Drilling Contract

Exhibit 10.1 NINOTSMINDA OIL COMPANY LTD

DRILLING CONTRACT
No. S-NOC-1001/05

BETWEEN

NINOTSMINDA OIL COMPANY LTD

AND

SAIPEM S.p.A Page 1 of 72


NINOTSMINDA OIL COMPANY LTD

THIS AGREEMENT (the " Contract" ), dated effective the _____ day of January 2005 , is made between:

NINOTSMINDA OIL COMPANY (NOC) , a Company organised under the laws of Cyprus and having its registered office at 22 Stasicratous, Olga court , P.O. Box 48, Nycosia , Cyprus (herein after referred as the " Operator" )

SAIPEM S.p.A . a corporation organised under the laws of Italy ( herein after referred as the " Contractor" ), located at Via Martiri di Cefalonia 67, 20097 San Donato Milanese, Milano Italy.

Contractor and Operator in this Contract may be referred to individually as a " Party" and collectively as the " Parties."

WHEREAS, Operator desires to have wells drilled on land in the Operating Area, and to have performed or carried out all auxiliary operations and services as detailed in the Appendices to this Contract or as Operator may require; and
WHEREAS, Contractor is willing to furnish the drilling rig complete with camp, transport and other equipment and personnel for the purpose of drilling such wells and performing such auxiliary operations and services for Operator.

NOW THEREFORE, in consideration of the mutual promises and covenants set forth in this Contract, the Parties agree as follows:

1) INTERPRETATION

1.1) Definitions.

In this Contract, unless the context otherwise requires:

" Appendix" and collectively, " Appendices," means Appendix A, B, C, D, E and F, attached to and made part of this Contract;

" Commencement Date" means the point in time that the Drilling Unit is rigged up, passed the acceptance test and is ready to spud in the first well in the Operating Area. Commencement Date shall take place in a window from the eighty (80) days to one hundred five (105) days from the issuance of the irrevocable letters of credit as detailed in Article 9.5.

" Contractor' s Items" means the equipment, materials and services which are listed in the Appendices that are to be provided by or at expense of Contractor;

" Contractor' s Personnel" means the personnel to be provided by Contractor from time to time to conduct operations under this Contract, as listed in the Appendices; Page 2 of 72


NINOTSMINDA OIL COMPANY LTD

" Drilling Unit" means the land drilling rig IDECO E. 2100 No. 5827 complete with all Contractor' s Items, spare parts and consumables necessary and advisable to complete the operations contemplated by this Contract, and as specified in Appendix A, attached to and made part of this Contract.

" Drilling Period" means the time between Commencement Date and Termination Date.

" Operating Area" means those areas of land in Georgia, Manavi field (as directed by Operator) where Operator may from time to time be entitled to conduct drilling operations;

" Operator' s Items" means the equipment, materials and services which are listed in the Appendices that are to be provided by or at expense of Operator;

" Termination Date" means the date when the Drilling Unit is released by the Operator, with the mast laid down, the mud tanks empty and available to the Contractor for preparing its move from the last drilling location.

" Wilful Misconduct" means a wanton deliberate or reckless disregard of good and prudent oil field practice as commonly used in the international petroleum industry by the Party concerned.

1.2) Currency.

In this Contract all amounts expressed in Dollars, are in United States of America (" USA" ) Dollars.

2) TERM

2.1) Effective Date.

This Contract shall take effect when the Parties have both executed it.

2.2) Duration.

The Contract will commence on the date of its execution by both Parties and terminate on the Termination Date. The drilling services contemplated by this Contract will be required to perform operations on one (1) well " Firm Well" in accordance with the terms and conditions of this Contract, subject to any extension in accordance with Article 2.3.

2.3) Options. Page 3 of 72


NINOTSMINDA OIL COMPANY LTD

Operator shall have the right at its sole discretion to extend the scope of the Contract in a back to back sequence for up to two additional optional wells, to be located in Georgia, by delivery of written notice to Contractor as follows :

First optional well : Operator shall exercise the option to drill the first optional well, as soon as possible and in any case not later than 60 days after the well testing of Firm well has been completed. The time from the moment the services are completed on the Firm well ( i.e. mast laid down, mud tanks empty and drilling unit is available to the Contractor for preparing its move) until operation are resumed will be remunerated as per art. 8.11 and Appendix B ( extended stand-by rate without crew

Second optional well : Operator will confirm its intention to drill the second optional well not later than sixty (60) days after the spud date of the first optional well.

2.4) Early Termination.

Notwithstanding any other provisions in this Contract to the contrary, Operator may, at any time after the happening of any event set forth below, terminate this Contract forthwith without obligation to pay any additional charge, early termination fee, demobilization lump sum fees, or penalty (unless expressly provided otherwise in Articles 2.4 or 2.6) upon serving written notice of termination on Contractor:

A. if the Drilling Unit is not available in the Contract Area within the end of the commencement window (80 to 105 days from the issuance of the irrevocable letters of credit ) as defined in the article 1.1 of this Contract , unless such event is caused by Force Majeure; or

B. if the Drilling Unit becomes an actual, constructive, or total loss, termination being from the moment the loss occurs; or

C. should Contractor become insolvent or make an assignment for the benefit of creditors or be adjudicated bankrupt or admit in writing its inability to pay its debts generally as the same become due; or should any proceedings be instituted by Contractor under the laws of any country for relief of debtors or for the appointment of a receiver, trustee or liquidator of Contractor; or should a voluntary petition in bankruptcy or for a reorganisation or for an adjudication of Contractor as an insolvent or a bankrupt be filed; or should an attachment be levied upon the Contractor' s Items; or should any action be taken under the laws of the country where Contractor is domiciled, or if Contractor sells or otherwise disposes of its interest in Contractor' s Equipment (including the Drilling Unit), or reduces the number of its personnel, any or all of which could materially impair Contractor' s ability to fulfil its obligations under this Contract; or

D. if Contractor is unable to perform its obligations under this Contract for a period of twenty one (21) or more days due to a breakdown or failure of Contractor' s Drilling Unit; or Page 4 of 72


NINOTSMINDA OIL COMPANY LTD

E. if operations under this Contract are suspended for a period of fifteen (15) or more days due to Force Majeure, in which case the demobilisation lump sum fee indicated under Appendix B shall be applicable; or

F. If Contractor' s Personnel or Drilling Unit do not perform in accordance with international oilfield standards for similar services in the reasonable opinion of Operator; or

G. If Contractor' s Drilling Unit does not perform in accordance with manufacturer' s specifications for such Drilling Unit or the specifications set forth in Appendix A in the reasonable opinion of Operator; or

H. If Contractor otherwise fails to comply with its obligations under this Contract, receives a notice to remedy such breach from Operator, and fails to cure such breach within a period of five (5) days.

I In case Operator find necessary to terminate the drilling program due to unexpected difficulties encountered whilst drilling which materially hinder the continuation of the provision of the drilling services contemplated by this contract.

2.5) Effect of Early Termination for Failure to Comply With Contract

If Operator terminates this Contract as provided for in Article 2.4, Operator shall only be liable to pay Contractor for services properly performed and completed as of the date of termination with the exclusion of point E in which case demobilisation fee shall remain applicable. Such liability shall be without prejudice to any claim which Operator may have against Contractor in terms of this Contract.

2.6) Early Termination at Operator Sole Discretion.

Even when Contractor is not in default of its obligations under the Contract, the Contract may be terminated forthwith at the Operator' s sole discretion by delivery of written notice of termination to Contractor at any time, subject to Operator payment to Contractor of the following lump sum fees:

A. Before the Commencement Date:

The Operator shall then pay the early termination lump sum fee for such termination indicated under Appendix B point 2 a ).

B. After the Commencement Date:

The Operator shall pay the early termination fee for such termination indicated under Appendix B point 2 b). Page 5 of 72


NINOTSMINDA OIL COMPANY LTD

Operator notwithstanding anything to the contrary in this Contract shall in no case have any obligation to pay any early termination lump sum fee or demobilization lump sum fee if the Contractor obtains additional work for the Drilling Unit in direct continuity with the completion of this Contract

2.7) Return of Operator Items.

Contractor shall return to Operator its items in the same condition as received from Operator (normal wear and tear accepted ) as soon as possible and not later than thirty (30) days of the Termination Date.

2.8) Area of Work.

The wells shall be drilled in Manavi Oil field, Georgia.

3) CONTRACTOR' S PERSONNEL

3.1) Personnel.

Contractor represents that it shall furnish Contractor' s Personnel, at Contractor' s cost, in the numbers and classifications specified in Appendix D, attached to and made part of this Contract, to perform the Contractor' s obligations under this Contract. The rates charged for Contractor' s Personnel, reflecting Contractor' s costs, are set forth on Appendix D. Contractor' s rig superintendent, tool pusher, tour pusher and drillers will have valid IWCF certificates (which shall be exhibited to Operator on demand). Contractor further represents that Contractor' s Personnel shall be competent and efficient and that each will be properly qualified, trained and skilled to meet or surpass any qualifications for the specific assignment held and shall provide evidence of this qualification to Operator upon request.

All of Contractor' s Personnel shall be deemed at all times to be employees solely of Contractor and shall provide services under this Contract in accordance with the work schedules set forth in Appendix D.

Contractor shall cause Contractor' s Personnel to be competent, safe and efficient. All Contractor' s Personnel mobilised from or resident in countries outside the Operating Area shall be conversant in both written and spoken English.

3.2) Increase in Contractor' s Personnel

Operator may, at any time, request Contractor to increase the number of Contractor' s Personnel, and Operator shall reimburse Contractor for the direct costs incurred by Contractor in so doing as detailed in Appendix B.

3.3) Transfer of Key Personnel Page 6 of 72


NINOTSMINDA OIL COMPANY LTD

It is understood and agreed that certain personnel of Contractor assigned to the drilling operations are essential to the operations. Therefore, once the drilling operation has commenced, Contractor shall not transfer any of Contractor' s Personnel without Operator' s prior approval. If, with Operator' s approval, Contractor transfers any of Contractor' s Personnel, Contractor shall arrange for replacement personnel of similar skills and experience to be immediately available, at Contractor' s sole cost and expense.

3.4) Replacement of Contractor Personnel.

Contractor shall remove and replace any of Contractor' s Personnel if Operator so requests such replacement in writing.

3.5) Contractor' s Representatives.

Contractor shall nominate one of its representatives who shall be in charge of the remainder of Contractor' s Personnel and shall have full authority to resolve all day-to-day matters which arise between Operator and Contractor.

3.6) Contractor' s Instructions

The Contractor agrees that it shall adequately instruct all of its Personnel on the use of plant, equipment and safety apparatus, and proper work procedures for the purpose of doing everything reasonably possible to protect against personal injury and damage to plant, equipment and the hole. Contractor shall enforce adequate safety rules and procedures within the Operating Area and require that Contractor' s Personnel observe such rules and procedures and cause Contractor' s Personnel to observe all health, safety and environmental policies of Operator and any instructions of Operator with respect to such policies.

3.7) Local personnel

For the purpose to provide the local personnel as per Schedule D, Contractor shall establish a plan for their employment and training. For the opportunities of employment of Georgian personnel Contractor shall consult with the Operator.

4) CONTRACTOR' S ITEMS.

4.1) Obligation to Supply Contractor' s Items.

Contractor shall provide the Contractor' s Items indicated in Appendices A and D, attached to and made part of this Contract, and perform the services to be provided or performed by it according to the Contract.

4.2) Maintain Stock of Contractor' s Items. Page 7 of 72


NINOTSMINDA OIL COMPANY LTD

Contractor shall be responsible, at its sole cost, for maintaining stock levels of Contractor' s Items and replenishing them as necessary, including spare parts listed in Appendices A and D of this Contract adequate to continue Contractor' s operations without interruption in accordance with the provisions of this Contract.

4.3) Maintain and Repair Equipment.

Contractor shall be responsible for the maintenance and repair of all Contractor' s Items and shall provide all spare parts, consumables and materials required for such maintenance and repair. Contractor shall, if requested by Operator, also maintain or repair, at its cost, any of Operator' s Items which Contractor is qualified in Contractor' s reasonable opinion to and can maintain or repair with Contractor' s normal complement of personnel and equipment provided, however, that Operator shall at its cost provide all spare parts, consumables and materials required to maintain or repair Operator' s Items and the basic responsibility and liability for furnishing and maintaining such items shall remain in Operator.

4.4) Inspection of In-hole Equipment

Prior to commencement of drilling operations under this Contract, Contractor shall, at Contractor' s sole expense, cause a recognised inspection service company to inspect all in-hole equipment to be used by Contractor in the performance of this Contract. Operator shall be furnished with copies of all inspection reports. Any drill pipe not passing Premium Grade (API RP 7G) shall be rejected and immediately replaced at Contractor' s expense by other drill pipes checked and graded Premium Grade or better. Any drill collars showing defects shall be re-cut or replaced at Contractor' s expense by new drill collars or alternatively by other re-cut drill collars in accordance with drill collar specifications. After the above initial inspection of the in hole equipment, all other inspections will be carried out by Contractor at Operator' s cost.

5) CONTRACTOR GENERAL OBLIGATION.

5.1) Performance of Drilling Unit

Contractor represents and warrants to Operator that the Drilling Unit is capable of: i) drilling to a depth of 20,000 feet ii) performing in accordance with all manufacturer' s specifications and the specifications set forth in Appendix A iii) operating in environmental condition from a minimum of - 15 degrees Celsius up to a maximum of 45 degrees Celsius iv) handling oil base mud up v) mud weight up to 2.2 specific gravity.

Contractor shall provide Operator with manufacturer' s specifications for all or part of the Drilling Unit at any time requested by Operator.

5.2) Contractor Standard of Performance Page 8 of 72


NINOTSMINDA OIL COMPANY LTD

Contractor shall carry out all operations under this Contract on a day work basis. For this purpose, the term " day work basis" means Contractor shall furnish equipment labour and perform services as provided in this Contract, for a specific sum per day under the direction supervision and control of Operator (which term is deemed to include any employee, agent consultant or subcontractor engaged by Operator to direct drilling operations). When operating on a day work basis, Contractor shall be fully paid at the applicable rates of payment and assumes only the obligations and liabilities stated in this Contract. Contractor shall comply with all current laws covering Contractor' s operations of the Drilling Unit under this Contract.

5.3) Operations of Drilling Unit

Contractor shall be solely responsible for the operations (including the mobilisation and demobilisation) of the Drilling Unit, including, without limitation, supervising moving operations, and positioning the Drilling Unit and camp at location as required by Operator, as well as such operations at drilling site as may be necessary or desirable for the safety of the Drilling Unit. Operations under this Contract will be performed 24 hours per day.

5.4) Compliance with Operator' s Instruction

Contractor shall comply with all instructions of Operator consistent with the provision of this Contract including, without limitation, drilling, well control and safety instructions. Such instruction shall be confirmed in writing by the authorised representative of Operator. However, Operator shall not issue any instruction which would be inconsistent with policies and procedures jointly agreed by Contractor and Operator in writing in " bridge documentation" or otherwise.

5.5) Mud and Casing Program.

Contractor shall follow the mud and casing program as specified by Operator. Operator shall provide these programs for each well in advance of the spud date of each well to be drilled under this Contract.

5.6) Records to Be Kept By Contractor.

Contractor shall keep and furnish to Operator an accurate record of the work performed and formation drilled on IADC-API Daily Drilling Report Form and other record-keeping as may be directed by Operator. A legible copy of such form signed by Contractor' s representatives shall be furnished by Contractor to Operator on a daily basis. All drilling reports shall be kept and recorded in English.

5.7) Safety Equipment Page 9 of 72


NINOTSMINDA OIL COMPANY LTD

Contractor shall maintain and test its well control equipment listed in the Appendices in good condition at all times in accordance with internationally accepted oilfield practices. Contractor shall use all reasonable means to control wells, to prevent fires and blowouts and to protect the well during all drilling and completion operations.

6) OPERATOR OBLIGATION.

6.1) Equipment and Personnel

Operator shall at its cost provide Operator' s Items and Operator' s Personnel and perform the services to be provided by it according to the Contract. Operator' s Items and Personnel are set forth on Appendices A and D, attached to and made part of this Contract. Operator shall maintain an inventory of Operator' s Items and keep them available to Contractor to support drilling operations under this Contract. When, at Operator' s request and with Contractor' s agreement, the Contractor furnishes or subcontracts for certain items or services which Operator is required to provide in accordance with this Contract, such items or services shall be deemed to be Operator furnished items or services.

For furnishing such items and services, Operator shall reimburse Contractor the properly documented cost incurred by Contractor in providing such items or services, plus ten percent (10 %) handling fee.

6.2) Maintenance and Repair

Operator shall be responsible, at its cost, for the maintenance and repair of all Operator' s Items which Contractor is not qualified to or cannot maintain or repair with Contractor' s normal complement of personnel and equipment.

6.3) Custom or Excise Duties

Operator shall pay all (if any) import charges or custom duties including, without limitation, local sales taxes, value added taxes, or other similar taxes or fees that are levied on the import and export of Contractor' s Items into or from the Operating Area for purposes of performing this Contract, or between countries within the Operating Area. All imports or exports of Contractor' s Items into or from the Operating Area shall be at the direction and in the name of Operator in order to utilise customs reductions and exemptions available to Operator, and Operator shall have no obligation to pay such additional duties and taxes on import and export of Contractor' s Items levied as a result of Contractor' s failure to comply with the provisions of this Article 6.3.

6.4) Drill Site and Access

Operator shall provide Contractor with access to the drilling sites as well as any drilling permits, licenses or certificates needed to conduct operations under this Page 10 of 72


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Contract. The drilling site shall be surveyed and marked by Operator and shall be free of obstructions. Contractor shall co-operate with Operator in obtaining such drilling permits, licenses or certificates and shall fully comply with the requirements for all such permits, licenses or certificates; provided, however, that Contractor shall be solely responsible for obtaining at it' s own cost a GOSGORTECHNADZOR technical passport or similar certification for its Drilling Unit and related equipment.

Operator also shall prepare sound locations capable of properly supporting the drilling rig, and shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. Contractor shall supply dimensions and loadings to Operator for site preparation promptly upon request by Operator.

Operator shall advise Contractor of any significant surface condition, or obstruction which Contractor might encounter while en route to the location of which Operator is aware. Operator' s provision of such assistance shall not be deemed to constitute a warranty of the safety or reliability of any location or route. Prior to moving the rig to the operating area the Contractor shall survey and accept the drilling location and the proposed route to that new drilling location.

7.TAXES

7.1) Reimbursed Taxes

Operator shall reimburse Contractor for income tax, profit tax, property tax and other similar tax of a general nature on the Contractor' s income from operations in the Operating Area under the Contract levied by governmental authorities in Georgia, expressly including withholding tax but excluding without limitation tax on or related to Contractor' s personnel or subcontractors (collectively, the " Reimbursed Taxes" )

It is understood and agreed that as of the date of this Contract, the income tax rate applicable to Contractor (as to the " non resident Subcontractor" under the Oil and Gas Law of Georgia) is set at four percent (4%) of the amounts payable by the Operator to Contractor in accordance with article 8 of this Contract.

7.2) Tax Reporting

Contractor agrees to prepare and timely file all required income or other tax returns and declarations required by the government of the area where the Drilling Rig operates under this Contract and timely make all tax payments when due. Contractor shall consult with Operator before filing any such tax returns or paying the applicable taxes. Contractor shall provide Operator monthly copies of all such filings and a summary of such payments, include filings and payments for personnel taxes. page 11 of 72


NINOTSMINDA OIL COMPANY LTD

Contractor shall provide tax receipts to Operator for all taxes and other similar charges to be reimbursed by Operator to Operator' s satisfaction.

7.3) Reimbursement of Reimbursed Taxes

Upon delivery of notification by the Contractor to the Operator of the amount of such taxes paid by Contractor which pertain to performance by Contractor under this Contract, accompanied by copies of each such return or declaration, Operator shall reimburse Contractor the amount of any Reimbursed Taxes: provided, however, that Contractor has complied with all the provisions of this Article 7 and Operator does not dispute such Reimbursed Taxes. Notwithstanding the foregoing, Operator shall in no event be liable for (i) Reimbursed Taxes levied or increased as a result of Contractor' s failure to consult with or follow the directions of Operator (it being expressly acknowledged by Contractor that Operator may have available to it exemptions or reductions of applicable taxes for which special procedures may be necessary) or (ii) resulting from interest, penalties, legal fees or other charges or costs applicable to assessments, administrative sanctions or judicial proceedings by tax authorities as a result of Contractor' s failure to consult with or follow the directions of Operator.

7.4) Refunds

In the event that Contractor becomes aware that it is entitled to any refund of Reimbursed Taxes, it shall promptly inform Operator in writing of such entitlement. In the event Contractor receives such refund, Contractor shall promptly pay such refund in full to Operator. The provisions of this Article 7.4 shall survive termination of this Contract.

7.5) Change in Legislation

In the event that the legislation of any country in the Operating Area changes (or the interpretation of such law changes) during the term of this Contract and Contractor as a result suffers a material and direct economic disadvantage, including a material increase in the personnel taxes to which it is subject, the Contractor may request Operator in writing for an increase in rates to compensate for the loss thus incurred by Contractor. If Contractor and Operator cannot agree on such adjustment within ninety (90) days of its written submission to Operator, then Contractor shall have the right to terminate this Contract by delivery of written notice of termination to Operator.

7.6 Cooperation to Minimise Tax

The Parties shall cooperate to minimise their mutual tax obligations in the Operating Area and maximise the utilisation of tax benefits available to Operator in the Operating Area. page 12 of 72


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8) RATES OF PAYMENT

8.1) Payment

Operator shall pay to Contractor during the term of this Contract the amount from time to time due at the rates of payment set forth in this Article 8 and in accordance with the other provisions of this Contract. No other payment shall be due from Operator unless specifically provided for in this Contract, or agreed to in writing by Operator. The amounts shown in this Contract Appendix B are not inclusive of VAT which may be applicable in Georgia.

8.2) Mobilisation Fee.

Operator shall pay Contractor the lump sum Mobilisation Fee indicated under Appendix B herewith attached, and made part of this Contract, for mobilising Contractor' s Equipment, including the Drilling Unit from the port or place at which the mobilisation of the Drilling Unit commences to Operator' s Drilling Location at the commencement of this Contract and for completely rigging-up to commence the drilling of the first well under this Contract.

The Mobilisation Fee shall be deemed to cover all costs and expenditures of whatever nature incurred by Contractor in mobilising all of Contractor' s Equipment and Contractor' s Personnel to Operator' s Drilling Location. The Operating Rate shall commence at such time as Operator accepts the Drilling Unit (as per the ...