Addendum to the MPRA containing all compiled revisions and additions to be further incorporated

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Emory Powers
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1 Addendum to the MPRA containing all compiled revisions and additions to be further incorporated 1. Revised Definitions I. The term "Point of Delivery" has been further simplified and replaced with the definitions provided below "Point of Fiscal Measurement" is any measurement point used to determine the quantities of Petroleum won and saved from a licensed area (field) for the establishment of production rates, which may subsequently be used to determine government revenue in the form of Royalty payments. It may either be; a. any identified point within the well site, b. the point at which Petroleum reaches the outlet flange of the delivery facility, offshore or onshore / the point at which offshore loading takes place or c. the port of discharge; "Point of Sale" is the point at which sales are made to third parties or where custody is transferred to the entity s downstream operations and up to which all costs shall be recoverable by the operator. It may either be; a. the point at which Petroleum reaches the outlet flange of the delivery facility, offshore or onshore / the point at which offshore loading takes place (with FOB up to the nearest port) or b. the port of discharge (with FOB up to the nearest port) c. the place at which the actual sale of petroleum takes place (with FOB up to the nearest port); 1

2 However, consistent with the introduced "Point of Sale" definition, the language in the MPRA has been revised with the addition of the highlighted text The different categories of Agreement Costs as provided below:- a) Production costs; b) Exploration Costs; c) Development Costs; incurred by the Contractor until the Point of Sale up to the date of first Commercial Production shall be aggregated, and the Contractor shall be entitled to recover out of the Cost Petroleum, the aggregate of such Costs at the rate of one hundred percent (100%) per annum The Director General shall issue such guidelines (as per the information provided below) as required in respect of matters which are cost recoverable by the Contractor. a) the Contractor shall be entitled to recover in full during any Financial Year the Production Costs incurred in that Financial Year b) the Contractor shall be entitled to recover out of the Cost Petroleum up to the Point of Sale the Exploration Costs relating to the original exploration block from which the Development Licence was derived; c) the Contractor shall be entitled to recover out of the Cost Petroleum, Development Costs incurred by the Contractor until the Point of Sale up to the date of first Commercial Production; d) the Contractor shall be entitled to recover out of the Cost Petroleum the Development Costs that it has incurred up to the Point of Sale after the date of first Commercial Production. 2

3 II. The term defining "natural gas" has been further revised with the exclusion of the highlighted text natural gas means wet gas, dry gas, all other gaseous hydrocarbons, and all substances contained therein, including sulphur, carbon dioxide and nitrogen but excluding extraction of helium, which are produced from Oil or Gas Wells, excluding those condensed or extracted liquid hydrocarbons that are liquid at normal temperature and pressure conditions, and including the residue gas remaining after the condensation or extraction of liquid hydrocarbons from gas; III. The term defining "petroleum" has been further revised with the exclusion of the highlighted text petroleum means Crude Oil and/or Condensate and/or Natural Gas existing in their natural condition but shall not include helium occurring in association with petroleum or shale; 2. Introduced Definitions 1. "Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds of hydrocarbons and bitumens, both in solid and liquid form in their natural state, excluding those obtained from Natural Gas by condensation of extraction; 2. "Domestic Market Obligation" means the maximum amount of proven reserves of Natural Gas to be made available for sale into the local market. See section 5 of this document for more details. 3. Additions to the list of recoverable costs I. Signature Bonus payable by the contractor specified under article (as provided below) has been further revised as a recoverable cost with the 3

4 addition of the highlighted text. However consistent with the introduced revision, the reference to Signature Bonus appearing on the list of nonrecoverable costs under article (point 31) shall be excluded from the list. Article 20.15; Simultaneously with the execution of this Agreement, the Contractor will make a payment to the PRDS of a bonus to be called the Signature Bonus 1 set at a minimum floor rate of One Million (1,000,000/-) US Dollars for deep water blocks and a minimum floor rate of Two Hundred Thousand (200,000/-) US Dollars $ for shallow water blocks. The sum to be paid as the Signature Bonus shall be considered cost recoverable. II. Abandonment fund contributions payable by the contractor shall no longer be treated as a non-recoverable cost. Thus, article has been further revised with the addition of the highlighted text. However consistent with the introduced revision, the reference to "Abandonment fund contributions" appearing on the list of non-recoverable costs under article (point 28) shall be excluded from the list Abandonment Fund payments made by Contractor shall be cost recoverable. 4. Clarifications on state participation initiated and administered by a National Oil Company (NOC) formed during the agreement period. PRDS confirms that, within a year following the approval of the Development Plan, Government shall, if it wishes to exercise the back-in option, issue a letter of its intent giving 90 days notice to the Contractor, on a date termed the "Trigger Date". With respect to the costs associated with this decision, the PRDS will make the following amendments to the language in the MPRA; 4

5 All expenditure incurred by the Contractor in performance of this Agreement on and from the Effective Date to the Trigger Date shall be borne by the Company (ies) other than the NOC. If the Government gives the notice of intention to participate referred to above, such share of expenditures shall be reimbursed to the Company(s) in accordance with the following provisions:- a) as to NOC, its share of all Allowable Expenditure incurred by the Contractor under this Agreement up to the Trigger Date, NOC agrees that when the first Commercial Production starts the Company(s) shall be entitled to 100 percent (100%) of NOC share of the Contractor s entitlement to Cost Petroleum minus the amount of Cost Petroleum needed by the NOC to cover its share of Royalty and Production Costs, Development Costs and Exploration Costs under the terms of this Agreement until the Company (s) have been fully reimbursed without interest; b) as to NOC, towards its share of all expenditure incurred by the Contractor under this Agreement after the date of the Government s notice of intention to participate, NOC shall make payment, on a current cash basis, in accordance with the Joint Operating Agreement. 5. Assessment of the Domestic Market Obligation for Gas The PRDS have introduced a definition for "Domestic Market Obligation (DMO)" (as stated previously). The PRDS intends that this DMO is divided between all producers in proportion to their production, subject to a specific cap on reserves for each producer, allowing producers to market their balance production effectively. The PRDS is will to communicate the value of this cap as soon as possible. 5

6 Definition - "Domestic Market Obligation" means the maximum amount of proven reserves of Natural Gas to be made available for sale into the local market; 6. Accounting procedures and practices to be adopted and followed by the contractors for the purpose of financial reporting. PRDS informs operators that, for the purpose of financial reporting and forecasting relating to offshore petroleum exploratory drilling operations, Sri Lanka adopts and practices the International Financial Reporting Standards (IFRS). PRDS requests the operators to prepare and submit all required financial statements in compliance with the terms and conditions prescribed under "IFRS". 7. Non-completion of the Minimum Work Programme To further clarify the text in Article 27.10, operators who fail to meet their MWP commitment for a particular phase will be required to furnish to the Government a sum of money equal to the difference between the total commitment and the sum of the actual expenditure plus the Bank Guarantee, which the Government will encash Subject to Article 12, the Contractor undertakes to complete the Minimum Work Programme in accordance with the provisions of the PRA, as the case may be. In the event that the Contractor fails to fulfil the said Minimum Work Programme by the end of the relevant Exploration Phase or early termination of the Agreement by the Government for any reason whatsoever, each Company constituting the Contractor shall pay to the Government, within sixty (60) days following the end of the relevant Exploration Phase or early termination of the Agreement, as may be the case, its Participating Interest share for an amount equating to the balance between the 6

7 outstanding monetary value of Minimum Work Programme and the Performance Guarantee which shall also be forfeited. For determination of this amount, reference to the likely financial commitment referred to in Article 27.2, 27.3 and 27.4 available relevant information including the Budget and modern oilfield/gasfield and petroleum industry practices will be taken into account. Any amount which is paid to the Government under the terms of this Article subsequent to the period of sixty (60) days referred to above will bear interest compounded daily at the applicable LIBOR plus two (2) percentage points. 8. Procedure to be followed for Bank Transactions for the purpose of carrying out all financial transactions between the state and the operator. The PRDS will introduce an article into the MPRA detailing procedures and account details for all payments due to the Government in the fulfillment of the terms of the agreement. 9. Submission of relevant HSE documents to support the bid All operators should submit relevant documentation describing their corporate HSE management systems along with copies of applicable policies and standards. 10. Declaration of Oil Discovery, Development and Production. PRDS wishes to inform of the following change to Articles and 31.6 (e) Proposed revisions; 28.1 If the Contractor, in its opinion and utilizing good oil field practices, does not notify the Advisory Committee and the PRDS that the Discovery is of potential 7

8 commercial interest as a standalone or as part of an aggregated production project within the Agreement Area, then the Contractor shall, if requested by PRDS, relinquish at the end of the current Exploration Phase the said Discovery comprising the geological feature (as outlined in the relevant technical data) in which the Discovery is located (e) If, pursuant to Article 28.1, the Contractor, in its opinion and utilizing good oil field practices, does not notify the Advisory Committee and the PRDS that the Discovery is of potential commercial interest as a standalone or as part of an aggregated production project within the Agreement Area, then the Contractor shall, if requested by PRDS, relinquish at the end of the current Exploration Phase the said Discovery comprising the geological feature (as outlined in the relevant technical data) in which the Discovery is located. 11. Procedure for Helium extraction With the revised "natural gas" definition which now allows the inclusion of Helium, articles 28.2 and 31.1 have been introduced to mainly permit the operator to develop and adopt a relevant mechanism for the extraction, production and sharing of such quantities. natural gas means wet gas, dry gas, all other gaseous hydrocarbons, and all substances contained therein, which are produced from Oil or Gas Wells, excluding those condensed or extracted liquid hydrocarbons that are liquid at normal temperature and pressure conditions, and including the residue gas remaining after the condensation or extraction of liquid hydrocarbons from gas; If a discovery contains a non-negligible amount of Helium, the mechanism of developing such quantity shall be agreed between the Parties on the submission of the Development Plan. 8

9 31.1. If a discovery contains a non-negligible amount of Helium, the mechanism of developing such quantity shall be agreed between the Parties on the submission of the Development Plan. 12. Taxes paid to other Governments With reference to article point (XII) provided below, operators are notified that all levies, taxes, and tariffs incurred on goods and services dedicated to operations in Sri Lanka are cost recoverable if they are legally required by the host government and are not later refundable, whether they are incurred in Sri Lanka or overseas. The treatment of Corporate Income tax paid by the operator to other governments (for the same), however, shall be subject to applicable bilateral Treaties between respective contracting states/nations, and shall not be part of cost recovery. In this regard, point (13) appearing on the list of non-recoverable costs under article shall be further revised as highlighted in the text provided below. Article XII Duties, Fees and Other Charges Any duties, levies, fees, charges and any other assessments levied after the Effective Date by any governmental or taxing authority in connection with the Contractor s activities under the Contract and paid directly by the Contractor except corporate income tax payable by the constituents of the Contractor. Article income taxes and other taxes incurred outside Sri Lanka; 13. income taxes incurred outside Sri Lanka; 9

10 13. Introduction of a "Stability Clause" For the purpose of avoiding all uncertainties associated with the consistency of all applicable domestic laws and further strengthening the validity of the provisions laid down in the MPRA during its execution, the below "Stability Clause" shall be introduced as a separate article. The provisions of this Agreement shall remain valid for the entire duration of the Agreement and any changes or modifications of the existing applicable law will have no effect on the provisions of this agreement. 10

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