question re tax, page-10

Hi Jordigi

Your question - 'I wonder what would happen if they withdrew their firb app at this stage?'

I don't think it would happen but we need to go back to the key terms of the farm-in agreement which include:

'- Petrobras to earn 50% equity in WA-360-P by funding 100% of the first well to a cap of US$41m (MEO retains 20% interest)
- Upon receipt of all regulatory and Australian Government approvals, including Foreign Investment Review Board approval, Petrobras will pay MEO a cash bonus of US$31.5 million and reimburse MEOs share of the past costs of approximately US$7.5 million
- In the event of a successful discovery, Petrobras will carry MEOs share of the cost to drill and test two follow up wells in the Permit to a cap of US$62 million per well, together with payment of an additional US$31.5m cash bonus in January 2011
- MEO to remain Operator until the completion of the first well after which Petrobras has the option to assume Operatorship.'

Assuming that the application is in with the FIRB being processed I don't think PBR will now withdraw it. I believe it would have been put in before the ann of the RSPT.

PBR would have realised that new major projects in the NWS was under the PRRT tax regime. I understand that the NWS will be left under the PRRT scheme with an option of moving over to the RSPT. PBR would be aware of the PRRT regime.

We must keep in mind the RSPT is still under discussion which may continue until the end of 2011. I think the present government will go head to head with the mining companies and find some common ground. If another government gains power RSPT may not even go ahead at all.

PBR would understand that taxes/royalties are required to be paid wherever they go. The offset in Oz is a stable country/government system etc.

After putting so much into the bargaining phase of the farm-out I don't think PBR will now withdraw their FIRB application. I don't think they will be able but just think about the embarrassment of a proud company, venturing into a new company, if they do.

If, on the smallest chance, they do pull the pin (FIRB) then they will have to compensate MEO with at least the following as FIRB was not completed:

The first well to a cap of US$41m.

The cash bonus of US$31.5 million.

Reimburse MEOs share of the past costs of approximately US$7.5 million.

Total - US80m

But for PBR to pull out the application before it was processed would be foolhardy to say the least. So the FIRB process will go ahead and A#1 will be drilled regardless.

Of course if the FIRB process is completed and approval is not given then PBR will walk away and MEO will be on their own to drill A#1 which is why the cap raising in November was a master stroke.

#:>))