The Purpose of the Credit Policy is to ensure that Masters Energy Oil & Gas Ltd.

(a) Assesses risks associated with customers, business segments and transactions to ensure business is conducted with entities that have acceptable financial risk profiles.
(b) Protects its investment in accounts receivable.
(c) Optimizes risk reward relationships and minimizes the risk of potential losses from default by customers and partners.

This Credit Policy outlines our company's strategic and operational requirements from credit sales.
A simple Credit Policy with manageable procedures will help build our business on minimum risk sales: these are the sales that are numerous and provide guaranteed profit levels. The policy is to ensure that everyone within the company understands the working procedure of credit sales, and, of course, to exhibit financial control over a contentious subject. This Policy defines the Credit Business Aims and Procedures where credit is provided to our customers/clients.

Section 1.02

It is the intent that this Policy support and operate in conjunction with all other
policies and strategies of Masters Energy Oil & Gas Ltd.

Article II. Organizational Credit Management Roles and Responsibilities

Section 2.01

Masters Energy’s Audit department is responsible for authorizing the Policy and delegating authority to the Chief Financial Officer (Company Accountant) for implementation and administration of the Policy.

Section 2.02

The Chief Financial Officer is also responsible for reviewing the Policy on at least
an annual basis, and has the authority to approve credit limits within the
concentration limits and delegating credit limit approvals to Financial Risk Management.

Section 2.03

The leadership of the Operating Divisions and Corporate Groups of Masters Energy are responsible for ensuring that appropriate operating systems and interfaces are in
place to ensure the accuracy, timeliness and integrity of reported information to
Financial Risk Management required for credit monitoring and to ensure that
their subordinates are aware of and abide by the Policy.

Section 2.04

The Vice-Chairman, Financial Risk & Internal Audit is responsible for approvingcredit limits as delegated by the Chief Financial Officer, monitoring and reporting adherence to the Policy and implementing procedures that support the Policy.

Section 2.05

Unless otherwise noted in this Policy, any exceptions to this policy requires the approval of the Group Chairman & Chief Executive Officer or the approval of the Executive Vice-President of Masters Energy and these exceptions will be reported at the next available meeting of the Audit Dept.

Article III. Credit Review and Approval

Section 3.01

A formal credit review and credit limit approval will be required on all new customers

Corporate Credit Policy
Why Give Credit?
Increased Sales
Improved Profitability
New Customers
Increased Market share

You can see that all of the above are driven with the aim of producing profitable growth, and not as a service to be abused by customers. So, we have decided why we want to offer credit to our customers (the strategy) now we have to implement systems, procedures, limits, authorities and train personnel (operational) in all the areas:
A formal credit review and approval is required on supplies, or other counterparties where Masters Energy has significant financial risk under contractual obligations

Section 3.03
A credit review and credit limit approval is required at least annually on all active customers and financial counterparties. A credit review and approval is also
required at least annually on active supplies, partners or counterparties issuing
security.

Section 3.04
As part of the formal credit analysis and approval process, an internal rating will be calculated and assigned to each customer and counterparty.

Section 3.05

Credit limits may be approved or increased upon receipt of one or more of the following forms of security:
(a) Irrevocable Standby Bank Letters of Credit.
(b) Directors guarantee
(c) Margin Agreements.
(d) Cash prepayments.

Article IV. Credit Enhancement

Section 4.00

The format and language of the above forms of security require the approval of
Financial Risk Management.

Article V. Credit Concentration Limits

Section 5.00

Corporate Credit Policy, Limits and Conditions
Procedures for approving Credit

1. Credit terms and conditions would be approved for individual customers when all customer details are complete and logged:

2. Credit accounts are originated by application, using our standard Credit Application Form.

3. All accounts are individually assessed using the following system: Credit Limit and Conditions. The customer details are then updated to our computer system. The originals of both the Credit Application Form and Terms and Conditions of Sale must be retained.

4. The customer’s ability to pay and status has been checked within the past six months:
Checking the ability and status of the customer involves a bank reference for a sum of not less than two months orders, and a current credit report. All customer details (company name, address, telephone/fax, contact, bank and accountant) must be confirmed; with all amendments updated on our system. The account must then be authorized.

5. Collection performance and targets must be maintained within acceptable standards
Every day that an amount remains overdue (after the allowance of an agreed credit period) we loose profit through having to; administer the overdue invoice, raising and sending letters, telephone/fax calls, servicing the interest rates e.t.c

Masters Energy:

1. Would not give credit of more than One week to an existing customer
2. The company would not give credit exceeding two weeks to any new customer
3. The company would not supply any organisation that has not settled previous debt(s)
4. The Company would charge interest on outstanding invoices
5. When vetting potential customers, credit reference report, a bank reference or trade reference must be obtained from a particular company before credit consideration is given.
6. The originals of both the Credit Application Form and Terms and Conditions of sale must be tained
Those responsible for achieving targets must be measured to ensure their performance is effective and efficient.

Article VI. Credit Risk Measurement

Section 6.01

Credit risk will be measured, monitored and reported by Financial Risk
Management on a monthly basis to the Chief Financial Officer and exceptions to
the Policy will be reported immediately to the Chief Financial Officer.

Section 6.02

Financial Risk Management will report on a daily basis the total commitment to a customer compared to its credit limit. No additional transactions
are to be undertaken that would cause the company to exceed the credit limit
unless authorization is received from Financial Risk Management.

Debt Recovery and Bad Debt:

The Credit Manager is responsible for the early identification and actioning of accounts that are considered as ‘debt recovery’ and for the early identification of bad debt write off.

Debt Recovery:

We have 4 stages for recovery:

1. First Telephone request
2. Debt Demand Letter
3. Second Telephone request
4. Solicitors Letter/ Legal action

Considerations before giving credit

a) You only have a trading name
b) You do not have the proprietor's full name
c) You do not know if the company is limited or registered
d) You do not know if the company has a parent company
e) You do not know the registered address
f) You do not know the customers bank details
g) You do not know how long they have been trading
h) You do not know who the other suppliers of the customer are

Any potential customer that will not disclose all of the above information prior to a credit relationship should not be trusted. Some customers will say that is too many questions for the size of the credit facility. This may be so, however, you must be the judge of this, not your customer.

Minimum Requirements Before giving Credit
* Length of time in business must be over 2 years
* Must be a Limited Company
* Bank reference - "should prove good" or better
* Credit reference score 75+
* No adverse credit information in past 3 years
* No adverse trade information

Debtors are monitored to identify sales, creditor status and payment risk.