MODIFICATION
AGREEMENT
FOR
PRODUCT SHARING
CONTACT
FOR
EXPLOITATION OF COALBED METHANE
RESOURCES
IN ENHONG AND LAOCHANG
AREA,
YUNNAN PROVINCE, THE PEOPLE'S
REPUBLIC OF CHINA
THIS
MODIFICATION AGREEMENT ("Modification Agreement") is made and
entered into on this the 27 th day of
July, 2009, by and among China United Coalbed Methane Corporation
Ltd. ("CUCBM"), a company organized and existing under the laws of
the People's Republic of China, having its headquarters domiciled
in Beijing, the People's Republic of China; and Far East Energy
(Bermuda), Ltd., a company organized and existing under the laws of
Bermuda, having its headquarters domiciled in Houston, Texas, USA
("FEEB").
WITNESSETH:
WHEREAS, CUCBM and Far East Energy Corporation
("FEEC") entered into that certain Production Sharing Contract for
the Exploitation of Coalbed Methane Resources for the Enhong and
Laochang Area in Yunnan Province, the People's Republic of China,
dated December 3, 2002 (the "Contract"). The Contract was approved
by the Ministry of Foreign Trade and Economic Cooperation,
predecessor of Ministry of Commerce, on December 16, 2002;
and
WHEREAS, with the consent and approval of CUCBM
and the Ministry of Commerce of the People's Republic of China,
dated November 11, 2005, the exploration period of the Contract, as
provided by Article 4.2 of the Contract, was extended from December
31, 2005 to July 1, 2007; and
WHEREAS, with the consent and approval of CUCBM
and the Ministry of Commerce of the People's Republic of China,
dated July 27, 2006, FEEC assigned to FEEB, FEEC's wholly-owned
subsidiary, all of its Participating Interest in, to and under the
Contract and all of its rights of operatorship thereunder by
Amendment Agreement dated June 27, 2005; and
WHEREAS, with the consent and approval of the
Ministry of Commerce of the People's Republic of China, CUCBM and
FEEB entered into a modification agreement dated April 24, 2007,
whereby the Contract was modified, among other things, to extend
the exploration period of the Contract, as provided by Article 4.2
of the Contract, from July 1, 2007 to June 30, 2009; and
WHEREAS, the Parties desire that the exploration
period of the Contract be extended from June 30, 2009 to June 30,
2011.
NOW, THEREFORE, the Parties hereby agree to
modify the Contract as follows:
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In the Table of
Contents of the Contract, the title of Article 23 "Environmental
Protection and Safety" shall be modified to read "Safety, Health
and Environmental Protection."
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In Articles
1.24, 1.40, 4.3, 4.5, 11.8 of the Contract, as modified by this
Modification Agreement the phrase "…by the Department or
Unit…" shall be modified to read "…by the Department
designated by the State Council…"
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In
Articles 1.41, 4.3, 22.1, 22.2, 22.3, 22.5, 26.1, 26.3 of the
Contract, as modified by this Modification Agreement the phrase
"…the Ministry of Foreign Trade and Economic Co-operation of
the People's Republic of China" shall be modified to read
"…the Ministry of Commerce of the People's Republic of
China"
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In Article 4.2
of the Contract, as modified by this Modification Agreement, the
sentence "The exploration period, beginning on the Date of
Commencement of the Implementation of the Contract, shall be
divided into two (2) phases and shall consist of six and one-half
(6.5) consecutive Contract Years…" shall be modified to read
"The exploration period, beginning on the Date of Commencement of
the Implementation of the Contract, shall be divided into two (2)
phases and shall consist of eight and one-half (8.5) consecutive
Contract Years, …."
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In Article 4.2
of the Contract, as modified by this Modification Agreement, the
sentence "the second phase of five(5) Contract Years…" shall
be modified to read "the second phase of seven (7) Contract
Years..."
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Article 4.3
shall be modified by this Modification Agreement to read "Upon
occurrence of any of the following circumstances, the exploration
period described in Article 4.2 herein shall be extended: (i) the
time remaining in the applicable exploration period is insufficient
to complete the Pilot Development work on a CBM discovery, which
work is being performed in accordance with a Pilot Development Work
Program approved by JMC as stated in Article 11 hereof; (ii) there
is no transportation or market access or consuming facilities;
and/or (iii) the Parties have not completed long-term
transportation and sales agreements in respect of CBM, CBM Products
or Liquid Hydrocarbons. The period of extension, as
submitted through CUCBM, shall be approved by the Ministry of
Commerce of the People's Republic of China and shall be for a
reasonable period of time required to complete all of the
aforementioned work and to enable: a) JMC to make a
decision on commerciality of said CBM discovery; b) Operator to
submit an acceptable Overall Development Program to the Department
designated by the State Council; and, c) the Department designated
by the State Council to make a final decision on such Overall
Development Program. Notwithstanding the foregoing, the
period of extension shall be no more than two (2) years, unless
otherwise agreed by the Department designated by the State
Council."
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In Article
4.6.1 of the Contract, the sentence "However, the aforementioned
period of suspension shall be less than two (2) years unless
otherwise agreed by the Parties," shall be added between the third
and fourth sentences of the first paragraph.
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Article 4.6 of
the Contract is hereby amended by adding the following as a new
Article 4.6.2.3: "Commencing on the Date of Commencement
of Commercial Production, the estimated cost of abandonment and
estimated reserves for each CBM Field and associated facilities in
the Contract Area shall be determined (with annual reviews and
adjustments thereafter if necessary) and accrued and recovered as
operating costs utilizing the Unit-of Production (UOP) method or
such other method as the Parties may mutually agree."
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Article 4.6 of
the Contract is hereby amended by adding the following as a new
Article 4.6.2.4: "In the event Contractor withdraws from
a CBM Field and CUCBM elects to continue operating such field, at
the time of abandonment, the abandonment funds accrued by
Contractor for such field pursuant to Article 4.6.2.3, less any
Chinese income taxes paid by Contractor, shall be available to
CUCBM on a cash call basis under the provisions of Annex II –
Accounting Procedure hereto, up to an amount equal to the
Contractor's participating interest share of the actual costs of
abandonment in such field relinquished by
Contractor. CUCBM shall provide Contractor with proper
documentation supporting the costs of such abandonment."
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In Article
6.2.2 of the Contract, as modified by this Modification Agreement,
the sentence "Drill eight (8) Pilot Development Wells." shall be
modified to read "From July 1, 2004 until June 30, 2009, drill
eight (8) Wells. From July 1, 2009 until June 30, 2011,
drill twelve (12) Wells and fracture and produce five (5) Pilot
wells in the YuWang Block. Spend a certain amount of US
Dollars equivalent to RMB ten million seven hundred and twenty
three thousand two hundred (RMB 10,723,200) every Calendar Year as
its expected minimum exploration expenditures."
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In Article 6.4
of the Contract, as modified by this Modification Agreement, the
first paragraph "At the expiration of any phase of the exploration
period, if the actual exploration work fulfilled by the Contractor
is less than the minimum exploration work commitment set forth for
the said exploration phase, and if the Contractor opts to enter the
next phase and continue exploration under Article 6.3 (a) herein,
the Contractor shall give reasons to CUCBM for the under
fulfillment. The unfulfilled balance of the said phase
shall be added to the minimum exploration work commitment for the
next exploration phase." shall be modified to read "If the actual
exploration work fulfilled by the Contractor for a given Calendar
Year is less than the minimum exploration work commitment set forth
in Article 6.2, the Contractor shall provide CUCBM reasons for its
failure to complete the minimum exploration work and the
unfulfilled work shall be added to the minimum exploration work
commitment for the following Calendar Year."
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In Article 6.5
of the Contract, as modified by this Modification Agreement the
sentence "Where the Contractor has fulfilled ahead of time the
minimum exploration work commitment for any phase of the
exploration period, the duration of such exploration phase
stipulated in Article 4.2 hereof shall not be shortened
thereby, and if the exploration work actually fulfilled by the
Contractor exceeds the minimum exploration work commitment for the
said exploration phase, the excess part shall be deducted from
and/or credited against the minimum exploration work commitment for
the next exploration phase. " shall be modified to read " Where the
Contractor has fulfilled the minimum exploration work commitment
prior to expiration of the applicable exploration period, the
duration of such exploration period as stipulated in Article 4.2
hereof shall not be shortened thereby."
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In Article 6.6
of the Contract, as modified by this Modification Agreement, the
sentence "If any addition or deduction is made under Article 6.4 or
Article 6.5 herein in regard to the minimum exploration work
commitment for any phase of the exploration period, the increased
or reduced exploration work shall become the new minimum
exploration work commitment for the Contractor to fulfill in the
said phase." shall be deleted.
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Article 6.7 of
the Contract is hereby renumbered as Article 6.6 and shall be
modified by deleting the following paragraph in its
entirety:
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"At the
expiration of any phase during the exploration period, if the
exploration work actually fulfilled by the Contractor is less than
the minimum exploration work commitment for such phase or less than
the new minimum exploration work commitment in Article 6.6 herein,
and if, regardless of whether the expected minimum exploration
expenditures are fulfilled or not fulfilled, the Contactor opts to
terminate the Contract under Article 6.3 (c) herein, or if the said
phase is the last exploration phase, subject to the approval of the
Department or Unit the Contractor shall be allowed to transfer its
unfulfilled minimum exploration work commitment to another Contract
Area as agreed by the Contractor and CUCBM, or the Contractor
shall, within thirty (30) days from the date of the decision of its
election to terminate the Contract or within thirty (30) days from
the date of the expiration of the exploration period, pay CUCBM
only any unfulfilled balance of the minimum exploration work
commitment ( or of the new such commitment) in U.S. dollars after
it has been converted into a cash equivalent using the method
provided in Annex II-Accounting Procedure hereto. However, if the
minimum exploration work commitment for the exploration period is
fulfilled while its expected corresponding minimum exploration
expenditures are not fulfilled, the unfulfilled part shall be
deemed as a saving and shall not be paid to CUCBM."
and shall be
replaced with the following:
"At the
expiration of any phase during the exploration period, if the
Contractor opts to terminate the Contract under Article 6.3(c)
herein, or if the said phase is the last exploration phase, the
Contractor shall, within thirty (30) days from the date of the
decision of its election to terminate the Contract or within thirty
(30) days from the date of the expiration of the exploration
period, as applicable, pay CUCBM any unfulfilled balance of the
minimum exploration work commitment in U.S. dollars after it has
been converted into a cash equivalent using the method provided in
Annex II-Accounting Procedure hereto."
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In Article
7.2.4(a) and (b) of the Contract, as modified by this Modification
Agreement, the following:
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"(a) approve
procurement of any item within the budget with a unit price
exceeding Five Hundred Thousand U.S. dollars (U.S. $500,000) or any
single purchase order of total monetary value exceeding Two Million
U.S. dollars (U.S. $2,000,000)
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(b) approve a lease of equipment, or
an engineering subcontract or a service contract within the
budget of a monetary value exceeding One Hundred Thousand U.S.
dollars (U.S. $1,000,000); and"
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shall be
modified to read:
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"(a) approve
procurement of any item within the budget with a unit price
exceeding One Hundred Thousand U.S. dollars (U.S. $100,000) or any
single purchase order of total monetary value exceeding
Four Hundred Thousand U.S. dollars (U.S. $400,000);
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(b) approve a lease of equipment, or
an engineering subcontract or a service contract within the budget
of a monetary value exceeding Two Hundred Thousand U.S. dollars
(U.S. $200,000); and"
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In the second
sentence of Article 7.3.1 of the Contract, as modified by this
Modification Agreement, "thirty (30) days" shall be deleted and
replaced with "fifteen (15) days."
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In the second
sentence of Article 7.6.2 of the Contract, as modified by this
Modification Agreement, the second sentence shall be modified to
read "The Operator and the procurement professional representatives
of CUCBM shall work out jointly an inventory listing the equipment
and materials and a list of manufacturers, engineering and
construction companies and enterprises which are qualified and can
provide acceptable services and undertake subcontracting
work."
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Article 7.6.4
of the Contract, as modified by this Modification Agreement, the
paragraph:
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"When any
procurement is to be made by means of calling for bids, the
manufacturers and enterprises in China applying for bidding
which the Parties agree are qualified and are included in a list
delivered in advance to the Operator by the procurement
professional representatives of CUCBM shall be invited to submit
bids. The Parties will identify proposed bidders that
are subsidiaries or affiliates of the Parties. The
procurement professional representatives of CUCBM shall have the
right to take part in the work of calling for bids, including
examination of the list of bidders to be invited, preparing
and issuing bidding docum
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