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					2-D Seismic Acquisition Program in Afghanistan
               Closeout Report

                     December 15, 2005


           Submitted to:
                  U.S. Trade and Development Agency
                  1000 Wilson Boulevard, Suite 1600
                  Arlington, Virginia 22209-3901


           Submitted by:
                  Petroleum Equities Inc.
                  8700 Old Dominion Drive
                  McLean, Virginia 22102-1211
                  Phone: (703) 734-0253
                  Fax:    (703) 821-0508
                  Email: info@petroleumequities.com



                  Contract No. USTDA-05-C-81-054
                Technical Assistance in Overseeing the
        Proposed 2-D Seismic Acquisition Project in Afghanistan
                                                   Table of Contents

             2-D Seismic Acquisition Program in Afghanistan
                            Closeout Report


Executive Summary .........................................................................................................................1
Chronology of the Seismic Project ..................................................................................................1
Exhibit 1: Technical Questions and Information for Developing Terms of Reference .................6
Exhibit 2: Outline of Scope of Work for Typical Seismic Project ................................................7
Exhibit 3: Agenda for Industry Day/Pre-solicitation Meeting.....................................................10
Exhibit 4: Participation List for Industry Day/Pre-solicitation Meeting......................................11
Exhibit 5: Use of Dynamite vs. Surface Source for Seismic Acquisition....................................14



Appendix I: Request for Proposals/2D Seismic Acquisition Project


Appendix II: Background and Draft Terms of Reference/2D Seismic Acquisition Project
         2-D Seismic Acquisition Program in Afghanistan
                        Closeout Report

                                     Executive Summary
In March 2004, the U.S. Trade and Development Agency (USTDA) awarded Petroleum Equities
Inc. a technical assistance contract for oil and gas projects in the Republic of Afghanistan. In
December 2004, USTDA awarded a follow-on contract to Petroleum Equities to develop a Re-
quest for Proposals for a proposed $3.5 million project to acquire seismic data in Afghanistan.
Under the latter contract, Petroleum Equities compiled a comprehensive solicitation instrument
for acquiring seismic data, drafted a streamlined RFP for the seismic project which was made
available on the Internet to seismic contractors, and assisted in organizing an industry briefing at
USTDA for contractors interested in bidding on the project.
    Issues arose at the industry briefing which eventually led to a decision by USTDA to cancel
the seismic project. As a consequence, Petroleum Equities’ December 2004 contract was modi-
fied in October 2005 to (1) cancel activities associated with assisting in the selection of a con-
tractor to conduct the seismic program and (2) include the preparation of a closeout report.
    In compliance with the October 2005 modifications, this closeout report discusses the full
spectrum of events that led to the initiation and eventual cancellation of the seismic project. For
future reference, it also presents all of the relevant technical information developed by Petroleum
Equities prior to the project’s termination.
    While the termination of the project was disappointing from the standpoint of enhancing the
international petroleum sector’s knowledge of the hydrocarbon potential in Afghanistan, Petro-
leum Equities judges the ultimate outcome of the project as a success because the misdirection of
more than $3.5 million in federal funds was avoided.

                            Chronology of the Seismic Project
● On March 23, 2004, the U.S. Trade and Development Agency (USTDA) issued a services con-
tract, “Technical Assistance for Oversight of Oil and Gas Projects in Afghanistan,” to Petroleum
Equities Inc. The contract was supervised by Daniel D. Stein, regional director for Europe and
Eurasia; the country manager was Josh Sussman, who early in the contract’s life was replaced by
Scott Greenip when Mr. Sussman left USTDA to enter law school; and the project manager at
Petroleum Equities was E. Hunter Herron. Among other tasks, the contract’s scope of work
stated “The contractor will assist USTDA in overseeing the planned 2-D Seismic Acquisition
Project.”

● On May 11, 2004, USTDA held a kickoff meeting for the contract at which Mr. Stein, Mr.
Sussman, and Dr. Herron were present. At the meeting an on-going study of the hydrocarbon-
producing potential of Afghanistan was discussed. The study, designated as the Hydrocarbon
Resource Survey in Afghanistan, is being carried out by the U.S. Geological Survey (USGS) un-
der a reimbursable agreement between USTDA and USGS.
    Petroleum Equities was provided a review of the first phase of the hydrocarbon survey which
had been conducted by INTRATECH inc. One of the conclusions from the review was “The

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Petroleum Equities           2-D Seismic Acquisition Program in Afghanistan           Closeout Report




availability of new seismic data proposed by USGS and USTDA will greatly increase the quality
of the assessment.” The “new seismic data” refers to a seismic acquisition project which
USTDA was proposing for Afghanistan.
    The seismic project being considered was the acquisition of 600 km of 2-D seismic data in
northern Afghanistan along the Afghan border with Turkmenistan, Uzbekistan, and Tajikistan.
The project, designated as the “2-D Seismic Acquisition Program in Afghanistan,” was budgeted
for $3.5 million.
    At the time of the kickoff meeting, USTDA had not decided whether it would solicit the seis-
mic survey directly itself or provide a grant to the Afghan Ministry of Mines and Industry (MMI)
to fund the survey. In the latter scenario, MMI would be responsible for issuing a Request for
Proposals and selecting a contractor from among the qualified seismic contractors that responded
to the RFP. Subsequently, USTDA decided to forego a direct solicitation in favor of providing a
grant to MMI.

● A meeting was held at USTDA on September 23, 2004, between Mr. Stein and Vinod K.
Shrivastava, acting as a senior advisor to Petroleum Equities. At the meeting, Mr. Stein directed
Petroleum Equities to conduct the following tasks:
    1. Survey seismic contractors who would be likely to be qualified to conduct the seismic
       project and solicit the contractors’ views on the level of detail they would expect in a
       statement of work (SOW) for a seismic acquisition project in Afghanistan.
    2. Based on the information collected in Task 1, draft an RFP for the seismic project includ-
       ing a detailed SOW.
    3. Design and conduct an industry briefing to provide prospective bidders an opportunity to
       comment on the draft SOW as well as ask technical and administrative questions regard-
       ing the project.
    4. Based on comments from contractors attending the industry briefing, prepare a final ver-
       sion of the RFP for the project and assist in its distribution.
    5. Following the deadline for responses to the RFP, organize a team to travel to Afghanistan
       and assist MMI in evaluating bids from the responding contractors.
     As these tasks were outside the scope of work of the original contract, USTDA also re-
quested Petroleum Equities prepare an amendment to the original contract that included the new
tasks.
     At about this time, Mr. Greenip replaced Mr. Sussman as country representative for USTDA
activities in Afghanistan. Thereafter, many details concerning the execution of Petroleum Equi-
ties’ contracts relevant to Afghanistan were cleared through Mr. Greenip.

● On October 7, 2004, Petroleum Equities submitted a draft Request for Amendment to its origi-
nal technical assistance contract with USTDA. The submission was revised following receipt of
comments from USTDA and resubmitted on November 2, 2004. A new contract, “Follow-on
Contract for Seismic Oversight Technical Assistance in Afghanistan,” was issued to Petroleum
Equities on December 13, 2004. The new contract directed Petroleum Equities to carry out the
tasks listed above.
     Prior to conducting the survey of seismic contractors (Task 1 in the new seismic-project con-
tract), Davendra K. (Dave) Agarwal, acting as senior consulting geophysicist to Petroleum Equi-
ties, compiled a detailed list of information required to prepare an industry-standard terms of ref-

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Petroleum Equities           2-D Seismic Acquisition Program in Afghanistan           Closeout Report




erence (TOR) for a seismic survey. For reference, the list is included herein as Exhibit 1 below.
In consultation with Mr. Agarwal, Petroleum Equities prepared a detailed outline for a scope of
work for the seismic project. For reference, the outline is also included herein as Exhibit 2.
    In addition, Mr. Agarwal compiled a rough draft of a complete solicitation instrument for an
Afghan seismic acquisition document. The instrument includes:
    1. Tender Document, including instructions to bidders, award criteria, and general conditions
       (15 pages)
    2. Terms of Reference, including program description, work schedule, data and reports, per-
       sonnel and facilities (17 pages)
    3. Work Standards and Specifications, including general work standards, recording seismic
       acquisition work standards, surveying standards, data processing standards, and data in-
       terpretation standards (31 pages)
    4. Schedule of Rates and Bid Form (2 pages)
    5. Contract Form (2 pages).
    The complete 67-page solicitation instrument was judged by USTDA to have too great a
level of detail to be included as the draft RFP distributed prior to the industry briefing. However,
the instrument is on file at Petroleum Equities’ offices and may be reviewed on request.

● On March 4, 2005, in fulfillment of Task 2 of its seismic-project contract, Petroleum Equities
submitted a draft RFP titled “2D seismic Acquisition Project: Republic of Afghanistan,” which is
a less detailed version of the complete solicitation instrument. For reference, the draft RFP is
incorporated herein as Appendix I.
     USTDA edited the draft RFP into a Background and Draft Terms of Reference, dated March
10, 2005. This edited version of the RFP was posted on Petroleum Equities’ web site for review
by seismic contractors interested in the project prior to the industry briefing. It is also incorpo-
rated herein for reference as Appendix II. (The web posting was very popular. Petroleum Equi-
ties’ site was accessed so often during the posting that the rather generous limits to data transfer
on web site were exceeded.)

● In compliance with Task 3 of Petroleum Equities’ seismic-project contract, an industry briefing
for seismic contractors was held at USTDA’s offices on April 6, 2005. Exhibit 3 is a facsimile
of the agenda for the briefing. Exhibit 4 is a facsimile of the participant list for the briefing,
which includes both presenters and industry participants.
    A significant issue concerning the conduct of the project to acquire seismic data was raised
during the briefing. In describing the geology of northern Afghanistan, USGS geologist Gregory
Ulmishek pointed out that the new seismic data to be acquired should be credible to a depth 10
kilometers if the major geologic structures in the region of interest are to be characterized with
sufficient accuracy to be useful to USGS’s Afghan hydrocarbon survey.
    Mr. Agarwal pointed out that at a depth of 10 km, dynamite would have to be used as the en-
ergy source because Vibroseis™ (or an equivalent energy source) would not impart sufficient
energy to the subsurface to generate useful seismic data. And further, a series of seismic data
tests would first have to be conducted to fine-tune seismic parameters prior to the execution of
the actual seismic acquisition program. During the discussion that followed, the generation of
seismic test data became labeled as Phase I of the overall seismic acquisition project.


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Petroleum Equities            2-D Seismic Acquisition Program in Afghanistan               Closeout Report




    In view of these developments, in an email dated April 8, 2005, Mr. Stein instructed Petro-
leum Equities to “draft a proposed Terms of Reference and budget for a Phase I activity…As
suggested at the meeting, an initial on-the-ground survey by a geophysical firm would help de-
velop a better budget and approach for the larger follow-on activity.”
    As discussed below, Petroleum Equities began work on the new Phase I assignment immedi-
ately. In addition, on May 3, 2005, Petroleum Equities sent USTDA a Request for Amendment
to incorporate the Phase I tasks into the company’s technical assistance contract for the seismic
project.

● During the period April 11 to June 15, 2005, Mr. Agarwal carried out Mr. Stein’s instructions
regarding Phase I activities.
    A literature survey was conducted utilizing the archives of the American Association of Ex-
ploration Geologists and the Society of Exploration Geophysicists.
    Each of the legitimate seismic contractors who attended the industry briefing was inter-
viewed individually, at which time their ideas regarding the modified program, available equip-
ment, mobilization/demobilization charges, revised security requirements, and increased insur-
ance were discussed. Mr. Agarwal found that most responders recommended against the use of
ammonium nitrate as the energy source (as was suggested at the industry briefing), suggesting
instead the use of so-called “binary explosives,” which do not detonate until the two separate
components of the explosive are brought together.
    Based on this research, Mr. Agarwal compiled a set of notes listing modifications that would
need to be incorporated into the TOR for the new Phase I of the seismic project. The notes are
presented herein as Exhibit 5.

● On June 15, 2005, Mr. Greenip sent Petroleum Equities an email stating USTDA’s decision to
cancel the seismic project completely. The email reads in part, “due to the difficulty of pursuing
a seismic acquisition contract in Afghanistan, we have decided not to pursue even a stripped
down program at this time.” In response, Petroleum Equities suspended all work under the tech-
nical assistance contract concerned with the seismic project. Work was suspended just before a
TOR for Phase I of the seismic project was undertaken.
    On June 22, 2005, Petroleum Equities sent USTDA a Request for Amendment seeking reim-
bursement for the work carried out through June 15 and proposing a closeout report.

● In a letter from Mr. Greenip dated August 3, 2005, all participants in the industry briefing were
informed of USTDA’s decision to cancel the seismic acquisition project. The letter reads in part:
   This letter is to inform you that USTDA has decided not to fund a 2-D Seismic Acquisition Pro-
   gram in Afghanistan. The reasons for this decision, based in part on feedback we received at the
   2-D Seismic Acquisition Project Industry Day/Pre-solicitation meeting on April 6, 2004, are
   enumerated below:
       (1) Little progress has been made on the legal and regulatory side, particularly with passing
            the Petroleum and Investment Law, which has dampened enthusiasm in oil and gas ex-
            ploration and development. As a result, it is not clear that the seismic survey would bear
            any fruit in terms of encouraging oil companies to come into Afghanistan;
       (2) There are serious concerns about security and mines along the route of the survey;



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Petroleum Equities            2-D Seismic Acquisition Program in Afghanistan                 Closeout Report




       (3) Questions about land use remain unanswered (how to compensate those whose land and
           crops, of whatever type, would be damaged by the heavy equipment used to conduct the
           survey); and
       (4) There is a technical question about which type of seismic technology to use, with the pos-
           sibility of explosives being used instead of, or in addition to, the Vibroseis technique ini-
           tially contemplated.
   The above concerns, particularly (2) – (4), are exacerbated by the fact that USTDA would have to
   award this contract on a fixed price basis, with the contractor responsible for providing security
   (possibly including de-mining), and for all other costs, including shipment of heavy equipment in
   and out of Afghanistan. Thus the contractor would be at risk if actual costs turned out to be
   higher than the contracted amount.

● On October 20, 2005, USTDA responded to Petroleum Equities’ Request for Amendment,
which was first sent on June 22, 2005. USTDA executed a Modification of Contract effective
September 30, 2005. The modification ordered a closeout report and de-obligated the funds that
were authorized for tasks relevant to assisting MMI in selecting a contractor to conduct the seis-
mic program.




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Petroleum Equities               2-D Seismic Acquisition Program in Afghanistan                   Closeout Report




                                                                                                   Exhibit 1

   TECHNICAL QUESTIONS AND INFORMATION NEEDED FOR DEVELOPING
  TERMS OF REFERENCE FOR AN AFGHAN SEISMIC ACQUISITION PROGRAM

Terms of reference (TOR) for a seismic acquisition program are typically developed for specific areas
with a reasonable understanding of geologic objectives, rock types and general geology (specially ex-
pected regional dips) of the area; environmental and surface conditions; access to the area of survey with
topographical maps; near surface hazards (villages, farms, rivers, lakes, hills, buried, unexploded bombs
or mines, etc.); etc. All these factors dictate the geometry to be used to acquire data, which is extremely
important because the geometry of acquisition leaves a permanent “footprint” on the seismic data.

It is understood that dynamite will not be permitted as the energy source and that the nationality of the
crew in terms of equipment and personnel must be US (or US companies later acquired by non-US com-
panies). Therefore, as much of the following information as can be obtained is needed.

1. Expected reservoir types - carbonate or clastic; expected structure types/shapes - reefs, anticlinal, fault
traps, stratigraphic, etc.

2. Target reservoir depth ranges in terms of shallowest production to deepest production.

3. A brief description of the surface of the area to be surveyed; that is, what kind of rocks are on the sur-
face - alluvium, soft rocks, hard rocks, and rock types at objective depths. This helps in evaluating ex-
pected surface noise, which would interfere with seismic-image signal.

4. Old seismic data - It would also be useful to see copies of any previous seismic in the area. This would
provide necessary information on “near-surface seismic noise.” The TOR will then ask for the type of
equipment/electronics needed to minimize this noise, thus enhancing the signal (from objectives) - to-
noise ratio.

5. Surface relief/geographical features - villages, farms, rivers, lakes, hills, undulations in the surface ter-
rain, etc. Landsat 7 images with minimum 10-meter resolution are absolute must.

6. Accessibility of the area - Heavy seismic equipment requires roads or tracks, however rough they might
be. If a network of roads/tracks are not present and the surface is very rough for vehicles and electronics
to move around, the seismic crew must be prepared to hire the necessary bulldozers or other means of
transportation.

7. Near surface hazards - agriculture, unmarked drinking water resources, and other environmentally sen-
sitive areas - buried, unexploded bombs or mines, etc.

8. Seismic program - Seismic contractors will need actual latitudes and longitudes of end points of lines
and wherever the seismic lines deviate from a straight line in degrees, minutes and seconds. Also, if pos-
sible, a table of L & L every 10, 50, or 100 shotpoints will be helpful. Additionally, a listing in ARCinfo e00
format will be ideal.

9. Paper copies of maps needed - seismic program, DEM (digital elevation maps), and physical features
relief maps of the area.

10. Geodetic control/ground markers to tie into, etc. These must be the same as those used for producing
wells; otherwise, the seismic may not tie to the producing wells. Specifically, UTM coordinates are needed
with detailed information on datum, spheroid/ellipsoid, semi-major/minor axes, X, Y, and Z shifts.



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Petroleum Equities         2-D Seismic Acquisition Program in Afghanistan   Closeout Report




                                                                             Exhibit 2
                                                                            Page 1 of 3


                        Outline of Scope of Work for
                   Typical Seismic Acquisition Assignment

   1. Summary, to include
        a. Final bid closing date and delivery address
        b. Bidder’s exceptions to technical and operating specifications
        c. Final bid after exceptions and modifications
   2. Instructions to Bidders, to include
         a. Discussion of bidding documents
                  i. List of documents
                 ii. Provision for amending documents
         b. Preparation of bids
                  i. Language
                 ii. Technical bid
                iii. Schedule of rates
                iv. Currency
                 v.   Documents establishing bidder’s eligibility
                vi. Period of validity
               vii. Contact point for bidders
         c. Award of contract
                  i. Award criteria
                 ii. Rejection of bids
                iii. Notification of award
                iv. Contract signing
                 v. Payment procedures and schedule
   3. Specification of General Conditions
         a. Obligations of the contractor
         b. Obligations of the client
         c. Contractor warrants of personnel
         d. Remedy of defects
         e. Confidentiality of contract documents
         f. Taxes
         g. Insurance
                  i. Materials and equipment risks
                 ii. Workman’s compensation
                iii. Employer’s liability
                iv. General public liability
                 v.    Vehicle public liability
         h. Changes in program
         i. Force Majeure

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Petroleum Equities          2-D Seismic Acquisition Program in Afghanistan     Closeout Report



                                                                              Exhibit 2
                                                                              Page 2 of 3


          j.   Contract termination
          k.   Applicable law and settlement of disputes
          l.   Notices between parties
          m.   Liability
          n.   Withholding

   4. Terms of Reference
         a. Terms of Reference (Schedule A): Description of program
                i. Program definition
                              a) Detailed operations schedule
                              b) Seismic line coordinates
                              c) Work schedule
                              d) Data, records, and reports
                              e) VSAT (or equivalent) system
               ii. Personnel and facilities
                              a) Seismic personnel – position and nationality
                                        Senior staff
                                        Junior staff
                                        Survey crew
                                        Line preparation crew
                                        Recording crew
                                        Energy source crew
                                        Line restoration crew
                                        Base camp crew
                                        Survey operations crew
                                        Recording operations crew
                              b) Facilities – equipment, materials, and supplies
                                        Supervisory office
                                        Field camp offices
                              c) Additional items to be furnished by contractor
                              d) Additional items to be furnished by others
         b. Terms of Reference (Schedule B): Work standards and specifications
                i. General work standards
               ii. Seismic acquisition work standards
                              a) Pre-job
                              b) Checkout
                              c) Acquisition equipment
                                        Seismic recording system
                                        Seismic energy source
                              d) Recording
                                    Field display
                                    Correlation
                                    Magnetic tape

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Petroleum Equities       2-D Seismic Acquisition Program in Afghanistan       Closeout Report



                                                                              Exhibit 2
                                                                             Page 3 of 3


                               e) 2-D parameters
                               f) Location of source points
                               g) Receiver groups
                               h) Defective trace
                               i) Misfire definition and tolerance
                               j) Losses in coverage
                               k) Recording not taken place
                               l) Uphole abandonment
                               m) CMP display
                               n) Logs and record keeping
              iii. Surveying work standards
                               a) General requirements
                               b) Real time GPS procedures and specifications
                               c) Real time source location specifications
                               d) Permanent markers
                               e) Well site location ties
                               f) Ties to previous surveys
                               g) Topographic features and existing structures
                               h) 2-D survey summary reports
                               i) Conventional survey procedures and specifications
               iv. Data processing (optional)
                v. Interpretation (optional)
         c. Terms of Reference (Schedule C): Schedule of rates and bid form
         d. Terms of Reference (Schedule D): Contract form




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Petroleum Equities   2-D Seismic Acquisition Program in Afghanistan   Closeout Report




                                                                       Exhibit 3




                                          10
Petroleum Equities   2-D Seismic Acquisition Program in Afghanistan   Closeout Report




                                                                       Exhibit 4
                                                                      Page 1 of 3




                                          11
Petroleum Equities   2-D Seismic Acquisition Program in Afghanistan   Closeout Report




                                                                       Exhibit 4
                                                                      Page 2 of 3




                                          12
Petroleum Equities   2-D Seismic Acquisition Program in Afghanistan   Closeout Report




                                                                       Exhibit 4
                                                                      Page 3 of 3




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Petroleum Equities           2-D Seismic Acquisition Program in Afghanistan         Closeout Report




                                                                                      Exhibit 5

   Use of Dynamite vs. Surface Source for Seismic Data Acquisition
      Impact on Terms of Reference for Phase I of the Program
The field techniques, data processing, and interpretation for seismic data acquired using dyna-
mite as the energy will be totally different from the terms of reference (TOR) for a surface-based
energy source.

OBJECTIVES
As discussed at the industry briefing meeting, the objective of a test program using dynamite
would be to determine:
     1. Noise characteristics.
     2. Velocity.
     3. Field acquisition parameters as well as the type of equipment, energy source, and person-
nel required to achieve the geological and hydrocarbon-potential objectives presented by USGS
at the industry briefing.
     Data processing and interpretation techniques will depend upon the above three determina-
tions and will be very different from the TOR submitted to USTDA for s surface-based energy
source.

CREW REQUIREMENTS:
In discussions with seismic contractors, it was agreed that:
    1. Equipment must be kept as portable as possible at minimum mobilization costs.
    2. Explosives tests should include locally produced ammonium nitrate, which has several
technical disadvantages, and binary explosives, which are already being imported into Afghani-
stan by the U.S. government.
    3. Personnel used should be local graduates or students and the labor supply should include
a minimum number of expatriates.
    Contractors are now investigating the availability in neighboring countries that satisfy U.S.
content requirements and will provide further feed back.

BASIC INFORMATION NEEDED FROM USGS
As mentioned at the industry briefing, contractors need to know:
     1. Center locations of seismic experiments. It is assumed they will be along the long E-W
lines. Data may be recorded for up to 30 km offsets from the center to determine parameters at
each location. USGS should select three to four such locations where seismic data are most criti-
cal for their basin study. Detailed technical reasons and objectives must be understood so that
appropriate seismic experiments can be designed and modified, if required. This may require a
meeting with USGS.
     2. The approximate depth of the ground water table (GWT) at the test locations. Detailed
maps are not need — just estimated minimum, maximum, and average depths to GWT would be
sufficient at this stage. The GWT information is extremely critical in determining the type of
drills and hence, the rest of the equipment needed to achieve appropriate results.


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