ENGLISH TRANSLATION OF CONTRACT

3.1

Interpretation : The Parties hereby agree to interpret this Contract in accordance with the provisions of the Preliminary Section and Section XIII, Book IV, of the Codified Civil Code of Ecuador. The titles and order of all paragraphs and subparagraphs used herein are for identification and reference purposes only. Definitions shall apply equally to both the singular and plural forms of the terms defined herein. Whenever the context may require, all pronouns shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall not be limiting and will be deemed as if they were followed by the phrase “without limitation.”, unless the context requires otherwise. Any agreements, documents, instruments or laws defined or referred to in this Contract shall be deemed to include all agreements, documents, instruments or laws amended, modified or supplemented from time to time, including any agreements, documents or instruments by waiver or consent. All references in this Contract to any particular Law shall be deemed to include any rules and regulations passed under that Law. References to particular persons shall also refer to their authorized predecessors, successors and authorized transferees.

(a)

Refining and industrialization in plants installed in Ecuador where the production is used for local consumption;

(b)

Refining abroad to obtain by-products used for local consumption; and

(c)

Countertrade or compensation to obtain by-products used for local consumption

4.1

The purpose of this Contract is the provision of specific services by the CONTRACTOR for the development, production of crude oil in the Contract Area, utilizing the HTL™ Technology (Heavy to Light), patented and owned by Ivanhoe Energy and its Related Companies, to upgrade the quality of the Crude Oil of the Pungarayacu Field confirm reserves, and implement complementary exploration activities, at the CONTRACTOR’s own risk and expense. CONTRACTOR undertakes to implement activities to confirm reserves, develop and produce Crude Oil in Block 20, supplying the necessary technology, capital and equipment or other goods and services necessary for the compliance with the obligations established in this Contract. PETROPROPRUDUCCION will pay CONTRACTOR a price per barrel produced and fiscalized, in accordance with the provisions of Clause 9 of this Contract.

If upon completing the activities to confirm reserves, CONTRACTOR finds Commercially Exploitable Light Crude Oil, it shall be its obligation to exploit it, in which event the Parties hereto will mutually agree on the terms and conditions to develop and exploit such crude oil, as well as fix the price to be paid, aspects that will be established in a written document.

4.1.1

The above-mentioned obligations shall be fulfilled by CONTRACTOR in Block 20 (which includes the Pungarayacu Field), whose boundaries are listed in Annex 1 to this Contract. CONTRACTOR may carry out exploration activities within the boundaries of Block 20, as well as develop studies and interpretation of surveys involving such seismic lines and other work, and will deliver such results to PETROPRODUCCION. Administrative and technical services may be rendered in Ecuador or abroad, to support the activities performed in the Contract Area.

5.1

CONTRACTOR OBLIGATIONS : Without prejudice of any other obligations under this Contract, CONTRACTOR undertakes to:

5.1.1

Comply with the purpose of this Contract, for which the development and production will be its exclusive responsibility.

5.1.2

Register this Contract in the Hydrocarbons Registry within 30 days from its signature.

5.1.3

Deliver at the Fiscalization and Delivery Center Fiscalized Production from the Contract Area that will always be crude that is transportable by oil pipeline.

5.1.4

Make the investments and expenditures required to perform this Contract, as established in Annex 5. In addition, CONTRACTOR shall build all civil works and oil facilities; acquire and install, at its expense, the necessary equipment ( Fiscalization Meters) referred to in sub-clause 3.3.6.1, needed perform this Contract, in order to determine volumes, temperature adjustments, water and sediments content and other measures required to establish the Fiscalized Production.

5.1.5

Carry out all technical and administrative activities required in the evaluation, development, production and upgrading operations of Commercially Exploitable Crude Oil reservoirs, observing the provisions of sub-clauses 5.1.14, 5.1.15 and 5.1.16 of this sub-clause 5.1.

5.1.6

All rights, titles or interests involving confidential and proprietary information, including the HTL™ Technology, inventions, improvements, tests, processes, discoveries, commercial secrets or intellectual property developed or having relationship with confidential and proprietary information, will remain the property of CONTRACTOR, and this Contract does not grant any interest, license or right over such confidential information, neither implicitly or in any other manner.

5.1.7

Implement the Work Plans and the Annual Investment Budgets approved in accordance with the legal provisions and regulations in force, and meet the chronogram established by the Executive Committee in accordance to Clause 15.5.3.

5.1.8

Employ qualified personnel and use equipment, machinery, materials and technology in accordance with the generally accepted standards and practices of the national and international petroleum industry.

5.1.9

Keep PETROPRODUCCION informed, through the Executive Committee, regarding development of all activities carried out during the life of this Contract, as established in the Rules and Regulations for Hydrocarbon Operations.

5.1.10

Deliver to PETROPRODUCCION the originals of all technical, environmental and research data, with copy to the Ministry, on the activities performed by CONTRACTOR under this Contract, in accordance with the legal provisions and regulations in force. In addition, upon termination of this Contract, CONTRACTOR shall deliver to PETROPRODUCCION any documents that are pending submittal.

5.1.11

Deliver to PETROPRODUCCION the Environmental Studies, together with the supporting documents, as set forth in sub-clause 5.1.23.3 and the supporting documents.

5.1.12

Keep accounting records of all activities performed under this Contract, accurately showing all investments, income, costs and expenses. For such purpose, CONTRACTOR shall follow the generally accepted accounting principles and procedures of the international petroleum industry, as well as the accounting regulations contained in 6, which is an integral part of this Contract.

5.1.13

Take all reasonable measures to ensure that its employees, Related Companies, subcontractors and its employees do not disclose to third parties, without PETROPRODUCCION’s prior written consent, any information generated or obtained by CONTRACTOR involving this Contract, as set forth in the provisions of Clause 16.

5.1.14

Provide to the officials authorized by the Ministry, PETROPRODUCCION, and the Armed Forces having to do with security issues and to other public officials authorized by the Ministry, the information they may need to fulfill their duties concerning this Contract.

5.1.15

CONTRACTOR may at its discretion, provide the officials mentioned in clause 5.1.14. from time to time and on a temporary and occasional basis, as required, camp facilities, transportation, food and lodging services, similar to those it provides to CONTRACTOR’s personnel, without CONTRACTOR assuming liability for any injuries or damages that such officials may suffer when using the above-mentioned facilities.

5.1.16

Save and hold harmless PETROPRODUCCION from damages, legal actions, indemnifications, costs and expenses of any nature whatsoever, it may suffer or may be required to pay, as a result of any actions or omissions imputable to the subcontractors or Related Companies of CONTRACTOR, qualified as such by final award of the Ecuadorian courts. CONTRACTOR shall notify PETROPRODUCCION regarding any legal action arising out of this Contract, where CONTRACTOR intervenes or may have to intervene, in order that PETROPRODUCCION takes the necessary measures to protect its interests. The amounts payable for any award or final administrative award of competent authority, or settlement and any other expenses arising out from such award or administrative award shall be at the CONTRACTOR’s expense.

5.1.17

Engage, renew and keep in force the required guarantees, and obtain all insurances established by Law, the Regulations and this Contract.

5.1.18

Deliver to PETROPRODUCCION copies of all insurance policies obtained in Ecuador. In the event of insurance policies obtained abroad, CONTRACTOR shall deliver to PETROPRODUCCION the coverage certificates duly issued and executed by the insurance companies of all insurance policies where CONTRACTOR is the co-assured, duly authenticated by the corresponding Consulate of Ecuador or annotated as established by the Hague Convention.

5.1.19

Pay all taxes, fees and duties as required by the Ecuadorian legislation and regulations effective on the date this Contract is executed, or any taxes, fees and duties that may be increased in the future. CONTRACTOR shall comply with all legal requirements, especially as regards to submittal of tax returns, tax withholding, and bookkeeping.

Notwithstanding the above, and in accordance with Article 87 of the Hydrocarbons Law, CONTRACTOR shall enjoy the rights and exemptions established in the above-mentioned regulations and the Customs Law (Ley Orgánica de Aduanas).

5.1.20

Take all necessary measures in order that subcontractors engaged by CONTRACTOR, comply with all laws, rules, regulations and provisions applicable to this Contract in the Republic of Ecuador.

5.1.21

Submit for approval of the Executive Committee the Work Plans and Annual Investment Budgets, as required by the Hydrocarbons Law and Annex 3 to this Contract. In addition, CONTRACTOR will comply with the requirements of the Dirección Nacional de Hidrocarburos and the Ministry in accordance with the Ecuadorian law.

5.1.22

CONTRACTOR shall conduct its operations in accordance with the environmental protection laws and regulations and the international agreements ratified by Ecuador. The remedial and mitigation obligations undertaken by CONTRACTOR, are defined in the Environmental Studies and the Environmental Management Plans, upon prior approval of the “Subsecretaría de Protección Ambiental” of the Ministry of Mines and Petroleum.

5.1.23

Use technologies internationally accepted in the oil industry, which are compatible with the environmental requirements of the Ecuadorian Amazon Region, both for its operations, studies, reports and putting into practice any recommendations.

5.1.23.1

Comply with the legal and regulatory provisions applicable to relationships between CONTRACTOR and the neighboring communities.

5.1.23.2

Prior to the operations start-up, PETROPRODUCCION shall carry out the Social-Environmental Audit of the Field and will submit it for review by the Ministry’s “Subsecretaría de Protección Ambiental”, establishing the current conditions in which CONTRACTOR receives the Contract Area. If the environmental audit reveals that there are environmental damages requiring remediation, it will be liable to take the corrective actions needed in coordination with the CONTRACTOR.

5.1.23.3

CONTRACTOR undertakes to carry out the Environmental Studies and to obtain the Environmental Permits from the Ministry’s “Subsecretaría de Protección Ambiental” for all the stages included in the Development Plan, in accordance with the Substitute Regulations to the “Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador” and related legislation in force. If applicable, CONTRACTOR will develop a plan for delivery and/or abandonment of the area.

5.1.23.4

The CONTRACTOR shall be liable to engage Environmental Audits for the Contract Area, as established in the Substitute Regulations to the “Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador”. Prior to termination of the Contract herein, the CONTRACTOR shall engage an Integral Environmental Audit for the Contract Area, which shall conclude no later than six months prior to termination of this Contract. The cost of these audits shall be borne by CONTRACTOR. These audits are aimed at establishing whether the environmental management plans approved by the Ministry’s “Subsecretaría de Protección Ambiental” were met, and its recommendations will be binding.

5.1.23.5

Employ skilled personnel and use adequate equipment, machinery, materials, operational procedures and technologies that meet environmental protection standards and practices of the international hydrocarbons industry, without prejudice of its liability to comply with the Ecuadorian rules and regulations currently in force.

5.1.23.6

CONTRACTOR undertakes to comply with the Environmental Management Plans and to keep the oil field in the best social-environmental conditions, as set forth in the Substitute Regulations to the “Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador”. In the event of Final Abandonment, the CONTRACTOR will recover and rehabilitate the area in which it operated, by remedying the environmental damages caused by its operation of the Field.

5.1.23.7

Cooperate with Government Entities in charge of sustainable development for the area in which CONTRACTOR operates, as required by Law. However, CONTRACTOR shall not be liable for environmental damages caused to the oil fields by area inhabitants, settlers or third parties.

5.1.24

Deliver to PETROPRODUCCION at the date of termination of this Contract, at no charge and in good conditions, except the normal wear, all wells, goods, facilities, equipment and infrastructure works that exist in the Contract Area. It is hereby agreed that the specific services rendered under this Contract do not imply any transfer of technology — know how - nor the total or partial assignment of the rights inherent to invention patents of the HTL™ process, which are exclusively owned by IVANHOE ENERGY ECUADOR INC and its Related Companies. Therefore, the Ecuadorian Government hereby agrees to abide by such rights, including all those of the International and Regional Agreements and the local legislation on intellectual property rights.

As of the date in which the delivery referred to in this clause takes place, PETROPRODUCCION will assume full and total responsibilities over said wells, goods, facilities, equipment and infrastructure.

5.2.11

Receive the Fiscalized Production.

5.2.12

If necessary, and upon request by CONTRACTOR, PETROPRODUCCION, through the Police Force, will provide reasonable safety conditions to perform the operations under this Contract, for a reasonable compensation that will be agreed between the Parties. PETROPRODUCCION will include in the Contractual Payment the costs incurred by CONTRACTOR. This compensation will be made in accordance with the accounting procedures in force. However, PETROPRODUCCION will not be liable if despite these safety conditions there are losses and damages to the goods or individuals involved in this Contract.

5.2.13

The CONTRACTOR shall take the necessary actions for the prompt construction a secondary pipeline for the timely removal the upgraded petroleum to the Fiscalization and Delivery Center, the cost of such secondary pipeline line will be the exclusive responsibility of the CONTRACTOR, within the scope of the Contractual Payment.

5.2.14

If the capacity of the Main Pipeline is adequate to transport the Crude Oil produced in the Contract Area, then the Crude Oil shall have access to the Main Pipeline. However, if the capacity of the Main Pipeline is insufficient, PETROPRODUCCION will ensure a share in the capacity of said Main Pipeline to move the Crude Oil from the Contract Area, equivalent to the percentage between the Production of Available Crude Oil and the total production of all areas served by this Main Pipeline.

5.2.15

In the event that there is a secondary pipeline with adequate capacity to transport the Fiscalizable Production, without need to build a new Main Pipeline, PETROPRODUCCION shall take the necessary actions, in order that the Fiscalizable Crude Oil has timely access to the secondary pipeline, upon prior agreement between the interested parties.

5.3

CONTRACTOR’S RIGHTS : CONTRACTOR shall have the following rights:

5.3.1

CONTRACTOR shall have the exclusive right to implement and conduct activities, for the purpose of this Contract in the Contract Area, with the guarantees granted by the Republic of Ecuador, including the right to do exploration in Block 20.

5.3.2

Receive the Contractual Payment, as set forth in Clause 9.

5.3.3

Use and have access to all geological, geophysical, drilling and production data, as well as any other information kept by PETROPRODUCCION involving Block 20, upon prior payment of the corresponding costs to reproduce such materials.

5.3.4

Use the existing roads, communications and transportation means or those built in the future, as well as use the water and construction materials required by its operations, as set forth by Law and by the provisions of this Contract.

5.3.5

Use, at no charge, the Crude Oil and Natural Gas produced in the Contract Area required for its operations.

5.3.6

Arrange, together with PETROPRODUCCION the timely inclusion into national production of the crude oil produced in the Contract Area.

5.3.7

Precretaceous: This Contract does not grant CONTRACTOR any rights over the soil, subsurface or natural resources existing in the Contract Area, nor on the areas expropriated in benefit of PETROPRODUCCION under this Contract, or on the facilities constructed in the Contract Area. However, CONTRACTOR will have the right to conduct exploration drilling in the Precretaceous, and if the results are positive, the Parties will execute an agreement establishing the production conditions and payment terms.

5.3.8

The CONTRACTOR has the right to receive the monthly Contractual Payment with petroleum owned by PETROECUADOR as compensation for the amount to which it has the right to payment in money.

5.3.9

During the life of the Contract, and with the purpose of increasing crude oil production for the State, the CONTRACTOR may blend the oil produced from the Contract Area with other Available Crude Oil from the same Area, notwithstanding the API gravity.

5.4

PETROPRODUCCION’S RIGHT S: For supervision and monitoring purposes, PETROPRODUCCION shall have the following rights:

5.4.1

Review and monitor performance of technical, financial and contractual activities undertaken by CONTRACTOR, in accordance with the timetables and procedures mutually agreed by the Parties, as set forth in sub-clauses 15.2 and 19.2.

5.4.2

Request CONTRACTOR, at any time, the information and reports it may consider appropriate, for the performance of this Contract, in accordance with the applicable laws and regulations in force.

5.5

JOINT OBLIGATIONS OF THE PARTIES : The Parties hereto shall have the following joint obligations:

5.5.1

Interpret and perform this Specific Services Contract in good faith.

5.5.2

Both Parties shall meet their contractual obligations and comply with the provisions of the Hydrocarbons Law; the Special Law of “Empresa Estatal de Petróleos del Ecuador”, PETROECUADOR and its Affiliate companies; Procurement Rules for Works, Specific Goods and Services of PETROECUADOR and its Affiliate Companies; Substitute Regulations to the “Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador”, and the provisions of the Contract herein.

5.5.3

Subject to the provisions set forth in subparagraphs 5.3.8 and 9.2.7 of this Contract, PETROECUADOR shall execute with CONTRACTOR or its Related Companies the corresponding Oil Purchase/Sale agreement, as applicable. The price paid by CONTRACTOR or its Related Companies shall be the Reference Price, as defined under sub-clause 3.3.41. of this Contract.

a)

Execution and performance of this Contract is subject to the provisions of the Hydrocarbons Law, the Special Law for PETROECUADOR and its regulations, related laws, verdict, court order or award. Therefore, their assets or any other rights derived from other contracts executed by the Parties will not be affected.

b)

Neither Party shall be liable to the other Party for administrative or judicial claims arising out from actions or omissions incurred prior to execution of this Contract.

6.1

This Contract will enter into force on the Effective Date established in sub-clause 3.3.19 and will have a duration of 30 years. This term may be extended for two additional periods of five years each, by mutual agreement of the Parties. In the event of unilateral early termination, CONTRACTOR shall have the right to obtain reimbursement of all the investments, costs and expenses, and to receive payment for the services actually performed that are pending payment.

7.1

Work Programs and Annual Investment Budgets . CONTRACTOR will submit for PETROPRODUCCION,s approval, through the Executive Committee, the committed Work Programs and their respective Annual Investment Budgets, which will include quarterly breakdown estimates for reference purposes.

7.1.1

Contractor will submit to the Executive Committee the Work Programs and Annual Investment Budgets referred to in the preceding paragraph by September 30 of the Fiscal Year prior to which the Work Programs and Annual Investment Budgets will be implemented. In addition, within the first 30 days of the following Fiscal Year, CONTRACTOR will submit to the Executive Committee a report on the activities performed during the previous Fiscal Year and the corresponding budget implementation.

7.1.2

As regards to the first year of this Contract, the Work Program and Annual Investment Budget shall be submitted to the Executive Committee for the time that remains until the end of that Fiscal Year and, if execution of this Contract takes place after October 31, the Work Plan and Annual Investment Budget shall be added to the next Fiscal Year.

7.1.3

CONTRACTOR may amend the current Work Plans and Annual Investment Budgets upon prior approval of the Executive Committee.

8.1

Prior to the date an oil reservoir begins production, CONTRACTOR shall submit the proposed Production Rate to PETROPRODUCCION, through the Executive Committee, in order that PETROPRODUCCION submits it to the Ministry of Energy and Mines for its approval. The Production Rate shall use as basis conventional studies or oil reservoir simulations, in accordance with the provisions of Executive Decree 543, published in Official Register 135 dated March 1, 1985, including the Technical Criteria to Calculate Production Rates, as established by the “Dirección Nacional de Hidrocarburos” and the Rules and Regulations for Hydrocarbon Operations.

8.2

Early Production . Early production of Crude Oil that CONTRACTOR may produce and PETROPRODUCCION will accept and deem as test production to determine the reservoir features and production rates. PETROPRODUCCION agrees to take the full volume of such Available Crude Oil under the terms of this Contract. PETROPRODUCCION will accept the income obtained from the sale of such production to pay CONTRACTOR the Contractual Payment, as set forth in Clause 9 of this Contract. The early production of Crude Oil shall be valued at the Reference Price.

8.3

Maximum Production Rate Allowed . In accordance with the provisions of Executive Decree 543 and the Technical Criteria to Calculate Maximum Production Rates, the Ministry shall establish the Maximum Production Rate Allowed. This rate may be reviewed every Fiscal Year, by following the above-mentioned procedure. Until the Ministry establishes the Maximum Production Rate Allowed, CONTRACTOR will use the rate proposed by it, in accordance with the provisions of Article 2 of Executive Decree 543. The cost and difficulties of developing and producing heavy oil, as well as installation and utilization of the HTL™ Technology to upgrade the volume and quality of heavy Crude Oil require that the production of Crude Oil reservoirs be at the Maximum Efficient Rate, in order for the project to be profitable and obtain optimum benefits from the unique HTL™ Technology.

8.4

CONTRACTOR may propose, at any time, to PETROPRODUCCION, through the Executive Committee, to review the Maximum Allowable Production Rate for each well, reservoir or oil field, due to unexpected changes in production or reserve updates, based on conventional studies or reservoir simulation studies. In turn, PETROPRODUCCION will request the Ministry to review the proposal, in accordance with the procedure set forth in sub-clause 8.1.

9.1

During the life of this Contract, CONTRACTOR will receive payment every month ( Contractual Payment ). Such payment will be calculated taking into account the number of Fiscalized Production barrels produced in Block 20 during that month. The Contractual Payment includes Investments, Costs, Expenses and CONTRACTOR Profits.

9.1.2

During the life of this Contract, the Contractual Price will be calculated by multiplying the number of Fiscalized Production barrels for the corresponding month (the Month of Payment) for an amount per barrel of thirty-seven United States dollars (US$37.00) (the Contractual Price ). Such amount will be adjusted quarterly as of the effective date of this Contract. The formula to adjust the Contractual Payment is detailed in Clause 9.1.2.1 and is based on the quarterly weighted average changes in a basket of Producers Price Index (PPI), published by the US Department of Labor, the Labor Statistics Unit, and the Indexes ( Adjustment Indexes ) for the calendar quarter immediately preceding the Quarter in which the Effective Date occurred ( Reference Quarter ), and the calendar quarter immediately before the month of payment ( Payment Quarter) to be invoiced.

9.1.2.1

Payment Formula — Contractual Payment Formula

9.1.2.2

The Contractual Price will also be adjusted as established in Clauses 9.2.10 and 9.3.11, and other provisions of the Contract herein.

9.1.3

If during the life of this Contract any of the indexes mentioned in the preceding clause are no longer published by the United States Department of Labor, the index/indexes no longer published will be replaced with similar indexes published by the Government of the United States of America or any renowned organizations of the industry, as references for cost variations in the United States of America, or which are used by the industry as equivalents of such.

9.1.4

In accordance with the provisions of Article 17, Hydrocarbons Law, PETROPRODUCCION and the CONTRACTOR agree that the form of payment, will be in money. Nevertheless, the payment obligation may be satisfied through compensation of the value of the payment in petroleum.

9.2

Trust Fund: PETROECUADOR shall create a Trust Fund to pay CONTRACTOR, equivalent to not less than 35% or a sufficient amount to pay the CONTRACTOR, from the monthly income arising from sales of crude oil produced in the Contract Area. The Payment to which CONTRACTOR is entitled under the terms of this clause will be paid with funds from this Trust Fund, in accordance with the payment schedule established in this clause.

9.2.1

If payment takes place with Crude Oil, as set forth in the previous paragraphs the value of the amount of the corresponding crude oil will be deducted from the Trust Fund.

9.2.2

The Trust Fund shall be created through the Central Bank of Ecuador, between PETROECUADOR and the Ministry of Economy and Finance. Its purpose will be to ensure payment to CONTRACTOR of all obligations derived from this Contract.

9.2.3

Payment to CONTRACTOR from the Trust Fund Account shall take place monthly, upon submittal of the invoice for the quantity of Fiscalized Production during the applicable month. Invoices shall be submitted together with the details of the Fiscalized Production, and shall be paid upon verifying that all data is correct. Invoices will be submitted within the first ten calendar days of each month for the preceding month. Invoices will be paid within 30 calendar days following its submittal, and payment will be made through bank transfer to the account notified by CONTRACTOR, using funds from the Trust Fund created for such purpose. Failure to pay the invoices within 30 days from their submittal will accrue interests, as fixed by the Central Bank of Ecuador, until payment is made.

9.2.4

If in any month during the life of this Contract, the Contractual Payment exceeds the amount allocated to CONTRACTOR through the Trust Fund for Contractual Payments during that month, PETROPRODUCCION and/or PETROECUADOR will pay CONTRACTOR the surplus amount with public funds, in the subsequent month or months, until the full amount is paid.

9.2.5

In the event that CONTRACTOR is unable to collect payment for the services rendered under this Contract, CONTRACTOR will not lose its rights to recovery and may exercise its rights to claim such payments, even if the Contract herein is terminated for any reason whatsoever.

9.2.6

If PETROECUADOR allocates the Production to the domestic market, sales will be valued at the International Market Price, FOB Balao main port.

9.2.7

In case that the value corresponding to the Contractual Payment established in this Contract, is compensated in crude oil, this will correspond to the sales price that PETROECUADOR applies to the crude oil of similar characteristics and shall be the Reference Price FOB port of Balao.

In addition, CONTRACTOR shall have the option to buy RTP product, available crude from the Contract Area and other Crude Oil on equal conditions to those used by PETROECUADOR for sales to other companies, complying with the then existing legal norms and procedures.

9.2.8

All crude oil received by CONTRACTOR as the contractual payment will be valued based on quality, volume and selling terms, to ensure that CONTRACTOR receives the value it would have received had the invoices been paid with cash. Payment of interests may also apply in the event of delivery delays by PETROPRODUCCION, as set forth in Clause 9.2.11.

9.2.9

Lifting procedures will include, among other issues, volumes, quantities, crude oil lifting schedules (including timely notices, tolerance levels for operational reasons and other delivery conditions, categories, loading hour free of charge, penalties for delayed lifting and other charges attributable to PETROPRODUCCION).

9.2.10

Adjustment : The Contractual Payment to which CONTRACTOR is entitled to will be adjusted using as basis the adjustment factors set forth in sub-clause 9.1.2.1. Likewise, CONTRACTOR shall be entitled to adjustments of the Contractual Price in any of the following events: (i) Tax system changes or modifications, including the VAT, which may have an impact on CONTRACTOR; (ii) modifications in the labor share effective at the time this Contract is signed; (iii) modification of the currency system changes, as described in sub-clause 13.4; (iv) Changes/restrictions established by the National Hydrocarbons Administration in the production rate, negatively affecting the economics of this Contract; (v) Changes in the amortization formula established in the Accounting Procedures, in which case any adjustments will be proportionate to the impact of such events over the economy of this Contract.

9.2.11

Interests: After 45 days following the date in which payment is due to CONTRACTOR, PETROPRODUCCION will pay CONTRACTOR interest for the period of delay, calculated at the Legal Interest Rate effective in Ecuador on the date of payment. If the Contractual Payment will be compensated with Crude Oil, interest will accrue from the scheduled lifting date and in accordance with the lifting agreement, until the date in which the Fiscalized Production received by PETROPRODUCCION is available to CONTRACTOR, for lifting. Delayed payments will accrue interests as of the 46th day (inclusive) from submittal of the corresponding invoice and supporting documents. Interests will not be paid during any periods of Force Majeure or Acts of God that hinder PETROPRODUCCION from making the payments agreed under this Contract.

If the delayed payment is due to Force Majeure or Acts of God, PETROPRODUCCION shall not be liable to pay interest for delayed payment.

9.2.12

During the life of this Contract, not withstanding the payment of the contractual service, and the international market price for the crude oil , the State will not receive less than 20% of the gross income generated from the sale of this crude oil.:

If the international market conditions improve in the future, the CONTRACTOR will be entitled to recover the difference of the agreed price for the contracted services, except for the early production crude which the CONTRACTOR shall not recover the difference in the contractual payment.

9.2.13

Economic Equilibrium PETROPRODUCCION or the CONTRACTOR shall have the right to propose to the other Party adjustments necessary when due to special circumstances in the international market, or the prices of goods and services having relationship with the hydrocarbons industry and emergency situations unforeseen under this Contract, negatively affect the economic equilibrium of this Contract, for which effect, after reaching an agreement must sign the corresponding document, with agreed economic adjustments.

9.3

Payment Procedure: CONTRACTOR will submit monthly one or more invoices for the Contractual Payment applicable to the previous month, in accordance with the procedure established in this clause.

9.3.1

Issuance of Invoices: All invoices shall be issued to EMPRESA ESTATAL DE EXPLORACION Y PRODUCCION DE PETROLEOS DEL ECUADOR, PETROPRODUCCION, as established in Annex 2 to this Contract

9.3.2

Payment Objections: PETROPRODUCCION may object an invoice, only for calculation errors.

9.3.3

CONTRACTOR will cancel the invoice objected to and will immediately issue a new invoice.

9.3.4

Objections by PETROPRODUCCION to any invoice shall not prevent CONTRACTOR from submitting other invoices and receive Contractual Payments to which it is entitled on the terms established under this Clause.

9.4

Delayed compliance or breach of any provisions in this Contract will give PETROPRODUCCION the right to charge CONTRACTOR a penalty equivalent to 0.01% over the portion not performed in the development plan approved for the corresponding fiscal year.

9.4.1

Prior to applying a penalty for noncompliance ANY OBLIGATIONS under this Contract, the corresponding Department will notify CONTRACTOR in writing and will attach the “Fines Form”, within 5 calendar days from having knowledge of such noncompliance.

9.4.2

Upon receipt of notice, CONTRACTOR will have 15 Business Days to justify the noncompliance, and after that period, the Contract Administrator will apply or cancel the penalty, notifying the CONTRACTOR in writing within the next 5 days upon completion of the period granted to justify such noncompliance.

9.4.3

However, CONTRACTOR may submit the issue within 15 calendar days to the Executive Committee, which will take a decision in a period of five calendar days. After completing this procedure, CONTRACTOR may submit the issue within five calendar days to the Vice-President of PETROPRODUCCION, who will take a decision in 10 calendar days.

9.4.4

Penalties will not apply to events of Force Majeure or Acts of God, or in the event that PETROPRODUCCION experiences delays in fulfilling its obligations under this Contract and those foreseen in Ecuadorian Legislation, duly approved by CONTRACTOR and accepted by PETROPRODUCCION.

9.4.5

PETROPRODUCCION may collect the penalties imposed on CONTRACTOR either from: (i) the invoices payable to CONTRACTOR; (ii) the Performance Bond, in the portion proportional to the penalties.

9.4.6

In the event that the penalties imposed to CONTRACTOR reach 20% of the total value of the Contract, PETROPRODUCCION will have the right to unilaterally terminate this Contract.

The total value of this Contract amount represents the sum of the financial commitments undertaken and estimated for all stages under this Contract.

10.1

Guarantees : CONTRACTOR shall deliver to PETROPRODUCCION the following guarantees:

10.1.1

Joint Guarantee : Prior to execution of this Contract, CONTRACTOR shall submit a joint guarantee issued by its Parent Company for the activities and investments that CONTRACTOR undertakes to perform during each Stage. The text of such guarantee will be an integral part of this Contract and is included herein as Annex 7.

10.2

Insurance : From the Effective Date of this Contract, CONTRACTOR will be solely liable to maintain all the necessary national and international insurance policies. These insurance policies will abide by Ecuadorian Law and will be based on generally accepted practices in the international petroleum industry. Assets located within the country shall be insured in the Ecuadorian Insurance market, except where coverage for specific risks is not offered locally, in which case insurance may be arranged abroad. PETROECUADOR may assign the coverage of its current insurance policies by transferring the proportional cost of the applicable insurance premiums. The CONTRACTOR may accept, at its discretion, all or part of the insurance coverage offered by PETROECUADOR.

10.2.1

CONTRACTOR shall either arrange for PETROPRODUCCION to be an additional insured party or endorse the insurance policies established by law and this Contract to PETROPRODUCCION.

10.2.2

The property and Fixed Assets referred to in this Contract shall be insured until such property and Fixed Assets are delivered to PETROPRODUCCION.

10.2.3

CONTRACTOR agrees to arrange and maintain insurance policies with public liability coverage for any direct or indirect material damages to third parties, which may arise from performance of this Contract. The CONTRACTOR undertakes to save and hold harmless PETROPRODUCCION from any claim involving loss or damage to third parties by CONTRACTOR, during the performance of this Contract.

10.2.4

In the event of loss or damage, the indemnifications paid by the insurance companies shall be paid to CONTRACTOR and will serve to immediately replace the damaged, destroyed or stolen property or facilities, as well as to cover any underinsurance, if any.

10.2.5

CONTRACTOR shall require all its insurers to include a specific clause in all policies, waiving their right of subrogation against PETROPRODUCCION.

10.2.6

CONTRACTOR shall provide PETROPRODUCCION sufficient proof that the national and international insurance companies are duly covered by the required reinsurance.

10.2.7

CONTRACTOR shall maintain current all the insurance policies, at commercial value updated annually.

10.2.8

Indemnifications and replacement of underinsured property due to damages shall be the exclusive responsibility of CONTRACTOR, and will be covered as soon as possible by CONTRACTOR.

•

FULL OIL INDUSTRY RISK COVERAGE FOR CONTRACT ACTIVITIES

•

PUBLIC LIABILITY INSURANCE

•

FIRE INSURANCE

•

ELECTRONIC EQUIPMENT INSURANCE

•

PERSONAL INJURY AND LIFE INSURANCE

11.1

This Contract may only be amended by mutual agreement of the Parties, and upon prior approval of the Contracting Committee. In the event of changes in the applicable legislation, which may impact the financial terms of this Contract, and without limiting the provisions of the following bodies of law: “Ley Orgánica de Equidad Financiera” and its Regulations, Tax Code, Social Security Law, Municipal System Law, Labor Code, the Parties agree to reflect such deviations as correction factors, or through an amendment to this Contract.

11.2

In case of increases in the costs, expenses and investments the economic model of the CONTRACTOR (Annex 5), such costs, expenses and investments shall be recovered by the CONTRACTOR through the signature of a complementary contract.

12.1

Tax System and Labor Share. CONTRACTOR shall pay income taxes, in accordance with the provisions of the “Ley Orgánica de Régimen Tributario Interno” and other applicable rules. CONTRACTOR may deduct its investments, costs and expenses by following the legal framework that is currently in force in Ecuador. Therefore, said items will not be subject to payment of income taxes, in the event that after execution of this Contract, changes occur in the Tax System whereby the investments, costs and expenses of CONTRACTOR are deductible. CONTRACTOR will have the right as of that date to automatically include a correction factor in the payment term, in order to offset the impact of the changes made in the tax regulations.

CONTRACTOR shall pay its workers all contributions and the labor share established in the Codified Labor Code, which is currently equivalent to fifteen (15%) per cent.

12.2

The CONTRACTOR will comply with the current rules and regulations for issuance of sales receipts and tax withholding, as established by the Internal Revenue Service.

12.3

Tax on Total Assets: CONTRACTOR shall pay, as applicable, the Municipal tax equivalent to 1.5 per thousand on total assets, as set forth in Item III of the “Ley de Control Tributario y Financiero”.

12.4

Contribution to the “Superintendencia de Compañías” (Companies Examiner Office). CONTRACTOR shall pay, as applicable, the annual contribution of one per thousand on total assets, as set forth in Article 455 of the Codified Corporations Law in accordance with the procedure established by the “Superintendente de Compa&