REPUBLIC OF SENEGAL ---------------------

ONE PEOPLE – ONE GOAL – ONE FAITH

DRAFT BILL NO. 98-05 OF 08 January 1998

ESTABLISHING THE PETROLEUM CODE

(Unofficial)

DRAFT BILL NO. 98-05 OF 08 January 1998 ESTABLISHING THE PETROLEUM CODE

EXPLANATORY STATEMENT Over the last ten years, the international petroleum industry has been characterized by a significant reduction of exploration budgets by the oil companies. This situation has reduced the competitiveness of a country like ours in terms of investments into petroleum exploration, to the benefit of countries that have confirmed petroleum prospects. In order to be competitive, Senegal must not only take into account the evolution of the worldwide energy data, but also offer to prospective investors of the petroleum industry, conditions which are attractive and susceptible of promoting the development of petroleum investments in the exploration or production of our national territory. This draft Petroleum Code complies with the overall orientation of the international petroleum law, while taking into account the specific characteristics of the exploration and exploitation of hydrocarbons in our onshore and offshore sedimentary basin, the existing conditions, and the expected growth of the petroleum industry. Compared to the Law No. 86-13 of April 14, 1986, establishing the Petroleum Code, this draft bill contains several innovations that may be deemed essential. The draft code provides petroleum companies with the possibility of benefiting from a lease term of eight years for gas and three years for crude oil, regarding discoveries which are not of immediate commercial value, compared to the 1986 Petroleum Code, which required that the operator waive any non-commercial discoveries upon the expiration of the exploration period. The authorization for the temporary exploitation of hydrocarbons that was provided in the decree is introduced in the code to enable the holders of an exploration permit to exploit producing wells, on a temporary basis, for a maximum of two years, during which period they must carry out the delimitation and the development of the deposit thus discovered. Regarding gaseous hydrocarbons, the code takes into account the fact that their development may require greater investments and longer terms than for the development of liquid hydrocarbons. Furthermore, in the current Petroleum Code, the term of a twenty-five year concession may be extended by a period of ten (10) years, renewable once, compared to a maximum extension of ten (10) years in the 1986 code.

The provisions pertaining to the protection of the Environment have been improved in accordance with international trends. The requirements include, in particular, the performance of studies and proposals for the protection of the environment as an integral part of the plans for the development of any discovery of hydrocarbons, but also during the exploration phase or in the case of /text cut-off/ Another difference of note is that this new draft code eliminates the bonus that may be payable upon the signature of a convention or a service contract. The rate of the royalty levied on the production of crude oil or natural gas is now comprised between a minimum of 2% and a maximum of 10%, and varies according to whether the exploitation is carried out onshore or offshore, and whether the product is liquid or gaseous hydrocarbons, compared to the 12.5% provided in the 1986 code. The additional tax referred to as Additional Petroleum Tax (APT) is maintained. However, it will be calculated on the basis of the overall profitability of the project (R factor). This new Petroleum Code contains measures aimed at stimulating the exploration, development and exploitation of hydrocarbons by improving the fiscal and customs benefits that were already provided in the 1986 code, which provides that holders of a convention or service contract, as well as companies associated therewith within the framework of understandings or agreements such as those provided in this bill (article 8, paragraph 4), are exempt, during the exploration and development phases, from any taxes, duties and fees levied by the State. This new code introduces the possibility of signing a production sharing contract in addition to the convention, within the framework of a service contract. It also provides for an exemption from customs duties and from the fees levied by the Senegalese Council of Loaders (COSEC) during the importation into the Republic of Senegal of any materials and other capital goods intended for the prospecting, exploration and development of hydrocarbons. These are the economic factors of this draft bill.

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The National Assembly has deliberated and adopted, during its session of ...... The President of the Republic promulgates the law of which the content follows:

CHAPTER ONE

GENERAL PROVISIONS

ARTICLE ONE

In the territory of the Republic of Senegal, the prospecting, exploration, exploitation and transportation of hydrocarbons, as well as the fiscal system pertaining to such activities are governed by the provisions of this code and the regulatory texts adopted for the enforcement thereof.

ARTICLE TWO For the purposes of this code:

a) “State” means the Republic of Senegal;

b) “Territory of the Republic of Senegal” designates the onshore portion of the Republic of Senegal, as well as the Senegalese maritime areas that comprise the territorial waters and the continental shelf, as defined by the national law in accordance with the Convention of the United Nations on Maritime Rights, ratified by Senegal;

c) “Minister” means the Minister responsible for petroleum

operations;

d) “State Company” designates a company constituted for the purpose of carrying out petroleum operations in the form of a public establishment, a national company or a company with a majority public holding;

e) “Hydrocarbons” designates all the liquid or gaseous

hydrocarbons existing naturally in the subsoil and susceptible of being exploited through the use of techniques which are specific to the petroleum industry, as well as all products extracted in association with said hydrocarbons;

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f) “Petroleum operations” include each of the following activities: prospecting, exploration, assessment, development, production, transportation or marketing of hydrocarbons, including the processing of natural gas, but excluding refining and the distribution of petroleum products;

g) “Service contract” is the risk service contract for the exploration

and exploitation of hydrocarbons provided in Article 6, whereby the State or a State Company grants to a qualified entity, which assumes the financial risks, exclusive rights for the exploration and exploitation of hydrocarbons within a defined perimeter. According to this code, any service contract that does not grant exclusive rights for the exploration and exploitation of hydrocarbons does not constitute a service contract;

h) “Convention” is the contract provided by Article 5, pertaining to

the issuance of an exploration permit or a concession for the exploitation of hydrocarbons;

i) “Production Sharing Contract” is the service contract whereby

the holder is entitled to a portion of the production of hydrocarbons derived from the pertinent contract area, as provided in Article 36 hereof;

j) “Hydrocarbon exploitation license” designates an exploration

permit or a concession for the exploitation of hydrocarbons grated by the State and provided in Article 5, excluding any permit or concession granted for non-petroleum related operations.

ARTICLE 3

All natural deposits or accumulations of hydrocarbons existing in the subsoil of the Republic of Senegal are the property of the State.

ARTICLE 4

The State holds sovereign rights over the entire territory of the Republic of Senegal for the purposes of the prospecting, exploration, exploitation and transportation of hydrocarbons.

No person or company, including landowners, may undertake petroleum operations without prior authorization from the State.

ARTICLE 5

Subject to the provisions of this code, the State may authorize one or more persons or companies of its choice, of Senegalese or any other nationality, to undertake petroleum operations:

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a) pursuant to a prospecting authorization; b) by virtue of a permit for the exploration of hydrocarbons, a

temporary exploitation authorization, or a concession for the exploitation of hydrocarbons.

A convention entered into by the State and the holder(s) of an exploitation license

establishes the rights, obligations and commitments related to the hydrocarbon exploitation licenses.

ARTICLE 6

The State reserves the right to undertake petroleum operations on its own account: a) either directly; b) or through State Companies acting alone or in association with

third parties, within the framework of a service contract; c) or through one or several persons or companies of its choice, of

Senegalese or any other nationality, authorized, in accordance with the provisions of this code, to carry out petroleum operations under the conditions of a service contract entered into with the State, which may be a production sharing contract.

ARTICLE 7

The State, either directly or through a State Company, reserves the right to participate in all or part of the petroleum operations, by entering into partnerships with the holders of hydrocarbon exploitation licenses or service contracts. The conditions of participation will then be specified in the convention attached to the hydrocarbon exploitation license or to the service contract.

ARTICLE 8 No person or company may hold a hydrocarbon exploitation license or a service contract without demonstrating the technical and financial capabilities required to carry out successfully the petroleum operations. If several persons are co-holders of a hydrocarbon exploitation license or a service contract, they will act jointly and severally. They must provide the Minister with a copy of any agreement into which they may have entered for the petroleum operations within the perimeter in question. Any person holding a hydrocarbon exploitation license or a service contract must be replaced by a company within the period of time provided in the convention or in the applicable service contract.

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According to the provisions of Article 56, all the understandings or agreements whereby the holder of a hydrocarbon exploitation license or a service contract agrees to entrust, assign or transfer all or part of the rights and obligations arising from said license or contract, are subject to prior approval.

ARTICLE 9 Subject to any vested interests, the Minister may decree that some areas of the territory of the Republic of Senegal be forbidden to petroleum operations. Outside of these areas and those which are the subject of a hydrocarbon exploitation license or a service contract, any persons which demonstrate the capabilities provided in Article 8 may submit to the Minister, at any time, an application for a hydrocarbon exploitation license or a service contract under the conditions provided in this code and in the texts adopted for the enforcement thereof. However, the Minister may decide that said applications be the subject of a call for bids for all or part of the available areas.

ARTICLE 10 After review, the Minister decides whether to accept or reject the applications for hydrocarbon exploitation licenses or service contracts, without giving rise to any indemnification in favor of the rejected applicant(s). In the case of competing applications, no priority right may be invoked. The convention or service contract is negotiated according to the terms and conditions set forth by decree.

ARTICLE 11 The existence of hydrocarbon exploitation licenses or service contracts in force in a given area does not prevent the issuance of mining titles for the exploration and exploitation of mineral substances other than hydrocarbons, provided that such other operators do not hinder the proper performance of the petroleum operations.

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CHAPTER 2

HYDROCARBON PROSPECTING

ARTICLE 12 A hydrocarbon prospecting authorization may be granted by decree of the Minister in areas not covered by a hydrocarbon exploitation license or a service contract. The prospecting authorization is granted for a term not to exceed two years. It confers to its holder, within the boundaries of its perimeter, the non-exclusive right to carry out preliminary prospecting work, in particular through the use of geophysical, geological and geochemical methods, excluding any drilling beyond a depth of two hundred meters, unless otherwise provided in the prospecting authorization. The prospecting authorization sets forth the conditions that apply to its holder.

ARTICLE 13 Several prospecting authorizations may be granted simultaneously in the same area. The State may also, at any time, grant a hydrocarbon exploitation license or enter into a service contract for all or part of the area that is the subject of a prospecting authorization. This authorization then becomes void by right for said area, without giving rise to any indemnification. The prospecting authorization does not confer to its holder any right or privilege as to the acquisition of a hydrocarbon exploitation license or a service contract, or for the extraction or disposal of any hydrocarbons that may be discovered during the prospecting work.

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CHAPTER 3

HYDROCARBON EXPLORATION PERMIT

ARTICLE 14 The hydrocarbon exploration permit grants its holder, within the boundaries of its perimeter, the exclusive right to carry out any work, including drilling, related to the exploration and discovery of hydrocarbon deposits, in accordance with the provisions of the convention associated with said permit.

ARTICLE 15 The hydrocarbon exploration permit, at the request of its holder, may be renewed twice by decree, for a duration not to exceed three years, in each instance, provided that the holder fulfills all of its obligations and abandons each time a fraction of the exploration perimeter. The second renewal period may be extended, by decree, for the duration necessary for the completion of the evaluation of a discovery.

ARTICLE 17 The convention associated with the exploration permit sets forth the respective rights and obligations of the holder and the State for the duration of the exploration permit, including the renewal periods, as well as for the duration of any exploitation concessions which may arise therefrom in the event of a commercial discovery, in particular: a) the work obligations for each of the exploration periods, with the corresponding guarantees; b) the conditions under which the exploration and the exploitation are carried out; c) the provisions regarding the cancellation of the exploration permit or the withdrawal of an exploitation concession; d) the financial and fiscal provisions; e) the obligations pertaining to the training and hiring of local labor; f) the rules pertaining to the assignment or transfer of the rights and obligations of the holder; g) the provisions pertaining to the participation of the State or a State company, in all or part of the petroleum operations; h) the delivery to the Minister of the information, documents and samples pertaining to the petroleum operations;

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i) if applicable, the arbitration procedure selected to resolve any disputes that may arise from the enforcement of the convention; j) the rules pertaining to the transfer of assets and permanent facilities upon expiration of the convention; k) an environmental impact study. The convention is signed by the Minister and the applicant(s) for the hydrocarbon exploration permit, subject to the review of the fiscal and financial provisions by the Minister of Finance. Said review is deemed favorable if, at the end of fifteen days from the date of receipt of the request for review, no continuation is given to said request. Said convention is approved by the President of the Republic and published in the Official Gazette, and must be registered in accordance with the conditions provided by law.

ARTICLE 18 The holder of a hydrocarbon exploration permit must agree to perform, during the initial period and, if applicable, during each renewal period, the minimum exploration work program stipulated in the convention.

ARTICLE 19 If the holder of a hydrocarbon exploration permit does not fulfill the work obligations provided in Article 18, it shall pay to the State the indemnification stated in the convention.

ARTICLE 20 Any discovery of hydrocarbons must be notified immediately to the Minister by the holder of the exploration permit. Pursuant to a discovery of hydrocarbons that suggests the existence of a commercially exploitable deposit, the holder of the exploration permit must carry out the evaluation of said deposit with due diligence. Upon the completion of the evaluation work, the holder must establish the commercial or non-commercial nature of said discovery. As soon as the existence of a commercially exploitable hydrocarbon deposit is established, the holder of the exploration permit must apply for an exploitation concession. When it is determined, upon completion of the evaluation work, that the deposit of hydrocarbons is not immediately commercially exploitable, but could become so, the holder of the permit may be granted, under the conditions set forth in the convention, a

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holding period for said discovery, which shall not exceed three years for liquid hydrocarbons, and eight years for gaseous hydrocarbons, as of the date of expiration of the term of the exploration permit or the renewal thereof. If applicable, the exploration permit will be extended to this effect for the surface area of said /text cut-off/

ARTICLE 21 The holder of the exploration permit may dispose of the hydrocarbons extracted from the subsoil during the exploration work and any production tests included therein. In such a case, it will be subject to the provisions of Chapters 4 and 7, as well as to the stipulations of the convention or service contract related to the obligations of a holder during the production period.

ARTICLE 22 The holder of an exploration permit may waive all or part of its rights, at any time, subject to advance notification of three months and to the stipulations of the convention. However, no waiver issued during the exploration period may reduce the work obligations assumed by the holder for said period, which shall also perform, if applicable, any abandonment work required to protect the environment.

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CHAPTER 4

EXPLOITATION OF HYDROCARBONS

ARTICLE 23 The hydrocarbon deposits may only be exploited in the territory of the Republic of Senegal if they are the subject of: - a temporary exploitation authorization; - a concession.

ARTICLE 24 During the term of an exploration permit, its holder may be authorized, at its request, to exploit the producing wells on a temporary basis, for a maximum period of two years, during which it shall carry out the delimitation and the development of the deposit, according to the provisions of Article 20. This authorization, which grants the holder, in exchange for the payment of the royalties provided in Article 41, the right to freely dispose of the hydrocarbons extracted, may be withdrawn under the same conditions in the event of noncompliance with the provisions of Article 20. It becomes void in the event of the expiration of the permit for any reason whatsoever, unless an application if filed for a concession. The procedure for the review of the temporary exploitation authorization request as well as the request for an extension of said authorization to new wells of the deposit, or for the withdrawal of the authorization, is set forth by decree.

ARTICLE 25 The hydrocarbon exploitation concession is granted by decree. It confers to its holder, within the boundaries of its perimeter, the exclusive right to carry out all the petroleum operations, according to the stipulations of the convention related thereto.

ARTICLE 26 Any commercial discovery of hydrocarbons made by the holder of a hydrocarbon exploration permit provides the latter with the exclusive right, provided that the request is made prior to the expiration of said permit, to obtain an exploitation concession covering the perimeter of the commercial discovery. The convention that applies to the exploitation concession is that which is described in Article 17.

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The award of an exploitation concession entails the cancellation of the hydrocarbon exploration permit within the perimeter granted, but it shall remain in force outside of said perimeter until its expiration, without modifying the rights and obligations that arise from the hydrocarbon exploration permit.

ARTICLE 27 The hydrocarbon exploitation concession is granted to the holder for a term not to exceed twenty-five years. However, the period of validity of said concession may be extended by decree for a maximum period of ten years, renewable once, according to the conditions set forth in the convention, if the holder demonstrates that a commercial production is still possible upon the expiration of the initial period, or, if applicable, upon the expiration of the first renewal period.

ARTICLE 28 Any request for a hydrocarbon exploitation concession must be accompanied by a plan for the development and bringing in of the commercial discovery. This plan must contain, in particular, information regarding the amount of recoverable reserves of hydrocarbons, the expected production profile, the development scheme, estimates of the investments and costs, as well as a study that justifies the commercial nature of the discovery. The development plan must also contain an environmental impact study that includes measures to be adopted in order to guarantee the safety and health of the employees and third parties, as well as the ecological balance of the environment, and an abandonment plan that ensures the protection of the environment.

ARTICLE 29 The holder of a hydrocarbon exploitation concession agrees to carry out with due diligence the development of the commercial discovery in question, and to exploit the same in accordance with the recognized practices of the petroleum industry.

ARTICLE 30 The holder of an exploitation concession acquires property rights over the hydrocarbons produced at the wellhead.

ARTICLE 31 For the purposes of this code, other than the buildings, the machinery, equipment and materials used for the exploitation of hydrocarbon deposits and for the storage and transportation of crude products are considered immovable goods.

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The shares or interest in a company or firm for the exploitation of hydrocarbon deposits are movables. The material extracted, the supplies and other personal property are movables.

ARTICLE 32 The exploitation of hydrocarbon deposits constitutes an act of merchant. It does not give rise to any property rights or mining royalties.

ARTICLE 33 Any holder of a concession for the exploitation of hydrocarbons may waive the same fully or partially, subject to one-year advance notice. This waiver does not relieve the holder from the obligations provided in the convention and arising from the activities undertaken by the holder prior to the effective date of the waiver. In the event of a partial or total waiver, the holder of a concession must also complete the abandonment work and take all measures necessary to protect the environment.

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CHAPTER 5

SERVICE CONTRACT AND, IN PARTICULAR, PRODUCTION

SHARING CONTRACT

ARTICLE 34 According to the provisions of Article 6, the State or a State Company may enter into risk service contracts for the exploration and exploitation of hydrocarbons. A service contract specifies the rights and obligations of each party for its entire term, in particular: a) the work obligations for each exploration period; b) the conditions under which the work programs will be established, as well as the control of the performance thereof; c) the procedure according to which a commercial deposit will be developed and brought into exploitation by the holder, and the determination of the corresponding exploitation perimeter; d) the financial and fiscal provisions, subject to the favorable review of the Minister of Finance. Said review is deemed favorable if, at the end of fifteen days from the date of receipt of the request for review, no continuation is given to said request; e) the terms of remuneration of the holder, which could fall within the framework of a production sharing contract, consisting of a fraction of the production obtained from the exploitation perimeters, according to the provisions of the contract; f) the obligations pertaining to the training and hiring of local labor; g) the rules pertaining to the assignment or transfer of the rights and obligations of the holder; h) the provisions regarding the participation of the State or a State Company in any part or all of the petroleum operations, subject to the favorable review of the Minister of Finance. Said review is deemed favorable if, at the end of fifteen days from the date of receipt of the request for review, no continuation is given to said request; i) the stipulations pertaining to the termination of the service contract; j) the delivery, to the Minister, of the information, documents and samples pertaining to the petroleum operations; k) the rules pertaining to the transfer of assets and permanent facilities, and to the abandonment work; l) the measures to safeguard and protect the environment. The service contract is signed by the State Company and the applicant(s), then countersigned by the Minister, pursuant to the review by the Minister of Finance. The review is deemed favorable if, at the end of fifteen days from the date of receipt of the request for review, no continuation is given to said request. The contract is subject to approval by the President of the Republic. The decree and the service contract are

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published in the Official Gazette and will be registered under the conditions provided by law.

ARTICLE 35 During the exploration period, the holder of the service contract has rights and obligations, in the areas where it is entrusted with the performance of the exploration work, which are identical to those of a holder of a hydrocarbon exploration permit mentioned in Chapter 3. During the exploitation phase, the holder of a service contract has rights and obligations, in the exploitation perimeters pertaining to said contract, which are identical to those of a holder of a hydrocarbon exploitation concession mentioned in Chapter 4. However, the provisions of Article 30 do not apply to the holder of a service contract and, therefore, the latter is not subject to the payment of the royalty on the production described in Article 41, for which the holder of a hydrocarbon exploitation license is accountable.

ARTICLE 36 The production sharing contract is a risk service contract whereby the State or a State Company awards exclusive hydrocarbon exploration and exploitation rights within a defined perimeter, to one or several qualified persons or companies. The production sharing contract specifies, in accordance with the provisions of Article 34, the rights and obligations of the holder and of the State or the State Company, for its entire term, in particular the conditions for the sharing of the hydrocarbons produced for the recovery of petroleum costs incurred by the holder and for its remuneration.

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CHAPTER 6

TRANSPORTATION OF HYDROCARBONS

ARTICLE 37 During the term of a concession or service contract, the right to exploit a hydrocarbon deposit entitles its holder, subject to the authorization provided in Article 39, the right to transport, under the conditions set forth in this code and the texts adopted for its enforcement and according to the provisions of the convention or the service contract, the production resulting from its exploitation activities, to the points of storage, processing, loading or gross consumption.

ARTICLE 38 The right to transport hydrocarbons described in Article 37 may be transferred to third parties, individually or jointly, by any holder of exclusive operating rights, under the conditions provided in the convention or the service contract. The beneficiaries of the above-mentioned transfers must comply with the conditions set forth in this code for the construction and operation of the facilities and pipelines in question, and also with the special conditions provided by the convention or the service contract.

ARTICLE 39 Any operator of hydrocarbon deposits or beneficiary of the transfers described in Article 38 that wishes to build a pipeline for the transportation of hydrocarbons, must submit the project to the Minister for prior approval by decree. The route and the characteristics of the pipelines must be established so as to ensure the gathering, transportation and disposal of the production from the hydrocarbon deposits under the best technical, economical and environmental conditions. In the event that the execution of the pipeline project requires expropriations for a public purpose, said project must be approved by decree. This decree will contain the statement of public purpose of the project.

ARTICLE 40 In the event that several hydrocarbon discoveries are made within the same geographic area, failing an amicable agreement, the Minister may force the operators to enter into an association for the construction or common operation of the facilities and pipelines for the evacuation of all or part of the production from said discoveries.

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A company operating a pipeline for the transportation of hydrocarbons which may have any excess capacity, may be forced by decision of the Minister, to the extent and for the duration of said excess capacity, in the absence of an amicable agreement, to accept the passage of hydrocarbons originating from /text cut-off/

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CHAPTER 7

FISCAL PROVISIONS

ARTICLE 41 The holder or holders of a hydrocarbon exploitation concession are subject to the payment of a royalty on the value of the hydrocarbons produced, to be paid in cash to the State. The royalty is calculated from the total quantities of hydrocarbons produced in the concession and not used in the petroleum operations. The royalty rates applicable to the productions of crude oil or natural gas are determined as follows: - liquid hydrocarbons exploited onshore: two percent to ten percent; - liquid hydrocarbons exploited offshore: two percent to eight percent; - gaseous hydrocarbons exploited onshore or offshore: two percent to six percent. The amount of this royalty and the rules relating to the basis and recovery thereof are specified in the convention.

ARTICLE 42 The holders of the convention or service contract, as well as the companies associated therewith within the framework of the understandings or agreements described in Article 8, paragraph 4, are accountable, in relation to their petroleum operations in the territory of the Republic of Senegal, for the payment of the corporation tax provided in the General Taxation Code and under the conditions provided in this chapter. This tax is calculated from the net profits derived by the company from its overall petroleum operations in the territory of the Republic of Senegal, whether it carried out said operations alone or in an association with other companies.

ARTICLE 43 Each company mentioned in the previous article, regardless of the location of its registered office, will keep, for each year, a separate accounting of its petroleum operations, making it possible to establish and profit and loss statement and a balance sheet highlighting both the results of said operations and the assets and liabilities that were allocated to the petroleum operations or which may be directly related thereto. The net profits consist of the difference between the value of the net assets at the closing and opening of the period of which the results constitute the basis of the tax, less extra contributions, plus any amounts taken by the associates during said period.

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The net assets consist of the value of the assets in excess of the total constituted by the liabilities /text cut-off/ The profit is established after deduction of all charges that meet the following conditions: - incurred in the direct interest of the company or related to the normal management of the company; - correspond to an actual charge and are substantiated by sufficient evidence; - are reflected by a decrease of the net assets of the company; - are included in the charges of the fiscal year during which they were incurred. The unverified amount of the deficit which the company demonstrates to have incurred may be deducted from the taxable profits until the third fiscal year following the deficit period, according to the provisions of article 14 of the General Taxation Code, unless otherwise provided in the convention or service contract, authorizing the losses to be carried forward beyond the above-mentioned three year period.

ARTICLE 44 The rate of the corporation tax is twenty-five (25) percent, as provided in the General Taxation Code.

ARTICLE 45 The payment of an annual surface rent is due as of the signature of the convention or service contract. The amount and terms of recovery are set forth in the convention or contract service signed with the holder.

ARTICLE 46 The holders of conventions or service contracts are subject to an additional petroleum tax that is calculated according to a criterion of profitability of the petroleum operations, of which the rate, conditions of calculation, declaration, liquidation and recovery are specified in the convention or service contract. However, when the remuneration of the holder of a production sharing contract has already been determined according to the profitability of the petroleum operations, this method of determination will be in lieu of the additional petroleum tax. The additional petroleum tax paid is not a deductible charge for the determination of the profit which is subject to the corporation tax.

ARTICLE 47

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Property taxes and additional taxes are payable under the conditions of common law on residential building.

ARTICLE 48 The holders of conventions or service contracts, as well as the companies associated therewith within the framework of the understandings or agreements mentioned in Article 8, paragraph 4, are exempt, during the exploration and development phases, from any taxes, duties and fees levied in favor of the State, in particular:

a) from any other direct income tax on the results of the petroleum operations, the profits and the distribution of profits; this entails, in particular, the exemption from the tax on income derived from transferable securities, for dividends paid to the actual shareholders of the companies, and from the tax on the income derived from claims, investments and bonds;

b) from any tax, duty, levy or contribution of any nature that is applied to the

production or sale of crude hydrocarbons, and any income derived therefrom, or that is payable on the petroleum operations or for the establishment and operation of the operator pursuant to this code, including the lump sum contribution for which employers are liable, and the registration duty;

c) from any tax on the transfer of funds, purchases and the transportation of

hydrocarbons intended for exportation, services rendered and, in a more general manner, for all the income and activities of companies affiliated with the companies described in Article 42, provided that the above-mentioned items are required by the petroleum operations.

For the purposes of this code, affiliated company shall mean any company that controls or is controlled by, directly or indirectly, any of the companies mentioned in Article 42, or a company that controls by itself, directly or indirectly, any of the companies mentioned in Article 42, with the understanding that such controls means the direct or indirect holding by a company or any other entity of at least fifty percent of the corporate shares constituting the majority of votes of another company; d) from any taxes on sales or similar taxes, in particular the added-value tax, to the extent that said taxes apply strictly and directly to the petroleum operations carried out by the holders. Furthermore, any persons or companies that work on behalf of the holders of conventions or service contracts may benefit from the exemptions provided in paragraph (d), in relation to the petroleum operations that they perform for said holders. e) from the taxes and duties applicable to petroleum products supplied to permanent facilities and drilling facilities.

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ARTICLE 49

The tools, materials, supplies, machinery and equipment, as well as the spare parts, products and consumables intended directly and exclusively for the petroleum operations, are exempt, during the exploration and development phases, from any duties and taxes, upon their importation into the Republic of Senegal by the holder or holders of conventions or service contracts, or by companies working on their behalf, and to the extent that said tools, materials, supplies, machinery and equipment, spare parts, products and consumables are not available in the Republic of Senegal, under equivalent quality, quantity, price, delivery and payment conditions. The above-mentioned tools, materials, supplies, machinery and equipment, as well as the spare parts, products and consumables intended directly for the petroleum operations, which are imported into the Republic of Senegal by the holder or holders of conventions or service contracts, or by companies working on their behalf, and may be reexported or assigned after their use, will be declared under the temporary importation system, entailing the full suspension of all importation and exportation duties and taxes. In the event that said items are put into use following their temporary importation, the applicable duties shall be those that are in force on the date that the detailed declaration of products put into use is filed, applicable to the actual market value of said products in force on that same date. In order to benefit from the exemption from the above-mentioned duties and taxes, the beneficiary companies must file a title of exemption issued by the Minister of Finance, on the basis of an administrative certification signed by the Minister of the petroleum operations sector. The companies that benefit from the customs systems defined hereinabove are subject to all the control and monitoring measures that are stipulated by the Customs Administration in accordance with the regulations in force. However, simplified procedures may be granted for the prompt removal of the tools, materials, supplies, machinery and equipment, as well as the spare parts, products and consumables mentioned above. The tools, materials, supplies, machinery and equipment, as well as the spare parts, products and consumables intended exclusively for the petroleum operations, are exempt from customs duties and the fees levied by the Senegalese Council of Loaders (COSEC), during the period of prospecting, exploration and development, upon their importation into the Republic of Senegal by the holder or holders of conventions or service contracts, or by the companies working on their behalf. For the exploitation and production phase, the requirements for the exemption from customs fees and the fees levied by the Senegalese Council of Loaders (COSEC) are specified in the convention.

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CHAPTER 8

OBLIGATIONS AND RIGHTS PERTAINING TO THE EXECUTION OF PETROLEUM OPERATIONS

ARTICLE 50 The petroleum operations must be carried out with due diligence, according to the recognized practices of the international petroleum industry.

ARTICLE 51 The petroleum operations must be conducted so as to ensure the preservation of natural resources and to protect the environment. To this end, the companies must carry out their work by using techniques that are recognized in the petroleum industry and by taking the measures required to prevent and fight the pollution of the environment, to process waste, and to preserve the flora and fauna, as well as surface and underground waters. The costs of the work necessary for the protection of the environment are borne by the holder, according to the regulations and stipulations of the applicable convention or service contract.

ARTICLE 52 The holder of a convention or service contract must indemnify the State or any other person for any damages that may arise from the petroleum operations, caused by the holder itself or any company working on its behalf.

ARTICLE 53 The holders of conventions or service contracts, as well as the companies working on their behalf, must: a) give priority to Senegalese companies for all construction, supply or service contracts, under equivalent quality, quantity, price, delivery and payment conditions; b) when the level of qualification is identical, hire Senegalese personnel, as a priority, for the execution of the petroleum operations in the territory of the Republic of Senegal. They must also contribute to the professional training of Senegalese executives and technicians, according to the provisions of the applicable convention or service contract, which must provide for the establishment of an annual training program.

ARTICLE 54

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The operators of hydrocarbon deposits may be required, under the conditions set forth in the convention or service contract, to allocate, as a priority, the products of their exploitation to meet the internal consumption needs of the country. In this case, the price of assignment must reflect the price of the international market. The production share to which the operators are entitled, after meeting the internal needs of the country, may be exported freely and exempt from any exportation duties or taxes.

ARTICLE 55 If a hydrocarbons deposit extends over several perimeters allocated to different operators, these must attempt to exploit said hydrocarbons jointly, under the best technical and economic conditions, and with the intent to ensure the preservation of said deposit. Any joint exploitation program accompanied by the agreements entered into by the operators must be communicated to the Minister. If no amicable agreement has been reached, within a reasonable period of time, between the operators in terms of a joint exploitation program, the Minister may impose onto said operators an exploitation program prepared in accordance with recognized petroleum industry standards, providing for the preservation of the interests of each operator. In the event of a disagreement, the dispute will be referred to an expert or arbitrator, according to the provisions of the applicable conventions or service contracts.

ARTICLE 56 The hydrocarbon exploitation licenses, the conventions or service contracts may be assigned or transferred, subject to prior authorization, to entities that possess the technical and financial capabilities to carry out the petroleum operations. The requests for assignment and transfer, unless such transactions are made between affiliated companies, must be addressed to the Minister for approval. This approval will be deemed given if the Minister does not provide notification of his justified refusal within sixty days from the receipt of the request.

ARTICLE 57 Subject to compliance with the provisions in force in terms of exchange regulations in the Republic of Senegal, and the derogations granted by the Minister of Finance, the holders of conventions or service contracts may benefit from the following guarantees: - the right to open and operate accounts in local and foreign currencies in the Republic of Senegal and abroad;

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- the right to collect the funds acquired or borrowed abroad, including any receipts from the sale of their share of the production, and to dispose of said funds freely, /text cut-off/ exceed their fiscal obligations and their local needs for the /text cut-off/ - the right to transfer abroad the receipts from the local sale of hydrocarbons (if they do not exceed the local needs), the dividends and proceeds of any kind from the capitals invested, and the proceeds from the liquidation or realization of their assets; - the right to pay directly abroad the suppliers not domiciled in the Republic of Senegal, for goods and services required for the performance of the petroleum operations; - the right to free convertibility between the national currency and convertible foreign currencies for all exchange transactions pertaining to the petroleum operations. The guarantee of free convertibility between the national currency and convertible foreign currencies is governed by international treaties related to the franc zone and the West African Economic and Monetary Union (UEMOA). The expatriated personnel employed by the holder of a convention or service contract, residing in the Republic of Senegal, is guaranteed to benefit from the right to freely convert and transfer to their country of origin, all or part of the amounts owed thereto, provided that they paid all the taxes and miscellaneous contributions for which they are liable according to the regulations in force.

ARTICLE 58 In the event of expiration or termination of a convention or service contract according to the provisions of Article 59, or in the event of the full or partial waiver thereof, the State may exercise its right to take over the facilities and equipment related to the petroleum operations for the abandoned area, unless said facilities and equipment are used by the holder for other petroleum operations in the territory of the Republic of Senegal. If the State exercises such right, the holder will not be entitled to any indemnification. If the State does not which to take over the facilities and equipment, the holder must dismantle and remove the same and execute any abandonment work. Should the holder fail to comply with this requirement, the Minister may order the necessary work to be performed at the expense of the holder.

ARTICLE 59 The conventions or service contracts may be terminated in any of the following cases: a) serious violation of this code or any regulation in force pertaining to the petroleum operations; b) liquidation of assets or legal settlement of the holder or the parent companies;

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c) failure to comply with the provisions of the conventions or service contract when, according to the terms thereof, such violation entails the termination. The termination must be justified. It may only be pronounced if the defaulting party fails to take any action after being formally summoned to remedy said violation.

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CHAPTER 9

RELATIONS WITH LANDOWNERS

ARTICLE 60 Subject to the legislative and regulatory provisions specific to each of the cases described hereinbelow, the holders of conventions or service contracts may, both inside and outside of the perimeters covered by the authorizations for the exploration and exploitation of hydrocarbons: - occupy the land necessary for the execution of the petroleum operations, the related activities, and the lodging of the personnel assigned to said operations; - execute or cause the execution of the infrastructure work necessary for the performance, under normal economic conditions, of the petroleum operations, in particular the transportation and storage of materials, equipment and products extracted; - carry out or cause the performance of the drilling required to supply water to the personnel or to meet the needs of the petroleum operations; - take and use, or cause the taking and use of the ground materials required for the petroleum operations. However, without the prior authorization of the pertinent authority, no holder of a convention or service contract may occupy or carry out petroleum operations on the following land: - any land located less than two hundred meters from a cemetery, church, mosque, or other buildings or sites used for religious or cultural purposes; - any land located less than one hundred meters from residences, buildings, reservoirs, streets, roads, railroads, water lines, pipelines and, in general, in proximity of any public works or engineering structures; - any land located less than one thousand miles from a border, airport, airstrip, or security establishment; - any land which is classified as a national forest (natural reservation, national park and hunting area).

ARTICLE 61 The work described in Article 60 may be declared of public purpose, if applicable, under the conditions provided by the regulations of the expropriation for public purpose.

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ARTICLE 62 The costs, indemnifications and, in general, all charges resulting from the application of Articles 39 and 60, regarding the occupation of lands, and Article 61 will be borne by the holder of the applicable convention or service contract.

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CHAPTER 10

ADMINISTRATIVE MONITORING, PENALTIES AND CONTENTIOUS MATTERS

ARTICLE 63 The petroleum operations are subject to monitoring and control by the Minister. The agents acting under the authority of the Minister responsible for the petroleum operations sector, who are duly authorized to this end, are responsible for ensuring the application of this code, of the texts adopted for its enforcement, and of the conventions and service contracts in force. Under the same conditions, they are responsible for the administrative and technical monitoring and for the control of the safety of the petroleum operations. They are bound by the obligations of professional secrecy. The holders of mining titles or service contracts must provide the duly authorized agents and persons designated by the Minister with all means of access to the temporary or permanent facilities, constructions or worksites. They must provide them with all the information, data and documents necessary for the proper performance of their mission.

ARTICLE 64 All the documents, samples and information pertaining to the petroleum operations and submitted under terms of confidentiality to the Minister or his representatives may be made public upon the expiration of a period of time set forth in the convention or service contract.

ARTICLE 65 The violations of the provisions of this code and the measures adopted for its application are established by the reports prepared by any agent authorized and sworn to this effect, according to the legislation in force. The violations will be punished by a fine of five million francs CFA to ten billion francs CFA, without prejudice to the penalties provided by other laws. In the event of a repeated infraction, the fine will be doubled.

ARTICLE 66

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All violations of the applicable laws and regulations fall under the jurisdiction of the courts of law of the Republic of Senegal. However, the disputes that may arise from the interpretation or application of the convention or service contract may be referred, if applicable, to a procedure /text cut-off/

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CHAPTER 11

MISCELLANEOUS AND TEMPORARY PROVISIONS

ARTICLE 67 The holders of conventions or service contracts are subject to the laws and regulations of the Republic of Senegal. A convention or service contract may contain a clause pertaining to the stability of the legislative and regulatory conditions as of the effective date of the agreement.

ARTICLE 68 The provisions of the Code of Investments and the Mining Code are not applicable to the petroleum operations as defined in this code.

ARTICLE 69 The exploration permits and hydrocarbon exploitation concessions in force on the effective date of this code remain valid during the term for which they were granted and shall maintain their definition throughout their term, including the option for renewal and award of a concession. The holders of conventions pertaining to the exploration and exploitation of hydrocarbons that were signed prior to the effective date of this code remain subject to the stipulations contained in said conventions for their entire term. However, the holders of the conventions described in paragraph 2 above may request to be submitted to the provisions of this code, within twelve months from the effective date of said code.

ARTICLE 70 The conditions of application of this code are set forth by decree.

ARTICLE 71 Any provisions contrary to this code are hereby revoked, in particular: - the law 86-13 of August 14, 1986 establishing the Petroleum Code;

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- the provisions pertaining to the constitution of reserves for the replenishment of deposits of Attachment I of Volume I of the General Taxation Code, regarding their application to liquid and gaseous hydrocarbons. This law will be enforced as a law of the State. Done in Dakar, on