


10.5                        Withoutlimiting its other duties and obligations herein expressed, the Operator shall:


(a)                                  invitecompetitive tenders for and inspect contracts for material or services for theJoint Account involving amounts of more than $100,000 for any one item;


(b)                                 obtainCommittee approval for the principal terms of the contracts for the JointAccount:


(i)                                     involvingamounts of at least the amounts set out below for any one item or series ofrelated items in respect of:










technical studies




supply of other goods/services





such approvals to be additional to and not inlieu of the approvals required to be obtained by the Operator pursuant to anyAFE; or


(ii)                                  wherethe Operator has an interest whether by way of the equity, voting power orotherwise, in the firm or company with whom the Operator is proposing tocontract;


(c)                                  inrespect of each contract entered into by the Operator in the course of JVActivities (other than a contract of employment) requiring the approval of theCommittee, disclose that it acts as agent for the Parties and ensure that it ismade a term of the contract that the obligations of each of the Parties areseveral not joint nor joint and several, and that liability is expressed to bein proportion to their respective undivided interests;


(d)                                 complywith all government acts and Pertamina regulations pertaining to the Permit;and


(e)                                  prepareany environmental statements or plans or other survey or like document as maybe required pursuant to any Indonesian environmental legislation or byPertamina.


10.6                        TheOperator shall keep correct JV Accounts and accurate Records for the JointVenture. The JV Accounts and Records maintained by the Operator shall fully andfairly explain all material JV Activities and JV Costs and transactionseffected in the course of JV Activities.


10.7                        AnyParty not being the Operator may not more than once in any calendar year and onreasonable notice in writing to the Operator, conduct an audit at its ownexpense of the JV Accounts and Records of the Joint Venture by a registered




third party auditor. The Operator shall makeavailable to such outside auditor the JV Accounts and Records of the JointVenture for the purposes of the audit and provide necessary cooperation andassistance to the outside auditor.


10.8                        TheOperator and the other Parties shall adopt the JV Accounting Procedure inrelation to the keeping of all JV Accounts and Records, notwithstanding thatfor the purposes of Accounts and Records pertaining to the Petroleum Operationspursuant to the Permit that the Accounting Procedure Exhibit-C to the PSC shalltake precedence over and above the Operator’s obligation to the JV AccountingProcedure in the event of any conflict between the JV and PSC accountingprocedures.


10.9                        TheOperator shall comply with all laws and lawful regulations applicable to any JVActivities carried out regardless of the jurisdiction in which such are carriedout including without limitation those of the Republic of Indonesia.


10.10                 The Operatorshall comply with and respect and cause its employees, agents, consultants andcontractors to likewise respect and comply with national customs, traditionsand practices in Indonesia and locally in the region of the Permit Area at alltime while carrying out JV Activities.


10.11                 The Operatorshall conduct all Petroleum Operations in an environmentally enlightened andresponsible manner such as to cause minimum damage to the natural environmentand minimal detrimental impact on local society within region of the PermitArea.




11.1                        Exceptas permitted by this Article-11 no Party may without the prior consent of allother Parties sell, assign, transfer, mortgage, pledge, charge, encumber, sub-lease,declare itself trustee of or in any way dispose of or alienate all or any ofits Percentage Interest and rights under this Agreement or its underlyingrights to the Permit, the Security Interest or in any JV Property PROVIDED THATnothing in this Article-11 shall apply to any Petroleum produced from thePermit.


11.2                        Subjectto Article-11.5 any Party may assign the whole or any part of its PercentageInterest to any Related Body Corporate.


11.3                        TheParties will not unreasonably withhold their consent in respect of a chargeover the whole or any part of a Percentage Interest.


11.4                        AParty (“Transferor”) may dispose of its Percentage Interest or any part thereofonly in strict compliance with the provisions of this Article- 11.4 as follows:


(a)                                  Transferormay dispose of its Percentage Interest for a consideration comprising any oneor more of the following:




cash or a cash equivalent;






any Petroleum produced and saved from the Permit (including a consideration calculated by reference to the value of any such Petroleum);






the assumption of any obligations of the Transferor under this Agreement referable to the Percentage Interest being assigned; and






a Percentage Interest in the Permit.


(b)                                 Ifthe Transferor shall desire to dispose of its Percentage Interest or any partthereof it shall give to each other Party (“Offeree”) notice thereofcontaining:




the name and address of the proposed assignee or transferee (“Proposed Transferee”);






all the terms and conditions of the proposed sale; and






an offer to sell its Percentage Interest or the relevant part thereof to the Offeree on terms and conditions not less favorable to the Offeree than those proposed in relation to such proposed purchaser.




(c)                                  EachOfferee shall have the right to accept (pro-rata to their respective PercentageInterests if more than one) such offer from the Transferor by sending to itnotice to that effect at any time during a period of 21 days after receipt ofsuch offer.


(d)                                 Ifno Offeree shall accept such offer the Transferor shall have the right totransfer or assign its Percentage Interest or the relevant part thereof to suchProposed Transferee on terms and conditions not more favorable to the ProposedTransferee than those specified in such notice to the Offeree PROVIDED THATsuch right shall lapse upon the expiration of 120 days after the date on whichthe aforesaid offer was made by the Transferor to the Offeree.


(e)                                  Savewith the prior consent of the Transferor no Offeree shall directly orindirectly communicate with the Proposed Transferee before the right of theTransferor to transfer or assign to such Proposed Transferee has lapsedpursuant to Article-11.4(d).


(f)                                    Inno circumstances shall a Party assign any of its Percentage Interest so thatthe Transferor shall retain a Percentage Interest of less than 5 % or so thatthe Proposed Transferee would be entitled to a Percentage Interest of less than5%.


11.5                        Priorto this as a condition of any assignment or transfer hereunder the ProposedTransferee shall enter into a covenant satisfactory in form and substance tothe Parties by which the Proposed Transferee shall agree to be bound by all theprovisions of this Agreement and to assume, observe and perform all theobligations of the Transferor under this Agreement applicable to the PercentageInterest or part being assigned or sold. No such assignment or transfer shallproceed unless such Proposed Transferee is in the reasonable opinion of thecontinuing Parties of sufficient financial substance to enable it to meet itsproposed obligations under this Agreement and the said covenants. If theProposed Transferee is a Related Body Corporate of the Transferor it will re-assignthe Percentage Interest or part thereof to the Transferor if the ProposedTransferee ceases to be a Related Body Corporate and the Transferor herebycovenants with each other Party to accept such re-assignment. The Transferorshall bear all reasonable costs of each Party in connection with any suchassignment.


11.6                        Itshall be the responsibility of and at the sole cost of the Transferor to obtainany required Pertamina consent to any assignment under this Article-11 and theother Parties shall have no obligation to recognize an assignment made orproposed to be made without that consent, provided that the non-assigningParties shall execute any documents reasonably required by the Transferor toobtain such government consent.




12.1                        TheOperator shall carry out all JV Activities and Petroleum Operations under thePermit in accordance with Work Programs and Budgets approved by the Committeeand in accordance with this Article-12 and in accordance with and equivalent tothe AWP&B as required by Pertamina for its approval annually.


12.2                        TheParties recognize and understand that the Joint Venture and the Operator areobliged to submit an AWP&B annually in October to Pertamina for Pertamina’sreview and approval for each forthcoming calendar year during which the Permitis in effect. The AWP&B submitted will be reviewed by Pertamina andcommented upon at an annual meeting between Pertamina and the Operatorrepresenting the Joint Venture at which time Pertamina may require amodification of the AWP&B. With Committee approval, the Operator mayprepare and submit an amended AWP&B to Pertamina at any time during theyear. Additionally, specific Pertamina regulations may apply to special WorkPrograms and Budgets submitted for specific purposes, including as part of aPlan of Development or possibly for a Sole Risk Operation. To the greatestextent possible the Parties hereby expressly agree that the form and content ofany Joint Venture Work Programs and Budgets to be prepared by Operator forJoint Venture use and consideration shall take identical form and content tothat required for same by Pertamina to minimize paperwork and reduce thepossibility of misunderstandings.


12.3                        Asprovided for herein the responsibilities and procedures for Work Programs andBudgets refers to those required for the Joint Venture and in the event of anyconflict with prevailing Pertamina planning and budgeting regulations then thePertamina regulations shall take precedence and the Operator shall so advisethe Parties so that the Parties may determine if the deviation for JV purposesis warranted and shall continue.




12.4                        TheOperator shall not be entitled to exceed an approved Budget for an item of workitemized within the Budget by more than 10% without the approval of theCommittee, except in the case of emergency expenditure involving any actual orreasonably apprehended substantial damage to JV Property or injury or loss oflife.


12.5                        TheOperator shall prepare Work Programs and Budgets for JV Activities in respectof Work Periods approved by the Committee from time to time, not exceeding oneyear, and shall submit the Work Programs and Budgets to the Committee at least60 days prior to the day the Operator must submit them to Pertamina under theBengara II PSC. The Committee shall meet within 15 days after receipt of theWork Program and Budgets from the Operator to consider and approve same.


12.6                        A WorkProgram and Budget submitted by the Operator shall include a statement of theactivities proposed to be undertaken during the relevant Work Period and shallcontain sufficient details to enable each Party to give proper considerationthereto and where appropriate, shall include details of any proposed wells andan itemized Budget of the estimated JV Costs to be incurred.


12.7                        If anymember of the Committee disapproves of the Work Program and Budget, then theParties shall promptly confer to reconcile their differences and to arrive at amutually acceptable Work Program and Budget. If the Parties have not reachedagreement in the Committee within 30 days of the date of submission by theOperator of the Work Program and Budget, then the matter shall be determined bya resolution of the Committee in accordance with this Agreement.


12.8                        Subjectto this Article-12, an approved Work Program and Budget shall be binding uponthe Parties and on the Operator.


12.9                        A WorkProgram and Budget may be revised from time to time by the Committee, subjectto and in accordance with the provisions of this clause.


12.10                 A copy ofeach approved Work Program and Budget and each revision shall be furnished toeach Party.




13.1                        TheOperator shall, before entering into any single commitment or incurring anysingle expenditure under an approved Work Program and Budget in excess of US$100,000 prepare an AFE detailing, justifying and scheduling the estimated coststo be incurred and shall submit a copy of the AFE to each Party.


13.2                        TheParties recognize and understand that the Joint Venture and the Operator areobliged to submit similar AFE’s to Pertamina for Pertamina’s review andapproval for major projects and expenditures including drilling wells, seismicsurveys, capital equipment purchase and construction projects. Each AFEsubmitted will be reviewed by Pertamina and commented upon. Pertamina mayrequire a modification of the AFE. The Operator is required to periodicallysubmit amended and revised AFE’s to Pertamina for project and cost trackingpurposes. Additionally, specific Pertamina regulations may apply to AFE’ssubmitted for specific purposes, including as part of a Plan of Development orpossibly for a Sole Risk Operation. To the greatest extent possible the Partieshereby expressly agree that the form and content of any Joint Venture AFE to beprepared by Operator for Joint Venture use and consideration shall takeidentical form and content to that required for same by Pertamina to minimizepaperwork and reduce the possibility of misunderstandings.


13.3                        EachAFE prepared by the Operator and delivered to the Joint Venture Partiesrequires Committee approval even though it may have been part of and includedin an already JV and Pertamina approved AWP&B. Each Party shall within 21days after receipt of such special AFE notify the Operator and the otherParties whether it approves of the AFE. A Party shall be deemed to haveapproved an AFE proposed by Operator unless notice of non-approval iscommunicated to the Operator within the 21 day period referred to.


13.4                        IfParties holding Percentage Interests sufficient to pass a Majority Vote approvean AFE submitted by the Operator, then such approval shall constitute an AFE tothe Operator in terms of the AFE and shall oblige the Parties to pay theirrespective Percentage Interest shares of all JV Costs arising or incurred inrespect of the subject matter of the AFE.


13.5                        Ifnecessary to carry out an approved Work Program or project, the Operator isauthorized to make expenditures in excess of the approved AFE up to but notexceeding 10% of such AFE. The Operator shall promptly notify the Parties ifsuch expenditures are expected to exceed such AFE by 10% thereof.




13.6                        TheOperator shall be entitled to exceed an AFE in cases of emergency expenditureinvolving any actual or reasonably apprehended substantial damage to JVProperty or injury or loss of life. Any such emergency expenditures shall bereported promptly to the Parties by the Operator.




14.1                        Subjectto the provisions of any applicable farm out agreements pursuant to which aParty may have acquired his particular Percentage Interest hereunder, theParties shall be liable for, agree to pay and shall pay all JV Costs and shallfinance and provide funds to the Joint Account as required to discharge allJoint Venture liabilities in proportion to their respective PercentageInterests.


14.2                        Withoutexception the Parties agree that JV Costs shall include all PSC Costs ofwhatever kind arising directly from or pertaining to the PSC and the Permit oras a result of Petroleum Operations conducted within the Permit Area andincluding costs of any kind as herein defined or as defined in the PSC, the PSCAccounting Procedure or the attached JV Accounting Procedure.


14.3                        TheOperator shall on a monthly basis submit to each Party a statement of accountfor JV Costs incurred and actually paid or accrued by the Operator sincesubmission of the previous statement, and shall issue a Cash Call to each Partyfor its Percentage Interest share of such JV Costs.


14.4                        Subjectto Article-13, the Operator may at its discretion issue Cash Calls to theParties for estimated JV Costs which the Operator anticipates will be incurredduring any forthcoming calendar month, not less than 30 days before thecommencement of that month. Where the Operator is to incur a commitment orenter a contract and the commitment or contract will extend over a periodgreater than one month, then the Operator shall not less 30 days beforeentering into the commitment be entitled to issue Cash Calls to the Parties,sufficient to cover the maximum prospective liability of the Operator under thecommitment. Where the Operator has issued Cash Calls to the Parties to coveranticipated JV Costs to be incurred, then the Operator shall be under noobligation to incur those JV Costs or to enter any commitment whereby those JVCosts will be incurred, until the Cash Calls have been paid.


14.5                        AllCash Calls shall be paid within 30 days of receipt.


14.6                        AParty that does not duly and punctually pay a Cash Call issued by the Operatorpursuant to the provisions of this clause on the due date for payment shall paysimple interest thereon between the due date for payment and the date of actualpayment, at the Prescribed Rate.




15.1                        Within14 days after approval of a Work Program and Budget by the Committee, a Partywhich voted against the carrying out of any work included in the approved WorkProgram, other than the Work Obligation, may elect not to participate in andcontribute to the costs to be incurred in carrying out that work. The Partiesso electing are referred to as Non-Consent Parties and the other Parties arereferred to as Consenting Parties. The work in respect of which notice is givenis referred to as the Non-Consent Operation.


15.2                        Uponthe making of an election by one or more Non-Consent Parties pursuant to thisclause, the Consenting Parties shall meet to determine whether they willproceed with the Non-Consent Operation. If the Consenting Parties elect not toproceed with the Non-Consent Operation, then the approved Work Program andBudget shall be amended by the deletion of the Non-Consent Operation therefrom.


15.3                        If theConsenting Parties elect to proceed with the Non-Consent Operation, then:


(a)                                  theNon-Consent Operation shall not be included as part of JV Activities;


(b)                                 theConsenting Parties may carry out the Non-Consent Operation as a Sole RiskOperation and the provisions of Articles-24, 25,26 and 27 shall apply to the Non-Consent Operation as if:


(i)                                     theNon-Consent Operation constituted a Sole Risk Operation;


(ii)                                  theNon-Consent Parties constituted Non-SR-Parties and the Consenting Partiesconstituted SR-Parties; and




(c)                                  theNon-Consent Parties shall not be responsible for any costs, risks or expensesattributable to the Non-Consent Operation.


15.4                        Anywork forming part of the Work Obligation may not be the subject of a Non-ConsentOperation, and the provisions of this clause shall not apply in relationthereto. Subject to the foregoing, a Non-Consent Operation may comprise of anyof the following (but no other) activities: drilling an Exploration Well or anAppraisal Well; or deepening, re-working, side-tracking or completion andtesting an Exploration Well or an Appraisal Well.


15.5                        On anywell reaching programmed total depth and after the completion of the programmedevaluation of the well (“Casing Point”) the Committee will meet within 48 hoursto consider and determine by Majority Vote whether to plug and abandon, deepen,re-work, side-track, complete or production test the well. If a course ofaction other than plugging and abandoning the well is determined by MajorityVote, any Party voting against the program adopted by Majority Vote may electto be a Non-Consent Party as defined by Article-15.1.




16.1                        AParty shall be a Defaulting Party for the purposes of this Agreement if anyCash Call which becomes due or payable by that Party under any of the term ofthis Agreement (the “Default Amount”) is not paid when and as the same becomesdue and payable. Not less than 30 days thereafter, the Operator shall promptlynotify, in writing, the Parties of such default (the “Default Notice”).


16.2                        Wherea Party remains a Defaulting Party for more than 60 days after receipt of aDefault Notice, then the Defaulting Party shall have its Percentage Interestreduced by an amount that bears the same proportion to its Percentage Interestas the Default Amount bears to the total JV Costs made to date by suchDefaulting Party (the “Squeeze Down”).


16.3                        Promptlyfollowing a Squeeze Down, the Operator shall invite each non Defaulting Partyto either meet its Percentage Interest share of the Default Amount or suchother percentage of the Default Amount as each non Defaulting Party wishes tonominate. Each non Defaulting Party must reply within 10 days of the receipt ofthe Operator’s invitation. A failure to reply within this period shall bedeemed to be notice that the particular non Defaulting Party does not wish tocontribute to the Default Amount. Where the Operator receives acceptances for100% or more (in which case the non Defaulting Parties who accepted are to bedeemed to have accepted such percentage of the Default Amount as is determinedby that Party’s nominated percentage as a factor of the total nominatedpercentage of the non Defaulting Parties) (“Agreed Additional Percentage”) itshall issue a Cash Call to each non Defaulting Party for its Agreed AdditionalPercentage share of the Default Amount and each non Defaulting Party shall paysuch Cash Call within 30 days after receipt thereof.


16.4                        Alternatively,if the non Defaulting Parties respond or are deemed to have responded to theOperator’s invitation under Article-16.3 by accepting less than 100% of thedefault amount then notwithstanding Article-16.3, the Operator shall issue aCash Call to each non Defaulting Party for its Percentage Interest share of theDefault Amount and each non Defaulting Party shall pay such Cash Call within 30days after receipt thereof.


16.5                        Anynon Defaulting Party which does not pay a Cash Call rendered to that Party bythe Operator under either Article-16.3 or 16.4, shall itself become aDefaulting Party.


16.6                        In theevent of a Squeeze Down, the non Defaulting Parties’ Percentage Interests shallbe adjusted to reflect such Squeeze Down and their respective payments, if any,of some or all of the Default Amount.


16.7                        Theadjustments called for in Sections 16.2 and 16.6 hereof shall be made on termssubstantially similar to those found in Section 20.7 hereof.




17.1                        EachParty shall be entitled to receive full details of all Information received ordeveloped by the Operator in the course of JV Activities but limited to onecopy of final reports in the same format and quality as submitted to Pertamina,seismic sections and well logs. Any additional information shall be supplied bythe Operator at the costs of the Party requesting that information subject toany Pertamina rules or regulations affecting the distribution of same.




17.2                        TheOperator shall provide each Party with daily drilling reports in a form andcontent acceptable to Pertamina and the Joint Venture in respect of each welldrilled in the course of JV Activities together with a well completion reportin the same form as that delivered to Pertamina.


17.3                        TheParties may make public announcements and statements with respect to JVActivities subject to prior written approval of Pertamina as and when requiredby Pertamina regulations.


17.4                        TheOperator shall keep the other Parties fully informed by means of reports as tothe progress of Exploration JV Activities and all relevant Information derivedtherefrom. Such reports shall be furnished by the Operator at quarterlyintervals and shall include a general description of the Operator’s plan forthe next quarter.


17.5                        TheOperator shall keep the other Parties fully informed of any information relatingto the Joint Venture which might cause loss to the Parties.


17.6                        EachParty at its own cost and risk may at all reasonable times and on reasonablenotice to the Operator by its servants or agents enter the JV Area to inspectall operations and activities thereon.


17.7                        TheOperator shall make all reports required by Pertamina under the Permit in atimely manner.




18.1                        AllInformation obtained from Pertamina and all Information gathered by the Partiesrelating to the Permit area shall be confidential in accordance with the termsof the PSC and prevailing Pertamina regulations. The Information will not bedisclosed by a Party without the written consent of the other Parties. Theconsent shall be given or denied promptly but shall not be unreasonablywithheld. The Information may be furnished without consent by a Party to:


(a)                                  aRelated Body Corporate;


(b)                                 anygovernment having lawful jurisdiction over a Party and being entitled to suchinformation;


(c)                                  anystock exchange on which shares or other securities of the Party or a RelatedBody Corporate are listed when required by regulations of that stock exchangeprovided that the Parties shall use their best endeavors to agree on thewording of any statement or announcement to the stock exchange;


(d)                                 personsduring bona fide negotiations for the purchase of any of the Parties’Percentage Interest, separately or as part of the sale of its shares or theshares of its holding company or of a sale of assets of such Party;


(e)                                  financialand lending institutions or other third parties for the purpose of acquiringfinance;


(f)                                    independentconsultants and contractors of a Party whose duties in relation to the JointVenture reasonably require such disclosure;


(g)                                 independentaccountants or legal counsel engaged by a Party to give advice on mattersrelating to this Agreement; and


(h)                                 itsshareholders or other owners.


18.2                        Thedisclosing Party under Article-18.1 above, clauses(a), (d) and (e) shall,before disclosure, ensure that the recipient undertakes to keep the Informationconfidential at least to the same degree as provided in this clause by theexecution of a binding document which any Party to this Agreement will be ableto enforce. Notice will be given to the other Parties of the proposeddisclosure of the Information to the persons listed in clauses(b) and (c), andof the disclosure of the Information to persons referred to in clauses (d) and(e) after the sale has been made or the finance acquired. The Parties willendeavor to limit the amount of Information disclosed to persons under clauses(b), (c), (d), (e) and (f) to the extent reasonably required to accomplish thedesired purpose.




19.1                        TheOperator shall maintain all insurance required by Pertamina or by any applicableLaw or by the terms of any contract relating thereto (“Required Insurance”) andall insurance, other than Required Insurance, as the Parties may




from time totime determine that the Operator shall effect on their behalf for the JointAccount (“Determined Insurance”).


19.2                        Withrespect to any policy of Determined Insurance, any Party may elect not toparticipate as a co-insured provided that such Party:


(a)                                  givesprompt notice of its non-participation to the Operator;


(b)                                 doesnothing which may interfere, directly or indirectly, with the Operator’splacement of such insurance for the other Parties;


(c)                                  effectsand maintains, in proportion to its undivided interest, such insurance or otherevidence of financial responsibility against the risk covered by DeterminedInsurance as the Committee may determine to be acceptable; and


(d)                                 arrangesfor such policies to be endorsed with waivers of subrogation in favor of allthe other Parties but with respect only to Joint Venture activities and forsuch policies to be subject to the conditions that they shall not be cancelled,amended or varied, or permitted to expire or lapse, without, in each instance,the insurer first having given to the other Parties not less than 14 days priornotice of its intention so to do.


19.3                        Inrespect of each policy of Required Insurance and Determined Insurance, theOperator shall:


(a)                                  uponrequest, provide any Party participating in that policy of insurance with acopy of that policy and evidence that it is current;


(b)                                 arrangefor the Parties participating therein to be named co-insured and for theendorsement of such policies with waivers of subrogation in favor of all theother Parties, but with respect only to the Joint Venture Activities; and


(c)                                  assoon as practicable, pursue claims and collect the proceeds which shall becredited to Parties in proportion to their respective interests in suchinsurance. Any settlement of a claim exceeding $25,000shall require the approval of the Committee.


19.4                        EachParty may, for its own account and at its own expense, obtain such additionalinsurance as it thinks fit, provided that the obtaining of such additionalinsurance shall not in any way interfere with the Operator’s placement ofRequired Insurance or Determined Insurance or prejudice such insurance whenplaced.


19.5                        TheOperator shall require contractors and subcontractors performing work inrespect of JV Activities to effect and maintain all insurance pertaining tosuch work which are required by virtue of any applicable Regulation or theterms of any contract relating thereto and such other insurance as theCommittee directs, or, in the absence of such a direction, as the Operatorthinks advisable, after consultation with all Parties. Insurance effectedpursuant to this Article-(e) shall provide for waivers of subrogation by theinsurer in favor of the Parties and shall be subject to the condition that theyshall not be cancelled, amended or varied, or permitted to expire or elapse,without, in each instance, the insurer first giving the Parties not less than14 days prior notice of its intention so to do.




20.1                        If aParty wishes to withdraw within ninety (90) days after the signature hereofthen the provisions of this Article-20 shall not apply and the provisions ofthe withdrawing Party’s Farm Out Agreements shall prevail.


20.2                        Subjectto Article-20.1 hereof a Party may withdraw from the Joint Venture:


(a)                                  bygiving a Withdrawal Notice to the other Parties not less than 30 days prior tothe expiration of the Permit Year then current;


(b)                                 ifa Party other than the Party giving a Withdrawal Notice under Article-20.2(a)above, by giving a Withdrawal Notice to the other Parties within 5 days after receipt of the noticereferred to in Article-20.2(a); or




(c)                                  bygiving a Withdrawal Notice to the other Parties within 5 days of approval of aWork Program and Budget in accordance with Article-12.5 hereof.


20.3                        If aParty gives a Withdrawal Notice to the other Parties in accordance with theprovisions of Articles-20.2(a) or 20.2(b) hereof, then subject to any approvalrequired from Pertamina, withdrawal will be effective upon expiration of thePermit Year current on the date of the Withdrawal Notice or completion of theWork Period current on the date of the Withdrawal Notice, whichever is later.


20.4                        If aParty gives a Withdrawal Notice to the other Parties in accordance with theprovisions of Article-20.2(c), withdrawal will be effective upon the expirationof the current Work Period.


20.5                        AWithdrawing Party shall not after the date of withdrawal, be entitled to voteon any matter with respect to the Joint Venture except to the extent only thatwork to the cost of which it is contributing will be affected by its vote.


20.6                        AWithdrawing Party shall remain liable for payment of any amount which theOperator has called or is entitled to call upon it to pay in accordance withthis Agreement and for its proportion of JV Costs in respect of the approvedWork Program for the Work Period current on the date on which the WithdrawalNotice was given, but shall have no further obligation after the effective dateof withdrawal.


20.7                        AWithdrawing Party shall on the effective date of withdrawal, be deemed to haveassigned to the other Parties in proportion to their respective PercentageInterests, all the right title and interest of the Withdrawing Party in termsof this Agreement and in the Permit and to any Petroleum contained within thePermit and in all JV Property and shall at its cost do all acts, matters andthings reasonably required by the other Parties in order to give full effect tothe assignment, including executing forms of transfer and making appropriateapplications to Pertamina.


20.8                        AWithdrawing Party shall, pending any necessary completion of assignment of itsright, title and interest under this Agreement and in the JV Property, holdsuch right, title and interest in trust for the other Parties.


20.9                        A WithdrawingParty shall on the effective date of withdrawal and subject to the provisionsof this Agreement, be released from and indemnified by the other Partiesagainst all obligations arising in terms of this Agreement or otherwise, withrespect to the Permit, except so far as such obligations may have been incurredor accrued as a result of events which took place prior to the effect date ofwithdrawal.


20.10                 In the eventthe JV Participants choose to withdraw entirely from the PSC or permit it toterminate in accordance with the provisions thereof, the JV Participants shallbe obligated to turn back their interest in the PSC to the original ApexBengara vendors in proportion to the Apex Bengara vendors ownership at the timeof their sale of Apex Bengara stock to CEC.




21.1                        Forthe purposes of this clause, “encumbrance” means any mortgage, charge, lien,writ or other encumbrance or third party interest.


21.2                        AParty shall not create or permit the creation of an encumbrance over the wholeor part of its Percentage Interest without the prior written consent of theother Parties which shall not be unreasonably withheld.


21.3                        Itshall be a condition contained in any encumbrance created by a Party inaccordance with this clause that any sale, assignment or foreclosure by way ofan exercise of rights by the person taking the encumbrance pursuant to theterms of the encumbrance shall be subject to compliance with the provisions ofArticle-11 relating to transfers of Percentage Interests.




22.1                        Within60 days after establishment of a Discovery Well, the Committee shall decidewhether such Discovery Well requires the carrying out of Appraisal Operations.


22.2                        If theCommittee decides that Appraisal Operations shall be carried out, the Operatorshall within 60 days after such decision submit to the Committee a Work Programand Budget for the conduct of Appraisal Operations (“Appraisal




Program and Budget”), covering such period asthe Operator deems advisable or as the Committee directs. Within 30 days ofsuch submission, the Committee shall decide upon an Appraisal Program andBudget.


22.3                        Within3 months after Appraisal Operations are carried out pursuant to this part, theOperator shall submit to all the Parties a report giving details as to allInformation derived from such Appraisal Operations. Within 30 days after suchsubmission the Committee may decide to proceed with a feasibility study inaccordance with the provisions of this clause or decide to carry outsupplementary Appraisal Operations.


22.4                        If theCommittee decides to proceed with a feasibility study, the Operator shallwithin 6 months prepare the feasibility study, which shall cover withoutlimiting the generality of the study:


(a)                                  thedevelopment, production, transportation and treatment (if any) of theproduction of the Petroleum Pool;


(b)                                 anitemized estimate of the JV Costs to be incurred and facilities required;


(c)                                  aplan for financing;


(d)                                 apreliminary plan for the development of the Petroleum Pool; and


(e)                                  thedelineation of the Petroleum Pool.


22.5                        Uponcompletion of any feasibility study, the Operator shall forthwith submit a copythereof to each Party, the cost of such copies to be charged to the JointVenture. From the date of such submission the Parties shall have 60 days (orsuch longer period as the Parties may agree) to consider the feasibility studyand to propose to each other alterations, amendments and additions thereto.Within that period, a meeting of the Committee shall be convened for thepurpose of settling the feasibility study and deciding and planning thedevelopment of the Petroleum Pool on the basis thereof.




23.1                        Within30 days of receiving Pertamina’s approval of a “Plan of Development” giving theOperator permission to proceed with the commercial exploitation and productionof Petroleum from within the Permit Area the Parties shall meet for thepurposes of deciding whether this JOA is in need of modification, amendment orrestatement in view of the approved POD and anticipated development.


23.2                        Untilsuch time as the Parties thereafter decide and do implement any changes to thisJOA in contemplation of such production then this JOA shall remain in fullforce and effect and shall extend to and continue to govern the Parties and theJoint Venture with respect to any production ventures undertaken provided that:


(a)                                  JVActivities shall include all activities necessary, expedient or ancillary to theconduct of Production Operations, including the construction of terminals,tanks, pipelines, facilities and infrastructure and these and all otherPetroleum exploitation, development and production costs shall be included inJV Costs and the JV Accounts and shall be paid for by the Parties in respect totheir Percentage Interest in the Joint Venture;


(b)                                 eachParty shall, as tenant in common, own an undivided interest and share in all ofthe Petroleum produced from the Permit Area and available to the Joint Venturein accordance the terms and conditions of the Permit, applicable Indonesian TaxLaw and in a proportion equivalent to such Party’s Percentage Interest inaccordance with the terms and conditions of this JOA;


(c)                                  eachParty shall be responsible for paying its Percentage Interest share, asapplicable, of all entitlements due Pertamina pursuant to the PSC and all taxesdue Indonesian tax authorities that are allocable, deductible or payable inrespect of all Petroleum produced from the Permit Area;


(d)                                 theOperator shall advise the Parties daily of Petroleum production rates,cumulative production and the amount of Petroleum attributable to each Partytogether with an estimation of each Party’s respective share of suchproduction, its costs, applicable taxes and distributions at the next period;


(e)                                  atsuch time as production commences in the Permit Area, the Parties shallnegotiate in good faith and enter into a crude oil and natural gas offtakeprocedure agreement; until such agreement is entered into each Party




shall be entitled to take in kind andseparately sell or dispose of its Percentage Interest share of all Petroleumproduction derived from the Permit Area, in proportion to its respectivePercentage Interest;


(f)                                    notwithstandingany other thing herein to the contrary, each Party shall have an absolute rightto direct that its share of any third party payment be made to its own accountand not to any JV account.




24.1                        Subjectto the provisions of this Part, a Party (“Proposing Party”) may give to theother Parties (“Receiving Parties”) and the Operator a notice (“Sole RiskNotice”) stating that Party’s intention to carry out a Sole Risk Operation andstating the proposed location, purpose and estimated cost of the Sole RiskOperation.


24.2                        A SoleRisk Operation may comprise any of the following:


(a)                                  drillingan Exploration Well;


(b)                                 deepening,re-working, sidetracking, testing or completing an Appraisal Well or anExploration Well; or


(c)                                  drillingan Appraisal Well.


24.3                        AParty shall not give a Sole Risk Notice if any of the following conditionsexist:


(a)                                  thework proposed to be carried out under the Sole Risk Operation is included in aWork Program and Budget for JV Activities previously approved by the Committeebut not yet carried out;


(b)                                 anywork is being carried out or has been proposed or included in an approved WorkProgram and Budget for JV Activities which has the same objective as the workin respect of which a Sole Risk Notice is desired to be given; or


(c)                                  thework proposed is part of the Work Obligation.


24.4                        AParty may give a Sole Risk Notice only if the activities covered by the SoleRisk Notice have been proposed to the Committee and the Committee has resolvednot to carry out those activities as JV Activities. A Sole Risk Notice shall beeffective only if it is given within the following periods:


(a)                                  wherethe proposed Sole Risk Operation is the drilling of an Exploration Well or anAppraisal Well, within 30 days after the decision of the Committee not to carryout the proposed activities as JV Activities; or


(b)                                 wherethe proposed Sole Risk Operation is the deepening reworking sidetracking,testing or completing of an Appraisal Well or an Exploration Well, prior tocommencement of operations to abandon the well.


24.5                        Within30 days after receipt of the Sole Risk Notice, each Receiving Party shall givenotice to the Proposing Party whether that Receiving Party will participate inthe Sole Risk Operation, failing which that Receiving Party shall be deemed tohave given notice to the Proposing Party that it will not participate in theSole Risk Operation.


24.6                        Wherea drilling rig is on the location of the well, the time to respond to a SoleRisk Notice with respect to deepening, reworking, sidetracking or testing orcompleting of the well shall be reduced to 48 hours, after which rig time shallbe at the expense of the SR-Parties PROVIDED HOWEVER that if the Sole RiskOperation is not carried out, the same additional expense shall be borne by theProposing Party.


24.7                        EachParty electing to participate in the Sole Risk Operation shall be a SR-Party.


24.8                        The SR-Partiesshall be associated in a Sole Risk Venture on the following terms:


(a)                                  thepurpose of the Sole Risk Venture shall be to carry out the Sole Risk Operation;


(b)                                 eachParty shall have an SR-Interest equal to the proportion that its PercentageInterest bears to the aggregate Percentage Interests of all of the SR-Parties;




(c)                                  theSR-Parties shall pay all costs and expenses and bear all liabilities incurredin connection with the Sole Risk Operation in proportion to their respective SR-Interests;


(d)                                 exceptas otherwise provided, the relationship between the SR-Parties in relation tothe Sole Risk Venture shall be governed by the terms of this Agreement, mutatismutandis.


24.9                        Assoon as the SR-Parties have been determined in accordance with this clause, theOperator shall forthwith give notice to all the SR-Parties how the costs, risksand liabilities of the Sole Risk Operation will be shared, and may thereaftercommence the Sole Risk Operation.


24.10                 Sole RiskOperations shall not be commenced more than 180 days after the Sole Risk Noticewith respect thereto was given PROVIDED THAT a Sole Risk Notice may again begiven for the same Sole Risk Operation within or after the expiration of thesaid 180 day period.


24.11                 If followingthe giving of a Sole Risk Notice all Parties elect to participate, the proposedoperation shall be conducted by the Operator as JV Activities, and the WorkProgram and Budget for the then current Work Period shall be revisedaccordingly.




25.1                        If theSole Risk Operation is the drilling of a well and if the operation results indiscovery of Petroleum in Paying Quantities, then the following provisionsshall apply:


(a)                                  ifthe well is completed for production, the SR-Parties shall separately beentitled to take all Petroleum production derived therefrom by any ProductionVenture in proportion to their SR-Interests until the Net Value of thePetroleum so taken equals 100% (One Hundred Percent) of the SR-Costs incurredby the SR-Parties in relation to that well;


(b)                                 ifthe well is not completed for production, the SR-Parties shall separately beentitled to take all Petroleum production derived by any Production Venturefrom any and all subsequent wells completed for production in the samePetroleum Pool until the Net Value thereof equals 100% of the SR-Costs incurredby the SR-Parties in relation to that well; and


(c)                                  whetheror not the well is completed for production the SR-Parties shall, afterrecovery of the aforesaid 100% (One Hundred Percent) of SR-Costs, be entitledto receive all further Petroleum production (“Premium Share of Production”)derived by any Production Venture from such well and any and all subsequentwells completed for production in the same Petroleum Pool until the Net Valuethereof is an amount equal to 500% (Five Hundred Percent) in the case of anExploration Well and 500% (Five Hundred Percent) in the case of an AppraisalWell of the SR-Costs incurred by the SR-Parties in relation to that well.




26.1                        If theSole Risk Operation is the deepening, reworking, side tracking, completion ortesting of a well, and if the operation results in the discovery of Petroleumin Paying Quantities, then the SR-Parties shall be entitled to take allPetroleum production derived by any Production Venture from the well until theNet Value of the Petroleum production so taken equals 500% (Five HundredPercent) of the SR-Costs incurred by the SR-Parties in relation to thatoperation.


26.2                        If theSole Risk Operation is the deepening of a well, the following provisions shallapply:-


(a)                                  ifthe initial drilling of that well up to a depth at which deepening operationscommenced (“Initial Depth”) was also carried out as a Sole Risk Operation, thenthe Non-SR-Parties in the drilling to the Initial Depth shall nevertheless havethe right to participate in the deepening operation in proportion to theirrespective SR-Interests in the deepening operation;


(b)                                 ifthe deepening does not result in the discovery of Petroleum in Paying Quantities,the SR-Parties who participated in the deepening but not in the drilling of thewell to the Initial Depth shall have no obligation to contribute to the costsof drilling the well to the Initial Depth (except as to costs of materials,supplies and equipment assumed by the deepening Parties); and




(c)                                  ifthe deepening operation results in the discovery of Petroleum in PayingQuantities, the SR-Parties participating in the completion of the well for thetaking of Petroleum production from a formation into which the well was drilledas part of the deepening operation shall reimburse in cash to the SR-Partiesparticipating in the drilling of the well to the Initial Depth, 100% (OneHundred Percent) of the SR-Costs incurred in drilling the well to the InitialDepth.


26.3                        A SoleRisk Notice for a deepening, reworking or side-tracking operation may be givenwith respect to a well producing or capable of producing Petroleum in PayingQuantities and, in that event, the following provisions shall apply:


(a)                                  indrilling beyond the point where the well is or may be productive in PayingQuantities, the deepening Parties will protect the hole so that the well can beplugged back to the depth at which the presence of Petroleum in PayingQuantities was found or suspected;


(b)                                 thedeepening Parties shall, if the deepening does not result in the discovery ofPetroleum in Paying Quantities, plug back the well at the sole risk and expenseof the deepening Parties to the point at which Petroleum was discovered orsuspect in Paying Quantities, if at least one of the Parties so requires; or


(c)                                  shouldthe well be capable of producing Petroleum in Paying Quantities from both aboveand below the depth at which the deepening operation began and one or more ofthe respective Parties entitled to attempt to complete the well in therespective productive formations wish to do so, the respective SR-Parties willco-operate in causing the well to be duly completed. If this is not possible orfeasible in accordance with good engineering practice, then completion shall bemade in the formation within the originally proposed depth provided that suchcompletion is in accordance with good engineering practice.




27.1                        Notwithstandingthe foregoing, a Non-SR-Party may at any time pay to the SR-Parties an amountin cash in lieu of the SR-Costs and the premium share of production otherwiserecoverable by the SR-Parties under this Agreement. If such payments dischargein full 500% (Five Hundred Percent) of SR- Costs, the Non-SR-Party shallthereafter be entitled to take its proportionate share of Production.


27.2                        Duringthe period that SR-Parties are taking Petroleum production to the exclusion ofNon-SR-Parties pursuant to this Agreement, the SR-Operator shall supply allParties with monthly statements showing the amount of Production taken by theSR-Parties during the relevant month, the Net Value thereof and the amountstill to be recovered by the SR-Parties. The SR-Parties shall provide the SR-Operatorwith sufficient information to allow the SR-Operator to supply the monthlystatements.


27.3                        The SR-Partiesshall indemnify and hold harmless the Non-SR-Parties from all costs, expenses,suits, claims, liens, liabilities and losses resulting from the carrying out ofthe Sole Risk Operation.


27.4                        The SR-Partiesshall ensure that the Sole Risk Operation is carried out with reasonable careskill and diligence, in accordance with good exploration and oilfield practiceand in compliance with all relevant laws and regulations and the requirementsof all relevant authorities.


27.5                        If anySole Risk Operation results in a dry hole, the SR-Operator shall plug andabandon the well in accordance with the Pertamina regulations at the cost ofthe SR-Parties.


27.6                        In theevent the Joint Venture is able to recover any SR Costs from Pertamina, suchcosts will be treated the same as the recovery of any other costs and will beallocated to the Parties pursuant to their respective Percentage Interests.




28.1                        Withoutderogating from the other provisions of this Agreement, any dispute ordifference which shall arise between any of the Parties in respect of anytechnical matter or any matter requiring the exercise of professional orspecialized knowledge and expertise in the field of Petroleum exploration,shall be referred to an independent expert unless the Parties who are Party tothe dispute otherwise unanimously agree. Any Party may by notice in writing tothe others specify the nature of the dispute and call for submission to anindependent expert.




28.2                        Theexpert shall have a reasonable commercial and practical experience in the areaof dispute and shall be required to undertake to keep confidential matterscoming to his knowledge by reason of his appointment and carrying it out.


28.3                        Theexpert shall have the following powers:


(a)                                  toinform himself independently as to facts and if necessary technical matters towhich the dispute relates;


(b)                                 toreceive written submissions sworn and unsworn written statements and photocopydocuments and to act upon the same; and


(c)                                  totake such measures as he thinks fit to expedite the completion of the disputeresolution including finding adversely to any Party who fails to comply with atimetable reasonably set by him.


28.4                        Allnon-technical disputes shall be settled via binding arbitration by a panel ofthree people, chosen jointly by the disputing Parties, each having financialand technical expertise in the oil and gas fields (who need not be attorneys),with the time and place of such arbitration to be determined by the disputingParties.


28.5                        Thedispute resolution shall be held in Jakarta, Indonesia unless the Parties tothe dispute otherwise agree.




29.1                        Subjectto Article-29.2, all litigation in connection with the Permit shall bedefended, carried on and conducted for and on behalf of all Parties by legalpractitioners selected by the Committee, which practitioners shall beinstructed in accordance with the wishes of the Committee. Each Party shallnotify the others of any process served upon it in any action involving thetitle of the Permit of Joint Venture Activities and thereupon the Committeeshall choose legal practitioners to handle such action for the Joint Account.The actual and necessary expense of legal practitioners incurred with respectto the action shall be for the Joint Account. If any Party wishes to employindependent legal practitioners to act on its behalf with respect to theaction, no fee for their services shall be charged to the Joint Account.


29.2                        TheOperator shall have the power, without reference to the Committee, to settleclaims made by third parties as a result of JV Activities up to $50,000.




30.1                        TheJoint Venture shall be deemed to have commenced on the date of this Agreementand, except as set forth herein, shall continue for so long as there areoperations being carried out or contemplated hereunder pursuant to the Permitor any production license granted over any part of the Permit or any extensionsthereof and until all assets jointly owned hereunder have been removed anddisposed of and final settlement made among the Parties. If any interest of anyParty in any of the Permit violates the rule against perpetuities, then suchinterest shall terminate 80 years from the date of commencement of thisAgreement.


30.2                        Ontermination of the Joint Venture, whether by effluxion of time or otherwise,all rights and obligations of the Parties shall cease except


(a)                                  rightsand obligations in respect of any Sole Risk Operation;


(b)                                 thesettlement of any accounts for JV Costs incurred before termination andsettlement of any other liability or obligation incurred before termination orarising out of termination;


(c)                                  theconfidentiality provisions;


(d)                                 theright of a Party to Information; and


(e)                                  obligationsto make payments imposed by the Permit or any agreements or instruments in termsof which the Permit is held and which become payable at any time prior totermination.






31.1                        Theobligations of a Party shall be suspended while such Party is prevented orhindered from complying with the terms of this Agreement by force majeure whichshall include, but not be limited to, strikes, lockouts, labor and civildisturbances, action whether legal or otherwise, by conservation groups orother groups opposed to the conduct of JV Activities in the Permit or itsvicinity on the basis of environmental considerations, acts of God, unavoidableaccidents, laws, rules, regulations, orders or decrees of any national,municipal or other governmental agency, whether domestic or foreign, acts ofwar, or conditions arising out of or attributable to war (declared orundeclared), acts of terrorism, shortage of necessary equipment, materials, orlabor, or restrictions on them, or limitations on their use, inability toobtain necessary consents from any authorities or governments, delays intransportation, claims by traditional landowners, groups or organizationspursuant to legislation or at common law or any other matters beyond thecontrol of such Party, whether similar to the matters listed above orotherwise.


31.2                        NoParty shall be entitled to the benefit of the provisions of this clause if theevent of force majeure is caused by lack of funds, or by the negligence of theParty claiming suspension.


31.3                        Ifforce majeure causes a suspension of the obligations of any Party, such Partyshall give notice of suspension as soon as reasonably possible to the otherParties stating the date and extent of such suspension, whether in whole or inpart, and the nature of the force majeure. Any Party whose obligations havebeen suspended shall resume the performance of such obligations as soon asreasonably possible after the removal of the force majeure and shall so notifythe other Parties.




32.1                        If atany time as required under the PSC a relinquishment or surrender of any portionof the Permit Area is required, the Operator shall give timely written noticeto the Committee, setting forth in detail the reasons for and a description ofthe areas which the Operator suggests be so surrendered in compliance with suchrequirement. The Committee shall consider all matters relevant to the questionof such renouncement or surrender and shall, within one month (or such shorterperiod of time as may be required by Pertamina), determine and notify Operatorin writing of the decision to be carried out.


32.2                        Notlater than 180 days prior to the expiration of any particular period or term asmay be applicable under the PSC and the Permit, the Parties shall meet todiscuss whether an application to extend such period or term of the PSC or thePermit should be made or should be allowed to lapse. The Parties that vote notto extend the Permit shall simultaneously therewith serve a Withdrawal Noticeto the Operator and the other Parties in accordance with the provisions hereof.The Parties that vote to renew the Permit shall determine the terms andconditions for which such extension is sought and the acceptable work andexpenditure commitments therefor. Thereafter, the Operator shall on behalf ofthe continuing Parties shall make all such applications and execute all suchdocuments as may be necessary or expedient to extend the term of the Permit forthe Joint Venture then to consist only of the Parties agreeing to theconditions of such extension still subject to the provisions hereof.




33.1                        Anynotice given in connection with this Agreement shall be delivered by hand; orbe sent by prepaid registered post; or by prepaid courier or be sent byfacsimile.


33.2                        Noticesto a Party shall be addressed in accordance with such postal or facsimileparticulars as may be notified by that Party to the other Parties from time totime, and at the date of execution of this Agreement are as follows:


JV Participant






Suite 1760, 505 Burrard Street

3rd Floor Ampera Raya Building

Vancouver, V6B-2M8

Jl. Ampera Raya 18

British Columbia, CANADA

Jakarta, 12560, INDONESIA

Tel: 1-604-687-3434

Tel: 62-21-782-7114

Fax: 1-604-687-3073

Fax: 62-21-780-4752




JV Participant




Suit 400, One Maritime Plaza


San Francisco, CA, 94111, USA


Tel: 1-415-398-8186


Fax: 1-415-398-9227



33.3                        Anotice shall be deemed to have been duly given if delivered on the date ofdelivery or if sent by facsimile, on the day following the day the facsimile istransmitted.


33.4                        ThisAgreement constitutes the entire contract and supersedes all other agreementsand understandings between the Parties with regard to the matters dealt with inthis Agreement and no representations, terms, conditions or warranties notcontained in this Agreement shall be binding on the Parties.


33.5                        Noagreement varying, adding to, deleting from or canceling this Agreement, shallbe effective unless reduced to writing and signed by or on behalf of theParties.


33.6                        Noindulgence granted by a Party shall constitute a waiver of any of that Party’srights under this Agreement; accordingly, that Party shall not be precluded, asa consequence of having granted such indulgence, from exercising any rightsagainst the other which may have arisen in the past or which may arise in thefuture.


33.7                        EachParty warrants that it has all necessary authorizations and approvals to executethis Agreement.


33.8                        Theprovisions of this Agreement shall inure for the benefit of and be binding uponthe Parties and their respective successors and permitted assigns.


33.9                        ThisAgreement shall be governed and interpreted in accordance with the laws fromtime to time in force in the British Virgin Islands.


33.10                 The costs ofand incidental to the preparation of this Agreement including stamp duty shallbe JV Costs.




IN WITNESS WHEREOFthe Parties hereto have caused their duly authorized representatives to heretoset their hand and hereby bind the Parties effective on the date first abovewritten.


EXECUTED by the Parties as follows:


SIGNED for and on behalf of APEX BENGARA

by its duly authorized officer in the presence of:


SIGNED & Common Seal affixed by authority of
the Board of Directors, for and on behalf of
Apex Bengara in its capacity as Operator &
Party hereto, by:




Name of Witness:



Occupation of Witness:








)                           /s/ RICHARD L. MCADOO




Address of Witness:









SIGNED for and on behalf of CEC

by its duly authorized officer in the presence of:


SIGNED & Common Seal affixed by authority of
the Board of Directors, for and on behalf of
CEC, in its capacity as a JV Participant & Party
hereto by:





Name of Witness:



Occupation of Witness:








)                                /s/ GARY R. SCHELL




Address of Witness:









SIGNED for and on behalf of GEOPETRO

by its duly authorized officer in the presence of:


SIGNED & Common Seal affixed by authority of the
Board of Directors, for and on behalf of GEOPETRO
in its capacity as a JV Participant & Party hereto by:




Name of Witness:



Occupation of Witness:









Address of Witness:


)                                     /s/ STUART J. DOSHI













Annex—“A”to the Joint Operating Agreement

TheBengara-II JV Accounting Procedure


























































































Annex—“A”to the Joint Operating Agreement


TheBengara-II JV Accounting Procedure




(a)                                  This JV AccountingProcedure is made subordinate to that PSC Accounting Procedure included asExhibit-C to the Bengara-II PSC. The Operator is obliged and shall continue tobe obliged to follow the PSC Accounting Procedure and prepare and file withPertamina all accounting Records, reports and financial statements as requiredby and in the manner provided for in the PSC Accounting Procedure and otherPertamina policies and regulations from time to time changed but currently ineffect.


(b)                                 The chart of accountsthat the Operator shall use in preparation of all Joint Account accountingRecords and statements and form of financial reporting statements shall bethose prescribed by Pertamina in accordance with the provisions of Section-1.2of the PSC Accounting Procedure.


(c)                                  The JV Participantsshall all be entitled to receive, and Operator shall deliver to them, a copy ofany and all reports, financial statements, plans, budgets or other accountingstatements and records prepared by Operator for delivery to Pertamina inaccordance with Operator’s obligations thereto.


(d)                                 The Operator shallalso separately provide to the JV Participants the statements, billings,accounts and Records as provided for herein and in the manner prescribed bythis JV Accounting Procedure.


(e)                                  To the extentpossible and in a manner not to become unduly burdensome on the Operator theOperator shall also endeavor to provide the JV Participants with working papersand information they may need to prepare their own respective internalaccounts.






Words and expressions that are defined in theAgreement have the same meaning in this Accounting Procedure as ascribed to themin the Agreement. Words and expressions that are defined in the PSC or theExhibit C to the PSC, the PSC Accounting Procedure, have the same meaning inthis Accounting Procedure as ascribed to them in the PSC Accounting Procedure.In this Accounting Procedure the following terms enclosed in quotation marksshall have the meaning ascribed to them below:


“Agreement”means the Joint Operating Agreement of which this Accounting Procedure forms apart;


“Capital Costs”has the meaning ascribed to in paragraph-19 of this JV Accounting Procedure;


“Cost Price”means the total actual cost of new materials which shall be the “landed’ or “local’costs of such new materials and shall include, as applicable, net invoiceprices after trade and cash discounts, sales and added value taxes, insurancecosts, handling, import and transportation costs to the JV Activitieswarehouse, customs and excise fees and duties and like items chargeable againstthe materials, purchasing, shipping and forwarding service fees and all othercosts incurred by the Operator in procuring delivery of the materials into a JVActivities warehouse or delivery direct to the site of such material’sdeployment, use or installation.


“Joint Account”has the meaning ascribed to it in Article-1.1 of the JOA and is deemed to referto any bank account opened and controlled by the Operator for the purposes ofthe Joint Venture, JV Activities, receipt of Cash Calls and disbursements ofpayments for JV Costs;


“JointInterest Billing” or “JIB” has the meaning ascribed to it in paragraph 6(a)below;


“JV Costs” hasthe meaning ascribed to it in Article-1.1 of the JOA;


“JVParticipant” means a Party to this JOA who also owns a Percentage Interestshare of the Joint Venture. Apex Bengara, as Operator, is a Party to this JOAbut is not a JV Participant;




“JV Property”has the meaning ascribed to it in Article-1.1 of the JOA, subject expressly tothe provisions for Pertamina ownership of same as per the Bengara-II PSC,Section-X;


“Non-CapitalCosts” has the meaning ascribed to in paragraph-19 of this JV AccountingProcedure;


“Non-OperatingParties” means the parties other than the Operator;


“OperatingCosts” has the meaning ascribed to in paragraph-19 of this JV AccountingProcedure;


“PSC Costs”has the meaning ascribed to it in Article-1.1 of the JOA;


“Records” hasthe meaning ascribed to it in Article-1.1 of the JOA; and


“Unused MarketPrice” for any item of materials as used in this JV Accounting Procedures shallmean the price (including sales tax, if any) for that particular item ofmaterials readily obtainable in the locality of the purchaser’s supply point atthe time of supply of that item of materials to the purchaser.




Interpretation of this JV AccountingProcedure shall be made in accordance with the following:


Reference toany Article is to an Article of the Agreement.


Reference toany paragraph is to a paragraph in this Accounting Procedure.


Reference toany Section is to a Section of the PSC or the PSC Accounting Procedure.


In the eventof a conflict between the provisions of this Accounting Procedure and theprovisions of the Agreement the latter shall prevail.




This Accounting Procedure sets forth theprocedures to be followed in maintaining proper control and detailed records ofthe accounting required under the Agreement. It also sets forth the charges andcredits attributable to the JV Activities in order to establish the amountsowing between the Parties and to ensure that any particular item cannot berecovered twice by the Operator. It shall truly reflect the Operator’s actualcost to the end that the Operator shall neither gain nor lose by reason of thefact that it acts as the Operator.




(f)                                    The Operator willmaintain and keep Records and Joint Accounts based on the Operator’s andPertamina’s usual accounting procedures and classifications and in accordancewith generally accepted accounting principles in the Petroleum Industry inIndonesia, and with U.S. generally accepted accounting principles andaccounting standards consistently applied. All transactions in respect of theJV Activities shall be recorded in the Joint Account in both United Statesdollars currency and Indonesian Rupiah currency and converted to US dollarcurrency for reporting purposes.


(g)                                 Each Party isresponsible for its own accounting records required by law or to support itsincome tax or similar tax returns. To enable each Party to comply with itsstatutory and corporate requirements, the Operator shall provide such data andinformation as may reasonably be expected to be available from the accountingrecords maintained by the Operator, and the cost thereof shall be for the JointAccount.


(h)                                 Nothing contained inthe Agreement or this Accounting Procedure shall be construed as an election bya Party with respect to any matter under the tax laws or other laws of anyjurisdiction, or as an election with respect to any method of accounting forthe purpose of accounting to any government, or any subdivision or agencythereof, or as an election for any other purpose except as required of suchParty to conform to and comply with the PSC, Indonesian Tax Law, the PSCAccounting Procedure and this JV Accounting Procedure as such affects the Party’sJoint Venture participation.






(a)                                  Solely in accordancewith the approved budgets or AFE’s the Operator may “Cash Call” forward “CashAdvances” from all (but not less than all) Parties who are also JV Participantsfor their respective JV Percentage Interest share of estimated cashrequirements for the succeeding period’s operations.


(b)                                 The Operator is not aJV Participant and shall not under any circumstances be required to fund CashCalls or make Cash Advances of any kind to the Joint Account at Operator’s solecost.


(c)                                  The Operator may makeroutine periodic Cash Calls on a periodic basis determined from time to time bythe Committee in consideration of the level of anticipated JV Activity andnormally expected to be either monthly or quarterly. Unless another period isset by the Committee and in effect the Operator shall make Cash Calls on acalendar monthly basis.


(d)                                 Any Cash Call shall bein and of a form approved by the Committee which shall specify details as tothe amount of each JV Participant’s Cash Advance contribution called, wiretransfer delivery instructions and a discussion as to what Budget and WorkProgram items the requested advance and corresponding expenditure relates to,the expected time schedule of expenditure and a Cash Call shall include theOperator’s best estimate and forecast of the amount of cash that will berequired from the JV Participant for the next period’s Cash Call to follow.


(e)                                  Cash Calls shall beprepared by Operator and delivered by fax or email to each JV Participant on abusiness day equivalent to either the 14th, 15th or 16thday of each month (or the first month of a quarter if quarterly Cash Calls arein effect) and such Cash Calls shall be paid and the requested Cash Advance bedelivered to the Operator controlled Joint Account designated in the Cash Callby each JV Participant no later than the 15th day of the followingmonth and each JV Participant shall dispatch a fax advice to the Operator,giving details of Cash Advances so made.


(f)                                    Should the Operatorbe required to pay any large sum of money in relation to JV Activities, whichwere unforeseen at the time of providing the JV Participants with the saidmonthly estimate of its requirements, the Operator may request the JVParticipants to make special Cash Advances pursuant to special Cash Callscovering the JV Participants’ proportionate shares of such unforeseen payments.The Operator shall provide the JV Participants with specific details as to thesums of money to be expended, each JV Participant’s contribution to the sameand the anticipated date of expenditure. The JV Participants shall dispatchtheir proportionate special advances within 15 days of receipt of such notice.


(g)                                 The Operator shall notwithout the prior written consent of all JV Participants make Cash Calls uponthe JV Participants if the expenditure to which the Cash Call relates is not tobe expended within at most two months of the date of the Cash Call.


(h)                                 Cash Calls and CashAdvances made pursuant thereto shall be subject to review and adjustment by theOperator’s accounting staff. If any or all of the JV Participants Cash Advancesexceed their actual realized share of actual expenditures, the next succeedingCash Calls, after such determination, shall be reduced accordingly. If a JVParticipant’s advances are determined to be more or less than its share ofactual expenditure, the deficiency shall, at Operator’s option, 1) be adjustedto and offset against subsequent Cash Calls or 2) be the subject of a specialCash Call made to the JV Participant for the purpose and being payable within 5working days following the receipt of the billing for such deficiency, or 3)repaid by Operator to the JV Participant. In each case a statement shall beprovided by the Operator stating details of any variance between amountsadvanced and amounts expended in appropriate classifications.


(i)                                     Subject toparagraph (h) above, if, in the Committee’s opinion, a significant excess ofcash becomes evident, the Operator (which shall endeavor to maintain as low acash balance as is reasonably possible) will advise details of such excess tothe contributors which may elect to have their share of such excess cashreimbursement by the Operator. If any JV Participant so elects the Operatorwill refund all excess funds to all JV Participants entitled to such refunds.




(a)                                  The Operator shall berequired to open, maintain, control and operate, in the name of the Operatorbut on behalf of the Joint Venture, sufficient separate bank accounts inwhatever currency and of whatever type necessary to provide for




and enable Joint Account bank transactions involving Work Programs,Budgets and AFE’s for JV Activities and payment of JV Costs in respect thereof.


(b)                                 The Operator shallmaintain as low a cash balance as reasonably possible in the bank accountsspecified.


(c)                                  Funds in the bankaccounts not immediately needed to pay for JV Costs shall be invested by theOperator for the benefit of the Joint Account in such manner as the Committeemay determine, or failing such determination in an interest bearing depositaccount for the benefit of the JV Participants maintained for such purpose byOperator.


(d)                                 It is the intent thatnone of the JV Participants shall experience an exchange gain or loss at theexpense of, or to the benefit of, the other JV Participants. The JVParticipants upon whom Cash Calls are made shall be required to and herebyagree to deliver their respective share of Cash Advances for credit to theJoint Account at the Operator’s bank account as prescribed in the Cash Call inthe currency of United States dollars and any currency conversion gains orlosses thereon incurred by the JV Participant in accordance with such deliveryshall be for the account of the JV Participant alone. Operator shall furnishthe JV Participants, if required, with sufficient currency exchange data fromOperator’s bank to enable the JV Participants to translate the billings to thecurrency of their corporate accounts.


(e)                                  Any gain or loss oncurrency conversions in respect of transfers between Operator’s JV bankaccounts of differing currencies making up the Joint Account shall be for theJoint Account.


(f)                                    Default interestreceived as required by the Agreement shall be paid to the non-defaulters inproportion to their contribution to the advance or billing respect of which thedefaulter is in default.




(a)                                  Within 40 daysfollowing the end of each calendar month, the accumulated charges and creditsin the Joint Account will be determined, and the Operator will issue a “JointInterest Billing” or “JIB” consisting of three separate financial statements asfollows:


(i)                                     astatement recording actual cash expenditure against Cash Advances, if any, madefor that month;


(ii)                                  aJV Activities statement summarizing all charges and credits incurred by theJoint Account by appropriate classifications indicative of the nature thereofand by AFE or main budget heading as appropriate. Accruals forming part of thecharges shall be allocated to each AFE or main Budget heading. The totalaccruals shall be deducted from total incurred cost to adjust the amounts shownon the statement to a cash expenditure basis.


(iii)                               astatement of source and application of funds in each currency in which CashAdvances and Joint Account expenditures have been made.


(b)                                 The Operator shallwithin 30 days following the end of each calendar year provide the Parties witha list of insurance and other claims and litigation outstanding as at the endof the previous year.




(a)                                  Payment of advances andbilling statements shall not prejudice the right of a Party to protest orquestion the correctness thereof provided however, all Cash Calls and billingstatements rendered to a Party by the Operator during any Permit Year shall,save in the case of fraud or bad faith, conclusively be presumed to be true andcorrect after 24 months following the end of any such Permit Year unless withinthe said 24 month period a party takes written exception thereto and makesclaim on the Operator for adjustment. The provisions of this paragraph shallnot prevent adjustments resulting from physical inventory.


(b)                                 The Committee shallappoint an outside and independent auditor and conduct an Annual JV Audit atthe cost of the JV Account for distribution to all the JV Participants notlater than 60 days after year end.


(c)                                  Any one or more ofthe Non-Operating Parties shall have the right to conduct an additional “ExternalAudit” of the JV Accounts and JV Records of the Joint Account for each Yearmaintained by the Operator in respect of the JV Activities and to obtain allnecessary information for such purposes, before the end of the 24thmonth following the end of such year. At least 30 days notice shall be given tothe Operator of an intention to conduct an audit. The right of audit




includes the right of access at all reasonable times during normalbusiness hours to all accounts and records pertaining to the Joint Account,maintained by the Operator.


(d)                                 Any External Auditsshall be conducted so as to cause a minimum of inconvenience to the Operator.The Operator shall make every reasonable effort to co-operate with the Non-OperatingParties and, where appropriate, ensure the reasonable co-operation of itsstatutory auditors with the external auditors appointed pursuant to the JointVenture Agreement by the Non-Operating Parties and will provide reasonablefacilities and assistance to the Non-Operating Parties in the conduct ofaudits.


(e)                                  At the conclusion ofeach External Audit, the Parties who are participating in the External Auditwill endeavor to settle outstanding matters and a written report by theparticipating auditors will be circulated to all the Parties participatingwithin a reasonable time of the conclusion of each audit. The report shallinclude all claims arising from such External Audit together with commentspertinent to the operation of the accounts and records to the extent consideredappropriate by the auditors. The Operator shall reply to the report in writingas soon as possible and in any event not later than 2 months following receiptof the report. Notwithstanding that the said period of 24 months may haveexpired, if the Non-Operating Parties have reasonable grounds to believe thatthe Operator has been guilty of fraud or Willful Misconduct, the Non-OperatingParties shall have the right to conduct further External Audits in respect ofany earlier periods. The costs incurred in connection with any External Auditshall be borne by the Parties participating in it in the proportion to whichtheir respective Percentage Interests bear to each other and shall not becharged to the Joint Account.


(f)                                    All adjustmentsresulting from any audit report accepted by the Operator and so notified to theNon-Operating Parties conducting the audit shall be rectified promptly in theJoint Account by the Operator and reported to the other Non-Operating Parties.If any dispute shall arise in connection with an audit, it shall be consideredby the Committee and, if a settlement between the Parties is not unanimouslyagreed, the item or items in dispute shall be referred to clause 28 of theJoint Operating Agreement.




Within 30 days following the end of eachcalendar month during which the Operator is carrying out a Sole Risk Operationor a Non-Consent Operation or adjusting the Records and the Joint Account withrespect to same the Operator shall furnish the Parties with a statement of allcosts and liabilities incurred in such operation during that month and, ifappropriate, a statement of the quantity and value of Petroleum produced fromsuch operation during that month.




Upon termination of this Agreement theParties will continue to be liable with respect to commitments made undercontracts entered into pursuant to this Agreement. Further, the Parties willcontinue to be liable for their share of credits or refunds (as the case maybe) in respect of any matter outstanding at the time of termination of thisAgreement including any litigation outstanding for which settlement will bemade when the outcome of such litigation is known provided that the rights ofaudit described in paragraph 1.6 shall also continue to apply.




The Parties to this Joint Venture and the JOAunderstand and acknowledge that the current Operator named in this Agreementwas created especially for the purpose and has no other business activities ormission or reason to exist other than to act as Operator of the Joint Venturethus limiting the possibilities of conflicts of interest and simplifying theallocation of charges to the Parties for expenditures incurred by the Operator.For all intents and purposes each and every expenditure made by the Operatorregardless of nature is made by the Operator in his capacity as Operator onbehalf of and in direct respect to the Joint Venture. Therefore unlessotherwise particularly described or prohibited herein this Accounting Procedurethen ALL expenditures of any kind actually incurred by the Operator are for theJoint Account subject to Operator’s documentation of all such actual costs on a“when and as paid” basis. The Operator shall charge the Joint Account and theJoint Venture shall pay for the following items:


Direct Charges


(a)                                  Rentals,Fees and Deposits—Acquisitions and bonus costs, lease, license or permitdeposits, rentals, renewal or extension fees, royalties and other similarpayments paid by Operator for the Joint Account, as required for PetroleumOperations and to maintain the interest of the Parties in any JV Property.




(b)                                 PersonnelCosts—Reasonable salaries, fees and wages of all Operator’s “Personnel”including without limitation management, employees, consultants, contractors,advisors, staff and casual labor employed by Operator in whatever manner forwhatever time period and engaged in whatever way in the conduct of JVActivities including earned or compensatory time off relating to the employeesengagement in JV Activities.


(c)                                  CustomaryPersonnel Allowances—Operator’s reasonable costs of holiday, vacation,sickness and disability benefits and other customary allowances and locationassignment bonuses paid to its Personnel.


(d)                                 PersonnelAssessments—Reasonable expenditures or contributions made pursuant towithholding tax assessments imposed by governmental authority under IndonesianTax Law which are applicable to Operator’s Personnel cost of salaries and wagesas per contract or assessment.


(e)                                  PersonnelBenefits—Operator’s reasonable and current cost of established plans or asper contract for its Personnel including without limitation medicalreimbursement plans, medical insurance, life insurance, hospitalizationinsurance, remote location evacuation insurance, pensions, social assurance,Jamsostek, ASTEK and retirement plans applicable to Operator’s Personnel.


(f)                                    PersonnelBonuses—Operator’s reasonable and current cost of established plans forproviding its Personnel incentive work bonuses, production milestone relatedcash bonuses, performance bonuses and other such bonuses applicable.


(g)                                 Materialand Supplies—Material and supplies purchased by Operator for JV use. So faras it is reasonably practical and consistent with efficient and economicaloperations, only such material shall be purchased for or transferred to the JVProperty as may be required for immediate use; and the accumulation of surplusstocks shall be avoided.


(h)                                 Travel,Living Allowance & Transportation—Reasonable travel expenses, livingallowances, and moving expenses of Personnel to the Joint Account. All expensescharged to the Joint Account under this paragraph shall be in accordance withthe Operator’s standard terms of employment in force in the relevant period andshall include those incurred in connection with the families of personnel whereappropriate. Relocation expenses at the termination of a period of work for theJoint Account will be on the basis of a return to point of hire.


(i)                                     Services—Allcosts and expenditure relative to work done for the Joint Account incurredunder contracts entered into by Operator with independent contractors ofwhatever nature.


(j)                                     Utilities—Thecost of electricity, sewer, water, security, garbage collection and other utilityor public services procured by Operator.


(k)                                  Damageand Losses to JV Property—All costs or expenses necessary for the repair orreplacement of JV Property made necessary because of damages or losses incurredby fire, flood, storm, theft, accident or other cause.


(l)                                     Acquisitionof Surface Rights and Damage Claims—All costs and expenses to acquiresurface rights, rights of way, land for construction or compensatory damagespayable for use of land and damages or destruction of crops, plants, propertyor agriculture during Petroleum Operations.


(m)                               Legaland Litigation Expenses—All costs and expenses of handling, investigatingand settling litigation or claims against the Parties or any of them relatingto the Joint Account or necessary to protect or recover the JV Property oropine on or perfect titles, including, but not limited to, lawyers’ fees, courtcosts, cost of investigation or procuring evidence and amounts paid insettlement or satisfaction of any such litigation or claims.


(n)                                 Taxesand Levies—All taxes and rates of every kind and nature, except taxes whichare measured by the income of the parties, assessed or levied upon the JointVenture, the Operator or in connection with the JV Property, the JV Activities,or the Petroleum production or the Permit or arising therefrom or pertaining toany taxes paid by the Operator for the benefit of the Parties pursuant toIndonesian Tax Law.


(o)                                 Insurance—Premiumspaid for insurance carried on the JV Property or JV Activities for theprotection of the Joint Venture or the Parties.


(p)                                 OtherExpenditures—Any other expenditure not covered or dealt with in theforegoing provisions which are incurred by the Operator for the necessary andproper conduct of work done for the Joint Account.




Indirect Charges


The Operator will not incur any IndirectCharges.




(a)                                  Newor used materials purchased from third party for JV Activities warehouse stock.—Importedand locally purchased new materials purchased by, or for the Operator for theJV Activities warehouse stocks shall be charged to the Joint Account at CostPrice.


(b)                                 Newor used materials purchased from a third party and charged directly to JVActivities.—Imported and locally purchased new materials purchased by, orfor the Operator for the JV Activities, which are delivered directly to theoperating site and do not pass through a JV Activities warehouse shall becharged at the Cost Price except that handling and transportation costs to thesite of installation and use will be included.




Whenever materials and supplies are notreadily obtainable at the customary supply point and prices because ofcircumstances, emergencies, strikes or other unusual causes over which theOperator has no control, the Operator may charge the Joint Account for therequired materials on the basis of the Operator’s direct cost and expenseincurred in procuring such materials, in making such materials suitable for useand in moving such materials to the location; provided, however, that notice inwriting is furnished to the Parties with a written justification of same whichshall be accepted and paid by the Joint Account it being fully understood thatthe Operator is to take whatever remedial action it deems necessary in anemergency to safeguard and protect the best interests of the Joint Venture, JVProperty, the Operator’s personnel and the Permit.




The Operator does not warrant materialsfurnished beyond the supplier’s or manufacturer’s guarantee. In case ofdefective material claims, the Joint Account shall not be credited untiladjustment has been received by the Operator from the manufacturers or theiragents.




Fixed assets which are owned by one of theParties and which are sold to the Operator for use in the JV Activities atJoint Account expense shall be priced at fair market value. In determining thefair market value of an asset, consideration will be given among other thingsto the age, condition, location and local market value.




For services rendered to the JV Activities byplant, equipment or facilities exclusively owned by a Party, the owner willcharge for such services at rates not in excess of fair market value of suchservices, and the Operator will give consideration to rates charged by otherpotential suppliers, location, quality and timing of service and any otherrelevant factors. The cost of repairing damage sustained to such equipment orfacilities with the JV Activities shall be charged to the Joint Accountprovided always that, if the cost of such damage is recoverable from anyunderwriters or any third party, the recovery will be credited to the JointAccount.




(a)                                  Section-10.1 of theBengara-II PSC specifically provides that all equipment and physical propertypurchased by a PSC contractor, including the Operator on behalf of the JointVenture, shall immediately become the exclusive property of Pertamina upon suchpurchase or on the date an imported purchase is landed in Indonesia. Therationale for this provision is that by virtue of Pertamina granting costrecovery to the PSC contractor in accordance with other PSC provisions that allproperty purchased by the PSC contractor is thereby reimbursed and in effectactually paid for by Pertamina.


(b)                                 Despite the Pertaminaentitlement the JV retains full custody, control over and rights of use of anysuch Property for as long as the PSC is in effect always subject to theprovisions of the PSC and Pertamina policies and regulations concerning suchproperty.




(c)                                  The Pertaminaregulations are commonly strictly enforced regarding PSC Section-10.1 andPertamina takes immediate possession and inventories and transports at its owncost such property to a Pertamina warehouse immediately upon termination or expiryof any PSC regardless of whether any Petroleum production was actuallyestablished from the PSC and any cost recovery proceeds were actually receivedby the PSC contractor. This includes mundane items such as office furniture aswell as oil and gas exploration and production equipment.


(d)                                 Notwithstanding thePertamina title to all JV Property purchased for use in Petroleum Operationsthere are prescribed Pertamina procedures whereby a PSC contractor may disposeof such property with the prior approval of and in the manner prescribed byPertamina. Such dispositions are commonly made by one PSC contractor to anotherPSC contractor or to or from Pertamina itself and may take the form of aproperty trade or reimbursement to which the disposing party may accept cashproceeds provided his PSC Costs, and claim thereby to later cost recovery underthe PSC, are suitably adjusted correspondingly.


(e)                                  Subject to priorapproval of the Committee the Operator may propose and effect a disposition ofany JV Property it considers surplus or otherwise unneeded provided suchdisposition is made wholly in accordance with the obligations to Pertamina inrespect of such disposition.


(f)                                    In the event any JVProperty is disposed of by the Operator in accordance with Pertaminaregulations, the Operator shall advise the Parties of the net affect of anysuch Pertamina approved disposition on the original cost of such JV Propertyand advise of the accounting treatment applied by the Operator to properlyrecord and adjust the disposition to the Joint Account so that the Parties mayproperly adjust their own respective accounts accordingly.




Materials and JV Property charged to theJoint Account and used other than for the JV Activities or Sole Risk Operations,if applicable, by any of the Parties, their affiliates, or a third party, shallbe subject to approval by the Committee. The user shall be billed by theOperator at rates not in excess of fair market value. The cost of repairingdamage sustained to such items arising out of or in the course of such use willbe charged to the user, provided that if the cost of repairing such damage isrecoverable from insurers, or underwriters, the amount recovered should becredited to the user who would otherwise be liable under this paragraph. TheOperator shall promptly credit the Joint Account upon receipt of the proceedsreceived for such usage.




PeriodicInventories, Notice and Presentation


At reasonable intervals inventories shall betaken by the Operator of the JV Activities warehouse stocks and materials whichare ordinarily considered controllable by operators of oil and gas properties.Once every year an inventory shall be taken by the Operator of the fixed assetsof the JV Property. The cost of such inventories shall be charged to the JointAccount. Written notice of the intention to take an inventory shall be given bythe Operator at least 30 days before any inventory is to begin so that Partiesmay be represented when any inventory is taken. Failure of a Party to berepresented at an inventory shall bind that Party to accept the inventory takenby the Operator, who shall in that event furnish that Party with a copythereof. Each Party, at its own cost, also has the right to take an independentinventory once a year.


Reconciliation andAdjustment of Inventories


Reconciliation of an inventory with chargesto the Joint Account shall be made and a list of overages and shortages shallbe determined by the Operator. Inventory adjustment shall be made by theOperator to the Joint Account for overages and shortages, but the Operatorshall be held accountable to the Parties only for shortages due to lack ofreasonable diligence. Details of inventory on hand shall be provided to anyParty upon request and costs associated with providing this information shallbe a charge to the Party.


Special Inventories


Special inventories may be taken, at theexpense of the requesting Party, whenever there is any sale or change ofPercentage Interest in the JV Activities or part thereof and it shall (subjectto the Agreement) be the duty of the party assigning to notify all otherParties hereto as quickly as possible that the transfer of interest is to takeplace. In such cases, both the assignor and the assignee shall be representedand shall be bound by the inventory so taken.






The PSC and the PSC Accounting Proceduredefine three specific types of costs particularly meaningful with regard to thePSC Costs which are subject to cost recovery as defined and described in thePSC. These three types of costs are as follows and are all to be a part of JVCosts funded by the Parties for payment from the Joint Account with respect toeach JV Participant’s Percentage Interest share thereof.


(a)                                  “Non-Capital Costs”means all Operating Costs incurred by the Joint Venture pursuant to this JOAthat are NOT “Capital Costs” as defined elsewhere herein and are subject todefinition and treatment as defined in the PSC and the PSC AccountingProcedure, Section-2.2;


(b)                                 “Capital Costs” meansall JV Costs incurred in the acquisition of physical assets having a usefullife commonly exceeding the year in which they were purchased and placed inservice and which are commonly depreciated over time and includes theconstruction or acquisition of plant, facilities and infrastructure; whetherspecifically incurred as a PSC Cost or not and in any event shall be subject tothe definitions, treatment and depreciation methods as prescribed in the PSCAccounting Procedure Section-2.3;


(c)                                  “Operating Costs” hasa specific meaning as defined in Section-2.1 of the PSC Accounting Procedureand herein shall also mean and refer to PSC Costs for any given period that consistof three specific elements; 1) Non-Capital Costs incurred during the period, 2)applicable depreciation of Capital Costs for the period and 3) the allowableportion, if any, allocated to the current period for unrecovered OperatingCosts carried forward from prior periods;




The Operator shall calculate depreciation forCapital Cost expenditures wholly in accordance with the provisions of and inthe manner prescribed in Section-III of the PSC Accounting Procedure.


—End JV Accounting Procedure—