Master Drilling Agreement Turnkey Operations

MASTER DRILLING AGREEMENT TURNKEY OPERATIONS

This Master Drilling Agreement No. ______,

dated the 6th. day of May 2005, (the " Effective Date" ) is made by and between:


Vector Energy West LLP, hereinafter referred to as " Company" , represented by F. K. Shakirov, President, acting on the basis of the Charter,


and


Sun Drilling LLP , hereinafter referred to as " Contractor" , represented by William Duncan acting on basis of the power of attorney No. ____ issued on ___ __________ 2005

WHEREAS Contractor and the Company may individually be referred to as a " Party" and collectively as " Parties;" and

WHEREAS, Company desires to have onshore wells drilled, produced or worked over in the Atyrau oil block located in Atyrau Region " Contract Area" of the Republic of Kazakhstan, as specified by Company, and to have performed or carried out all auxiliary operations and services as detailed in the Bid Sheet and Drilling Order hereto or as Company may require (hereinafter referred to as " Work" ); and

WHEREAS , by signing this Master Drilling Agreement, Contractor agrees that no promise of work is made by the Company, and

WHEREAS , further to a tender based on the attached " Bid Sheet and Drilling Order" work was awarded to the Contractor, and

WHEREAS the Parties agree that Company shall have the right to accelerate, decelerate, suspend, stop or terminate WORK, all as set out in this Agreement, as its prerogative in the prudent management of its business, and

WHEREAS Contractor covenants that it has the resources and skills of suitable quality and quantity to perform the WORK hereunder and is willing and able to undertake the performance of the WORK in accordance with the Terms and Conditions hereinafter contained; and

NOW THEREFORE , in consideration of the premises and the covenants and agreements herein, the Parties agree as follows:

ARTICLE I
INTERPRETATION

1.1

Definitions

In this Agreement, unless the context otherwise requires:

(a)

" Affiliated Company" means an entity owning fifty percent (50%) or more of the voting stock or similar equity interests of Company or Contractor, an entity in which Company or Contractor own fifty percent (50%) or more of its voting stock or similar equity interests, or an entity fifty percent (50%) or more of whose voting stock or similar equity interests is owned by the same entity that owns fifty percent (50%) or more of the voting stock or similar equity interests of Company or Contractor.

(b)

" Commencement Date" means the day and time within the nearest hour that drilling rig is rigged up and ready to commence operations on the first well in the Operating Area.

(c)

" Company' s Items" mean the equipment, material and services owned by Company or which are listed in Drilling Order that are to be provided at the expense of Company.

(d)

" Contractor' s Items" mean the Drilling Unit, equipment, material and services owned by Contractor or which are listed in Drilling Order that are to be provided at expense of Contractor.

(e)

" Contractor' s Personnel" means the personnel and subcontractors to be provided by Contractor from time to time to conduct operations hereunder as listed in Drilling Order.

(f)

" Company' s Personnel" means the personnel and other contractors to be provided by Company from time to time in connection with operations hereunder as listed in Drilling Order.

(g)

" Daywork basis" means Contractor shall furnish equipment, labor and perform services as herein provided, for a specified sum per day under the direction and supervision of Company.

(h)

" Operating Area" means the area specified in Drilling Order.

(i)

" Operating Base" means the place onshore designated by Company and specified in Drilling Order.

(j)

" Spudded" means the commencement of drilling the main well bore below the base of the cellar or circulating riser pipe which ever is deeper.

(k)

" The WORK" means the scope of activity defined in the "Bid Sheet and Drilling Order"

1.2

Currency


In this Agreement, all amounts and payments are expressed and will be executed in Kazakh Tenge. Notwithstanding aforesaid, calculation of cost and rates of all services, materials and works have been made on basis of exchange rate of US Dollar to Kazakh Tenge set by the KASE at the date of signature of this Agreement, and thus at the time of respective payment the cost of all services, materials and works will be adjusted to the exchange rate of US Dollar to Kazakh Tenge set by the KASE at the date of such payment.


1.3

Conflicts


The Drilling Order' s attached hereto are incorporated herein by this reference. If any provision of the Appendices conflicts with a provision in the body of this Agreement hereof, the body of this Agreement shall prevail.

1.4

Contractor' s Status


Contractor in performing its obligations hereunder shall be an independent contractor. Company may instruct and direct Contractor as to the results to be obtained from Contractor' s employees. None of Contractor' s employees are, nor shall be deemed to be, employees or agents of Company .

.1

Governing Law, Resolution of Dispute, Arbitration


(a)

The Agreement shall be governed by and construed in all respects in accordance with the provisions of the laws of the Republic of Kazakhstan.


(b)

If, at any time, any difference or dispute arises between the Parties with respect to the meaning or effect of this Agreement or arising out of or in any way in connection with this Agreement or concerning the rights and obligations of a Party hereunder (including as to the existence, validity or termination of the Agreement), and the dispute or difference cannot be resolved amicably, then either Party shall by notice in writing submit the difference or dispute to a binding arbitration process to be conducted in accordance with the UNCITRAL Arbitration Rules, in force at that time, administered by the London Court of International Arbitration.


(c)

All of the Parties hereby agree to submit themselves to the jurisdiction of the arbitration tribunal and waive any right to immunity that they may otherwise have. No legal action or proceeding for enforcement of the arbitral award shall be taken by any Party before the completion of the arbitration process.


(d)

The arbitration, including the rendering of the award shall take place in London, England, and shall be in the English language with all hearings and conferences being interpreted into Russian.


(e)

The number of arbitrators shall be three (3) and each Party shall be entitled to appoint one (1) arbitrator to the three (3) member arbitration tribunal.


(f)

Unless the Parties agree upon a Chairman within thirty (30) days after the date on which a Party by notice in writing submits the dispute to settlement by arbitration as is provided for by Article, the President or Vice President (at the moment of application) of the London Court of International Arbitration shall appoint the Chairman arbitrator, who shall be a citizen of any country except the country where a Party is established.


(g)

The cost of arbitration, including attorney fees and costs, and the cost of remuneration of the arbitrators shall be borne in the manner determined by the arbitrators, as applicable.


(h)

The final decision of the majority of the arbitrators shall be issued in writing and shall be binding and final and shall be the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators. Any judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof for execution.


(i)

The Parties agree that the final award upon the results of any court process or proceeding is final and can be executed in the compulsory order in any other country by means of a court.

ARTICLE I
TERM

2.1

Effective Date


The Parties shall be bound by this Agreement from the Effective Date.

2.2

D uration


This Agreement shall, be valid for a period of 2 years and will renew automatically for an additional two-year term unless one of the parties requests a change.

2.3

Suspension and Termination


The Company may from time to time by notice to the Contractor suspend the WORK for reasons of its own. Company' s sole obligation during the period of suspension will be to pay Contractor per the applicable rates included in the Drilling Order.

This Agreement shall terminate:

(a)

Immediately if the Drilling Unit becomes a loss on the date Contractor' s insurance surveyor determines a constructive or arranged total loss to have occurred;

(b)

in accordance with Paragraph 3.5(b);

(c)

in accordance with Paragraph 7.6; or

(d)

in accordance with Paragraph 8.a).

During any suspension period all indemnities will be in full force and effect.

2.4

Continuing Obligations


The provisions of Article IX and Paragraphs 1.5, 2.4, 2.5, 8.0, 9.5, 9.6, 9.7, 10, 13.1, 13.4, and 13.9 shall survive the termination of this Agreement and the Parties shall continue to be bound thereby.

2.5

Return of Company' s Item


Upon termination of the WORK, Contractor shall return to Company at the last drilling location for the Drilling Unit under this Agreement, or at any other location as directed by Company at the Company' s sole cost, any of Company' s Items which are at the time in Contractor' s possession. Company' s Items shall be returned by Contractor in the same condition in which they were received by Contractor, normal wear and tear excepted.

ARTICLE II
CONTRACTOR' S PERSONNEL

3.1

Number, Selection, Hours of Labor and

Remuneration


Except where herein otherwise provided, the number, selection, replacement, hours of labor and remuneration of Contractor' s Personnel shall be determined by the Contractor upon the requisites of the Work. Such employees or subcontractors shall be the employees or subcontractors solely of Contractor. Notwithstanding the foregoing, minimum manning shall be as specified in the Drilling Order, and the Contractor undertakes to provide personnel of international quality who have an appropriate technical background and experience to perform the Work and to provide Contractor' s Personnel who have certification as required by Kazakh laws. Contractor' s Personnel shall be certified as required by Kazakh law and have work permits as so required by Kazakh law. During duration of this Agreement, Contractor shall instruct all Contractor' s Personnel, especially in the area of safety rules and oilfield practice.

3.2

Contractor' s Representative


Contractor shall nominate one of Contractor' s Personnel in the operating area, as Contractor' s representative who shall be in charge of the remainder of Contractor' s Personnel and who shall have full authority to resolve all day-to-day matters that arise between Company and Contractor. Contractor shall inform the Company in a written form, if such representative is replaced. All matters that cannot be resolved by Contractor' s representative and Company' s representative will be resolved in accordance with Paragraph 1.5 of this Agreement.

3.3

Increase in Contractor' s Personnel


Company may require Contractor to increase the number of Contractor' s Personnel, subject to additional payment by the Company in accordance with the rates in the Drilling Order or as mutually agreed between the Parties.

3.4

Replacement of Contractor' s Personnel


Contractor will remove and replace at anytime any of Contractor' s Personnel within fourteen (14) days of receiving Company' s written request. Company shall not be obliged to give reasons for any such request which shall not be made unreasonably.

ARTICLE III
CONTRACTOR' S ITEMS

4.1

Obligation to Supply


Contractor shall provide Contractor' s Items and Personnel and perform the services to be performed by it in accordance with the Drilling Order. Each of Contractor' s Items (including the Drilling Unit) shall be subject to inspection and approval of Company prior to such Items being placed into service.

4.2

Maintain Stocks


Contractor shall be responsible, at its cost, for maintaining adequate stock levels of Contractor' s Items and all spare parts as well as replenishing them as necessary to ensure efficient and safe Work.

4.3

Maintain and Repair Equipment


Contractor shall, subject to Paragraph 9.1, be responsible for the maintenance and repair of all Contractors' Items (including the Drilling Unit) and shall provide all spare parts and materials required therefore.

4.4

Additional Items and Services


Contractor agrees and undertakes to provide additional equipment and services upon the requirement of Company. Such additional equipment and services, not stated in the Appendices, shall be provided by the Contractor on at cost basis plus handling charges specified in Section II of the BDSO, if applicable.

ARTICLE IV


CONTRACTOR' S GENERAL OBLIGATION

5.1

Contractor' s Standard of Performance


Contractor shall carry out all its operations under this Agreement on a Turnkey basis. For purposes hereof the term " Turnkey basis" means Contractor shall furnish equipment, labor and perform services as herein provided, for a specified sum per well as per the program provided by Company and agreed by Contractor.

Extra Works will be performed if required on a " Dayrate basis."

5.2

Operation of Drilling Unit


Contractor shall be responsible for the operation of the Drilling Unit, including, supervising moving operations and positioning on drilling locations as required by Company. Operations under this Agreement will be performed on a twenty-four (24) hour per day, seven (7) days a week basis. Contractor covenants that the Drilling Unit (without modification, upgrade or enhancement) will operate efficiently and is physically capable of drilling wells to depths specified in this Agreement and complies fully with the technical documentation described in the Drilling Order.

5.3

Compliance with Company' s

Instructions


Contractor shall comply with all instructions of Company consistent with the provisions of this Agreement, including, without limitation, drilling, well control and safety instructions. Such instructions shall, if Contractor so requires and time permits, be confirmed in writing by the authorized representative of Company. However, Company shall not issue any instructions which would be inconsistent with Contractor' s rules, policies or procedures pertaining to the safety of the Contractor' s Personnel, the Company' s Personnel, equipment or, the Drilling Unit, or require Contractor to exceed the capacity of the Drilling Unit. During Turnkey operations Contractor shall have the right to direct its operations as it prefers, as long as they are in accordance with Company' s program and safe practices.

5.4

Adverse Weather


Contractor, in consultation with Company, shall decide when, in the face of impending adverse weather conditions, to institute precautionary measures in order to safeguard the well, the well equipment, the Drilling Unit and Contractor' s Personnel or Company' s Personnel to the fullest possible extent. Contractor and Company shall each ensure that each respective senior representative will not act unreasonably in the exercise of their discretion under this Paragraph 5.4. For the purposes of this Agreement, adverse weather conditions shall not be considered a condition of Force Majeure.

5.5

Drilling Fluids and Casing Program


Contractor shall follow Company' s program with respect to the " Drilling Fluid and Casing Program" as may be specified by the Company. Company shall provide Contractor with any such programs reasonably in advance of the spud date of each well to be drilled under this Agreement. Implementation of such programs is at Contractor' s discretion.

5.6

Difficulties During Drilling


In the event of any difficulty arising which precludes either drilling ahead under reasonably normal procedures or the performance of any other operations planned for a well, Contractor may suspend the work in progress and shall immediately notify the representative of Company both in writing and verbally of the difficulty, and during such period exert its best efforts to overcome the difficulty.

5.7

Well Control Equipment


Subject to Article IX, Contractor shall maintain its well control equipment listed in Drilling Order in good condition at all times and shall use its best efforts to prevent and control fires and blowouts and to protect the hole.

5.8

Inspection of Materials Furnished by

Company


Contractor agrees to visually inspect all materials furnished by Company before using same and notify Company in writing of any apparent defects therein. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Company.

5.9

Cutting/Coring Program


If required, Contractor shall save and identify cuttings and cores according to Company' s instructions and place them in containers furnished by the Company.

5.10

Drilling Reports and Records


The Contractor shall maintain all statutory, regulatory and any other required records of its operations under the Agreement and shall at all times provide the Company with such data and information, including copies of any documents, as will permit the Company to comply with applicable statutory or other reporting obligations. Without prejudice to the generality of the foregoing, the Contractor shall keep and furnish to the Company a daily drilling report showing the relevant information in respect to hole sizes and depth for each hole section encountered in the Work and the formations penetrated, and shall prepare reports and records as requested including but not limited to a weekly BOP checklist, trip sheets and kick control sheets, and notify the Company immediately when any oil or gas-bearing formation is encountered and, if requested by the Company, save and prepare clean samples of formations drilled. & nbsp;The drilling report shall be made in the IADC-API Daily Drilling Report Form or other form acceptable to Company and the Contractor hereby agrees to comply in all respects with the Company' s reporting requirements.


The Company shall at all times have complete access to all records and such other data as may be compiled by the Contractor relating to the Work. All such data and records shall, upon request, be delivered by the Contractor to the Company and shall belong exclusively to the Company.

ARTICLE V
COMPANY' S RIGHTS AND OBLIGATIONS

6.1

Equipment and Personnel


Company shall at its cost provide Company' s Items and Company' s Personnel and perform the services to be provided or performed by it according to the Drilling Order. In addition to providing the initial supply of Company' s Items, Company shall be responsible, at its cost, for maintaining adequate stock levels and replenishing as necessary. When, at Company' s request and with Contractor' s agreement, the Contractor furnishes or subcontracts for certain items which Company is required herein to provide, for purposes of this Agreement said items or services shall be deemed to be Company' s Items, and Company shall not be relieved of any of its liabilities in connection therewith. For furnishing said items and services, Company shall reimburse Contractor its entire cost plus a handling charge as specified in the Drilling Order.

6.2

Not used

6.3

Company' s Employees


Company shall designate a drilling supervisor who will be present at the drill site to monitor the Turnkey operations and resolve day-to-day matters requiring decision by Company. Company shall inform the Contractor in a written form, in case such representative is replaced. Company' s drilling supervisor shall at all times have access to the Drilling Unit and may, among other things, observe tests, check and control the implementation of the mud program, examine cuttings and cores, inspect the Work or examine the records kept on the Drilling Unit by Contractor.

6.4

Drilling Site and Access


Company shall be responsible for providing access to the drilling location, as well as selecting, surveying, marking and clearing the drilling locations as may be reasonably required by Contractor for location approval. Contractor shall obtain and provide all required certificates, Drilling Unit and expatriate personnel permits and licenses required for the drilling operations and Drilling Unit hereunder. Company shall notify Contractor of any impediments or hazards to operations at each drilling location or at any access routes to the drilling locations of which it has actual knowledge. Notwithstanding any other provision of this Agreement, should there be obstructions at or within the area of the drill site and these obstructions result in damage to any of Contractor' s Items, including the Drilling Unit, Company shall be responsible for and hold harmless and indemnify Contractor for all resulting direct damage, including the payment of the applicable Standby Rate during repairs, but Company shall receive credit for any physical damage insurance proceeds received by Contractor as a result of such damage.

6.5

Custom or Excise Duties, Taxes and

Fees


a)

Contractor, with Company' s assistance, shall be responsible for clearing customs of the drilling unit and for the importation by Contractor of subsequent items in the country in which the Operating Area is located. Thereafter the Contractor will be responsible for the importation of any subsequent Contractor' s items into the operating area including but not limited to spare parts, consumables, auxiliary equipment and chemicals for operation of the drilling rig.

b)

Notwithstanding any of the foregoing, Contractor shall pay all taxes that may be assessed by the Republic of Kazakhstan against Contractor as a result of the performance of this Agreement inclusive of the payroll taxes for its personnel as may arise in conducting Contractor' s business.

c)

Rig moving equipment, personnel and other services required by the Contractor for customs clearance of the drilling unit, as well as registration in the Republic of Kazakhstan, obtaining required permits of any nature, permissions and licenses are for the Contractor' s account.

6.6

Take Over of Work


In the event any well drilled under this Agreement should blow out, catch fire or in any manner get out of control, Company may assume complete control and supervision of the Work of bringing the well under control, putting out the fire and take such other measures as Company deems appropriate. If Contractor is insolvent, ...