The Contractor is authorized to conduct Exploration Operations within the Contract Area during an initial exploration period of .......................... Contract Years from the Effective Date.

The Contractor shall begin Exploration Operations within three (3) months of the Effective Date.

Upon written application by the Contractor made not later than one (1) month prior to the expiry of the intial exploration period, the Minister shall, if the Contractor has fulfilled its work and expendure obligations under this Contract, grant a first additional exploration period of ............. Contract Years.

Upon written application by the Contractor made not later than one (1) month prior to the expiry of the first additional exploration period hereof, the Minister shall, if the Contractor has fulfilled its work and expenditure obligations under this Contract, grant a second additional exploration period of ............ Contract Years.

In order to enable the Contractor to complete the drilling and testing of an Exploratory Well actually being drilled or tested as the end of the second additional exploration period, the Minister shall, on written application by the Contractor made not later than three (3) months before the expiry of that exploration period, unless another period of notice is agreed, extend the period in which the work is to be expeditiously completed, which in any event shall not extend such period by more than four (4) months.

This Contract shall expire automatically at the end of the initial exploration period or of any additional exploration period, except as to any Development Area. If the Contractor reports, pursuant to sub-clause 19 (6) hereof, that a Commercial Discovery has been made before the expiry of the initial exploration period stipulated in sub-clause 2 (1) hereof or any additional exploration period thereof, this Contract shall not expire in respect to the relevant Development Area, but shall continue as to such Development Area for a term of ........... years from the date the development plan for that Development Area is adopted under sub-clause 20(3) hereof.

When calculating a surrender under sub-clause 3(1), Development Area shall be excluded from the original Contract Area.

The Contractor may surrender a part of the Contract Area and such a voluntary surrender shall be credited against the next surrender obligation of the Contractor under sub-clause 3(1).

The shape and size of an area surrendered shall be approve by the Minister, which approval shall not be umeasonalbly withheld.

The Contractor shall give one (1) year's written notice to surrender in respect of a Commercial Discovery which is producing or has produced Petroleum and one (1) month written notice of surrender in respect of any other part of the Contract Area. In case of a surrender of the entire Contract Area the Contract shall terminate.

No surrender shall reduce the minimum amount of exploration work and expenditure fixed in clause 4.

The fulfilment of any work obligation shall not relieve the Contractor of the corresponding expenditure obligation therein and vice-versa.

If the drilling of an Exploratory Well is discontinued, prior to reaching the minimum depth herein specified,because that well has encountered the basement, an impenetrable substance or any condition which in accordance with good international petroleum industry practice would make it unsafe or impractical to continue drilling, the minimum depth dbligation in respect of that well shall be deemed to be fulfilled.

A well drilled to evaluate a discovery under an evaluation work programme pursuant to sub-clauses 19 (2) and 19 (3) shall not have to satisfy the requirement to drill an Exploratory Well, except with the written consent of the Minister.

The minimum exploration expenditure set forth in sub-clause 4(1) are expressed in ..................... U.S. dollars of the year of the Effective Date. In any Contract Year of either the initial exploration period or of any additional exploration period, for the purpose of comparison of the actual costs incurred and paid by the Contractor with the minimum exploration expenditure, these actual costs incurred and paid by the Contractor for seismic operations and the drilling of Exploratory Wells during that Contract Year shall be converted into constant U.S. dollars by dividing these costs, by the number (hereinafter referred to as the "Discount Rate") which is the sum of one (1) and the decimal equivalent of the percentage increase in the United States Consumer Price Index, as reported for the first time in the monthly, publication "International Financial Statistics" of the International Monetary Fund, between the month of the Effective Date and the month when such costs were incurred·

If during either the initial exploration period or the first additional exploration period, the Contractor exceeds the minimum work obligation or incurs expendliture in accordance with sub-clause 4(4) exceeding the minimum expenditure obligations for such exploration period, then such excess may be credited toward the respective obligation of the next succeeding additional exploration period or periods.

On or before the commencement of the initial exploration period or of any additional exploration period the Contractor shall provide a security, in a form acceptable to the Minister, guaranteeing the Contractor's minimum work and expenditure obligations unde sub-clause 4(1) hereof.

If at the end of either the initial exploration period or of an additional exploration period or upon the date of termination of this Contract, whichever occurs first, the Contractor has not fulfilled its minimum work obligations under sub-clause 4(1) hereof, and/or its minimum expenditure obligations under sub-clauses 4(1) and 4(4) hereof, the Contractor shall pay to the Government the minimum monetary obligation in respect of the work not carried out multiplied by the Discount Rate, as defined in sub-clause 4(4) and calculated on the last month of that exploration period, and/or the shortfall, if any, between the amount expended, in accordance with sub-clause 4(4), and the minimum monetary obligation for that exploration period, multiplied by the Discount Rate, as defined hereabove.

The Contractor shall pay, on or before the beginning of the relevant Contract Year to the Accounting Officer of the Ministry the following Surface Fees:

-U.S. dollars ................ per hectare per year for the initial exploration period;

-U.S. dollars ............... per hectare per year for the first additional exploration period; and

-U.S. dollars ............... per hectare per year for the second additional exploration period or any extension thereof.

Said payments shall ibe calculated on the basis of the surface area of the Contract Area on the date such payments are due.

A fee payable under sub-clause 5(1) is not refundable and late payment shall attract interest in accordance with sub-clause 34(2) hereof.

The period of notice in respect of sub-clause 6(1) (a) hereof shall be one (1) month, and in any other case three (3) months, but if the Contractor remedies the breach within the period of the notice, the Minister shall withdraw the notice. Where the Minister reasonably believes that the Contractor is using its best efforts to remedy the default, the Minister may extend the notice, accordingly.

When this Contract is terminated or expires in whole or in part, the Contractor shall conclude the Petroleum Operations in the area as to which this contract has terminated or expired in an orderly manner minimizing harm to the Government and third parties.

Where control over one of the entities constituting the Contractor is changed, the continuation of the Contract shall be subject to the consent of the Minister, which shall not be un-reasonably withheld, and for the purpose of this sub-clause 6(4) the term "control" shall have the same meaning as set forth in the definition of an Affiliate in sub-clause 1(2).

The Contractor shall have the right to carry out the Petroleum Operations within the Contract Area, subject to the provisions of this Contract for the term hereof.

The Contractor is granted the right to enter upon the Contract Area and conduct Petroleum Operations there, but permission may be granted to other persons to search for and mine minerals, other than Petroleum, so long as they do not unreasonably interfere with the Petroleum Operations, and easements and rights of way may be granted to other persons for the benefit of land adjacent to the Contract Area.

The Minister shall obtain on behalf of the Contractor any permit necessary to enable the Contractor to use the water in the Contract Area for the purpose of the Petroleum Operations but the Contractor shall not unreasonably deprive the users of land, domestic settlement or cattle watering place of the water supply which they are accustomed.

The period of notice in respect of sub-clause 6(1) (a) hereof shall be one (1) month, and in any other case three (3) months, but if the Contractor remedies the breach within the period of the notice, the Minister shall,withdraw the notice. Where the Minister reasonably believes that the Contractor is using its best efforts to remedy the default, the Minister may extend the notice, accordingly.

When this Contract is terminated or expires in whole or in part, the Contractor shall conclude the Petroleum Operations in the area as to which this Contract has terminated or expired in an orderly manner minimizing harm to the Government and third parties.

Where control over one of the entities constituting the Contractor is changed, the continuation of the Contract shall be subject to the consent of the Minister, which shall not be unreasonably witheld, and for the purpose of this clause 6 (4) the term "control" shall have the same meaning as set forth in the definition of an Affiliate in sub-clause 1(2).

The Contractor shall carry out the Petroleum Operation diligently and in accordance with good international petroleum industry practice.

Where the Contractor consists of more than one person their liability shall be joint and several.

The Contractor shall cause as title damage as possible to the surface of a Contract Area and to trees, crops, buildings and other property thereon, shall forthwith repair any damage caused, and shall pay reasonable compensation for any loss suffered.

The Minister may, if he has reasonable cause to believe that the Petroleum Operations may endanger persons or property, cause pollution, harm marine life or interfere with navigation and fishing, order the Contractor to take resonable remedial measures or order the Contractor to discontinue the relevant Petroleum Operations until such measures, or mutually agreed alternatives thereto, are implemented.

The Contractor shall maintain appropriate and adequate third party liability insurance and workmen's compensation insurance and shall provide the Minister with evidence of those insurances before the Petroleum Operations begin.

The Contractor shall indemnify, defend and save the Government harmless from all claims and damage which, but for the conduct of the Petroleum Operations by the Contractor or a sub-contractor, would not have arisen or occurred.

Unless such notice is waived, the Contractor shall not drill a well or borehole or recommence drilling after a six (6) months' cessation without thirty (30) days' prior notification to the Minister which notice shall set forth the Contractor's reasons for undertaking such well and shall contain a copy of the drilling programme.

The design of a well or borehole and the conduct of drilling shall be in accordance with good international petroleum industry practice.

No borehole or well shall be drilled so that any part thereof is less than five hundred (500) meters from a boundary of the Contract Area, without the consent in writing of the Minister, which consent shall not be unreasonabiy withheld.

The Contractor shall state, in its application to abandon a well on land, whether that well is capable of providing a water supply.

The Contractor shall, within two (2) months of termination or expiry of this Contract or the surrender of part of the Contract Area, deliver up all productive wells, in said surrendered area, in good repair and working order together with all casings and installations which cannot be moved without damaging the well, but the Minister may require the Contractor to plug the well at the Contractor's expense by notifying the Contractor within thirty (30) days after such termination or expiry is effected or at least three (3) months prior to surrender of a Development Area.

The Contractor shall give the Minister thirty (30) days; notice of any proposed geophysical survey, which notice shall contain complete details of the programme to be conducted. At the request of the Contractor, the Minister may waive the notice period.

The Contractor shall pay compensation for any inteference with fishing rights caused by the Petroleum Operations.

With the written consent of the Minister, which consent shall not be unreasonably withheld, the Contractor shahl have the right to construct roads, drill water wells and to place fixtures and installation necessary to conduct the Petroleum Operations, including but no limited to storage tanks, shipment installations, pipelines, cables of similar lines, located inside or outside the Contract Area. Such consent of the Minister may be conditional on the use by other producers of the excess capacity, if any, of those facilities. Where the Minister and the Contractor agree that a mutual economic benefit can be achieved by constructing and operating common facilities, the Contractor shall use its best efforts to reach agreement with other producers on, the construction and operation of such common facilities.

Other producers may only use the facilities of the Contractor where there exists excess capacity and on payment of a reasonable compensation which includes a reasonable return on investment to the Contractor and provided such use does not unreasonably intefere with the Contractor's Petroleum Operations.

The Minister may consent to the laying of pipelines, cables and similar lines in the Contract Area by other persons, but those lines shall not unreasonalbly interfere with the Petroleum Operations of the Contractor.

On termination or expiration of this Contract or surrender of part of the Contract Area, the Contractor shall remove the above ground plant, appliances and installations from the Contract Area or the part surrendered other than those that are situated in or related to a Development Area or, at the option of the Minister, the Contractor shall transfer them, at no cost, to the Government, in the condition that they are then in.

When the rights of the Contractor in respect of a Development Area terminate, expire or are surrendered, the Contractor shall transfer to the Government, at no cost, the plant, appliances and installatations that are situated in the Development Area or that are related thereto, unless such plant, appliances and installations are or may be utilized by the Contractor in Petroleum Operations under this Contract, but the Government may require the Contractor, to remove the surface installations at the cost of the Contractor.

The Contractor, its contractors and sub-contractors shall, where possible, employ Kenya citizens in the Petroleum Operations, and until the expiry or termination of this Contract, shall train those citizens. The training programme shall be established in consultation with the Minister.

In addition to the obligation under sub-clause 13(1) and commencing on the Effective Date, the Contractor shall for the purposes of section 11 of the Act contribute or hold to the order of the Ministry a minimum of ........ ................... thousand U.S. dollars per year for the Ministry training fund established under section 11(1) of the Act. The Contractor's obligation hereunder shall be increased to a minimum of ..................... thousand U.S. dollars per year commencing with the adoption of the first development plan under sub-clause 20(3).

The Contractor shall record, in an original or reproducible form of good quality, and on seismic tapes where relevant, all geological and geophysical information and data relating to the Contract Area obtained by the Contractor and shall deliver a copy of that information and data, the interpretations thereof and the logs and records of boreholes and wells, to the Minister, in a reproducible form, as soon as practicable after that information, those interpretations and those logs and records come into the possession of the Contractor.

The Contractor may remove, for the purpose of laboratory examination or analysis, petrological specimens or samples of Petroleum or water encountered in a borehole or well and, as soon as practicalble shall, without charge, give the Minister a representative part of each specimen and sample removed, but no specimen or sample shall be exported from Kenya without prior notification to the Minister.

The Contractor shall keep records of and supply information concerning the Petroleum Operations, reasonably requested by the Minister, if the data or information necessary to comply with the request are readily available.

The Contractor shall supply to the Minister daily reports on drilling operations and production operations, and weekly reports on geophysical operations.

The Minister, or a person authorized by him in writing, may at all reasonable times inspect any Petroleum Operations, and any records of the Contractor relating thereto, and the Contractor shall provide, where availaible, facilities similar to those applicable to its own or to sub-contractors' staff for transport to the Petroleum Operations, subsistence and accommodation and pay all reasonable expenses directly connected with the inspection.

The Minister may require the Contractor to perform an oibligation under this Contract by giving reasonable written notice, and if he Contractor fails to comply with that notice, the Minister may execute any necessary works for which the Contractor shall pay forthwith. The Minister may give notice to execute works at any time but not later than three (3) months after the termination or expiry of this Contract or the surrender of a part of the Contract Area.

Where the Contractor has occupied Trust Land for the purpose of the Petroleum Operations before that land has been set apart, the Contractor shall notify the Minister in writing of the need to set apart such land before the end of the two-year period referred to in section 115 of the Constitution.

The Government shall grant or cause to be granted to the Contractor, its contractors and sub-contractors such way-leaves easements, temporary occupation or other permissions within an without the Contract Area as are necessary to conduct the Petroleum Operations and in particular for the purpose of laying, operating and maintaining pipelines and cables, and passage between the Contract Area and the point of delivery of Petroleum.

The Government shall at all times give the Contractor the right of ingress to and egress from the Contract Area and to and from Immigration Act and Regulations of Kenya in particular, the facilities wherever located for the conduct of Petroleum Operations.

Subject to the usual national security requirements and the Immigration Act and Regulations of Kenya in particular, the Government shall not unreasonably refuse to issue and/or renew entry permits for technicians and managers employed in the Petroleum Operations by the Contractor or its sub-contractors and their dependants.

The Contractor shall submit and orally present to the Minister one (1) month after the Effective Date, a detailed statement of the exploration work programme and budget for the first Contract Year

The Contractor shall submit and orally present to the Minister three (3) months before the end of each Contract Year, a detailed statement of the exploration work programme and budget for the next Contract Year.

The Minister may submit to the Contractor, within thirty (30) days of the receipt of the annual exploration work programme and budget, suggest modifications and revisions thereof. The Contractor shall consider the inclusion of such suggested modifications and revisions in light of good international petroleum industry practice and shall provide the Minister with the exploration work programme and budget which the Contractor has adopted.

After adoption of the annual exploration work programme and budget, the Contractor may make changes to that annual exploration work programme and budget if those changes do not materially affect the original objectives of that exploration work programme and budget, and shall state the reasons for those changes to the Minister.

The Contractor shall in accordance with section 9(b) of the Act, notify the Minister of a discovery of Petroleum and shall report of the Minister all relevant information.

If the Contractor considers that the discovery merits evaluation, it shall submit and orally present to the Minister a detailed statement of the evaluation work programme and budget which shall provide for the expeditious evaluation of the discovery and the provisions of sub-clauses 18(3) and 18 (4) shall apply to the evaluation work programme and budget.

After the evaluation work programme and budget have been adopted, the Contractor shall deligently evaluate the discovery without due interruption.

In the event of a discovery in the last year of the second additional exploration period, the Minister shall, at the request of the Contractor, extend the term of the second additional exploration period in respect to the prospective area of the discovery and for the period of time reasonably required to expeditiously complete the adopted evaluation work programme and budget with respect to such discovery and to determine whether or not the discovery is commercial but in any event, such extention to the second additional exploration period shall not exceed .................. months.

The Contractor shall, not more than three (3) months after the valuation is completed, report to the Minister the commercial prospects of the discovery, including all relevant technical and economic data.

If the Contractor reports under sub-clause 19 (5) that the discovery is a Commercial Discovery, a development plan shall be submitted to the Minister within six (6) months of the completion of the evaluation work programme unless otherwise agreed, and upon written application of the Contractor, the term of this Contract shall be extended by the Minister, if necessary, in respect of the area of that Commercial Discovery, provisionally established in accordance with the principle of sub-clause 20 (2)(a), for the time required for the adoption of a development plan.

The Contractor shall prepare, in consultation with the Minister, the development plan based on sound engineering and economic principles and in accordance with good international petroleum industry practice and considering the Maximum Efficient Rate of production appropriate to the Commercial Discovery.

The Minister and the Contractor shall jointly, consider the development plan within sixty (60) days of sulbmission thereof and the Minister may within that period, unless otherwise agreed, submit suggested modifications and revisions thereof. The Contractor shall consider the inclusion of such suggested modifications and revision in light of the good international petroleum industry practice, and the development plan shall be adopted sixty (60) days after receipt by the Contractor of those suggested modifications and revisions, unless another development plan is adopted by mutual agreement before that period has elapsed.

Where the Minister proposes no modifications and revisions, the development plan of the Contractor shall be adopted sixty (60) day after its submission unless it is adopted by mutual agreement before that period has elapsed.

After a development plan has been adopted, the Contractor shall use its best efforts to proceed, promptly and without undue interruption, to implement the development plan in accordance with good international petroleum industry practice. Development work shall commence within six (6) months of the date of adoption of the development plan.

In connection therewith, the Contractor shall submit and orally present to the Minister, prior to the first day of October of each year following the adoption of a development plan, a detailed statement of the annual development work programme and budget for the next Calendar Year and the provisions of sub-clauses 18(3) and 18(4) shall apply to the development plan and to the annual development work programme and budget.

Where the development operations result in an extension to the area to which the Commercial Discovery relates within the Contract Area, the Minister shall adjust the relevant Development Area to include that extension as determined by the analysis of all the elevant available information.

Where the recoverable reserves of a Commercial Discovery extend into an area adjacent to the Contract Area, the Minister may equire the Contractor to produce Petroleum, therefore in co-operation with the contractor of the adjacent area. Where non-commercial deposits of Petroleum in the Contract Area if exploited with deposits in an area adjacent to the Contract Area, would be commercial, the Minister may make a similar requirement to the contractor of that adjacent area.

If the Minister so requires, the Contractor shall in co-operation with the contractor of the adjacent area, submit within six (6) months, unless otherwise agreed, a proposal for the joint exploitation of the deposits, for the approval of the Minister.

If the proposal is not submitted or approved, the Minister may prepare his own proposal, in accordance with good international petroleum industry practice, for the joint exploitation of the recoverable reserves, and the Minister's proposal unless another proposal is mutually agreed, shall be adopted by the Contractor, subject to sub-clause 21 (4), and subject to the adjacent contractor's acceptance of the same proposal. The reasonable costs of preparing the proposal shall be divided equally between the Contractor and the adjacent contractor.

The provisions of the proposal for joint exploitation shall revail over this Contract, where those provisions do not reduce the financial benefits to the Parties under this Contract.

Where the Contractor determines that a discovery is marginal or non-commercial, the Contractor may propose a modification to his Contract, based on an alternative economic evaluation and after consideration the Minister may accept or reject the proposed modification.

Unless otherwise agreed, if the Contractor fails to commence he evalualtion of a discovery within ................. years following the notice of discovery, or if within ................. years following the completion of an evaluation work programme the Contractor considers the discovery does not merit development, the Minister may request the Contractor to surrender the area corresponding to such discovery and the Contractor shall forfeit any rights relating to any production therefrom. The area subject to such surrender shall not exceed the extension of the discovered accumulation as determined by the structural closure of the prospective horizon and all other relevant available information. Any such surrender by the Contactor shall be credited in accordance with sub-clause 3(3) hereof.

Where Natural Gas is discovered and the Contractor and the Minister agree that it may be economically processed and utilized other than In secondary recovery operations, that processing and utilization shall follow a development plan approved in accordance with clause 20.

The Contractor shall return associated Natural Gas, not required for use in Petroleum Operations or sold, to the subsurface structure, but if such Natural Gas cannot be economically used or sold or returned to the subsurface structure, the Contractor shall, after expiry of a sixty (60) days' notice to the Minister giving reasons why such Natural Gas cannot be economically used or sold or returned to the subsurface structure, be entitled to flare such associated Natural Gas in accordance with good international petroleum industry practice.Notwithstanding anything in this clause to the contrary, associated Natural Gas may be flared at any time if necessary for the conducing of well and production tests and during any emergency.

Where the Contractor does not consider that it is economical to process and utilize associated Natural Gas and where that Natural Gas is not required for use in Petroleum, Operations, the Minister may at the field separator, process and utilize that Natural Gas without compensation but the Government shall pay for all costs and expenses related thereto which shall include, but shall not be limited to, any engineering studies, new fixtures, equipment and installations required for the gathering, transport, processing and utilization thereof and the operation and maintenance of same shall be at the sole risk, cost and expense of the Government.

Where the Contractor considers that it is economical to produce Natural Gas, the Contractor agrees to sell all or part of its share of Natural Gas to the Government, provided that the Parties agree upon the price, volume and terms of sale.

The Contractor shall produce Petroleum at the Maximum Efficient Rate in accordance with good international petroleum industry practice.

Prior to the first day of October of each year following the commencement of Commercial Production, the Contractor shall submit and orally present to the Minister, a detailed statement of the annual production programme and budget for the next Calendar Year, and the provisions of sub-clause 18 (3) and (4) shall apply to the annual production programme and budget.

The Contractor shall endeavour to produce in each Calendar Year the forecast quantity estimated in the annual production programme.

The Crude Oil shall be run to storage (constructed, maintained and operated by the Contractor) and Petroleum shall be metered or otherwise measured as required to meet the purpose of this Contract in accordance with clause 25.

The volume and quality of Petroleum produced and saved from the Contract Area shall be measured by methods and appliances customarily used in good international petroleum industry practice and approved by the Minister.

The Minister may inspect the appliances used for measuring the volume and determining the quality of Petroleum and may appoint an inspector to supervise the measurement of volume and determination of quality.

Where the method of measurement, or the appliances used therefor, have caused an overstatement or understatement of a share of the production, the error shall be presumed to have existed since the date of the last calibration of the measurement devices, unless the contrary is shown, and an appropriate adjustment shall be made for the period of error.

The Minister and the Contractor shall determine the measurement point at which production shall be measured and the respective shares of Petroleum allocated.

Pending the determination of the value of Crude Oil for Calendar Quarter, the value of Crude Oil determined for the preceding Calendar Quarter will be provisionally applied to make calculation and payment during such Calendar Quarter until the applicable value for that Calendar Quarter is finally determined pursuant to sub-clause 26 (1). Any adjustment to provisional calculation and payment, if necessary, will be made within thirty (30) days after such applicable value is finally determined.

Natural Gas shall he valued based on the actual proceeds received for sales, provided that, for sales of Natural Gas between the Contractor and any Affiliate, the value of such Natural Gas shall not be less than the then prevailing fair market value for such sales of Natural Gas taking into consideration, to the extent possible, such factors as the market, the quality and quantity of Natural Gas and other relevant factors reflected in Natural Gas pricing.

Subject to the auditing provisions under clause 30, the Contractor shall recover the Petroleum Costs, in respect of all Petroleum Operations, incurred and paid by the Contractor pursuant to the provisions of this Contract and duly entered in the Contractor’s book s of account, by taking and separately disposing of an amount equal in value to a maximum of per cent (%) per Fiscal Year of all Crude Oil produced and saved from the Contract Area during that fiscal year and not used in Petroleum Operations. Such cost recovery Crude Oil is hereinafter referred to as “Cost Oil”.

With respect to sub-clauses 27 (1), 27 (2) and 27 (3), Cost Oil and Profit Oil calculations shall be done quarterly on an accumulative basis. To the extent that actual quantities, costs and expenses are not known, provisional estimates of such data based on the adopted annual production work programme and budget under clause 24 shall be used. Within sixty (60) days of the end of each Fiscal Year, a final calculation of Cost Oil and Profit Oil based on actual Crude Oil production in respect of that Fiscal Year and recoverable Petroleum Costs shall be prepared and any necessary adjustments shall be made.

The Contractor shall be subject to and shall comply with the requirements of the income tax laws in force in Kenya which impose taxes on or are measured by income or profits.

The portion of Crude Oil which the Government is entitled to take and receive under sub-clause 27(3) shall be inclusive of all taxes based on income or profits, including specifically tax payable under the Income Tax Act, and dividend tax imposed by Kenya on any distribution of income or profits by the Contractor, but shall exclude the tax paid by the Contractor on behalf of petroleum service sub contractors.

The Government agrees to pay and discharge as and when due such taxes for account of the Contractor, and the Minister agrees to furnish the Contractor with proper receipts from the Government evidencing the payment of all such taxes on Contractor’s behalf for each Fiscal Year. The Contractor shall prepare and file a Kenya income tax return for each Fiscal Year within four (4) months after the close of each Fiscal Year. The receipts furnished by the Minister evidencing payment of such taxes shall correspond to the amount of taxes payable on behalf of the Contractor by the Government. The receipts shall be issued by the duly constituted authority for the collection of Kenya income taxes and shall be furnished within three (3) months after the date the Contractor files its Kenya income tax return for such Fiscal Year.

All taxes paid by the Government in the name and on behalf of the Contractor shall be considered income to the Contractor for the Fiscal Year to which the tax payments relate.

The Contractor, if so directed by the Minister, shall be obligated to lift and market part or all of the Govern ment share of Profit Oil.

When the Minister elects not to take and receive in kind any part of the Government share of Profit Oil, the Minister shall notify the Contractor three (3) months before the commencement of each Semester of a Calendar Year, specifying the quantity of producti on and such notice shall be effective for the ensuing Semester. Any sale by the Contractor of the Government share of Profit Oil shall not be for a term of more than one (1) year without the Minister’s consent.

The price paid by the Contractor for the Government share of Profit Oil shall be the price established according to clause 26. The Contractor shall pay the Government on a monthly basis, such payment to be made within thirty(30) days after the end of the month in which the production occurred.

At a reasonable time prior to the scheduled date of commencement of Commercial Production, the Parties shall agree on procedures covering the scheduling, storage and lifting of Petroleum produced from the agreed upon point of export or delivery.

In the event that the Contractor elects to produce a National Gas discovery, the Petroleum Costs incurred by the Contractor and directly attributable to the discovery and production of such Natural Gas shall be recovered from part thereof. The Parties agree that the Government and the Contractor shall share the Natural Gas produced and saved and not used in Petroleum Operations in accordance and on an equivalent basis with the percentage allocations provided for cost recovery and production sharing of Crude Oil under this clause. For this purpose, six thousand (6,000) cubic feet of Natural Gas at a temperature of 15 degrees centigrade and pressure of one atmosphere shall be deemed to be equivalent to one (1) Barrel of Crude Oil.

The Government may elect to participate in the Petroleum Operations in any Development Area and acquire an interest of up to ............. per cent (%) (hereinafter referred to as “Participating Interest”) of the total interest in that Development Area. The Government may participate either directly or through an Appointee.

“Appointee” means a body corporate wholly owned or controlled by the Government, and appointed for the purposes of this Contract.

The Government shall exercise the right to participate by giving notice to the Contractor within six (6) months from the date the development plan for a Development Area is adopted under sub-clause 20 (3). Such notice shall specify the Participating Interest that the Government has elected in that Development Area. If the Government exercises its option to participate, the Contractor (or each entity constituting the Contractor pro-rata) shall transfer to the Government that percentage interest specified by the Government.

The Government’s participation shall be effective from the date the development plan hereof is adopted.

If the Government exercises its right to participate in a Development Area, the Government and the Contractor shall execute the Participation Agreement, attached hereto as Appendix “ C ” and made a part thereof, within three (3) months after notice to the Contractor under sub-clause 28 (2).

The Contractor shall have the obligation to supply in priority Crude Oil for domestic consumption in Kenya and shall sell to the Government that portion of the Contractor’s share of production which is necessary to satisfy the domestic supply requirement in accordance with the following provisions.

In each Calendar Year, the Minister shall notify the Contractor not less than three (3) months prior to the beginning of that Calendar Year, of the domestic supply requirement. The maximum amount of Crude Oil that the Minister may require from the Contractor’s share of production shall be calculated each Calendar Quarter, and shall be equal to the excess of total Crude Oil Domestic Consumption in Kenya multiplied by a fraction, the numerator of which is the average Crude Oil production from the Contract Area and the denominator of which is the total Crude Oil production from all producers in Kenya, over the amount of Crude Oil available to the Government from the Contract Area as in the form of Government share of production under clause 27 and in the form of Government participation share under clause 28.

For the purpose of this sub-clause, "Domestic Consumption" does not include Crude Oil refined in Kenya for export.

When the Contractor is obligated to supply Crude Oil for domestic consumption in Kenya, the price paid by the Government shall be calculated in accordance with clause 26. Such sales to the Government shall be invoiced monthly and shall be paid within sixty (60) days of recipt of the invoice, unless other terms and conditions are mutually agreed.

With the written consent of the Minister the Contractor may comply with this clause by importing Crude Oil and exporting the amount, but appropriate adjustments shall be made in price and volume to reflect transportation costs, differences in quality gravity and terms of sale.

In this clause, “Government" includes an Appointee as defined in sub-clause 28 (1) and "Contractor” does not include the Government where the Government has participated under clause 28.

The Contractor shall keep books and accounts in accordance with the Accounting Procedure and shall submit to the Minister a statement of those accounts, not more than three (3) months after the end of each Calendar Year.

At the request of the Minister, the Contractor shall appoint an independent auditor of internaional standing, approved by the Government to audit annually the books and accounts of the Contractor and report thereon; and the cost of such audit shall be at the charge of the Contractor.

The Government may audit the books and accounts within two (2) Calendar Years of the period to which they relate, and shall complete that audit within one (1) Calendar Year.

In the absence of an audit within two (2) Calendar Year or in the absence of notice to the Contractor of a discrepancy in the books and accounts within three (3) Calendar Years of the period to which the audit relates the Contractor’s books and accounts shall be deemed correct.

The Contractor, its contractors and sub-contractors shall give preference to Kenyan materials and supplies for use in Petroleum Operations as long as their prices, quality, quantities and timeliness of delivery are comparable with the prices, quality quantities and timeliness of delivery of non-Kenyan materials and supplies.

The Contractor, its contractors and sub-contractors shall give preference to Kenyan contractors for services connected with Petroleum Operations as long as their prices, performance and timeliness are comparable with the prices, performance and timeliness of non-Kenyan service contractors.

The Contractor, its contractors and sub-contractors shall provide supplies and services from bases in Kenya where practicable.

Except as to the Petroleum to be delivered to the Government pursuant to the terms of this Contract, the Contractor shall own and receive its share of Petroleum produced from the Contract Area and shall be entitled to export such Petroleum without restriction and free of taxes, charges, fees, duties or levies of any kind or to otherwise freely dispose of same.

The Contractor and its contractors and sub-contractor engaged in carrying out Petroleum Operations under this Contract shall be permitted to import into Kenya all materials, equipment an supplies including but not limited to machinery, vehicles, consumable items, movable property and any other articles, to be used solely in carrying out Petroleum Operations under this Contract.

Such materials, equipment and supplies shall be exempt from all Customs Duties. However, the Contractor and its contractors and sub contractors shall give preference to Kenyan goods and services in accordance with clause 31 hereof.

The actual costs of contracts for technical and other services entered into by the Contractor for Petroleum Operations and for materials purchased by the Contractor for use in Petroleum Operations shall be recoverable, provided that those services and materials are reasonably required for Petroleum Operations and provided further that the prices paid by the Contractor are no higher than those currently prevaling in normal arm's length transactions of the open market for comparable services and materials.

Each expatriate employee of the Contractor, its contractors and sub-contractors shall be permitted to import and shall be exempt from all Customs Duties with respect to the reasonable imporat ion of household goods and personal effects. Including one (1) autiwnobile, provided however that such properties are imported within three (3) months of their arrival or such longer period as the Government may in writing determine.

The Contractor and its contractor and sub-contractors and their expatriate employees may sell in Kenya all import editems which are no longer needed for Petroleum Operations. However, if such imports were exempt from Customs Duties, the seller shall fulfil all formalities required in connection with the payment of duties, taxes, fees and charges imposed on such sales.

Subject to sub-clauses 12 (4) and 12 (5), Contractor and its contractors and sub-contractors and their expatriate employees may export from Katya, exempt of all export duties, taxes, fees and charges, all previously imported items which are no longer required for the conduct of Petroleum Operations under this Contract.

“Customs Dudes”, as that term is used herein, shall include all duties, taxes on imports (except those charges paid to the Government for actual services rendered), which are payable as a result of the importation of the item or items under consideration.

All sums due to the Government or the Contractor shall be paid in United States dollars or other currency agreed to by the Government and the Contractor.

Any late payment shall attract interest at ..................... per cent(........ %) per annum.

After notice to the Minister the Contractor may assign part or all of its rights and obligations under this Contract to an Affiliate without the prior approval of the Minister, provided such assignment shall result in the assignor and the assignee being jointly and severally liable for all of the assignor's obligations hereunder.

The Contractor may assign to a person other than an Affiliate part or all of its rights and obligations under this Contract with he consent of the Minister, which shall not be unreasonably withheld and which shall be granted or refused within thirty (30) days of receipt by the Minister of notice from the Contractor that it intends to make such an assignment, but the Minister may require such an assignee to provide a guarantee for the performance of the obligations of the Contractor.

The Contractor shall report to the Minister any material hangs in the corporate structure, ownership and financial position of the Contractor and its parent company.

The Contractor shall notify the Minister, before the Petroleum Operations begin, of the name and address of the person resident in Kenya who will supervise the Petroleum Operations, and prior notice of any subsequent change shall be given to the Minister.

The Contractor shall appoint an attorney resident in Kenya with power of representation in all matters relating to this Contract of which appointment the Minister shall be notified before the Petroleum Operations begin, and prior notice of any subsequent change shall be given to the Minister.

Where the Contractor consists of more than one person, the Contractor shall deliver to the Minister a copy of the Joint Operating Agreement between those persons, as soon as it is available.

All information which the Contractor may supply to the Government under this Contract shall be supplied at the expense of the Contractor and the Government shall keep that information confidential, and shall not disclose it other than to a person employe by or on behalf of the Government, except with the consent of the Contractor which consent shall not unreasonably withheld.

Notwithstanding sub-clause 37 (1), the Minister may use any information supplied, for the purpose of preparing and publishing reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature.

The Minister may publish any information which relates to a surrendered area at any time after the surrender, and in any othe case, three (3) years after the information was received unless the Minister determines, after representations by the Contractor, that longer period shall apply.

The Government shall not disclose, without the written consent of the Contractor, to any person, other than a person employed be or on behalf of the Government, know-how and proprietary technology which the Contractor may supply to the Minister.

In this clause, Force Majeure means an occurrence beyond the reasonable control of the Minister or the Government of the Contractor which prevents any of them from performing their obligations under this Contract.

Where the Minister, the Government or the Contractor prevented from complying with this Contract by Force Majeure, the person affected shall promptly give written notice to the other an the obligations of the affected person shall be suspended, provide that that person shall do all things reasonably within its power to remove such cause of Force Majeure. Upon cessation of the Force Majeure event, the person no longer affected shall promptly notify the other persons.

Where the person not affected disputes the existence of Force Majeure, that dispute shall be referred to arbitration in accordance with clause 41.

Where an obligation is suspended by Force Majeure for more than one (1) year, the Parties may agree to terminate this Contract by notice in writing without further obligations.

Subject to sub-clause 38 (4), the term of the Contract shall be automatically extended for the period of the Force Majeure.

This Contract shall be governed by, interpreted and construed in accordance with the laws of Kenya.

The Contractor agrees that it will obey and abide by all laws and regulations in force in Kenya.

If after the Effective Date of this Contract the economic benefits of a Party are substantially affected by the promulgation of new laws and regulations, or of any amendments to the applicable aws and regulations of Kenya, the Parties shall agree to make the necessary adjustments to the relevant provisions of this Contract, observing the principle of the mutual economic benefits of the Parties.

Except as otherwise provided in this Contract, any question or dispute arising out of or in relation to or in connection with this Contract shall, as far as possible, be settled amicably. Where no settlement is reached within thirty (30) days from the date of the dispute or such other period as may be agreed upon by the Parties, the dispute shall be referred to arbitration in accordance with the UNCITRAL arbitration rules adopted by the United Nations Commission on International Trade Law.

The arbitration shall take place in Nairobi, Kenya and shall be in English.

The decision of a majority of the arbitrators shall be final and binding on the Parties.

Any judgment upon the award of the arbitrators may be entered in any court having jurisdiction in respect thereof.

Any notice and other communication under this Contract shall be in writing and shall be delivered by hand, sent by registered post, by telegram or telex to the following address of the other.

To the Government:

To the Contractor:

A notice shall be effective on receipt.

Any notice given by telex or telegram shall be promptly confirmed by letter signed by the Party giving the notice.

The Government and the Contractor may at any time and from time to time change its authorized representative or its address herein on giving the other ten (10) days notice in writing to such effect.

Headings are inserted in this Contract for convenience only and shall not affect the construction or interpretation hereof.