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CONTRACT

on prospecting of hydrocarbon materials of the site Atyrau (persalt and subsalt blocks) within XXII-11-E, F; XXII-12-D, E, F; XXII-13-D, E; XXIII-11-B, C, E, F; XXIII-12; XXIII-13-A,B,D,E,F (частично); XXIV-11-B,C,E,F; XXIV-12-A (частично), B,C,D,E. (частично), F (частично); XXIV-13-A,B,C,D,E,F (частично); XXV-11 B (частично), C(частично), F (частично); XXV-12-A,B (частично), C (частично), D,E,F; XXV-13A (частично),D(частично) in the Atyrau oblast of the Republic of Kazakhstan

between

Ministry of Energy and Mineral Resources of the Republic of Kazakhstan

(Competent body)

and

"Vector Energy West", LLP

(Contractor)

Astana, 2002

#

TABLE OF CONTENTS

Page

Preamble

4

Section 1

Definitions

4

Section 2

Aim of Contract

9

Section 3

Contract Period

9

Section 4

Contract Territory

10

Section 5

Right of ownership to property and information

10

Section 6

Right of the Republic on acquisition and requisition of hydrocarbons

11

Section 7

General Rights and Responsibilities of Parties

11

Section 8

Working Program

14

Section 9

Prospecting Period

17

Section 10

Commercial Discovery

18

Section 11

Record Keeping and Reporting

19

Section 12

Measurement of oil

19

Section 13

Implementation of Subcontract Works

19

Section 14

Financing

20

Section 15

Taxes and Payments

20

Section 16

Accounting

27

Section 17

Insurance

27

Section 18

Liquidation and Liquidation Fund

27

Section 19

Environment and Subsoil Protection

28

Section 20

Population and Personnel Safety

29

Section 21

Responsibility of the Contractor for the breach

of Contract Conditions

31

Section 22

Force-Majeur

31

Section 23

Confidentiality

32

Section 24

Transfer of Rights and Obligations

32

Section 25

Applicable Rights

32

Section 26

Disputes Settlement Order

32

Section 27

Guarantees of Contract Stability

33

Section 28

Suspension and Termination Conditions

 of Contract Validity

33

Section 29

Language of the Contract

34

Section 30

Additional Provisions

34

#

Appendices:

Appendix 1 -- Resolution of the Tender Commission

Appendix 2 -- Geological Lease

Appendix 3 -- Minimum Working Program

Appendix 4 - Technical and Economic Assessment

Appendix 5 -- Others

#

The present Contract on prospecting and production at the Ayrau site within XXII-11-E, F; XXII-12-D, E, F; XXII-13-D, E; XXIII-11-B, C, E, F; XXIII-12; XXIII-13-A,B,D,E,F (частично); XXIV-11-B,C,E,F; XXIV-12-A (частично), B,C,D,E. (частично), F (частично); XXIV-13-A,B,C,D,E,F (частично); XXV-11 B (частично), C(частично), F (частично); XXV-12-A,B (частично), C (частично), D,E,F; XXV-13A (частично),D(частично) blocks in the Atyrau oblast of the Republic of Kazakhstan is concluded on "28" December, 2002 between the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan (hereinafter - Competent body), in the person of its First Vice-Minister of Energy and Mineral Resources Mr. Nurgali Sadvakasovich Ashimov, and "Vector Energy West", LLP in the person of its President Mr. Nikolay Ivanovich Kruychkov (hereinafter - Contractor), in accordance with the minutes # 7 of the Meeting of the Tender Commission on investment programs for the right of subsoil exploitation, dated from  September 17, 2001.

PREAMBLE

Taking into consideration that:

1.

In accordance with the Constitution of the Republic of Kazakhstan Subsoil, including hydrocarbon materials are of the state property.

2.

In accordance with the Decree of the President of the Republic of Kazakhstan, which has the force of Law, #2828 "On Subsoil and Subsoil use", from January 27, 996 (with changer and amendments up to the date of sign of the present Contract), powers for conduct of negotiations and sign of contracts, related to the operations on subsoil use on the territory of the Republic of Kazakhstan, shall be delegated to the Competent body;

3.

In accordance with the Resolution of the Government of the Republic of Kazakhstan #108 from 21.01.2000 "On approval of Procedures on Entitlement to subsoil use in the Republic of Kazakhstan the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan shall execute the powers of the Competent bodies in the relation of conclusion and implementation of contracts on hydrocarbon materials;

4.

The Republic of Kazakhstan expresses willingness to make rational and efficient use of natural resources, including prospecting and production of hydrocarbon materials.

5.

The Contractor has a desire and financial opportunities to carry out rationally and efficiently works, connected with prospecting and production of hydrocarbon materials according to the Contract.

6.

The Government of the Republic of Kazakhstan authorizes the Competent Body with a right to conclude and implement the Contract.

7.

The Competent body and the Contractor shall agree upon that the Contract shall regulate their mutual rights and responsibilities while carrying out prospecting and production of hydrocarbon material.

The Competent body and the Contractor shall agree on the following:

SECTION 1. DEFINITIONS

Definitions and terms, which are not explained in this Section, shall have the meaning relevant to definitions and terms, comprising in the Degree of the President of the Republic of Kazakhstan, which has the force of Law, "On subsoil resources and subsoil use" with changes and amendments in accordance with the Law of the Republic of Kazakhstan #381, from May 11, 1999, the Law of the Republic of Kazakhstan #467, from August 11, 1999 (hereinafter -- Decree "On Subsoil"), the Decree of the President of the Republic of Kazakhstan, which has the force of Law "On Oil", with changes in accordance with the Law of the Republic of Kazakhstan #467 from  August 11, 1999 (hereinafter -- decree "On Oil"), and the Law of the President of the Republic of Kazakhstan from 08.07.94 "On Sanitary-and- epidemiologic well-being of the population"..

1. Affiliated Party -- any individual or legal entity (except for state agencies, exercising control over the activity of this person within the limits of given powers), who shall have right  directly or indirectly determine decisions and (or) influence on decisions being adopted by this person, including the oral agreement, or other transaction, and also any individual or legal entity, toward whom this person shall have such a right.

2.Block -- refers to any territory on land or water, situated completely or partially in the Republic of Kazakhstan and determined as a Block at the specially prepared map of Blocks.

3. Coastline -- a line of a coast of basin, formed at the result of maximal tide (full water). The procedures of determination of factual position of coastline shall be made by the Government of the Republic of Kazakhstan.

4. Reimbursable expenses -- overall expenses, produced by the Contractor during the prospecting of hydrocarbon materials within the limit of the Contract territory and which shall be deducted from the total annual revenue in accordance with the State Tax Legislation.

5. Inland reservoirs -- refers to the lakes, artificial reservoirs and other superficial water resources.

6. State (Republic) -- refers to the Republic of Kazakhstan

7. State body -- central executive body of the Republic of Kazakhstan, authorized to perform certain duties in the name of the State.

8. Geological Lease -- refers to the Appendix of the Contract on Prospecting, combined Prospecting and Production, which shall be an integral part of the Contract, determining schematically and descriptively the plot of soil, on which the Subsoil user shall have the right to conduct prospecting works.

9. Mining Lease -- refers to the Appendix of the Contract on prospecting, Contract on Construction and (or) exploitation of underground structures, not connected with prospecting and (or) production, Contract on Production of generally found mineral resources for commercial use, which shall be an integral part of the Contract or an independent document, in case of execution of the Servitude, which determines schematically and relatively the plot of subsoil, on which the Subsoil User shall have the right to carry out Prospecting, Construction of underground structures, not connected with Prospecting and (or) Production, or realization of the Servitude.

10. Year of Validity -- a period, equal to 12 (twelve) consecutive months by the Gregorian calendar, within a context of the Contract it shall start from the Contract Effective Date or any anniversary of its effectiveness.

11. Contract Effective Date -- refers to a date of state registration of the present Contract at the Competent body with issue of a Certificate on Contract registration.

12. Dollar or US Dollars or USD -- refers to the state currency of the United States of America.

13. Production -- whole range of works (operations), connected with the extraction of hydrocarbon materials from subsoil to the surface, and also technogenic mineral formations, of state ownership, including all technological operations and temporary storage of the Mineral materials.

14. Legislation on subsoil use -- refers to the Decree of the President of the Republic of Kazakhstan, which has the right of the Law "On subsoil and subsoil use" with changes and amendments in accordance with the Law of the Republic of Kazakhstan #381, from May 11, 1999 and the Law of the Republic of Kazakhstan #467, from August 11,1999 (hereinafter -- Decree "On Subsoil"), and the Decree of the President of the Republic of Kazakhstan, which has the force of Law "On Oil", with changes in accordance with the Law of the Republic of Kazakhstan #467, from  August 11,1999 (hereinafter -- Decree "On Oil").

15. Legislation -- refers to the Constitution of the Republic of Kazakhstan, International Agreements and Conventions, ratified or adopted by the Republic, Decrees of the President of the republic of kazakhstan, Parliament of the Republic, the Government and other state agencies of the Republic.

16. Delivery Expenses -- means expenses on transportation of Hydrocarbons by pipelines or any other methods and includes handling in reservoirs, insurance, and dues for transportation, paid for delivery to the port of shipment or other place, as defined by the subsoil user.

17. Marine Pollution -- means ingress of materials, substances, energy, noise, vibration into the marine environment. And also generation of various types of radiation and fields, affecting or able to affect the health of people, marine living resources and marine ecosystem, or impeding or damaging or able to bring losses to individuals or legal entities, carrying out legal activities at the sea or at the seashore.

18. Commercial discovery -- discovery on the Contract territory one or several deposits, economically feasible for production in the opinion of the Contractor.

19. Competent body is an executive body, delegated with rights in the name of the Government of the Republic of Kazakhstan (Ministry of Energy and Mineral Resources fo RK), directly connected with conclusion and realization of the Contract.

20. Contract -- refers to the present Contract on Prospecting of hydrocarbon materials at the Atyrau site within the limits of blocks of the Atyrau oblast of the Republic of Kazakhstan, concluded between the Competent body and the Contractor, and also all Appendices to the present Contract.

21. Contract Territory -- territory, determined by geological or mining lease, on which the Subsoil user shall have the right to carry out operations of subsoil using, as appropriate to the Contract.

22. Contract works -- mean all works in accordance with the Contract on performance of prospecting of the hydrocarbons at the Atyrau site.

23. Deposit -- means one or several natural hydrocarbon accumulations at the geological reservoir of any type.

24. Mineral Materials -- extracted to the surface part of subsoil (rock and ore materials, etc.). containing mineral wealth (mineral materials).

25. Marine structures -- any artificially constructed structures, situated at sea, including the artificially built islands, dams, structures, stationery and floating equipment for conduct of oil operations at sea.

26. Marine fenced-off area or areas of safety -- areas, determined by the esolutions of the Government of the Republic of Kazakhstan, establishing around the marine structures in the aim of provision of safety-of-life of people, living marine resources, environment, and also shipping, fishery and any other legal activities, performed in accordance with the legislation of the republic of Kazakhstan on Sea in force.

27. Tax Legislation -- refers to the Law of the Republic of Kazakhstan "On Taxes and other compulsory budgetary payments" from June 12, 200, other regulatory and legal acts, regulating the procedures of discharge of taxes and payments of the Republic of Kazakhstan at the date of the Contract conclusion.

28. Subsoil -- part of the earth's crust, underlying soil layer, and in case of lack thereof -- underlying the surface and floor of sea, lakes, rivers and other basins, stretching till the depth, available for performing operations on subsoil use, considering the scientific and technological progress.

29. Subsoil User -- refers to the Vector Energy West, LLP or its respective legal successors and/or affiliated companies.

30. Oil (sometimes within a context of "Hydrocarbons") -- means crude oil, gaseous condensate and natural gas, and also hydrocarbons, generated after treatment of crude oil, natural gas and handling of shale oils or tarry sands, including hydrocarbons, known in the name of distillate or condensate, generated from natural gas in the way of natural condensation.

31. Oil operations -- mean works on Prospecting, Production, Construction and Exploitation of underground stores and reservoirs of oil, construction and exploitation of Oil-and-gas pipelines, carried out on land and within bordersof lakes, rivers or any other inland reservoirs and also Oil operations at sea.

32. Operations on subsoil use -- all works, connected with the prospecting and production of hydrocarbons, carried out within the Contract territory in accordance with the Contract on prospecting and production of hydrocarbon materials.

33. Contractor -- refers to the Subsoil user Vector Energy West, LLP, presenting the party of this Contract.

34. Preparatory phase -- means a period of time equal to 6 (six) months, which shall start from the Contract Effective Date and within thereof all necessary preproject works and works on determination of financing methods shall be performed.

35. Government -- refers to the Government of the Republic of Kazakhstan.

36. Mineral Resources -- natural mineral resources, contained in the subsoil, as a solid, liquid and gaseous state, including groundwater and therapeutic muds, off-the-shelf in material production.

37. Positive Practice of Field Development -- a practice, which is generally applied by the subsoil users during performance of prospecting or production worldwide as a rational, secure, efficient and necessary when carrying out operations on subsoil use.

38. Accompanying components of oil -- mean various kinds of metal and other compounds, containing in oil and stratal water of the deposit.

39. Accompanying gas -- means any gaseous hydrocarbons, produced together with crude oil and released, or which can be released from it during production.

40. Natural gas -- means all hydrocarbon materials, which are in the gaseous phase under standard weather temperature and pressure, including fat gas, dry gas, accompanying gas, remaining after extraction and separation of fluid hydrocarbons from fat gas, and non-hydrocarbon gas, produced with fluid or gaseous hydrocarbons.

41. Prospecting -- means all operations connected with exploration, prospecting of oil deposits, their estimation and includes: geological-geophysical researches; structural drilling; drilling of exploration and prospecting wells, and all works, undertaken to determine the commercial indicators of the traps, where hydrocarbons were discovered hydrocarbons, including drilling of development test well and drawing up of technical and economic assessment of prospective works, and also general administrative and any other related activities, and also production testing of deposits, which are under prospecting.

A) Prospecting Project -- refers to project documentation, developed by the Contractor, and containing necessary geological, technical and other data on prospective exploration works, including projects of production testing of wells and accumulations as a constituent parts of prospecting stage.

B) Production Testing -- means exploitation of prospecting and development wells to specify data available and to obtain additional information on geological-and-physical accumulation characteristic, relation of hydrocarbons, productivity of wells for projection of field development.

C) Development Project -- refers to the project document, preparing by the Contractor in accordance with the Legislation requirements and containing all the necessary information on deposit development and construction.

42. Working Program -- refers to all types of plans, developed by the Contractor on performance of operations on subsoil use, including plans on geological research of subsoil, prospecting and production.

A). Annual Working Program and Budget -- refer to annual plan, drawing up by the Contractor, which provides for performance of operations on subsoil use, including schedule of works and financing in accordance with the present Contract for the next year.

43. Servitude -- a right of individuals and legal entities on certain goal use of part of the subsoil plot, given to other parties for performance of prospecting, production, combined Prospecting, Production or Construction and (or) production in cases provided by the present Decree.

44. Parties -- refers to the Competent body and the Contractor, who are determined separately or in aggregate.

45. Subcontractor -- refers to an individual or legal entity, concluded with the Contractor an Agreement on implementation of any part of the Contractorís liabilities according to the present Contract.

46. Third Party -- means any individual or legal entity, excluding the Parties of the present Contract.

47. Approved reserves -- mean evaluated geological and extracting reserves of hydrocarbons on the deposit, approved by the State Committee on reserves of mineral resources of the Republic of Kazakhstan in the order established by the Legislation.

48. Plot of subsoil (block) -- geometrized part of subsoil, separated within closed boundaries, for handing over for subsoil use.

49. Exploitation and capital expenses -- refers to the expenses, produced during the production of hydrocarbons, construction and exploitation of related structures and equipment.

SECTION 2. AIM OF THE CONTRACT

2.1. Aim of the Contract shall be the determination in accordance with the Legislation of the State in force at the time of the Contract Effective Date and legally implementation of the contractual relationships between the Competent body and the Contractor.

SECTION 3. CONTRACT PERIOD

3.1. The Contract on prospecting shall be concluded for the period of six years. The Contractor shall have a right ot extend the time of the Contract validity on condition that of performance of Contractorís liabilities, fixed in the Contract and respective programs of works. The period of validity of each contract can be extended two times with a duration of each up to two years. The term of the contract on prospecting can be extended if the Contractor apply for the extension of the term not later than 12 months before the term expiration. In case of oil discovery, the Contractor shall have the right to extend Contract validity period for the period necessary to estimate the commercial discovery.

3.2. All the Appendices to the Contract shall be integral parts thereof. In case of availability of any discrepancies between the Appendices to the Contract and the Contract itself, the Contract shall have the priority meaning.

3.3. Any amendments or supplements to the Contract shall be executed by the written agreement of the parties. Such agreement shall be the part of the Contract itself and shall have the same meaning as the Contract respectively the Appendices to the Contract, as established at the Article 3.3. of the present Contract.

3.4. Terms of extension of Contract validity period. In case if the Contractor decide on extension of the period of validity of the present Contract, it shall in accordance with the legislation of the Republic of Kazakhstan, not later than 12 (twelve) months before the expiry date of the planning period of validity of the Contract, forward to the Competent body application with request to prolong the term of the Contract validity. Such application shall contain the bases of extension, period of extension and program of extension and psending funds for the period of extension. The Competent body shall in accordance with the state legislation consider it in spirit of good faith and cooperation and to make a decision.

SECTION 4. CONTRACT TERRITORY

4.1. The Contractor shall perform prospecting of hydrocarbons within the Contract Territory, which total square of the geological lease amounts to 10 518, 324 (ten thousands five hundred eighteen whole and three hundred twenty four thousandth) km² in accordance with the terms of the Contract.

4.2. In case of discovery, when performing prospecting of hydrocarbons, that the geographical boundaries of the deposit accumulations exceed the bounds of the Contract territory, as fixed in the geological lease, the question of its extension shall be settled additionally by the Competent body, if it not violate the interests of other subsoil users.

4.3 The Contractor, during the performance of works on prospecting, shall have the right to return to the state the whole Contract territory or part thereof at any timeof the Contract period of validity on its own.

SECTION 5. RIGHT OF OWNERSHIP TO PROPERTY

AND INFORMATION

5.1. All the tangible and intangible assets, acquired by the Contractor for performance of prospecting of hydrocarbons at the site Atyrau, and also hydrocarbons obtained during the prospecting and production, shall be the property of the Contractor.

5.2. The right of ownership to property, as indicated at the p. 5.1. of the Contract, can be pledged or in any other way burdened for the benefit of the third party for provision of financing the Prospecting of hydrocarbons at discretion of the Contractor.

5.3. Data on geological structure of subsoil, mineral resources contained thereof, geological parameters of deposits, volume of reserves, terms of development, and also other features of subsoil, contained in the geological reports, maps and other materials, shall be of state ownership, if acquired on the basis of budgetary funds, and shall be of the Contractorís ownership, if acquired at the expense of the Contractor.

5.4. The Contractor shall obtain data on subsoil of the Contract territory, which is in state ownership, from the State in the order established by the legislation.

5.5. Geological or any other information on subsoil, obtained by the Contractor during performance of prospecting or production of hydrocarbons, without fail and free of charge, according to the established order, shall be handled for storage, systemization and generalization to the Committee of Geology of the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan.

5.6. Use in research, scientific, commercial and any other purposes of the geological information on subsoil, obtained at the expense of the funds of the Contractor and handled in accordance with the p. 5.5. of the Contract, shall be determined on the ground of separate agreement between the Contractor and the Committee of Geology of the Ministry of Energy and Mineral resources of the Republic of Kazakhstan.

5.7. Upon Contract termination, all the geological information shall pass into the State ownership. The Contractor shall be obliged to pass to the Committee of Geology of the Ministry of Energy and Mineral resources of the Republic of Kazakhstan all the documents and any other material carriers of geological information, including the source information.

SECTION 6. RIGHT OF THE STATE ON ACQUISITION

AND REQUISITION OF HYDROCARBONS

6.1. The Parties shall agree that the Republic shall have the top priority right of acquisition of hydrocarbon materials from the Contractor at the price of world market. The price of the hydrocarbon materials shall be quoted in US dollars for 1(one) ton, however, if on the world oil market another currency, not US dollars, is used as a monetary unit, the parties shall be obliged to use that currency. The Republic, realizing the right of top-priority acquisition of Hydrocarbon materials, shall in a due time of 60 (sixty) days officially in the written form notify the Contractor upon its intention. The maximum volume of Hydrocarbon materials of the Contractor, which can be acquired by the Republic, shall not exceed the average (in percentage) volume in comparison with acquired from the other companies in the Republic within the same period.

6.2 In case of war, natural disasters or in any other cases, as provided by the legislation on emergencies of the State, the Government shall have the right of requisition of mineral resources, owned by the Contractor. Requisition can be conducted in volume necessary for the State needs during the whole period of emergency situation.

6.3. The State shall guarantee the compensation for mineral resources requisitioned in kind or reimbursement of their costs at the world market prices, effective at the date of requisition in the form of hard currency, national currency of the Republic of Kazakhstan.

A)

Payment of compensation to the Contractor for requisitioned Hydrocarbons shall be made within 1 (one) month after completion of occurrences of emergency character. For every day of delay of compensation payment, mature to the Contractor, the Republic shall pay penalty, the size of which shall be defined on the ground of annual rate of LIBOR, effective for the period of such payment plus 2% (two percent).

SECTION 7. GENERAL RIGHTS AND RESPONSIBILITIES

7.1. The Contractor shall have the right to:

7.1.1. On the exclusive basis carry out prospecting of hydrocarbons at the Contract territory, if provided by the Contract, and also upon agreement with owners utilize objects and communications of general use as on the Contract territory, so beyond it. Subsoil user shall have the right of access to all gas- and oil pipelines on the territory of the Republic of Kazakhstan.

7.1.2. Construct on the Contract territory, and when necessary, on the other land plot, allocated for the Contractor in the established order, the objects of industrial and social sphere, necessary for carrying out the Prospecting and Production of hydrocarbon materials.

7.1.3. Enlist subcontractors, mainly organizations of the Republic of Kazakhstan, for performance of certain kinds of works, related to the performance of Prospecting of hydrocarbon materials at the site Atyrau.

7.1.4. Dispose of own share of oil and accompanying components as within the Republic of Kazakhstan, so beyond its borders.

7.1.5. At the top priority order shall conduct negotiations on the Contract extension in accordance with the order, established by p. 3.6. of the Contract.

7.1.6. The Subsoil user shall have a right to import the rent equipment, and also to remove that equipment from the Republic without imposition with custom duties or government duties according to the legislation of the Republic of Kazakhstan.

7.1.7. Execute independently any legal acts on subsoil use within the bounds of provided Contract territory in accordance with terms, fixed at the Contract.

7.1.8. Establish subsidiaries and joint ventures, to transfer all rights or part thereof to the other parties with observing the terms, established at the Contract and the legislation of the State.

7.1.9. Terminate its activity on the terms as defined by the Contract and the legislation of the State.

7.1.10. In case of termination of the Contract, the Contractor shall have the right to dispose on its own by the own property, which is its possession, except for equipment and instruments of technological cycle, which can bring to the negative technological-ecological consequences, or upon agreement of parties.

7.1.11. Transport or move hydrocarbons by any type of transport on its own disposal, not prohibited by the legislation of Republic of Kazakhstan.

7.1.12. Of free access to railway, road, airway and other ways of communication, directly or indirectly belonging and controlling by the Republic, on commercial reasonable terms and at commercial reasonable prices and on terms, which are not less favorable than those, which are offered to the any other third parties, performing operations on subsoil use on the territory of Republic of Kazakhstan.

7.1.13. Export Hydrocarbons at any time and from time to time.

7.1.14. In accordance with the requirements of the Legislation to establish in the aim of financing works by the Contract the joint ventures with any legal entities or individuals, irrespectively of their form of organization and state affiliation with registration of legal entity or not.

7.2. The Contractor shall be obliged:

7.2.1. To start within a period of 60 days after the registration of the Contract between the Contractor and the Competent body implementation of the Working Program, agreed by the parties.

7.2.2. To choose the most effective methods and technologies when carrying out Prospecting and Production of hydrocarbon materials, based on standards, accepted in the world practice.

7.2.3. To use the Contract territory only for purposes provided by the terms of the Contract.

7.2.4. To carry out the Prospecting of hydrocarbon materials at the site Ayrau in accordance with the State legislation and the Working Program, observing the requirements on environmental and subsoil protection.

7.2.5. Not to impede to other parties to move freely within the Contract territory, to use common facilities and communications or to perform any kinds of works, including the Prospecting and Production of other natural resources, except for oil and gas, if it is not connected with the special conditions of security and such activity shall not impede to performance of the Prospecting and Production of hydrocarbon materials.

7.2.6. To observe agreed in the established order the projects on performance of works on the Prospecting of hydrocarbon materials, technological schemes of development of deposits, providing safety of the personnel and population.

7.2.7. To use obligatorily the equipment, materials and final production, produced in the State, under their compliance with the standards and other requirements, with holding a competition on the territory of the Republic of Kazakhstan in the order, established by the Government of the Republic of Kazakhstan.

7.2.8. To enlist obligatorily Kazakhstani companies and organizations of the State when performing operations on subsoil use, including the use of air, railway, water and other types of transport, if these services correspond to the standards and other requirements, with holding a competition on the territory of the Republic of Kazakhstan in the order, established by the Government of the Republic of Kazakhstan.

7.2.9. In case of non-availability of any kind of services in the Republic of Kazakhstan use the services of foreign organizations upon approval of the state agency. When carrying out the Prospecting of hydrocarbon materials, to give priority to the Kazakhstani specialists and personnel, to hold a tender on the site Ayrau on the territory of the Republic of Kazakhstan with informing on holding a tender through the Kazakhstani mass media in accordance with the legislation of RK.

7.2.10. To present to the Competent body Program of planned works and overall information on the projectís implementation process.

7.2.10.1. To present geological and geophysical information on the results of activities on the Contract territory to the State body on use and protection of subsoil.

7.2.11. To finance at the rate of not less than 1% of the whole volume of investments the professional training of the recruited on the basis of the Contract Kazakhstani personnel.

At the same time, in case of excess of funds on liabilities to train Kazakhstani personnel above practical needs in training of recruited personnel, the Contractor shall use the remaining sum of funds to finance the priority tasks of the system of secondary education in compliance with the Agreement interacting with the Ministry of Education and Science of the Republic of Kazakhstan and the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan. Information on remaining part of funds shall be presented to the Competent body after approval of the Annual Working program and the budget of the next year of validity of the Contract.

7.2.12. To provide with necessary documents, information and access to the operating sites the controlling bodies of the State when discharging of their duties and eliminate at proper time the revealed violations.

7.2.13. To transfer to the third parties information on maintenance of Prospecting of hydrocarbon materials to the third parties if such necessity arises, only with the written consent of the other Party.

7.2.14. To pay duly taxes and other compulsory payments, and also penalties on inefficient use of subsoil according to the Article 63.1.13. of the above mentioned Decree in compliance with the legislation of the State.

7.2.15. In process of activity to preserve the objects of cultural and historic value, situated on the Contract territory.

7.2.16. To forecast long-term ecological consequences of activity when implementing the Contract. The Contractor shall present to the Competent body and state agencies on environmental protection, on the ground of their written requests, the prognosis of long-term ecological affects and detailed reports on actions, undertaken by the Contractor for minimization of negative long-term ecological consequences of his activity when realizing the Contract not later than in 2 years following the beginning of works by the Contract.

7.2.17. To leave the Contract territory in condition, corresponding the requirements of regulations on mining and sanitary control, protection of subsoil and environmental protection.

7.2.18. To replenish the land plots and other natural objects, which state was affected by the activity of the Contractor under the present Contract up to the condition, available for further use in accordance with the requirements of the State legislation.

7.2.19. Territorial Department "Zapkaznedra" shall hand over the earlier drilled for hydrocarbons wells, and the Contractor, in compliance with the Delivery Report, shall accept to its own balance and conduct monitoring of mentioned wells, at the same time shall not be liable for early introduced violations in the sphere of ecology. All the expenses, connected with the conduct of monitoring, shall be included into the structure of expenses in accordance with the Legislation of RK.

7.2.20. To conclude an agreement on anti-gusher safety service with the wrecking company, which shall have the license of the Republic of Kazakhstan.

7.2.21. In accordance with the Resolution of the Republic of Kazakhstan # 1172 from 02.08.2000 the Contractor shall be obliged, when concluding the relevant agreements, every year to supply to the Kazakhstani oil refineries under agreed price upon the terms adequate other subsoil users at the period of prospecting in the process of production testing 100% (one hundred) percent of crude oil and 20% (twenty) of crude oil at the period of production on the Contract territory.

7.2.22. . To provide full utilization of extractive gas in accordance with the requirements of environmental protection legislation.

7.2.23 Produced during the process Natural gas, the Contractor shall use for internal needs, such as - generation of electricity on gas-turbine power stations, for heating of oil on group measuring equipment, oil preparation unit and boiler installation.

Responsibilities of the Competent Body:

7.3.1. To provide monitoring and control over observance of terms of Contract realization together with the state agency on use and protection of subsoil.

7.3.2. To provide the Contractor with the land plot at the land use right in accordance with the Contract.

7.4. Rights of the Competent Body:

7.4.1. Represent the State on the negotiations with the Contractor according to the terms of the Contract.

7.4.2. Address the proposals on the change of terms of the Contract upon agreement of the parties.

7.4.3. Request from the Contractor regular and sampling reports on implementation of the Contract terms and Legislation.

7.4.4. Inspect conduct of Prospecting and Production of hydrocarbon materials by the Contractor, including the documentation of the Contractor, related to the activities on the Contract execution.

7.4.5. Access to any kind of works on the Contract territory, related to Prospecting and Production of hydrocarbons.

SECTION 8. WORKING PROGRAM

8.1. The Contractor shall perform works under the Contract in accordance with the agreed in the established order Annual working programs and budgets, working projects, not contradicting the terms of the Contract. During the palled year, the Contractor shall introduce to the authorized state bodies the Annual working program and the budget of the planning year for concordance. Authorized State bodies in the established order shall concord them on the term that they shall be in accordance with the Minimal program of works. Present Contract, Positive practice of prospecting and development of deposits and the Legislation of the Republic.

8.2. The Working program shall be prepared on the basis of technical and economic estimates and assessments, expert estimation of the deposit reserves (in case if it was already found and the reserves have been approved at the State Commission on reserves), or plots of subsoil (blocks) and other materials with consideration of positive practice of deposit development.

8.3. The Contractor shall have the right to introduce proposals on changes and/or amendment of agreed and approved Working program. Changes, additions and amendments to the Working program shall be made in the written form upon mutual consent of the Parties.

8.4. Minimum volume of works at the Prospecting period by the Contract in terms of money shall amount 30 300 000 (thirty million three hundred thousands) US dollars, which shall be distributed in the following way:

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8.5. All the works and expenses, produced by the Contractor beyond the requirements of the minimum program of works within the period of any effective year of the Contract, shall be included into the implementation of responsibilities by the Contractor according to the minimum program of works in case if the Contractor prove that its implementation shall not been reasonable according to the certain circumstances, not depending on the Contractor.

8.5.1. It shall not be considered as a breach of liabilities according to the minimum program of works in terms of money, if works performed in physical terms properly and in full scale, but for the less sum, as fixed at the program of works for the respective effective year of the Contract.

8.5.2. The Contractor shall transfer payments to the Atyrau oblast of the Republic in the amount of 1 000 000 (one million)US dollars during the whole period of Production for social programs and programs on infrastructure development, which shall be implemented within the Contract territory and the Atyrau oblast of the Republic. Payment of the indicated sum shall be made during the whole period of Production in accordance with the tender terms

8.5.3. Programs shall be financed from the Contractorís liabilities according to the Minimum working program and expenses for such programs shall be reimbursed.

8.5.4. The Contractor can perform accumulations of funds, consigned for the financing of industrial and social infrastructure.

8.5.5. The Parties shall agree that the factual expenses on social programs and infrastructure development within the reporting period shall be less than planned sum, or shall exceed it. The Contractor shall have the right to postpone or offset of underpaid or overpaid sum to the next reporting period.

SECTION 9. PROSPECTING PERIOD

9.1. The period of Prospecting, beginning from the date of registration of the Contract of 2002, for the 6 (six) consecutive according to the Contract can be extended twice with each period duration up to two years upon mutual consent of the parties in accordance with the legislation on subsoil use. Before that the Parties shall determine preliminarily the part of the Contract territory left for continued prospecting and to introduce the relevant changes into the Working program.

9.2. a) Preparatory phase, duration of 6 (six) months, starting from the Contract Effective Date. During the Preparatory phase all the necessary preproject works shall be performed.

       b) Prospecting phase, duration of 5,5 years (five and half a year), in the course of which all the necessary works connected with the exploration of hydrocarbons within the Contract territory. The Contractor at its own discretion may ahead of schedule complete the prospecting phase, on the conditions of performance of prospecting works, sufficient in its opinion, for approval of reserves at the State Committee on reserves.

       c) Estimation phase, at any time before end of prospecting period oh the Contract territory. The Contractor may present to the Competent body the written application on carrying out the estimation phase on the deposit of the Contract territory. Such application shall consist of estimated area of estimation within the Contract territory, schedule and volume of works on estimation, and also financing plan of the Project. Concurrently, the Contractor shall present to the Ministry of Mineral resources and environmental protection for consideration and approval the project of estimation of the affect on environment, planned works on estimation and application for obtain of authorization to nature use. Not later than in 45 days after receipt by the Competent body an application for conduct of estimation phase, the Competent body and the Contractor, acting jointly in the spirit of good faith and cooperation, and also considering the aims of the Contract, shall come to an agreement of continuing such estimation phase. Every period of time of the estimation phase shall contain reasonable necessary time for preparation of  report on estimation of the reserves and the project of deposit development in accordance with the terms of the present Contract, and also if necessary time for conduct of production testing of hydrocarbonsí accumulation.

d) Not later the end of the prospecting period the Contractor shall develop and present to the State Commission on reserves of mineral resources (SCR) of the Committee of geology and protection of subsoil of the Ministry of Energy and Mineral Resources the report on the estimation of the hydrocarbon reserves at the deposit. This report on estimation of the hydrocarbon reserves at the deposit shall be drawn up in the order established by the legislation and include the estimation of the geological and extracted reserves of hydrocarbons. After the approval by the SCR in the established order consider this report on reserves estimation and approve the reserves of hydrocarbon, such reserves of hydrocarbons shall be considered "Approved reserves".

e) After approval of reserves at the SCR, the Contractor shall prepare the Project of development and direct it for consideration at the Central Commission on the development of oil and gas deposits (CCD) of the Ministry of Energy and Mineral Resources for consideration and approval. CCD shall consider and approve the Project within the order and terms, established by the Legislation.

9.3. As carrying out prospecting, the Contractor shall be obliged according to the Contract and the working Program to return the Contract territory, with the exception of the territory, on which was performed the commercial discovery and estimation of the territory.

9.4. The Contractor, according to the Contract, shall determine the returning territories of subsoil and inform on that the Competent body not later than within 30 days before the return of the territory. During the return of the territory, all the geologic and geophysical data, including the initial one, which shall pass into the state ownership.

9.5. The returning plots shall be in accordance with all requirements of the State legislation, concerning the environmental protection. The Contractor shall replenish at his own expenses the returning territories and other natural objects, disturbed as a result of the conduct of prospecting and production, to such condition, usable according to its direct purpose.

9.6. The Contract shall be terminated upon the end of the prospecting and production periods with consideration of its possible extension if there was not found any commercial discovery on the Contract territory or if the decision on transition to the period of production. In case of the Contractorís rejection to continue works according to the Contract, he shall be forfeited of all rights to the Contract territory and shall not be able to pretend to any reimbursement of expenses, incurred by him within the Contract.

9.7. Indirect expenses, provided by the Contract and incurred by the Contractor when performing works on the Contract territory, administrative, exactly: maintenance of managing personnel, construction and maintenance of the office, pay of presentation, consultation, auditing services, and other expenses as provided in the total volume of expenses for the period of prospecting, shall not exceed the amount of the Minimum program of works.

9.8. Project of prospecting

9.8.1. Conduct of production testing during the period prospecting, shall be based on the project of works performance on prospecting  (Prospecting project) developed by the Contractor. The Project of the prospecting shall be drawn up in accordance with the Legislation and Positive practice of prospecting and development of deposits.

9.8.2. After approval of the Prospecting Project and receipt of permit on subsoil use, the Contractor shall implement the Prospecting Phase. The Contractor shall be obliged to finance and carry out such works on Prospecting approved by the prospecting Project.

9.8.3. Within the framework of implementation of the prospecting Project the Contractor shall prepare, in the established order agree with and confirm at the Central Commission on development of oil and gas deposits (CCD) of the Ministry of Energy and Mineral resources of the Republic the Project of Production Testing.

9.8.4. In case of need, the Contractor shall have a right to apply to the Competent body for assistance in changing the Prospecting project. All the changes and amendments shall be made in the order established by the Legislation.

SECTION 10. COMMERCIAL DISCOVERY

Incase if the Contractor shall make a decision that the deposit is of sufficient interest for conduct of estimation works, it shall present to the Competent body an application for conduct of estimation works, including the program on estimation and budget. The [program of works on estimation and budget shall concretize works on estimation, including when necessary, production testing of hydrocarbons accumulation and contain the schedule of such works. After implementation of works on prospecting, the Contractor shall prepare report with estimates of reserves for presenting to the Authorized body on expert estimation of reserves.

10.2. The Authorized body in the order established by the Legislation on subsoil use, shall provide implementation of the State expert estimation of depositís reserves.

10.3. Commercial discovery shall provide the Contractor with an exclusive right to obtain the right to production on the basis of direct negotiations with the Competent body.

10.4. When finding commercial discovery, the Contractor shall have the right for full reimbursement of expenses, incurred because of Commercial discovery at the expense of hydrocarbons, produced at the found Commercial discoveries.

SECTION 11. RECORD KEEPING AND REPORTING

11.1. The Contractor shall be obliged to keep records and maintain within a fixed period the accounting documentation, related to the Prospecting of the hydrocarbon materials by the present Contract, according to the State Legislation.

11.2. The Competent body or its authorized representatives shall have free access to all originals of documentation, connected with the Contractorís activity by this Contract, including reports on geological, geophysical and engineering-geological works, construction of wells, exploitation of the Deposit, financial and accounting statements and reporting, etc.

11.3. The Contractor shall present quarterly to the Competent body report in the form, set by the legislation on its activity within one month after the end of quarter.

11.4. The Contractor shall present statements on its activity to the State bodies in terms and order, established by the State Legislation.

11.5. The Competent body shall have a right to perform inspection of the Contractorís activities and may be present by its representatives at the performance by the Contractor of the Prospecting of hydrocarbon materials.

SECTION 12 MEASUREMANT OF OIL

12.1. Measurement and weighing of oil, produced at the Contract territory, shall be performed by the Contractor in accordance with methods and practice, applicable in the State.

12.2. The Contractor every year shall carry out with presence of representatives of the Authorized body on metrology and standardization the testing of the equipment and instruments, using for weighing and measuring of oil.

12.3. If during the testing or examination, it will be found that the equipment and instruments have defects, in case of non-availability to determine the time of defect, the defect time shall be determined as a half of the period of time from the last metering till the day when defect was found.

12.4. In case, if the Contractor find it necessary to introduce changes into the applicable techniques or to replace installed measuring devices, it shall inform on that the Authorized body not less than within 30 days, to give an opportunity to its representative to be present during the performance of such changes or replacements.

SECTION 13. IMPLEMENTATION OF SUBCONTRACT WORKS

13.1. The Contractor on the basis of the Working program shall present annually to the Competent body plan of subcontract works, list of major contracts on supply of materials, equipment and services, which shall be concluded in the next calendar year with specification of the estimated costs of subcontracts, and also list of potential Kazakhstani and foreign subcontractors.

13.2. When concluding all subcontracts the Contractor shall be obliged to give priority to services, equipment, materials and final products, produced within the State if they are competitive upon their ecological and technical features, prices, operating parameters and terms of delivery with compulsory participation of Kazakhstani companies in the tender.

13.3. The Contractor, as a rule, on the competitive basis shall enlist the Subcontractors.

13.4. For the implementation of subcontracts the Contractor shall be liable in accordance with the State legislation.

SECTION 14. FINANCING

14.1. The Contractor shall assume the responsibility on complete financing of its activity by the present Contract, in accordance with the Working Program, agreed by the parties.

14.2. The Contractor may freely obtain credits in any currency within the State and beyond its borders for financing its activity, if it not contradict to the State legislation.

14.3. The Contractor may have accounts as in national currency, so in the foreign, at the Banks of the State and beyond its borders solely in the aims of the Contracts implementation for obtaining monetary funds, which present the revenues and incomes by this Contract.

14.4. All kinds of accounts in accordance with the present Contract shall be made in the order established by the State legislation.

14.5. The Contractor and the Subcontractors shall perform currency transactions in accordance with the State legislation on monetary regulation.

SECTION 15. TAXES AND PAYMENTS

15.1. According to the activity carried out on the basis of the present Contract, the Contractor shall make taxes and payments to the budget in accordance with the Legislation of the Republic of Kazakhstan and Tax Code (the Code of the Republic of Kazakhstan "On taxes and the other obligatory payments to the budget" as of 12.06.01, valid on the moment of the Contract effectiveness), if otherwise is determined by the international Agreement, the participant of which the Republic of Kazakhstan is.

With the purposes of tax and payment calculation, on the activity carried out under the present Contract, the Contractor shall be deemed as the sole taxpayer.

15.2. The Contractor shall make the following taxes and payments:

15.2.1. The Corporate income tax.

The Contractor shall pay the corporate income tax in accordance with the Section 4 of the Tax Code.

15.2.1.1. The Contractor shall make computation of the corporate income tax on rates stated in the article 155 of the Tax Code.

15.2.1.2. The Contractor shall pay the corporate income tax by means of advance payments calculated in accordan