A number of wells have been drilled between the years 1949 to 2012 that have identified the Lagia heavy oil. Three producing oil fields, Sudr, Matarma and Asl are located as close as 26 km to the north of the Lagia Oil Field.

Production sharing for the Lagia Development Lease is governed by the terms of the Lagia Concession whereby 35% of net production is treated as cost oil or cost gas, as applicable, and is available to be used by Mena for the recovery of qualified costs, expenses and expenditures incurred in respect of exploration, development and related operations.

If the proportion of net production allocated for cost recovery exceeds costs available for recovery, EGPC is entitled to receive a proportion of this excess cost oil or cost gas in accordance with the share allocated for profit oil or profit gas outlined in the paragraph below.

Of the net production from the Lagia Development Lease 65% must be shared between Mena and EGPC as profit oil or profit gas, as applicable. EGPC must pay Mena’s share of income taxes out of its share of profit oil and profit gas. With respect to oil, net production must be shared according to a sliding scale based on average daily production. Mena is entitled to receive:

• 26% of profit oil up to 5 000 bbl/d;
• 24% of profit oil between 5 000 bbl/d and 10 000 bbl/d;
• 22% of profit oil between 10 000 bbl/d and 20 000 bbl/d;
• 19% of profit oil between 20 000 bbl/d and 40 000 bbl/d;
• 17% of profit oil between 40 000 bbl/d and 50 000 bbl/d;
• 15% of profit oil in excess of 50 000 bbl/d.

With respect to natural gas, Mena is entitled to receive 25% of profit gas regardless of the level of production.

Currently, all oil sales are made to EGPC at a discount which varies depending on the quality of the oil. Mena is, however, permitted to negotiate sales contracts for its share of production directly with purchasers, subject to the preferential right of EGPC to purchase all or a portion of Mena’s share of production for domestic use. In the event that EGPC elects to exercise such right, the price of any oil production purchased for domestic use will be determined by the weighted average arm’s length price for production received by Mena and EGPC during the previous quarter. For natural gas the price is determined by a formula based on the monthly average spot price for the Gulf of Suez crude oil blend, adjusted for natural gas.

Portions of the land covered by the Lagia Development Lease are assessed every two years to relinquish non-productive or non-participating blocks.

* Gross is before production share taken by EGPC and net is the total due to the subsidiary, Mena.