PRODUCTION SHARING CONTRACTS

In Georgia CanArgo's exploration, development and production activities are carried out under four production sharing contracts or agreements ("PSC" or "PSA"), these being:

1. The Ninotsminda, Manavi and West Rustavi Production Sharing Contract, covering Block XI^E, ("Ninotsminda PSC"), in which Ninotsminda Oil Company Limited owns a 100% interest. Ninotsminda Oil Company Limited is a wholly owned subsidiary of CanArgo. This PSC covers an area of approximately 27,923 acres (113 Km²), this area, excluding any development area, is subject to a voluntary 25% relinquishment in May 2008;
2. The Nazvrevi and Block XIII Production Sharing Contract ("Nazvrevi PSC"), covering Blocks XI^D and XIII, in which CanArgo (Nazvrevi) Limited owns a 100% interest. CanArgo (Nazvrevi) Limited is a wholly owned subsidiary of CanArgo. This PSC covers an area of approximately 194,223 acres (787 Km²), following a 50% relinquishment of the contract area in February 2008;
3. The Norio (Block XI^C) and North Kumisi Production Sharing Agreement ("Norio PSA") in which CanArgo Norio Limited (a wholly owned subsidiary of CanArgo) currently owns a 100% interest, although this interest may be reduced to 85% should the state oil company, Georgian Oil and Gas Corporation, exercise an option available to it under the PSA for a limited period following the submission of a field development plan. As a contractor party, Georgian Oil and Gas Corporation would be liable for all costs and expenses in relation to any interest it may acquire in the PSA. This PSA covers an area of approximately 265,122 acres (1,061 Km²) following a 25% relinquishment in April 2006 and will be subject to a further 50% relinquishment of the remaining contract area less any development area in April 2011;
4. The Block XI^G and XI^H Production Sharing Contract ("Tbilisi PSC"), in which CanArgo Norio Limited owns a 100% interest. This PSC covers an area of approximately 119,845 acres (485 Km²), a first relinquishment of 25% of the contract area excluding any development area is due in September 2008 but CanArgo Norio is negotiating an extension to this date.

The following table summarizes the key commercial terms for each of the production sharing contracts including the sharing of the oil and gas produced between the investor and the State. For example, in the case of the Ninotsminda PSC, which is the company's only producing asset, the first 50% of oil and gas produced is allocated to Ninotsminda Oil Company ("NOC") for the recovery of the cumulative capital, operating and other allowable project costs incurred. The balance of production (profit petroleum) is allocated on a 70:30 basis between the State and NOC. Thus while NOC continues to have unrecovered costs, it will receive 65% of Production (cost recovery plus profit petroleum). After recovery of allowable project costs, NOC will receive 30% of production. The share of production delivered to the State under each of the PSCs relieves CanArgo of all Georgian taxes, levies and duties.