PETROLEUM

Definition:

Petroleum is the liquid found deep within the Earth’s surface. Although it’s commonly found in
liquid form, underneath the earth’s surface, it can also be in the form of gas, is also used to make
asphalt.

Definition of 'petroleum engineer'

A petroleum engineer is an engineer who is involved in most stages of oil and gas field
evaluation, development, and production, whose job is to maximize hydrocarbon recovery and
reduce costs and environmental impact.

The petroleum industry, also known as the oil industry or the oil patch, includes the global
processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines),
and marketing of petroleum products. The largest volume products of the industry are fuel oil
and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products,
including pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, and plastics. The
extreme monetary value of oil and its products has led to it being known as "black gold". The
industry is usually divided into three major components: upstream, midstream, and downstream.
Upstream deals with Drilling and Production mainly.

Petroleum is vital to many industries, and is necessary for the maintenance of industrial
civilization in its current configuration, making it a critical concern for many nations. Oil
accounts for a large percentage of the world’s energy consumption, ranging from a low of 32%
for Europe and Asia, to a high of 53% for the Middle East.

Other geographic regions' consumption patterns are as follows: South and Central America
(44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels
(4.8 km³) of oil per year[citation needed], with developed nations being the largest consumers.
The United States consumed 25% of the oil produced in 2007.[1] The production, distribution,
refining, and retailing of petroleum taken as a whole represents the world's largest industry in
terms of dollar value.
Governments such as the United States government provide a heavy public subsidy to petroleum
companies, with major tax breaks at virtually every stage of oil exploration and extraction,
including the costs of oil field leases and drilling equipment.

In recent years, enhanced oil recovery techniques — most notably multi-stage drilling and
hydraulic fracturing ("fracking") — have moved to the forefront of the industry as this new
technology plays a crucial and controversial role in new methods of oil extraction.

Commercials

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energy.
Contract area

Means the area where contractor is appointed to carry out petroleum operations, as described and
outlined in Exhibits “A” and “B” attached here to and made part hereof, less all areas
relinquished pursuant to this contract.

Contractor

Any person or company that contracts or subcontracts to perform all or any part of oil and gas
well production operations. As a contractor,the primary goal and mission will be to secure a job
from the operator. Contractors will have a particular specialty with in the industry that can offer
some sort of service to the operators. All different types of contractors work for operators to help
achieve the goal of drilling,completing and producing well.

Oil Contracts

If an oil company declares a commercial finding, contracts stipulate that the petroleum company
should prepare and submit for approval of the host state its development plan. This plan is a long
term plan for rapid development and production of petroleum from the contract area.
Petroleum Licensing and Contracting

Types of upstream petroleum contracts with the state

Once the principles of the agreement have been determined, the model contract will need to be
detailed to accommodate the specific issues and conditions relating to each project. Three basic,
alternative types of agreement typically govern the relationship between government and
investors.

Petroleum agreements
Is an agreement with the contractor for the purpose of exploration, development and production
of petroleum. This agreement provides for the exploitation for and development and production
of petroleum in contract area.

These three types of agreement are explained in the sections that follow.

Concession agreements

Under concession (or licence) agreements, the selected petroleum company or consortium carries
out exploration activities. The company takes ownership of all production, when extracted,
against payment of a royalty to the host state. The royalty could be in cash or kind. It could also
be in the form of income tax on profits or other type of fees and contributions, including possibly
an additional tax on profit when this exceeds a predefined threshold. This type of contract is
known as a license and commonly gives the holder an exclusive right to explore and exploit
petroleum, own and market the production and own the relevant equipment and installations. 

Production sharing agreements

Production sharing agreements do not confer rights of ownership of petroleum production on the
company or consortium that concludes the agreement. Instead, the company receives a share of
the overall production. The balance of production belongs to the host state.

Under this type of agreement, therefore, the company or consortium provides technical expertise
and capital and assumes project risk in return for exclusive rights to explore and produce oil
and/or gas from the contract area. The host state generally owns the equipment and installations.
Unless stated otherwise in the legislation or the production sharing agreement, the company also
pays income tax on profits to the host state as well as any other taxes and contributions provided
for in the legislation and the relevant contract. 

Risk service agreements

Risk service agreements are the least-used agreement type among the three mentioned here. They
have been used by states that take a nationalistic approach, or by countries like Venezuela, Iran
or Iraq which have long-established petroleum production. Under this type of agreement, the
host state merely hires the service of a petroleum company or consortium to benefit from its
financial and technical expertise. The company or consortium assumes the risk and liability and
is reimbursed by a service fee, usually paid in cash. An example of this type of agreement is
Iran’s now defunct buy-back agreements, which eventually proved too onerous for any private
sector investor to take up. 

Examples of service agreements adopted and areas covered

Angola, Egypt, Kenya, Tanzania, Uganda, Mozambique are among the countries following the
production sharing agreement model, while Ghana uses the exploration and production
concession contract model. 

All three types of petroleum agreements are usually signed between a petroleum company or
consortium and government. They typically regulate the following areas:

Agreements between petroleum companies

Upstream contracts are often entered into by several companies acting together in a consortium,
for the purposes of sharing risks, costs and financing. The relationships between them are
governed under various types of agreements. These should always be aligned with the terms of
the licence or contract awarded by the host country for the area concerned. 

Following the award of a licence or contract, one entity constituting a consortium may decide to
assign, sell or transfer all or part of its interest to another company. Such a transaction is called a
farm-out (by the assignor) or a farm-in (by the assignee). It is generally subject to the approval of
the government or minister.
The following sections explain the types of agreements typically undertaken by petroleum
companies, which are:

• Joint operating agreements.

• Joint ventures.

• Farm out agreements.

• State participation agreements.

• Unitisation agreements.

Joint operating agreements (JOAs)

Due to the high level of risk in the upstream petroleum sector, companies often spread risk and
costs by working together in a joint venture. This is generally done by all parties signing a joint
operating agreement, often with the participation of the host state or its National Oil Company.
This can give a country access to the technical expertise of International Oil Companies and
allow participation in decision making. International Oil Companies and consortia may also be
required by host state regulation to operate petroleum activities jointly. 

Joint ventures (JV)

A joint venture (JV) can be structured in two ways, either as an unincorporated JV or an

incorporated joint venture. An unincorporated JV does not create a separate legal entity, and the
relationships among its participants are governed under an unincorporated joint venture
agreement. This is the most common structure used in international petroleum contracts, for
example under Joint Operating Agreement (JOAs), as described above. Furthermore, the interest
shares in a non-incorporated joint venture are undivided, and instead of the “JV” as a legal entity,
a commonly assigned joint operator or a committee manages the operations.

Normally, before establishing a joint venture, the participants will acquire the petroleum right
from the state. This might be acquired through a joint bidding procedure, or the ownership might
be already vested in the participants of the JV. Ownership can be assigned to other participants if
approved by the host state, prior to signing a joint bidding agreement. Generally, a
confidentiality agreement is also signed, as parties often share sensitive technical data. 

State participation agreements

State participation agreements are signed between a state or its designated authority and
companies to allow the state or a state-authority, a National Oil Company or an ad-hoc state
entity established for this purpose, to commercially participate in the Joint Venture. The rationale
for the host state is to be involved in decision making and benefit from the technical expertise of
the International Oil Companies. State participation agreements also enable the activities of the
Joint Venture to be supervised directly and ensure security of supply. As participation is on a
commercial basis, this type of agreement is particularly popular in a high price environment.

In state participation agreements, the state becomes an investor and hence assumes risk and
shares the profits from production and marketing derived from the applicable petroleum contract,
like the other signatories of the joint operating agreement. State participation may be required by
the host state’s regulations, as is the case in the Norway and the Netherlands or it could be
voluntary. There is no state participation in the UK. State participation clauses may be inserted
into the concession agreements or PSAs or they may be covered in other types of equity
participation agreements.

Farm-out agreements

When one Joint Venture partner assigns a portion of undivided interests in an area to a newcomer
or an existing partner, they use a “farm-out” agreement. The party which assigns its rights is
often referred as the “farmor” and the recipient is called “farmer” or “farminee”. The assignment
is generally made in return for compensation, commonly paid via commitments to fund specific
work such as well drilling, but sometimes in cash. The farm-out may be signed at any stage, from
exploration to production, but host states may limit or prohibit farm-outs for a period shortly
after winning the bid. Whilst industry practices vary considerably on terms and conditions of
different farm-out agreements, model farm-out agreements based on industry practice are
available through the AIPN. 
Unitization agreements

Most licenses or petroleum agreements and national petroleum laws include provisions for
unitisation. Unitisation is the joint exploitation as a unit of a given field crossing the borders of
two license or contract areas awarded by the host country.

Unitisation means joint operation and exploitation of an entire petroleum reservoir by different
licensees or other exploitation right holders in an integrated manner and is governed by a
unitisation agreement. Unitisation can be set up within a single state or between states that share
a land or maritime border.

Unitisations of two licence or contract areas crossing the border of the two adjacent host
countries is called an international unitisation. They are more complex than the national
unitisation noted in this section as they combine multiple petroleum agreements governed by
different jurisdictions. They generally require the signing of a treaty by the two countries.

When the location of a petroleum reservoir coincides with an international border, either state
may order unitisation, since the principle of permanent sovereignty over natural resources means
states have exploitation rights within their own territory. The UN Convention of the Law of the
Sea (UNCLOS) establishes the principles for coastal states’ sovereign rights to explore their
territorial waters and seabed and exploit their natural resources in the continental shelf. The
Frigg agreements between the UK and Norway are examples of inter-state unitisation
agreements.

Petroleum agreements

1.1 In this Agreement, unless the context otherwise requires:

1.1.1 “Act” means the Petroleum (Exploration and Production) Act Chapter 150 of the Laws of
Uganda as amended and in effect from time to time.

1.1.2 “Advisory Committee” means the Committee constituted pursuant to Article 5.

1.1.3 “Affiliated Company” means any entity directly or indirectly effectively controlling or
effectively controlled by, or under direct or indirect effective common control with a specified
entity. For the purposes of this definition “Control”, when used with respect to any specified
entity, means the power to direct, administer and dictate policies of such entity (it being
understood and agreed that it is not necessary to own directly or indirectly fifty percent (50%) or
more of such entity’s voting securities to have control over such entity, but ownership, direct or
indirect, of fifty percent (50%) or more of such entity’s voting securities shall automatically
indicate control), and the terms “controlling” and “controlled” have meanings corresponding to
the foregoing.

1.1.4 “Agreement” means this instrument and the annexes attached hereto, including any
extensions, renewals or amendments thereof agreed to in writing by the Parties.

1.1.5 “AlbertineGraben” means that geological entity within the Republic of Uganda together
with such contiguous area or areas of the Democratic Republic of Conga which together are
known collectively as the AlbertineGraben and recognised as such by the international
geological profession.

1.1.6 “Allowable Contract Expenditures” means those expenditures as so described in Section 3

of Annex “C”.

1.1.7 “Appraisal Programme” means a programme carried out following one or more
Discovery(ies) of Petroleum for the purpose of delineating the Petroleum Reservoirs(s) to which
that discovery or these discoveries relate(s) in terms of thickness and lateral extent and
estimating the quantity of recoverable Petroleum therein.

1.1.8 “Appraisal Well” means any Well drilled for purposes of an Appraisal Programme.

1.1.9 “Associated Gas” means Natural Gas which is produced in association with Crude Oil, and
includes solution gas or gas cap gas, from a Petroleum Reservoir recovered as gas at the surface
by separation or other primary field processes.

1.1.10 “Barrel” means a quantity consisting of forty-two (42) United States gallons, liquid
measure, corrected to a temperature of sixty degrees (60) Fahrenheit.

1.1.11 “Calendar Month” means any of the twelve (12) months of a Calendar Year.

1.1.12 “Calendar Quarter” means a period of three (3) consecutive Calendar Months
commencing with first day of January, April, July or October of each Calendar Year.
1.1.13 “Calendar Year” means a period of twelve (12) Calendar Months according to the
Gregorian Calendar, starting with January 1st and ending with December 31st.

1.1.14 “Commercial Production” means production of Crude Oil or Natural Gas or both and
delivery of the same at the Delivery Point under a programme of regular production and sale.

1.1.15 “Contract Area” means (a) on the Effective Date, the area described in Annex A and
shown on the map in Annex A; and (b) thereafter, the whole or any part of such area which, at
any particular time, remains subject to an Exploration Licence granted to Licensee pursuant to
Article 3 and/or subject to a Production Licence granted to Licensee pursuant to Article 7.

1.1.16 “Contract Expenses” means Exploration Expenditures, Development and Production

Expenditures and Operating Expenses incurred by Licensee in Conducting Petroleum Operations
hereunder determined in accordance with the Accounting and Financial Procedure described in
Annex “C”.

1.1.17 “Contract Revenues” means the sum of all proceeds of sales of Petroleum and monetary
equivalent to the value of other dispositions of Licensee's share of Petroleum produced and saved
and not used in Petroleum Operations and any other proceeds from Petroleum Operations
hereunder.

1.1.18 “Contractor” means any person, company or entity employed by or on behalf of the
Licensee for the purpose of carrying out Petroleum Operations.

1.1.19 “Sub-contractor” means any person, company or entity employed by or on behalf of a

Contractor for the purpose of carrying out Petroleum Operations.

1.1.20 “Crude Oil” means any hydrocarbon which at atmospheric pressure and a temperature of
between 60 Fahrenheit and 113Fahrenheit is in a liquid state at the wellhead or gas/oil
separator or which is extracted from Natural Gas in a plant, including distillate and condensate;
and has been produced from the Contract Area.

1.1.21 “Delivery Point” means the point at which Crude Oil passes through the intake valve of
the pipeline or tanker or truck or rail wagon at the terminal or refinery in Uganda, or such other
point which may be agreed to in writing by the Parties. In respect of Natural Gas, the Delivery
Point shall be such point as may be agreed to in writing by the Parties.

1.1.22 “Development and Production Expenditures” means those expenditures as so categorised

in the Accounting and Financial Procedure described in Annex “C”.

1.1.23 “Development Area” means an area constituted by a block that is, or by blocks that are,
subjected to a Petroleum Production Licence.

1.1.24 “Development Operations” has the meaning ascribed to it in the Act but does not include
operations beyond the Delivery Point.

1.1.25 “Development Plan” means a development plan referred to in Section 21 (3) of the Act.

1.1.26 “Discovery” means a discovery of Petroleum within the meaning of the Act.

1.1.27 “Discovery Bonus” means a single, non-recoverable lump sum payment by the Licensee
to Government upon making a Discovery.

1.1.28 “Effective Date” means the date on which this Agreement is signed by all Parties hereto.

1.1.29 “Exploration Licence” means the petroleum exploration licence referred to in paragraph
3.1 and granted pursuant to Section 9 of the Act.

1.1.30 “Exploration Expenditures” are all necessary, appropriate and economical, direct and
allocated indirect costs incurred in the search for petroleum and appraisal of Discoveries in the
Contract Area as so categorised in the Accounting and Financial Procedures described in Annex
C.

1.1.31 “Exploration Period” means the Exploration Period referred to in paragraph 3.1.

1.1.32 “Exploration Well” means a Well, other than an Appraisal Well, drilled in the course of
Exploration Operations (as defined in the Act), conducted hereunder.

1.1.33 “Good Oilfield Practices” means all of those things that are generally accepted in the
international petroleum industry as good, safe and efficient in the carrying out of Exploration or,
as the case may be, Development Operations and that an experienced, reasonable and prudent
operator, engaged in a similar activity under similar circumstances elsewhere, would use.

DELIVERY
Is formal and voluntary transfer of possession by actual(physical) delivery, constructive delivery
(by an agreement or understanding), or symbolic delivery (by documents) also called
presentation or presentment.

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GROSS INCOME

Is the sum of all wages, salaries, profits, interest payments, rents and other forms of earnings
before any deductions or taxes. It is just the opposed of net income.

Gross income arising from a transfer of any property or right related to petroleum business, if the
total amount of such gross income is definitely determinable; (5) Any other income arising from
conducting petroleum business.

MINING EXPLORATION EXPENDITURES

Definition

Exploration expenditure comprises of the expenditure other than the excluded expenditure which
is incurred by a taxpayer in exploration for petroleum in the eligible recovery or the exploration
area in relation to the petroleum project. Generally, if the scheme is an onshore petroleum project
or if the production license is granted after 30th June 2008, then the relevant area for this purpose
will be the entire exploration permit area till the time the production license is granted. Once the
production license is granted, the relevant area includes only the production license area.

Meaning

Exploration expenditures are also defined as the overheads which are earned by a mining
organization. It is used to express the quality and location of the mineral deposits which was not
exploited commercially before. The characteristic of exploration expenditure is not determined
by the fact that a taxpayer holds an interest in a retention lease or an exploration permit, but it is
a question of fact which should be determined in light of all circumstances.

As a general rule, exploration expenditures are recoverable and subjugated through depletion.
Generally, the taxpayers do have the option to deduct a small percentage of the exploration
expenses in the year in which they are incurred and then recapture those expenses when the
property is transferred or when the production stage is reached. Exploration expenditures are
typically high risk investments which are essential for the existence and growth of the mining
industry.
Methods for recovering exploration expenditures

The two possible methods for recovering exploration costs or expenditures are:

1) It may be recorded as income in the first year of production.

2) It may be recovered by disallowing the depletion allowance until the cost is recaptured.

If the exploration expenditure is not included in income in the first producing year, then they
must be recaptured through the allowance for depletion. The deduction for depletion will be
disallowed until the recovery of the total amount of depletion expenditures that has been
expensed previously.

MINING EXTRACTION EXPENDITURE

Is extraction of valuable minerals or other geological materials from the Earth, usually from a
mineralized package that is of economic interest to the miner.

Mining Extraction Expenditure

Mining has always been an environmentally disruptive activity, but contemporary extractive
industries are located in some of the most ecologically sensitive forests in the boreal and the
tropics. Oil, gas, and mineral extraction account for an estimated 7% of global deforestation in
the subtropics, with increasing exploration and development taking place in the Amazon and
Congo basins. In more affluent countries, oil, gas, coal, and mineral developments continue to
degrade and pose threats to forests, such as in the Canadian boreal and the Russian taiga, where
oil transportation infrastructure is being planned and developed. The development of tar sands
infrastructure in the Canadian boreal has resulted in the clearing and degradation of over 750,000
ha of forested areas since the year 2000. 

Oil, coal, gas, and minerals extraction reduce forest cover, but also lead to more long
term impacts such as pollution, infrastructure development and increased human activity.
Extractive industries produce toxic water and chemicals as byproducts that can contaminate
groundwater and kill flora and fauna. Weak regulation in policy and practice has hindered
effective monitoring and accountability processes in developing countries. Even in advanced
economies like Canada or the United States, the development of oil pipelines always entails risks
of leakage, which can lead to surface contamination. Small-scale mining of gold is responsible
for 1/3 of the total mercury released into the environment, as mercury is used to separate gold
from its ores. Acid mine drainage methods, and tailings pools, which hold mine waste products
such as sediments and minerals, present further risks. The release of such waste has disastrous
consequences, as exemplified by the collapse of the tailings dam of Ok Tedi mine in Papua New
Guinea in 1984, which resulted in the deposition of copper-heavy waste over 10,000 ha of
forestland. The forest die-off has extended beyond this immediate area over the course of 30
years, as mine waste continued to be discharged into the river system. This type of pollution can
impact entire ecosystems, as metals are cycled over long time spans.  

Some studies have shown that over 25% of metal mines worldwide can be found within 10 km of
a protected area’s boundaries. In some regions like the Congo Basin, small-scale and artisanal
mining takes place within protected area boundaries. Land concessions to mining companies
often overlap with indigenous territories, such as in the Amazon, 15% of which is covered by
active or planned oil concessions and 8% of which is covered by minerals extraction
concessions. With the growth of fossil fuels and minerals extraction in developing countries, the
threat of pollution from oil spills and mining waste will continue to rise. Increases in the prices
of oil, gas, and minerals are predicted to continue, spurring further growth of the extractive
industries in developing countries, in temperate, tropical, and boreal regions. Read further about
mineral extraction and mining in the Congo Basin and in the boreal.

PETROLEUM REVENUES

Petroleum revenue as defined by the Act includes tax paid under the Income Tax Act on income
derived from petroleum operations, Government share of production, signature bonus, surface
rentals, royalties, proceeds from the sale of Government share of production, any dividends due
to Government, proceeds from sale of oil.

Oil wealth has come to be seen more often as a curse than as a blessing. This paper covers
principles, measures and techniques that might allow better petroleum revenue management in
future.

Petroleum resource rent is the value of the product of a petroleum resource minus all the
necessary costs of production. A petroleum tax system with rent as the tax base interferes least
with pre-tax decisions on investment and production. Competition in petroleum investment
allows the “price” of a resource to be identified and a tax system design to capture it. Stability in
fiscal terms reduces investor risk and allows states to tax more of the rent. The petroleum tax
system cannot move too far out of line with those countries with similar prospectivity. It can be
structured to reduce investor risk and secure higher government revenue. A petroleum tax system
can differ from the general tax system and remain “neutral”. A petroleum fiscal system can use
production sharing, taxes and royalty or degrees of state ownership each to equivalent fiscal
effect. The broader the tax base the better in each case.

Flow of funds analysis helps to check that the fiscal system delivers what it should. This and
effective fiscal administration rely upon reconciliations of flows at each point in the chain,
supported by an audit strategy.

Governments in petroleum economies seek to maximize revenue receipts and then confront the
consequences of uncertainty and instability in actual flows. A revenue boom has somehow to be
absorbed: by saving abroad, raising imports, reducing savings or increasing investment. A slump
requires the reverse processes. Are there rules for keeping medium term stability in the face of
booms and slumps? First, keep spending within the sustainable growth path and save excess
revenues abroad. Second, use conservative (below median) forecasts of future revenues. Third,
allow the foreign asset position to swing while keeping domestic absorption steady. If in doubt,
save the money.

Permanent income means the amount of petroleum wealth that can be safely consumed while
maintaining financial wealth for future generations. Calculation of permanent income offers a
yardstick for sustainable petroleum revenue management. It has political appeal in that its use
shows a leadership concerned about equity among generations.

Special funds to store and manage petroleum revenues (non-renewable resource funds or NRFs)
may have three broad motives: stabilization, savings or precautionary. The integration of any
fund with overall fiscal management is vital. There should be a consolidated budget framework
(domestic expenditure only through the budget), a liquidity constraint on the general budget (no
borrowing that offsets savings in the fund) and strict limits on domestic investment by the fund.
The timing of petroleum revenues does not follow a known path; fiscal management, perhaps
supported by a NRF, can shift the path of absorption and reduce the effects of uncertainty.

Hedging offers an alternative solution for the stabilization role of NRFs. A futures strategy
reduces price uncertainty without initial cost; an options strategy operates like insurance and
carries an initial premium cost. Because these strategies require direct access to markets an over-
the-counter (OTC) arrangement with a financial institution may better suit developing country
governments; it could provide for longer-term instruments but with credit risk to both parties.
Hedging carries political difficulties, especially if spot prices exceed the hedged prices.
Institutional capacity for hedging may be weaker than required. Over time hedging could form
part of a revenue management strategy and because companies engage in it anyway governments
should address the revenue consequences of private hedging.

Petroleum revenues, like any other funds, need expenditure management rules for effective use.
These rules cover adequacy of data, budget preparation, budget execution and cash management
arrangements. Earmarking for specific expenditures and disbursement through extra-budgetary
funds may, exceptionally, have a role but are usually best avoided. In many countries, the
balance between local (resource producing area) and national distribution of petroleum revenues
is highly sensitive. In appropriate distributions can soon undermine the integrity of the fiscal
system but a programme for decentralization and revenue sharing is important. Contractual
arrangements between different levels of government over specific resource developments offer
a way forward.

STAGES IN MINING

Prospecting/Surveying

The first stage in the mining process calls for skilled workers or AI to apply their geological
knowledge in identifying areas where a particular ore can be found. There are two methods
workers and machines can employ during this stage:
Direct Method

• Focuses solely on the examination of deposits found on or near the surface.

• Methods include: visual examination via microscopic study and video

prospecting.

Indirect Method

• Applied on deposits found deeper in the land.

• Methods include: radiometric, seismic, and magnetic.

Exploration

In the second stage of mining, core samples are collected for the purpose of evaluating the grade
and weight of deposits. Diamond drills are used to obtain samples.

Once the reserve estimation—meaning, the value of the deposit—is determined, a feasibility
study must then be conducted to help determine whether to abandon or develop the deposit.

Mine-site Design/Planning

Upon determining to work on the site, the designing and planning stage begins. This process
calls for the use of studies that help determine whether the project is:

• safe

• socially responsible

• environmentally sound

• economically viable

Development

This stage of the mining process requires establishing a path to the mineral deposit. That path,
however, requires more than excavation.
In order to even begin work, mining rights must be acquired, access roads must be constructed to
help workers navigate the site, and a power source must be established.

Production

Once these elements are obtained, the physical mining process—or, the first step of production—
begins. The mining process can be broken down into two categories:

Surface Mining

Workers begin by striping the overburden, which is rock, soil, and ecosystem that lies above the
surface.

Underground mining

The digging of tunnels and sink shafts when the ore—or mineral deposit—is below the surface.
Hand tools such as chisels, hammers, and wedges are used to break up waste rock, Sometimes,
areas must even be blasted in order to loosen rock so workers can more easily separate the ore
from the waste rock—which are mined separately.

The next step, once the ore is excavated, is to separate the waste rock and ore using primary
crushers, located at the open pit mine site. At this point, larger rocks are broken down to a size
better suited for the conveyor belt to transport.

From there, the ore is transported to a separate facility for smelting, which is:

The process of melting the ore concentrate in a furnace to separate the metal. Then, the ore is
poured into molds to make bars of bullion.

Closure/Reclamation

Once the ore has been processed and shipped away for sale, the final step of the mining process
begins. The land which was used to obtain these resources must be rehabilitated as much as
possible. The objectives of this process include:

• minimizing environmental effects

• ensuring public health and safety

 • preserving water quality

• establishing new landforms and vegetation

• removing waste and hazardous material

• stabilizing land to protect against erosion

MINING OPERATIONS

means every kind of work done on or in respect of the Property or the Minerals derived from the
Property during the Option Period by or under the direction of the Optionee including, without
limiting the generality of the foregoing, the work of assessment, geophysical, geochemical and
geological surveys, studies and mapping, investigating, drilling, assaying, prospecting,
designing, examining, equipping, improving, surveying, shaft-sinking, raising, cross-cutting and
drifting, searching for, digging, trucking, sampling, working and procuring minerals, ores and
metals, surveying and bringing any mining claims to lease or patent, reclaiming and all other
work usually considered to be prospecting, exploration, development, mining and reclamation
work; in paying wages and salaries of workers engaged in the work and in supplying food,
lodging, transportation and other reasonable needs of the workers; in paying assessments or
premiums for workers' compensation insurance, contributions for unemployment insurance or
other pay allowances or benefits customarily paid in the district to those workers; in paying
rentals, licence renewal fees, taxes and other governmental charges required to keep the Property
in good standing; in purchasing or renting plant, buildings, machinery, tools, appliances,
equipment or supplies and in installing, erecting, detaching and removing them; mining, milling,
concentrating, rehabilitation, reclamation, and environmental protections and in the management
of any work which may be done on the Property or in any other respect necessary for the due
carrying out of the prospecting, exploration and development work.

Rehabilitation Expenditures

Means any costs incurred for the physical construction involved in the rehabilitation of an
historic home, but excludes: (A) The owner's personal labor, (B) the cost of site improvements,
unless to provide building access to persons with disabilities, (C) the cost of a new addition,
except as may be required to comply with any provision of the State Building Code or the State
Fire Safety Code, (D) any cost associated with the rehabilitation of an outbuilding, unless such
building contributes to the historical significance of the historic home, and (E) any non-
construction cost such as architectural fees, legal fees and financing fees;

RULES OF MINING

Vision Zero

And The 7 Golden Rules In Mining

Your First Steps to Success in Prevention

Section on Prevention in the Mining Industry

Issa Mining – Who We Are

ISSA Mining cares globally for safety, health and wellbeing in mining, connecting stake- holders
who are sharing passion, responsibility and professional interest in occupational safety and
health for mining. All mining enterprises, associations, researchers and academics, governments
and their agencies, trade unions, suppliers and other stakeholders are invited partners. Whoever
deals with the safety, health and wellbeing of mine workers is a potential member of the ISSA
Mining community.

Under the umbrella of the ISSA, the International Section on Prevention in the Mining Industry,
in short ISSA Mining, aims to bring forward social security in mining, particularly in the field of
prevention. By means of worldwide cooperation, the not-for-profit organi- zation ISSA Mining
aims to achieve worldwide acceptable working, OSH and social condi- tions in mining
enterprises of all sizes – small businesses included! ISSA Mining is clearly committed to the
prevention strategy VISION ZERO, targeting a working environment in which nobody is
injured, killed or so severely injured or falls ill that she or he suffers lifelong harm. VISION
ZERO is the strategic backbone of ISSA Mining’s work.

With more than 100 members around the world and board members from five continents, the
independent organization ISSA Mining is a part of the global network of the Interna- tional
Social Security Association (ISSA), headquartered in Geneva, Switzerland. ISSA Mining hosts
and joins international congresses and workshops focused on health and safety. Uniting a vast
array of stakeholders, mining companies and their economic situa- tion stay in the focus while
pursuing the ultimate goal: to protect the life and health of every miner!

Because Life Matters

340 million accidents at work happen worldwide every year, only counting those leading to more
than four days absence. 360,000 end fatal. Two million people die every year due to work-related
diseases. To sum this up: around 2.4 million people die every year because of unacceptable work
conditions. Among many risky industries, mining stands out.

Mining operations go along with a variety of hazards. Not only in large operations, as they first
come to mind, but also in the manifold small scale mines, with an estimated 13 million workers
worldwide. Miners are exposed to all kinds of risks from nature, from machinery and vehicles,
from various substances such as dust, mercury and other chemi- cals, while also dealing with
poor ventilation, inadequate space and overexertion. Fatalities, injuries with lifelong
consequences and severe occupational diseases are unac- ceptable; every miner has the right to
return safely back home after work every day, with no adverse effects to her or his health. At
ISSA Mining, we are committed to the aim of VISION ZERO. But how to reach this goal?

At ISSA Mining, we had the privilege of talking to many mining stakeholders across the world,
many of them producing remarkable outcomes in safety and health. We extracted what we
believe to be the most successful elements, aligned them around what we called the “7 Golden
Rules for Safe and Healthy Mining” and introduced them at numerous international congresses
and workshops. The sound feedback we received showed us that the need for solutions like these
are vast, and the style matched the requirements of mines perfectly. You will find the 7 Golden
Rules in this brochure; please also refer to our addi- tional media for further information on
implementation in your company, in particular also “Vision Zero – 7 Golden Rules for zero
accidents and healthy work”, a guide for employers and managers by the ISSA, which offers
additional input and checklists.

In June 2015, all thirteen prevention sections of the International Social Security Associa- tion,
in short the ISSA, decided to adapt the VISION ZERO prevention strategy and the “7 Golden
Rules” as the harmonized tools to reach the aim of zero harm, in all sectors of industry across the
globe. We are very proud to say that it all started here, in mining, together with you.
What Vision Zero Means

Being the basic prevention strategy of the ISSA, Vision Zero is the vision of a world without
occupational accidents and work-related diseases. Its highest priority is to prevent fatal and
serious work accidents and occupational diseases. Vision Zero is the goal of a comprehensive
culture of prevention.

VISION ZERO is about nothing less than our life and health – our most valuable asset. But not
only that: it is also about the success of enterprises, efficient production, and motivated,
productive employees. Although it is sometimes also called a vision or a philosophy, VISION
ZERO is in fact a strategy for more efficient prevention that is based on results and characterised
by values.

Issa ́s Vision Zero Strategy

Accidents at work and occupational diseases are neither determined by fate nor unavoid- able –
they always have causes. By introducing the VISION ZERO strategy at workplaces, these causes
can be eliminated and work-related accidents, harm and occupational diseases can be prevented.
Seven GOLDEN RULES have been developed to establish this strategy successfully at
workplaces.

The ISSA’s VISION ZERO strategy is flexible and can be adjusted to the specific safety, health
or well-being priorities for prevention in any given context. Thanks to this flexi- bility, Vision
Zero is beneficial to any workplace, enterprise or industry in all regions of the world.

Safety And Health Require Leadership

Improving safety and health in the enterprise does not necessarily mean to increase spending.
More important is that the management acts with awareness, leads consist- ently and builds a
climate of trust and open communication at every level in the company. Implementing the Vision
Zero prevention strategy requires the active contribution and participation of many different
actors at company level.
One thing is clear: the success or failure of implementing the Vision Zero strategy will ultimately
be determined by dedicated employers and executives, motivated managers and vigilant
employees.

7 Golden Rules for Vision Zero

Golden Rule 1 Take leadership – demonstrate commitment

Golden Rule 2 Identify hazards – control risks

Golden Rule 3 Define targets – develop programmes

Golden Rule 4 Ensure a safe and healthy system – be well-organized

Golden Rule 5 Ensure safety and health in machines, equipment and workplaces

Golden Rule 6 Improve qualifications – develop competence

Golden Rule 7 Invest in people – motivate by participation

Invest in people –motivate by participation

7 Golden Rules for VISION ZERO at Enterprise Level in details

GOLDEN RULE 1

TAKE LEADERSHIP – DEMONSTRATE COMMITMENT

Be a leader – wave the flag! Your conduct as a leader is decisive for the success or failure of
safety and health in your company.

Every employer, every executive and every manager is responsible for safety and health in their
enterprise. The quality of leadership not only determines how safety and health are practiced in
the enterprise, but also how attractive, successful and sustainable it will be. Leadership demands
open communication and a clear management culture. Good leadership is exhibited for example
by predictability, consistency and attentiveness.

Executives and managers are role models: they lead by example. They establish the rules, and
they follow the rules. They make sure that everyone knows the rules and that they are fol- lowed.
Violations of the rules need to be addressed immediately – look at things! Pointing out hazardous
conditions is to be rewarded. What managers do, tolerate and demand sets the standard for other
employees.

GOLDEN RULE 2

IDENTIFY HAZARDS – CONTROL RISKS

Risk assessment serves as the essential tool for the timely and systematic identi- fication of
hazards and risks and to implement preventive actions. Accidents, injuries and near misses
should also be evaluated.

You are smart, you use risk assessment that helps you to identify hazards and risks before
accidents and production downtimes occur, and it assists you with evaluating the risk potential as
well as establishing and documenting the required protective measures. That is why this tool is
used around the world today.

Properly done, a systematic risk assessment is ideal for practical instruction of employ- ees in
your enterprise. Evaluating occupational accidents, injuries and near misses is important for
identifying main focus points or potential improvements.

GOLDEN RULE 3

DEFINE TARGETS – DEVELOP PROGRAMMES

Success in occupational safety and health requires clear goals and concrete steps for
implementation, which should be established in a programme.

Occupational safety and health has many facets. Prioritize, establishing clear goals for OSH in
your enterprise and striving to implement them over the medium term – for example in a three-
year programme.

There are several options for a goal-oriented, programme-based approach: Either you set a goal
to continuously reduce the number of accidents, or you establish themes to focus on –

such as the operation of machines, the use of forklifts and personal protective equipment, or the
reduction of dust exposure. Once your employees recognize that their safety and health is
important to you personally and that something is being done in the enterprise, success will not
be long in coming. You should also communicate regularly about the achievement of goals.

GOLDEN RULE 4

ENSURE A SAFE AND HEALTHY SYSTEM – BE WELL-ORGANIZED

Systematically organizing occupational safety and health in your enterprise is a good idea. It
pays off and is easy.

With well-organized occupational safety and health, every enterprise runs more smoothly
because disruptions, production downtime and quality problems are reduced. These are all good
reasons for you to make sure your OSH organization is effective – it pays off!

Checklists can help you. Those who want to do more should implement an OSH management
system that allows for continuous improvement. Once everything is in place, a successful audit is
rewarded with a certificate and recognition.

GOLDEN RULE 5

ENSURE SAFETY AND HEALTH IN MACHINES, EQUIPMENT AND WORKPLACES

Safe production facilities, machines and workplaces are essential for working with- out
accidents. Health effects have to be considered as well.

Effective occupational safety and health strategies include technical, organizational and personal
measures. Technical measures should take precedence. Therefore it is essential to keep
machines, facilities, equipment and also the workplaces up to current OSH standards, and to also
exclude or minimize detrimental effects on health. Naturally, it is not always possible to use the
latest technology.

This is where retrofitting is required. Informing purchasing that safety comes first and that the
principle that safety equipment must be part of any activity has proven itself. It should be borne
in mind that most accidents occur in the course of troubleshooting, repairs or maintenance
because design and construction is often not applicable to these tasks and also because safety
devices are bypassed or fail to function. Preventing this is a management responsibility.
GOLDEN RULE 6

IMPROVE QUALIFICATIONS – DEVELOP COMPETENCE

Invest in the training and skills of your employees, and make sure that the required knowledge is
available at every workplace.

After an accident one often asks: How could this happen? Technical facilities and produc- tion
machines are becoming increasingly productive and faster, but also more complex and prone to
malfunctions. This makes it all the more important to systematically deploy well qualified and
trained persons at the workplaces. It is a top management responsibil- ity to make sure that a
detailed description of the qualification requirements for every position in your enterprise has
been made and that every worker is able to perform the duties of his or her position.

The workplace changes constantly. The half-life of knowledge is growing shorter and shorter,
and the skills of workers need to be refreshed at regular intervals. More than ever, providing
training and continuing education is a must, while leadership and man- agement need to be
learned too!

GOLDEN RULE 7

INVEST IN PEOPLE – MOTIVATE BY PARTICIPATION

Motivate your staff by involving your employees in all safety and health matters. This
investment pays off!

Motivating your employees to act in a safe and healthy manner is one of your most important
leadership responsibilities. Enterprises that show appreciation for their employees and also
actively involve them in safety and health within the enterprise are tapping into important
potential: their knowledge, abilities and ideas.

When employees are consulted, for example while conducting the risk assessment or in the
development of operating instructions, their willingness to follow the rules is improved. Motiva-
tion is promoted through regular interactive events or awareness days where safety and health
can be “lived” or “experienced”. It costs nothing to praise employees for safe behaviour, ask
them about their ideas, and express interest in difficult work tasks and also to address unsafe
actions or near misses immediately. This can shape the personal attitude of the employees and
motivate them to work safely and with awareness and above all, confidence.

The goal is for everyone to look after their colleagues as well as themselves – “one for all – all
for one!”

TAX ACCOUNTING PRINCIPLES

Tax Accounting for An Individual

For an individual taxpayer, tax accounting focuses solely on items such as income, qualifying
deductions, investment gains or losses, and other transactions that affect the individual’s tax
burden. This limits the amount of information that is necessary for an individual to manage an
annual tax return, and while a tax accountant can be used by an individual, it is not a legal
requirement.

Meanwhile, general accounting would involve the tracking of all funds coming in and out of the
persons' possession regardless of the purpose, including personal expenses that have no tax
implications.

Tax Accounting for a Business

From a business perspective, more information must be analyzed as part of the tax accounting
process. While the company’s earnings, or incoming funds, must be tracked just as they are for
the individual, there is an additional level of complexity regarding any outgoing funds directed
towards certain business obligations. This can include funds directed towards specific business
expenses as well as funds directed towards shareholders.

While it is also not required that a business use a tax accountant to perform these duties, it is
fairly common in larger organizations due to the complexity of the records involved.

Even legally tax-exempt organizations use tax accounting as they are required to file annual
returns.
Tax Accounting for a Tax-Exempt Organization

Even in instances where an organization is tax-exempt, tax accounting is necessary. This is due
to the fact that most organizations must file annual returns.3 They must provide information
regarding any incoming funds, such as grants or donations, as well as how the funds are used
during the organization’s operation. This helps ensure that the organization adheres to all laws
and regulations governing the proper operation of a tax-exempt entity.

LIMITATIONS & DEDUCTION

Three major challenges for the oil and gas industry are:
Producing crude oil and refined products at a lower cost to stay competitive on the market is one
of the industry major challenges.
 Improving performance to ensure the valorization of assets
To sustain supply of crude oil or gas, oil compagnies are looking to extend the life of mature
sites but are also compelled to seek new sources of oil or gas for which extraction, transport and
refining are much more complex and costly.
 Improving the environmental footprint to meet increasingly stringent standard
The oil and gas industry is a major consumer of water and energy resources and is therefore
subject to increasingly stringent environment standard.