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 EXPLORATION AND PRODUCTION


SHARING AGREEMENT








BETWEEN


OIL A GAS AMD PETROCHEMICAL ESTABLISHMENT


OF THE


KURDISTAN REGIONAL GOVERNMENT - IRAQ


AND





HAULER ENERGY, LTD.


AND


A&T PETROLEUM COMPANY, LTD.


Preamble 1





Article 1 Definition*.......................................................---2


Article 2 Scope of Agreement and General Provisions...........13


Artlcla 3 Agreement Area ---...................................................15


Article 4 Agreement Teim 13


Article 5 Minimum Obligatory Work Program..........................16


Article 6 Joint Steering Committee.......................................18


Article 7 Operator's Responsibilities •••••••••••••*•••••••••••••••••••••••• 22


Article 8 Commercial Discovery, Commercial Production


and Approval of Development Plans........................23


Article 9 Annual Work Programs and Budgets.......................29


Article 10 Royalty, Bonus, Cost Recovery


and Production Sharing........................ 31


Article 11 Determination of Crude Oil Price -........... 37


Article 12 Additional Rights of the Contractor and Operator... 39


Article 13 Assistance Provided by the OGB-----------42


Article 14 Measurement of Petroleum----------------43


Article 15 Natural Gas.----------------- 45


Article 16 Taxes-------------------------48


Article 17 Accounting, Financial Reporting and Audit.............49


Article 18 Currency, Payments and Exchango Control.............50


Article 19 Import and Export.............................................- 52


Article 20 Export of Hydrocarbons and Transfer of Title.........53


Article 21 Ownership of Assets.............................................--- 54


Article 22 Insurance, Environment, Health. Safety


and Liability.............. 55


Article 23 Personnel.......^................. GO


Article 24 Force Majeure........................-.................................61


Article 25 Assignments and Guarantees 63


Article 26 Agreement Enforcement and


Article 27 Stabilisation, Representations and Warranties ......65





Notices, Confidentiality and Public


Announcements....................................................67


Article 28


Termination and Breach........................................... 70


Article 29 Dispute Resolution................---................................ 71


Article 30


Article 31 Coordination Committee...................... 73





Article 32 Effective Date....................................... 75


Signature Page..................................... 75








ANNEX A AGREEMENT AREA................................Total (2) pages


ANNEX B ACCOUNTING PROCEDURE.................Total (18) pages

































































ii


 EXPLORATION AMD





AGREEMENT








This Exploration and Production Sharing Agreement


is made by and between:


(1) Oil & Gas and Petrochemical Establishment


(hereinaftor roferred to as “OGE”) representing


the Kurdistan Regional Government of Iraq


(hereinafter referred to as “KRG”) as the party


of the first part;


(2) Hawler Enorgy, Ltd., a company incorporated in


the Cayman Islands which is a wholly owned


subsidiary of Prime Natural Resources, Inc., an


American corporation organized under the laws


of Texas, and A&T Petroleum Company, Ltd., a


company incorporated in Cayman Islands which


is a wholly owned subsidiary of PETOIL


Petroleum and Petroleum Products International


Exploration and Production Incorporated


(“PETOIL"), a Turkish corporation (hereinaftor


Hawler Energy, Ltd. and A&T Petroleum


Company, Ltd. are collectively referred to as


“Contractor") as the parties of the second part.


The OGE and the Contractor may sometimes be


roforred to as “Party" individually or as “Parties"


collectivoly.








WITNESSETH:





WHEREAS, the Constitution of the Republic of Iraq


requires that the Federal Government and the


Govommont of the producing region (KRG) and the


Govemorates together will draw up the necessary


strategic policies to develop oil and gas wealth to


bring the greatest benefit for the Iraqi people,


relying upon the most modem techniques of market


principles and encouraging investment; and


WHEREAS, the people of the KRO Have chosen a


Regional Assembly through democratic elections;


and


WHEREAS, the Kurdistan Assembly has formed a





laws that govern the Kurdistan Region, such as the


Law No. 38 of 2004 establishing the Oil & Gas and


Petrochemical Establishment (uOGE">; and


WHEREAS, the OGE enters into this Agreement


wishing to promote the development of the


Agreement Area; and


WHEREAS, Contractor has the requisite technical,


managerial and financial capabilities and


oxporienco to carry out Petroleum Operations


stipulated in this Agreement and desires to assist


to and co-operate with the OGE for the exploration


and exploitation of Petroleum reserves within the


Agreement Area;


NOW, THEREFORE, in consideration of the promises


and the mutual covenants and conditions herein


contained, it is hereby agreed as follows:





ARTICLE 1





DEFINITIONS





The following words and terms used in this


Agreement shall unless otherwise expressly


specified in this Agreement have the following


respective meanings:


1.1 “Accounting Procedure” means the


accounting procedure set out in Annex “B”


hereto.





1.2 An “Afflllatod Company" or “Affiliate" means:














*


with respect to a Contractor Party; a


company, corporation, partnership or other


legal entity:


i) which owns directly or indirectly fifty


percent <50%) or more of the shares,


voting rights or otherwise has the right


to establish management policy of such


Contractor Party; or


II) in which such Contractor Party owns


directly or indirectly fifty percent <50%)


or more of the sharos, voting rights or


otherwise has the right to establish


management policy; or


Hi) in which fifty percent <50%) or more of


the shares or voting rights are owned


directly or indirectly by a company or


other legal entity, which owns directly or


indirectly fifty percent <50%) or more of


tho shares, voting rights or otherwise


has the right to establish management


policy of such Contractor Party;


1.3 “Agreement" or -PSA" means this Exploration


and Production Sharing Agreement together


with all attached Annexes and any variation,


extension or modification hereto which may


be agreed in writing by all the Parlies.


1.4 “Agreement Area” means tho area specified in


Article 3 hereof and dolineated in Annox A.


1.5 “Agreement Year" means a period of twelve


(12) consecutive months from the Effective


Date within tho torm of the Agreement.


1.6. “Annex" or “Annexes” means each or all of the


Annexes “A” and “B” attached to this


Agreement and made a part hereof. In the


event of a conflict between the provisions off


an Annex and a term in the main body off this


Agreement, the provisions of the latter shall





3


 prevail.





1. 7 “Appraisal” means all works carried out by


Contractor to evaluate and delineate the


commercial character of a Discovery of


Petroleum in the Agreement Area.


1.8 “Appraisal Program" means a work program


submitted by Contractor under which


Contractor plans to evaluate and delineate a


Discovery of Petroleum in the Agreement


Area.


1.9 "Associated Natural Gas” means all gosoous


hydrocarbons produced in association with


Crude Oil, which Crude Oil itself can be


commercially produced and separated


thorofrom.


1.10 "Authority" means any authorised body of the


KRG and Republic of Iraq;


1.11 “Available Crude OiP means Crude Oil


produced and saved from the Agreement Area


and not used in Petroleum Operations in


accordance with Article 10.2.


1.12 "Available Natural Gas" means Natural Gas


produced and saved from the Agreement Area


and not used in Petroleum Operations in


accordance with Article 10.2.


1.13 "Available Petroleum" means Available Crude


Oil and Available Natural Gas.


1.14 "Barrel" means a quantity consisting of forty-


two (42) United States gallons liquid measure,


corrected to a temperature of sixty degrees


(60 ) Fahrenheit with pressure at sea level.


1.15 “Budget" means the estimate of the


expenditures, listed by category, relating to


Petroleum Operations contained in any Work


Program proposed by Contractor.











4


1.16 “Calendar Quarter" or “Quarter" mean* a


period of three consecutive Months beginning


on January 1st, April 1st, July 1st and October


1st of each Calendar Year.


1.17 “Calendar Year" means a period of twelve (12)


consecutive months beginning on January 1st


and ending on December 31st in the same


year, according to the Oregorian Calendar.





1.18 “Capital Expenditures” means Development


Costs, Exploration Costs and Drilling Costs.


1.19 “Commercial Discovery" means a discovery of


Petroleum that the Contractor, after


discussion with the Joint Steering Committee,


in its sole discretion in accordance with the


provisions of Article 8 determines that it is


sufficiently profitable such that it commits


itself to develop and produce under the term*


of the Agreement.





1.20 “Commercial Production" means regular and


continuous production of Petroleum from the


Agreement Area in such quantities (taking


into account any other relevant factors) as


are worthy of commercial development.


1.21 “Contractor" means Hawler Energy, Ltd. and


A&T Petroleum Company, Ltd., as well as the


lawful successors or assigns of Hawler


Energy, Ltd. and A&T Petroleum Company,


Ltd. Hawler Energy, Ltd. and A&T Petroleum,


Ltd. each own 50% of the interest of the


Contractor under this Agreement.


1.22 “Contractor Party" a Party which holds some





or all of the rights of the Contractor.


%

















r.


1.23 “Coordination Committee" moans the


committee comprised of members from


Contractor. OGE, and representatives of the


Iraq Ministry of Oil (Baghdad) established to


coordinate with the Ministry of OH pursuant to


the relevant provisions of the Iraqi


Constitution.


1.24 “Cost Recovery Petroleum" means Cost


Recovery Crude Oil and Cost Recovery Natural


Oas.


1.20 "Cost Recovery Crude Oil" is defined as sot


forth in Article 10.6.


1.26 “Cost Recovery Natural Oas" is defined as set


forth in Article 10.6.


1.27 "Costs and Expenses" comprise the


Exploration Costs, Development Costs,


Operating Expenditures and Drilling Com


whether directly or Indirectly incurred by


Contractor.


1.26 "Crude Oil" means crude mineral oH,


a sphalten, oxophente and all kinds of


hydrocarbons whether In a solid, liquid or


mixed state at the wellhead or separator or


which Is obtained from Natural Gas through


condensation or extraction.


1.26 -Current Legislation" means laws, legislative


acts, and normative documents that are


effective on the Effective Date of this


Agreement in the KRG area.





1.30 "Customs Duties" means all import (or export)


tariffs and duties and other mandatory


payments as stipulated by applicable laws,


regulations or other legal measures of KRO or


the Republic of Iraq with respect to the import


or export of materials, equipment, goods and


 any other similar items.





1.31 “Development Costs” means all Costs and


Expenses for Development Operations with


the exception of Operating Expenditures and


Drilling Costs whether directly or Indirectly


incurred, including but not limited to training,


administration, service and related expenses.


1.32 “Development Plan” means the plan to be


produced by Contractor in accordance with


Article 8.6, following a declaration that


Commercial Production may be established.


1.33 “Development” or “Development Operations”


moans and includos any activities or


operations associated with work to develop


Petroleum for production and subsequently to


produce and render Petroleum marketable for


commercial sale and shall Include, but not


limited to;


a) all the operations and activities under


the Agreement with respect to the


drilling of wells, other than Exploration


wells, the deepening, reworking,


plugging back, completing and equipping


of such wells, together with the design,


construction and installation of such


equipment, pipeline or gathering lines,


installations, production units and all


other systems relating to such wells and


related operations in connection with


production and operation of such wells


as may be necessary in conformity with


sound oil field practices in the


international Petroleum industry.


b) all operations and activities relating to


the servicing and maintenance of


pipelines, gathering lines, installations,


production units and all related


activities for the production and


management of wells including the


undertaking of re-pressurising, recycling


and other operations aimed at


intensified recovery, enhanced


production and oil recovery rate.


1.34 “Discovery” means the discovery of Petroleum


made by drilling a well that the Contractor,


after consultation with the Joint Steering


Committee, determines has encountered


Petroleum which could justify Commercial


Production.


1.35 “Dollar" or “U.S.S” means the currency of the


United States of America.


1.36 “Double Tax Treaty” means any international


treaty or convention for the avoidance of


double taxation of income and/or capital,


which is applicable or will be applicable in the


future In the KRG area or Iraq.


1.37 “Drilling Costs” means all expenditures


whether directly or indirectly incurred during


Exploration and Development for well drilling,


completing and reworking operations


including, but not limited to, labour,


geological design, engineering and other


Subcontractors (including all fees, tariffs and


charges payable to any such Subcontractors),


material and equipment consumed or lost,


perforation, formation testing, cementing,


well-logging and transportation.


1.38 “Effective Date" means the dato on which


conditions of Article 32 hereof are fully


satisfied.


1.39 “Excess Associated Natural Gas” is defined as


set forth in Article 15.1.b.





1.40 “Exploration" or “Exploration Operations"


means operations conducted under this


Agreement in connection with the exploration


for previously undiscovered Petroleum, or the


appraisal and evaluation of discovered


reserves which shall include geological,


geophysical, aerial and other survey activities


and any interpretation of data relating thereto


as may be contained in Exploration Work


Programs and Budgets, and the drilling of


such shot holes, core holes, stratigraphic


tests, Exploratory Wells for the discovery of


Petroleum, Appraisal wells and other related


operations.


1.41 “Exploration Costs" means all Costs and


Expenses for Exploration Operations other


than Drilling Costs whether directly or


indirectly incurrod including but not limited to


training, administration, service and related


expenses and overhead and study costs.


1.42 “Exploratory Well" means any well drilled with


the objective of confirming a structure or


geologic trap in which Petroleum capable of


Commercial Production in significant


quantities has not been previously discovered.


1.43 “Field" means a Petroleum rosorvoir or group


of roservoirs within a common geological


structure or feature. “Fiold" may be an “Oil


Field" or a “Natural Gas Fiold" as designated


by Contractor.


1.44 “Forco Majeure" is defined as set forth in


Article 24.2.


1.45 “Foreign Employee” means the employees of


the Contactor, Operator and Subcontractors


with a nationality other than Iraq.


1.46 “Foreign Subcontractors" means Subcon¬


tractors, which are organised outside of Iraq


and under Current Legislation are not obliged


to establish pormanent representative offices


in Iraq.


1.47 “Gas Sales Agreement” is any agreement to





be entered into for the sale of Non-associated


Natural Gas and Associated Natural Gas in


accordance with the provisions of Article 15.





1.48 "Kurdistan Regional Government” or "KRG”


means the Kurdistan Regional Government,


Council of Ministers and all political or other


agencies or instrumentality or subdivisions


thereof including but not limited to any local


government or other representative, agency


or authority, which has the authority to


govern, legislate, regulate, levy and collect


taxes or duties, grant licences, permits,


approve or otherwise impact (whether


financially or otherwise) directly or indirectly


upon any of the Parties’ rights, obligations or


activities under the Agreement.


1.49 “Measurement Point” means the location


specified in an approved Development Plan


whore the Petroleum is metered and delivered


to the Parties or such other location as the


Parties may agree from time to time prior to


the submission of a Development Plan as the


circumstances may require.





1.50 "Month” or "Calendar Month” means a


calendar month in accordance with the


Gregorian calendar.


1.51 "Natural Gas” means Non-associated Natural


Gas and Associated Natural Gas in their


natural state.





1.52 "Natural Gas Field” means a field from which k r


more than fifty (50) percent of the estimated


reserves, on an energy equivalency basis, are








10


 Natural Gas at surface conditions.





1.53 MNon-associated Natural Gas” moans all


gaseous hydrocarbons produced from gas


wells, and includes wet gas, dry gas and


rosiduo gas remaining after the extraction of


liquid hydrocarbons from wet gas.





1.54 “Oil Field” means a field from which more than


fifty (50) percent of the estimated reserves,


on an energy equivalency basis, comprise


Crude Oil.


1.55 “Operating Expenditures” means those costs


incurred, whether directly or indirectly, in day-


to-day Petroleum Operations including but not


limited to all costs, expenses and


expenditures associated with the Production,


processing and transportation to the


Measurement Point of Petroleum, training,


administration, service, payments for


abandonment and site restoration in


accordance with Article 8.0, insurance costs


in accordance with Article 22.2. and related


expenses.


1.56 “Operator" means the Contractor or a





company to be appointed or established by


the Contractor, after consultation with the


Joint Steering Committee, to conduct


Petroleum Operations.





1.57 “Party" or “Parties" means the OOE and the


Contractor and their successors and


assignoos.


1.58 “Petroleum" means Crude Oil and Natural Gas.





1.59 “Petroleum Operations" means Exploration


Operations, Development Operations,


Production Operations and transportation of


Petroleum to the Measurement Point and








n


V. >-----------











other activities related thereto carried out


pursuant to this Agreoment.


1.60 "Petroleum Operations Account” shall have


the meaning given to it in paragraph 1.4 of


section I of the Accounting Procedure.


1.61 “Production" or “Production Operations”


means operations and all related activities


carried out for Petroleum production after the


approval of any Dovolopmont Plan, including


without limitation extraction, injection,


stimulation, troatmont, transportation,


storage, lifting, and associated operations,


but does not include any storage or


transportation beyond the Measurement Point.


1.62 “Profit Natural Gas” Is dofinod as set forth in


Article 10.11.


1.63 “Profit Oil” is defined as set forth in Article


10.11.


1.64 "Profit Petroleum" means Profit Natural Gas


and Profit Oil.





1.65 “Joint Steering Committee" means the


committee composed of representatives of


the OGE and the Contractor and constituted In


accordance with Article 6.


1.66 “Subcontractor" means any natural person or





juridical entity agreed directly or indirectly by


or on behalf of Contractor to supply goods,


works or services related to this Agreement.


1.67 “Third Party" or “Third Parties” means one or


more of a natural person or juridical entity


other than a Party and any Affiliate of a Party.


1.68 “Taxes" means all obligatory payments xV


imposed by the authorities of the KRG or








12


Republic of Iraq or any of their subdivisions or


local Authorities, but excluding the


withholding tax as defined in Article 16.6


hereof and minimum service fees, and Tax


shall be construed accordingly.


1.69 “VAT* means value added tax applicable in


the KRG area or the Republic of Iraq.


1.70 -Work Program” and “Work Program and


Budget” means any work program or work


program and Budget to be submitted to the


Joint Steering Committee by the Contractor in


accordance with the provisions of Article 9


and which shall set out the proposed


Petroleum Operations to be carried out in the


Agreement Area together with the associated


Budget as the case may be.








ARTICLE 2


SCOPE OF AGREEMENT AND GENERAL


WMVHWW


2.1 Subject to the terms and conditions of the


Agreement, the KRG hereby in accordance


with Current Legislation grants to the


Contractor the exclusive rights to conduct


Petroleum Operations in the Agreement Area


during the term of this Agreoment.


2.2 Contractor shall be responsible to the OOE for


the execution of such Petroleum Operations in


accordance with the provisions of the


Agreement.





2.3 In performing Petroleum Operations,


Contractor shall provide all financial and


technical requirements, unless otherwise


provided in this Agroemont and conduct all


operations in accordance with the standards








13


generally accepted in the International


Petroleum industry.


2.4 Contractor shall be compensated for its





services, not by way of reimbursement in cash


of its expenditures under the Agrooment, but


by receipt of Its share of Petroleum from the


Agreement Area to which It may become


entitled by way of cost recovery out of Cost


Recovery Petroleum and by way of profit out


of Profit Petroleum as described in Article 10.


If Petroleum produced from the Agreement


Area, including Cost Recovery Petroleum and


Profit Petroleum, Is insufficient to reimburse


Contractor for Costs and Expenses Incurred


by Contractor, Contractor shall bear its own


losses in respect of any shortfall.


2.5 This Agreement defines the Parties' rights and


obligations, governs their mutual relations


and establishes the rule* and methods for the


Exploration, Development, Production, and


sharing of Petroleum between them. The


entire interests, rights and obligations of each


of the Parties under this Agreement shall be


solely governed by the provisions of this








2.6 During the period in which this Agreement is


in force, all Available Crude Oil and Available


Natural Gas resulting from Petroleum


Operations, will be shared between the OGE


and the Contractor In accordance with the


provisions of Article 10 of this Agroomont





2.7. It is agreed that the Operator shall Initially be


one of the Contractor Parties, unless and until


changed by the Contractor with another


Operator. Operator shall at all times act as


the designated non-profit agent of the k*


Contractor for the conduct of Petroleum


Operations in accordance with this











14


 Agreement.





2.8. An entity that OGE is prohibited to make


business with cannot bo appointed by


Contractor as Operator.








ARTICLES


AGREEMENT AREA


3.1 The Agreement Area includes the Bina Bawl


geological structure as set out by the


geographic location and coordinates


described in Annex “A” attached hereto and


delineated in the map, which forms part


thereof.


3.2 Except as for all rights and authorisations


necessary for the implementation of the


provisions of this Agreement, no right is


granted to the Contractor or to any other


drttify, pertaining to the use or disposal of any


other natural or man-made resources or


aquatic resources or other natural resources


with the exception of aquatic resources used


directly in Petroleum Operations in


accordance with relevant permits which will


be obtained through the KRG.








ARTICLE 4


AGREEMENT TERM


4.1 The term of the Agreement shall be deemed to


have begun on the Effective Date and shall


continue for a total of twonty (20) consecutivo


Agreement Years, unloss tho Agreement Is


sooner terminated In accordanco with the


provisions of this Agreement.


4.2 If Commercial Production remains possible


beyond tho Initial period of twenty (20)


consecutive Agreomont Years








1R


 specified in Article 4.1 above, the Contractor,


after giving notice to the OGE at least ono (1)


year prior to the end of any such period, and


after obtaining approval by the Joint Steering


Committee of a revised Development Plan


shall be given priority to have an extension of


the term of this Agreement for an additional


term of three (3) years or the producing life of


the Agreement Area, whichever is lesser.








ARILQLJLi


MINIMUM OBLIGATORY WORK PROGRAM


5.1 Within the first three (3) Agreement Years as


a minimum obligatory work program,


Contractor shall:





a) conduct a geological field study


covering the whole Agreement Area,


which has an estimated cost of $50,000;


b) conduct a gravity and magnetic survey


over the Agreement Area, which has an


estimated cost of $150,000;


c) drill one Exploratory Well, which has an


estimated cost of $2,500,000;


d) if the Exploratory Well results in a


Commercial Discovery, acquire, process


and Interpret two hundred (200)


kilometres of 2D, which has an


estimated cost of $2,000,000 or one


hundred (100) square kilometres 3D


seismic data, which has an estimated


cost of $2,000,000; and


e) conduct training of personnel of the OGE


which, over the first three (3) Agreement


Years, has an estimated cost of $75,000.





5.2 If Contractor fails to complete any of the


items of the minimum obligatory work


program described in 5.1 above within the


first three (3) Agreement Years, then tho








16


 Agreement shall automatically torminate and


tho Contractor shall bo obliged to pay tho OGE


for any incomplete item of the minimum


obligatory work program an amount of money


equal to the sum of the following:





a) An amount equal to the difference


between the amount actually spent on


item 5.1(a) and its estimated cost;


b) An amount equal to the difference


between the amount actually spent on


item 5.1(b) and its estimated cost;


c) An amount equal to the difference


between the amount actually spent on


item 5.1(c) and Its estimated cost;


d) If the Exploratory Well results in a


Commercial Discovery, the difference


between the amount spent under item


5.1(d) for 2D seismic and its estimated


cost, if the Contractor ran a 2D seismic


survey, or the difference between the


amount spend under item 5.1(d) for a 3D


seismic survey, if the Contractor ran a


3D seismic survey. If the Contractor ran


neither a 2D seismic survey nor a 3D


seismic survey, then the Contractor


shall pay an amount of money equal to


the estimated cost of the 2D seismic


survey.


e) An amount equal to the difference


between the amount actually spent on


item 5.1(e) and its estimated cost.





Such payment shall be made within slaty (SO)


days of the expiry of the said three (3)








5.3 Contractor, upon obtaining the approval of the


OCE, may conduct certain Petroleum


Operations and incur relevant expenditures


before the Effective Date. Such Petroleum


Operations shall be credited against the








17


 Minimum Obligatory Worfc Program and the


costs and expenditures incurred by


Contractor in respect of such Petroleum


Operations shall be deemed as recoverable





Costs and Expenses for all purposes under


this Agreement.








ARTICLE 6


JOINT STEERING COMMITTEE


6.1 For the purpose of providing the overall


supervision and direction of and ensuring the


performance of the Petroleum Operations,


OGE and Contractor shall establish a Joint


Steering Committee within fifteen (15) days of


the Effective Date.


6.2 The Joint Steering Committee shall comprise


four (4) members. The OGE shall appoint two


(2) representatives and Contractor shall


appoint two (2) representatives to form the


Joint Steering Committee. All the aforesaid


representatives shall havo the right to attend


and present their views at mootings of the


Joint Steering Committee. Each


representative shall have the right to appoint


an alternate who shall be entitled to attend all


meetings of the Joint Steering Committee but


who shall have no vote except in the absence


of the representative for whom he is tho


alternate.





6.3 The first Chairman of the Joint Steering


Committee shall be one of the representatives


designated by the OGE (or his alternate), and


the first Vice Chairman shall be one of the


representatives (or, his alternate) designated


by the Contractor. The Chairman and Vice


Chairman shall bo appointed for a term of two


(2) years. The Chairman of the Joint Steering


Committee shall preside over meetings of the











ia


Joint Steering Committee and in the absence


of the Chairman (or his alternate); the Vice¬


Chairman shall preside. The Parties may


designate a reasonable number of advisors


who may attend, but shall not be entitled to


vote, at Joint Steering Committee meetings.


6.4 A regular meeting of the Joint Steering


Committee shall bo held at least twice evory


year in Erbil or in such other place as the


Joint Steering Committee may decide. The


Secretary to be designated pursuant to Article


6.8 shall be responsible for calling such


regular meetings of the Joint Steering


Committee and shall do so at the request of


the Chairman by sending a notice to the


Parties. Other meetings. If necessary, may be


held at any time at the request of one of the


Parties or Operator. In each case the


secretary shall give the Parties at least fifteen


(15) days notice (or such shorter period as the


Parties may agree) of the proposed meeting


date, the time and location of the meeting.


6.5 The Parties hereby empower the Joint


Steering Committee to:








review, examine and approve any Work


Program and Budget proposed by the


Contractor and any amendment theroto;


b) review, examine and approve each


proposed Development Plan and any


amendments or modifications thereto;


approve or confirm the following items


of procurement and expenditures:


i) approve procurement of any Item


within the Budget with a unit price


exceeding one million Dollars


(U.S.S 1,000,000) or any single


purchase order of total monetary


value exceeding one million Dollars


(U.S.J 1,000,000);








19


 ii) approve lease of equipment, or an


engineering agrooment or a service


agreement within the Budget worth


more than one million Dollars (US$


1,000,000) in total; and


iii) approve excess expenditures


pursuant to Article 9.5 hereof and


the expenditures pursuant to


Article 9.6 hereof;








d) roview and approvo the insurance


program proposed by the Contractor and





emergency procedures on safety and


onvironmental protection; in addition to





ell material programmes and budgets


which are in connection with


environmental protection;


e) review and approve personnel policies,


selection and training programs of


Operator. Without prejudice to the


foregoing, it is accepted that part of the


personnel policy of Operator shall be to


give preference to local citizens,


provided that the conduct of Petroleum


Operations shall not be adversely


affected;


f) discuss, review, decide and approve


other matters that have been proposed


by either Party or the Operator;


g) review and discuss the development


work and technological regimes


proposed by the Contractor;


h) appoint sub-committees to meet from


timo to time to reviow any aspect of


Petroleum Operations, which the Joint


Steering Committee thinks fit; and


i) perform such duties and responsibilities


as provided for in this agreement.





iT


6.6 Meeting quorum of the Joint Steering


Committee shall require the presence of at


least two representatives from each off the








20


 Parties. Decisions of the Joint Steering


Committee shall be made by unanimous vote


of the representatives present and entitled to


vote. All decisions made unanimously shall


be deemed as formal decisions and shall be


conclusive and equally binding upon the


Parties.





6.7 A matter, which requires urgent handling, may


be decided by the Joint Steering Committee


without convening a meeting, with the Joint


Steering Committee making decisions through


electronic means or the circulation off


documents.





6.8 The Joint Steering Committee shall nominate


a Secretary to record minutes off the meetings


of the Joint Steering Committee and may


establish technical and other advisory sub¬


committees. The Secretary shall take a record


off each proposal and whether it was adoptod


or not by the Joint Steering Committee. Each


representative of the Parties shall sign and be


provided with a copy off such record at the end


off such meeting. The Secretary shall provide


each Party with a copy off the minutes of each


meeting off the Joint Steering Committee


within fifteen (15) days after the end of such


meeting. Each Party shall thereafter have a


period off fifteen (15) days to give notice of


any objections to the minutes to the


Secrotary. Failure to give notice within the


said fifteen (15) days period shall be deemed


approval off those minutes. In any event the


record off proposals voted on to be provided at


the end off each meeting shall be conclusive


and take precedence over tho minutes.





6.9 All costs and expenses incurred with respect


to the activities off the Joint Steering


Committee shall be paid or reimbursed by the


Contractor and charged to Operating











21


 Expenditures in accordance with the


Accounting Procedure.








ARTICLE 7


OPERATOR’S RE9P0RgJg|UTjES


7.1 The Operator shall have the following


obligations:





a) to perform the Petroleum Operations


reasonably, economically and efficiently


in accordance with directions received


from the Joint Steering Committee;


b> to conduct (implement) the Work


Programs and Budgets approved or


deemed approved by the Joint Steering


Committee;


c) to be responsible for purchasing


facilities, equipment and miscellaneous


material and enter into subcontracts and


service contracts with service providers


and vendors related to the Petroleum


Operations, in accordance with


approved Work Programs and Budgets;


d) to prepare and submit for approval a


personnel training program and its


annual budget and carry out the same as


approved by the Joint Steering


Committee;


e) to establish and maintain complete and


accurate accounting records regarding


its costs and expenditures for the


Petroleum Operations in accordance


with the Accounting Procedure and this


Agreement;


f) to make necessary preparation for


regular meetings of tho Joint Steering


Committee, and to submit to the Joint


Steering Committee information and


studies related to the matters to be


reviewed and approved by the Joint








22


Steering Committee;


g) to provide reports to the Joint Steering


Committee on Petroleum Operations


conducted under this Agreement; and


h) to represent Contractor in the


Implementation of Petroleum Opera*


tions.


7.2 Operator and Its Affiliates shall net be


responsible for any activities (Including


Petroleum activities) that have adversely


affected the Agreement Area prior to the


Effective Date.


7.3 The Operator shall provide both Parties with


copies of all relevant data and reports


pertaining to Petroleum Operations (including,


but not limited to, geophysical, geological,


operational or financial) required by such


Parties.


7.4 Operator shall at all times maintain good


relations with the local community in the


Agreement Area and shall take their local


customs into consideration.








ARTICLES


COMMERCIAL DISCOVERY, COMMERCIAL





PRODUCTION And APPROVAL OP DEVELOPMENT








8.1 If, at any time Contractor concludes that a


Discovery Is worthy off Appraisal, that is,


Commercial Production (or significant


additional Commercial Production if


Commercial Production has previously been


established) from the Field of Discovery may


be feasible, It shall notify the OGE within


fifteen (19) days of reaching such a


conclusion.








23


•.2 On the even date of such notice. Contractor


•hall peasant to the Joint Steering Committee


•or approval a proposed Appraisal Program


which shall be deemed approved H no written


objections are raised by any member of the


Joint Steering Committee within fifteen (15)


days following receipt thereof. The proposed


Appraisal Program shall specify in reasonable


detail the appraisal work including seismic,


drilling of wells, production testing and


studies to be carried out and the estimated


time frame within which the Contractor shall


commence and complete the program and the


relevant budget.


8.3 Thereafter Contractor shall carry out the


Appraisal Program approved by the Joint


Steering Committee. As soon as possible but


within no more than ninety (90) days after


completion of such Appraisal Program,


Contractor shall submit to the Joint Steering


Committee a comprehensive Appraisal report.


Such Appraisal report shall include, but not be


limited to: geological conditions, such as


and eatent of reservoir rocks; pressure,


volume and temperature analysis of the


reservoir fluid; fluid characteristics. Including


gravity of liquid hydrocarbons, sulphur


percentage, sediment and water percentage,


and product yield pattom; Natural Gas


composition; production forecasts (per well


and per Field); and estimates of recoverable


reserves.








8.4 Together with the submission of the Appraisal


report. Contractor shall submit to the Joint


Steering Committee a written declaration


Including one of the following statements:


a) that the Discovery previously notified to








24


 the OCE pursuant to Article 8.1 is a


Commercial Discovery;





b) that such Discovery is not a Commercial


Discovery (contrary to the notice


containing Contractor's initial expec¬


tations); or





c) that the decision as to whether the


Discovery is a Commercial Discovery


will depend upon the outcome of further


specified work that the Contractor


commits to carry out under a further


Appraisal Program in specified areas


within or outside the relevant Discovery








8.5 In the event the Contractor makes a


declaration under Articlo 8.4(c) above,


Contractor shall be entitled to complete the


further work committed under that Article, at


which time the Contractor shall advise the


Joint Steering Committee of Its conclusion as


to whether or not there is in fact a new


Commercial Discovery and the provisions of


Article 8.4(a) or (b) shall be applied


accordingly.





8.6 If the Contractor declares pursuant to Article


8.4(a) that the Discovery Is a Commercial


Discovery, Contractor shall, within six (6)


Months of such declaration, submit to the


Joint Steering Committee a proposed


Development Plan In respoct of the relevant


Commercial Discovery (containing the matters


specified in Article 8.7 and 8.8) which shall be


subject to the Joint Steering Committee's


approval. Such approval shall not be


unreasonably withheld or delayed, provided


that it shall be deemed approved as submitted


If no written objections are presented thereto


by any member of the Joint Steering


 Committee within thirty (30) days of receipt.


Upon approval being granted or doomed


provided under this Article 8.6, Operator shall


proceed promptly and diligently to implement


the Development Plan in accordance with


good oilfield practices, to install all necessary


facilities and to commenco Commercial


Production.





8.7 Contractor's proposed Development Plan to be


submitted pursuant to Articlo 8.6 shall detail


tho Contractor's proposals for Development


and operation of the Field. It will detail any


facilities and infrastructure, which may be


required up to the Measurement Point, cither


insido or outside of the Agreement Area. Any


Development Plan shall set forth production


parameters, number and spacing of wells, the


facilities and infrastructure (including


proposed locations) to be Installed for


production, storage, transportation and


loading of Petroleum, an estimate of the


overall cost of tho Development, and


estimates of the time required to complete


each phase of the Development Plan, a


production forecast and any other factor that


would affect the economic or technical


feasibility of the proposed Development.





8.8 Any Development Plan shall also include an


abandonment and site restoration program


together with a funding procedure for such


program. Each abandonment plan shall


describe removal and abandonment measures


deemed necessary following completion of


Production from the Agreement Area together


with an estimate of the costs thereof. The


abandonment plan shall provide for the


removal of facilities and equipment usod in


Petroleum Operations or their In place


abandonment, if appropriate, in the


Agrooment Aroa and tho return of used aroas











«o a condition that reasonably permits the use


of such areas for purposes similar to those


uses existing prior to tho commencement of


Petroleum Operations hereunder. All


expenditures incurred in abandonment and


site restoration shall be treated as Costs and


Expenses and recoverable from Cost


Recovery Petroleum in accordance with


Article 10 and the Accounting Procedure. All


funds collected pursuant to the funding


procedure shall be dedicated to site


restoration and abandonment and will be


placed In a special interest bearing account


by Contractor, which shall be held In the Joint


names of the OGE and the Contractor or their


nominees. Contractor's responsibilities for


environmental degradation, site restoration


and well abandonment obligations, and any


other actual, contingent, possible and


potential activity associated with the


environmental condition of the Agreement


Area shall be limited to the obligation to place


the funds agreed to be paid in accordance


with the said funding procedure in the


approved account in accordance with


generally accepted international Petroleum


industry practice. Deposits in approved


accounts shall be made on a quarterly basis In


arrears commencing with the first Calendar


Quarter in which there is Available Petroleum.


All such payments deposited by Contractor


shall be treated as Costa and Expenses and


shall be recoverable as Operating


Expenditures in accordance with Article 10 of


this Agreement. No Taxes shall be imposed on


any amounts paid into, received or earned by


or held in the special interest bearing


account. The OGE shall be solely responsible


for the implementation of tho abandonment


plan.


8.9 Any significant changes to an approvod








27


Development Plan or proposals related to


extension of a Flold or for onhanced recovery


projects shall be submitted to the Joint


Steering Committee.


8.10 Subject to the terms of this Agreement the


Contractor shall carry out, at Its own expense


and financial risk, all the necessary Petroleum


Operations to implement an approved


Development Plan. However, if the Contractor


in its sole discretion determines exploitation


turns out not to be commercially profitable,


Contractor shall not be obligated to continue


Development or Production and will in such


circumstancos submit a revised development


plan that is commercially profitable to the


Joint Steering Commltteo. If such Plan Is


accepted by the Joint Steering Committee,


Contractor shall proceed to Imploment such


Plan. If the Joint Steering Committee cannot


roach an agreement on such Plan, then tho


Contractor shall relinquish the Agreement


Area and this Agreement shall terminate.





8.11 Where there is a perceived need recognised


by the Parties to improve the economic


effectiveness of the Petroleum Operations by


constructing and operating certain common


facilities with othor organisations (including


for example roads, pipelines, compression and


pumping stations and communication lines)


the Parties shall use their host efforts to


reach agreement between themselves and


other appropriate enterprises as to the


construction and operation of such facilities


with all costs, tariffs and investments made


by the Contractor to be recoverable as


Operating Expenditures in accordance with


Article 10 hereof and the Accounting


Procedure.


9.1 Contractor shall bo responslblo for the


procurement of Installations, equipment and


supplies and entering into contracts for the


purchase of goods and services with


Subcontractors Including Foreign


Subcontractors nnd others arising out of


Petroleum Operations, all in accordance with


approved Work Programs and Budgets as


provided in Article 7.1(c).


9.2 Contractor shall submit to the Joint Steering


Committoo a Work Program and Budget for


the then current year within thirty (30) days


following the Effective Date.


9.3 Boforo tho 31st October of each Calendar


Year, the Contractor shall prepare and submit


to the Joint Steering Committee for its review


a proposed annual Work Program and Budget


for the neat Calendar Year. Iff the Joint


Steering Committee agrees to modifications


in an annual Work Program and/or Budget, the


Contractor shall promptly make such


modifications to the Work Program and/or


Budget and resubmit the modified Work


Program and Budget to the Joint Steering


Committee. The Joint Steering Committee


shall approve each Work Program and Budget


within forty five (45) days after receipt of it. If


the Joint Steering Committee fails to notify


the Contractor of Its approval or disapproval


of the Work Program and Budget within said


forty-five (45) days after its receipt, tho


annual Work Program and Budget proposed by


the Contractor together with any


modifications timely requested by the Joint


Steering Committee, shall be deemed to have


been approved by the Joint Steering


Committee.


 9.4 In connection with the review and approval of


the annual Work Program and Budget, the


Contractor shall submit to the Joint Steering


Committee such supporting data as


reasonably requested by the Joint Steering


Committee.





9.5 The Contractor may, in accordance with the


following provisions, incur expenditures in


excess of the approved Budget or


expenditures outside the approved Budget in


carrying out the approved Work Program,


provided that the objectives in the approved


Work Program are not substantially changed:


a) In carrying out an approved Budget, the





Contractor may, if necessary, incur


excess expenditures of no more than ten


percent (10%) of the approved Budget in


any specified budgetary category. The


Contractor shall report quarterly the


aggregate amount of all such excess


expenditures to the Joint Steering


Committee for confirmation.


b) Excess expenditures under this


Article 9.5 shall not exceed five percent


(5%) of the approved or modified total


annual Budget for the Calendar Year. If


the aforesaid excess Is expected to be


in excess of said five percent (5%) of the


total annual Budget, the Contractor shall


present its reasons therefor to the Joint


Steering Committee and obtain its


approval prior to Incurring such


expenditures.





9.6 In case of emergency (where there is an


immediate threat to life, property or


environment), tho Contractor may incur


emergency expenditures for the amount


actually needed but shall report such








30


expenditures to the Joint Steering Committee


as soon as they are made. The said


emergency expenditures shall not bo subjoct


to Article 9.5 abovo and shall be deemed as


Costs and Expenses recoverable In


accordance with Article 10 hereof.


9.7 Unless otherwise provided in this Agreement,


Petroleum Operations will only be performed


In accordance with the approved or modified


annual Work Programs and Budgets.








ARTICLE 10


ROYALTY, ROMMS, COST RECOVERY AMD


PRODUCTION SHARING


10.1 Contractor shall provide or procure the


provision of all funds required to conduct


Petroleum Operations under this Agreement,


except as otherwise provided in this


Agreement, and Contractor shall be entitled to


recover its Costs and Expenses from


Petroleum produced from the Agreement Area


as provided below.





10.2 Contractor and/or Operator shall have the


right to use free of charge Petroleum


produced from the Agreement Area to the


extent required for Petroleum Operations


under the Agreement. The amount of


Petroleum which Contractor and/or Oporator


shall be entitled to use for Petroleum


Operations shall not exceed the amount,


which would be expected to be used in


accordance with international Petroleum


industry practice. For the avoidance of doubt,


the use of such Petroleum shall only bo for the


benefit off Petroleum Operations and not the


personal gain off any Party.














31


10.3 Available Petroleum shall be measured at the


applicable Measurement Point and allocated


as set forth hereinafter.





10.4 Contractor shall pay bonuses to the KRO


according to the following schedule:





a) Upon a Commercial Discovery, a bonus


of $2.5 million.


b) Upon the cumulative Available


Petroleum achieving the following


lovols:





Cumulative


Available Petroleum Bonus


Production (million US $)


(Barrels)





75.000. 000 $2.5


150.000. 000 $2.5


300.000. 000 $5.0


500.000. 001 $10.0








10.5 A percent of Available Petroleum shall be


allocated to the KRG as Royalty as follows:





Cumulative


Available Petroleum


Production Royalty Share %


(Barrels)








0 - 100,000,000 5.0%


100,000,001 - 6.5%


175.000. 000


175.000. 001 - 9.0%


325.000. 000


more than 11.0%


325,000,000





10.6 Contractor shall be entitled to recover all





 Costs and Expenses incurred in respect of


Petroleum Operations In a following mannen





a) Operating Expenditures will firstly be


recovered from the Available Petroleum


remaining after the deduction of Royalty!


b) Capital Expenditures will be recovered


from forty percent (40%) of the Available


Petroleum remaining after deduction of


Royalty and following the recovery of


Operating Expenditures (hereinafter


referred to •• “Cost Recovery Crude Oil"


or “Cost Recovery Natural Oas" and


collectively “Cost Recovery Petroleum”).


Costs and Expensos shall be rocovorod In n


manner consistent with the Accounting


Procedure and Article 10.7.





10.7 Costs and Expenses shall be recoverable from


Available Petroleum on a first in, first out


basis (Le. Costs and Expenses will be


recovered according to the date they were


incurred, earliest first). Recovery of Costs


and Expenses will commence as soon as


there Is Available Petroleum.


10.8 To the extent that in a Calendar Quarter


outstanding recoverable Costs and Expenses


related to the Agreement Area exceed the


value of (i) in case of Operating Expenditures,





Area for such Calendar Quarter, or (II) In case


of Capital Expenditures, all Cost Recovery


Petroleum for such Calendar Quarter, the


excess shall be carried forward for recovery


in the succeeding Calondar Quarters until fully


recovered, but in no case after termination of f(¥


the Agreement.


10.9 Recovery off Costs and Expenses shall be





achieved by transferring to the Contractor at


the Measurement Point titlo to quantities of


Available Petroleum of equivalent value


(determined in accordance with Article 11) to


the Costs and Expenses to be recovered In


accordance with this Article 10.


10.10 To the extent that the value of Available





Petroleum received by the Contractor from


the Agreement Area during a Calendar Quarter


Is greater or lesser than the Contractor was


entitled to receive for that Calendar Quarter,


an appropriate adjustment shall be made in


the following Calendar Quarter in accordance


with the Accounting Procedure.





10.11 Following recovery of Costs and


Expenses from Available Petroleum in


accordance with the provisions of this Article


10, the remaining Petroleum (hereinafter


referred to as “Profit Oil" or “Profit Natural


Gas" and collectively “Profit Petroleum**)


including any portion of Cost Recovery


Petroleum not required for recovery of Capital


Expenditures shall be allocated between the


Parties In accordance with the following


sliding scale percentages, over each Calendar


Quarter*.








KRO Share % Contract*


Production Share %


(Barrels)


82% 18%


0-1 00,000,000


100,000,001 - 64.23% 15.75%


175,000,000


175.000. 001 - •7.5% 12.8%


325.000. 000


more than 90% 10%


325,000,000


 Iff the average benchmark price off West Texas


Intermediate Crude should exceed $70 for two


consecutive Calendar Quarters, the parties


shall meet and make a good faith attempt to


agree to an adjustmont to the sharing


percentages of Profit Petroleum. The





adjustment shall Increase the percentage off


Profit Petroleum being received by the NRG


during times off high prices. A revised sharing


ratio shall be effective after the end of the


second Calendar Quarter mentioned above. In


the absence off any agreement, the sharing


percentages stated above shall continue to be


applied.








If the average benchmark price of Wost Texas


Intermediate Crude should be less than $30


for two consecutive Calendar Quarters, the


parties shall meet and make a good faith


attempt to agree to an adjustment to the


sharing percentages of Profit Petroleum. The


adjustment shall increase the percentage off


Profit Petroleum being received by the


Contractor during times off low prices. A


revised sharing ratio shall be effective aftor


the end of the second Calendar Quartor


montioned above. In the absence off any


agreement, the sharing percentages stated


above shall continue to be applied.


10.12 Contractor shall prepare and provide tho


OGE not less than ninety (90) days prior to the


beginning off each Calendar Quarter a written


forecast setting out the total quantity off


Petroleum that Contractor estimates can be


produced and saved hereunder during each off


tho next four (4) Calendar Quarters in


accordance with accepted international


Petroleum Industry prncticos and the Work


Program established in accordance with


Article 9.


10.13 Crude Oil shall ba measured at the


Measurement Point for purposes of the


Agreement and delivered to the OOE and


Contractor and each such Party as owners


shall take in kind, assume risk of loss and


separately dispose of their respective


entitlements.


10.14. OGE, by notifying Contractor at least


three (3) months before the beginning of each


Calendar Year, may request Contractor to sell


OGE’s share of Profit Oil and pay OOE In cash


the amount that corresponds to the value of


such Profit Oil. Any Natural Gas produced


from the Agreement Area shall be sold by the


Contractor in accordance with the principles


of the Agreement.


10.15 For the avoidance of any doubt, title to


their relevant shares of Petroleum shall pass


to the Parties at the Measurement Point.


10.16 The Parties shall agree on procedures


for taking volumes of Crude Oil corresponding


to their respective entitlements on a regular


basis and in a manner that is appropriate


having regard to the respective destinations


and uses of the Crude Oil, all in accordance


with the provisions of this Agreement. If


necessary the Parties will enter into a lifting


agrooment setting out the agreed procedures


for taking volumes of Crude Oil, and such


agreement shall comply with the principles of


accepted international Petroleum Industry


practice.


10.17 To determine the number of Available


Potroleum barrels produced in a Calendar


Quarter when both Available Oil and Available


Natural Gas have been produced and sold, the


volume of Available Natural Gas shall be


converted into the equivalent value in barrels


 of Available Oil. Such conversion shall be on


the basis of the value of Available Natural Gas


determined under Article 11.3 and the value of


Available Oil on the basis of Article 11.1








ARTICLE 11


PETERMINAPOM Of CRUDE OIL PR|£§








11.1 The valuation of Crude Oil for purposes of


determining the Cost Recovery Crude Oil and


sharing of Profit Oil in any Calendar Quarter


shall be the net back value calculated as


follows!





a) Where there have been sales of Crude


Oil from the Agreement Area by the


Contractor in arm’s length transactions


during the Calendar Quarter, the


weighted average per unit price realized


In all such sales at the point of sale,


adjusted for costs incurred by the


Contractor of transporting the Crude Oil


to such point of sale, including, but not


limited to, pipeline tariffs, transit fees,





transit losses, terminal fees, tanker


costs and pipeline, to arrive at a value of


Crude Oil at tho Measurement Point


(“Net Back Value") shall be applied to


such Crude Oil.


b) For Crude Oil sold In non-arm's length


sales, the average price quoted for such


Crude Oil in Platt’s Oilgram during the


Calendar Quarter shall be applied. If no


such price is quoted, then the average of


per unit F.O.B. price quotations for three


(3) representative crude oils to be


agreed by the Parties, as published by


Platt’s Oilgram in the Calondar Quarter,


adjusted for quality, grade, quantity,


costs of transporting the Crude Oil to the


point of sale, as provided in (a) above, to








37


 arrive at a Net Back Value, shall be


applied to such Crude Oil. In the event


Platt's Oilgram ceases to be published,


or is not published for fifteen (15) days in


the period required, then the required


data shall be taken from an available


alternative publication internationally





recognized by the Petroleum industry. If


the Parties cannot agree the three (3)


representative crude oils by the date of


commencement of Commercial


Production or fail to agree on any


alternative publication, the matter shall


be referred for final decision to an


internationally recognized expert agreed


by the Parties. If the Parties cannot


agree, within thirty (30) days of the


appearence of the dispute, on the


appointment of such expert, then such


appointment shall be made by the


President of the Stockholm Chamber of


Commorce (Sweden) on the application


of the OGE or the Contractor. The expert


shall be a person Internationally


recognized as having experience in the


marketing of Petroleum and shall report


in writing his/her determination within


thirty (30) days of his/her appointment.





11.2. For the purposes of Article 11.1 above, an


“arm’s length sale” shall mean a sale or


exchange of Petroleum between a willing and


non-affillated buyer and seller on the


international market in a tender process in an


offort to get the best price in exchange for


paymont in a freely convertible foreign


currency generally accepted in the


international banking community, excluding a


sale involving baiter, sales from government


to government and other transactions


motivated in whole or in part by


considerations other than the usual economic


incentives involved in Petroleum sales on the


international market.


11.3. Natural Gas shall be valued at the actual


revenues received less transportation,


storage, treatment, processing, marketing,


distribution, liquefaction and all other


associated costs incurrod by Contractor


beyond the Measurement Point in supplying


Natural Gas to customers beyond the


Measurement Point.


11.4. The provisions of Article 11.1, 11.2 and 11.3


will also be applicable in case the OGE


decides that the Contractor will sell OGE's


share of Profit Oil or Profit Natural Gas.








ARTICLE 12


ADDITIONAL RIGHTS OF THE


CONTRACTOR AND OPERATOR


12.1 OGE shall provide or otherwise obtain access


to Contractor to all existing facilities and


infrastructure in the Agrcoment Area owned


or controlled by the KRG for the purpose of


carrying out its Petroleum Operations during


the term of the Agreement. Such access shall


be on terms and tariffs no less favourable


than those offered to othor persons or


entities.


12.2. Contractor shall have the right to use,


produce, reprocess and export all existing


geoscience, engineering, environmental and


geodetic data (including magnetic tapes and


films) maps, surveys, reports, and studies it


deems necessary to carry out Petroleum


Operations hereunder including, but not


limited to: magnetic surveys, seismic surveys,


well logs and analysis, core analysis, well


files, geologic and geophysical maps


and reports, reservoir studios, reserve


calculations, accurate geodetic co-ordinates


for the location of all wells and seismic lines


and all other pertinent data relative to the


Agreement Area, which are owned or


controlled by the KRG. Contractor shall pay


copying and handling chargos associated with


the above, if any.


12.3 Contractor shall have the right to conduct all


geoscience, engineering, environmental and


geodetic studies It deems necessary to carry


out Petroleum Operations under approved


Work Programs. Said studies may include, but


aro not limited to: seismic surveys, gravity


surveys, magnetic surveys, geochemical


surveys, global positioning surveys, aerial


photography (obtaining relevant permits),


collection of soil/water/oil/rock samples for


scientific and environmental studies.


Contractor shall bo granted access to and/or


permission to fly subject to obtaining


appropriate consents (which will not be


unreasonably withheld or delayed) over the


Agreement Area to conduct said studies.


Contractor shall have the right to import


equipment and supplies necessary to conduct


said studies as well as the right to export


data, film, tapes and samples to laboratories


outside Iraq to conduct such studies.


12.4 Contractor and/or Operator shall have the


right to clear the land, to dig, pierce, drill,


construct, erect, locate, supply, operate,


manage and maintain pits, tanks, wells,


trenches, excavations, dams, canals, water


pipes, factories, reservoirs, basins, primary


distillation units, separating units for first oil


extraction, sulphur factories and other


Petroleum producing installations, as well as


pipelines, pumping stations, generator units,


power plants, high voltage lines, telephone,


 * radio and other me •ns of


communication (including


communication systems), plants, warehouses,


offices, shelters, personnel housing, hospitals,


schools, premises, underwater piers and other


installations, means of transportation, roads,


bridges, and other means of transportation,


garages, hangers, workshops, maintenance


and repair shops and all the auxiliary sarvices


which are necessary or useful to Petroleum


Operations or related to them and, more


generally, everything that Is or could become


Petroleum Operations but for the avoidance of


any doubt, always In accordance with the


Current Legislation.


12.5 The agents, employees and personnel of the


Contractor, Operator or Subcontractors may


enter or leave the Agreement Area and have


free access, within the scope off their


functions, to all installations put in place by


the Contractor or Operator or otherwise


utilised in Petroleum Operations.


12.6 Contractor shall have the right to utilise the


upper soU, mature timber, clay, sand, lime,


gypsum and stones other than precious


stones, and any other similar substances,


necessary for the performance of Petroleum


Operations in accordance with the Current


Legislation. Contractor may utilise the water


necessary for Petroleum Operations, on


condition that reasonable efforts are taken to


minimise potentially adverse effects on


irrigation and navigation, and that land,


houses and the watering places are not


adversely affected.


12.7 Subject to availability. Contractor shall have


the right to use existing pipeline and terminal


facilities belonging to or under the control of








41


 the KRG. The OGE shall assist in making


these facilities available to the Contractor on


terms and tariffs that are no less favourable


than those made available to others.








ARTICLE 13


ASSISTANCE PROVIDED BY THE OGE


13.1 To enable the Contractor to properly carry out


the Petroleum Operations, the OGE shall have


the obligation to assist the Contractor upon


request to:


a) provide the approvals or permits needed


to conduct Petroleum Operations and to


carry out associated business activities


and to open local and foreign bank


accounts (for both local and foreign


currency) in Iraq;


b) arrange for Foreign Exchange to be


converted in accordance with the


principles set out in Article 18.8 of this


Agreement;


c) locating office space, office supplies,


transportation and communication


facilities and make arrangements for


accommodations as required;


d) assist with any custom formalities;


e) provide entry and exit visas and work


permits for employees and their family


members of Operator, Contractor, their


Affiliated companies and Foreign


Subcontractors, who are not citizens of


Iraq and who come to KRG to implement


the Agreement and to provide


assistance for thoir transportation,


travel and medical facilities whilst in


KRG;


f) provide necessary permits to send


abroad documents, data, tapes and


samples for analysis or processing








42


 during the Potroleum Operations;


g) contact and Instruct appropriate


departments and ministries off the KRG


and any other bodies controllod by the


KRG to do all things necessary to


expedite Petroleum Operations;


h) provide right of way, permits, approvals,


and land usage rights requested by


Contractor and/or Operator for the


construction of basos, facilities and


installations for use in conducting


Petroleum Operations;


i) provide the Contractor qualified security


personnel to insure a safe operating


environment.








ARTICLE 14





MEASUREMENT OP PETROLEUM


14.1 AM Petroleum produced, saved and not used In


the Petroleum Operations in accordance with


Article 10.2 shall be measured at the


Measurement Point approved in the


Development Plan.


14.2 The Measurement Point shall be the very final


facility among all facilities the cost off which i.


is included as a Cost and Expense


recoverable from Cost Recovery Petroleum


under the Agreement.


14.3 All Petroleum shall be measured in





accordance with standards generally


acceptable in the international Petroleum


industry. All measurement equipment shall be


installed, maintained and operated by the


Operator. Tho installed measurement


equipment will havo certificates off standards


off international organisations. The Parties


shall be entitled periodically to inspect the


measuring equipment installed and all charts





and other measurement or teat data at all


reasonable times. The accuracy of measuring


equipment shall be verified by tests at regular


intervals and upon request by either Party,


using means and methods generally acceptod


in the international Petroleum industry.


14.4 Should a meter malfunction occur, Operator


shall immediately have the meter repaired,


adjusted and corrected and following such


repairs, adjustment or correction shall have it


tested or calibrated to establish its accuracy.


Upon tho discovery of a motoring error,


Operator shall have tho motor tostod


immediately and shall take tho necessary


steps to correct any error that may be


discovered and after each case, obtain the


approval of tho OGE on using such meter.


14.5 In the event a measuring error is discovered,


the Parties shall use all reasonable efforts to


determine the correct production figures for


the period during which there was a








readings. Contractor shall submit to the Joint


Steering Committee a report on the


corrections carried out. In determining the


correction, Contractor shall use, where


required, the information from other


measurements made inside or outside the


Development Area. If it proves impossible to


determine when the measuring error first


occurred, the commencement of the error


shall be deemed to be the point In time


halfway between the date of the previous test


and the date on which the existence of the


measuring error was first discovered.


14.6 All measurements for all purposes in this


Agreement shall be adjusted to standard


conditions of pressure at sea level and


temperature at sixty degrees Fahrenheit


 (60-F)





14.7 Contractor shall compensate the OGE in full


should Petroleum be lost through the


negligence or wilful misconduct of the


Contractor.








ARTICLE 15


NATURAL GAS


15.1 Associated Natural Gas


a) Associated Natural Gas produced within


the Agreement Area shall be used


primarily for purposes related to the


Petroleum Operations and production


enhancement including, without


limitation, oil treating, gas injection, gas


lifting and power generation.


b) Based on the principle of full utilisation


of the Associated Natural Gas and with


no impediment to normal production of


the Crude Oil, any Development Plan


shall include a plan of utilisation of


Associated Natural Gas. If there is any


excess Associated Natural Gas


remaining in any Oil Field after


utilisation pursuant to Article 15.1.a


above (hereafter referred to as “Excess


Associated Natural Gas”), the Contractor


shall carry out a feasibility study


regarding the commercial utilisation of


such Excess Associated Natural Gas.





i) If the Parties agree that Excess


Associated Natural Gas has no


commercial value, then Operator


shall act under the plan approved


by Joint Steering Committee, so


that not to interfere with normal


Crude Oil production.


ii) If the Parties agree that Excess


Associated Natural Gas has


commercial value, they will


endeavour to enter into gas sales


agreement(s) and/or other


commercial and/or technical


arrangements with Third Parties


for developing such Natural Gas.


Investments in the facilities


necessary for production,


transportation and delivery of


Excess Associated Natural Gas


shall be made by the Contractor.


The construction of facilities for


such Production and utilisation of


the Excess Associated Natural Gas


shall be carried out at the same


time as the Development


Operations, or at any time as may


be agreed to by the Parties.


iii) If either Party considers that


Excess Associated Natural Gas has


commercial value while the other


considers that Excess Associated


Natural Gas has no commercial


value, the one who considers


Excess Associated Natural Gas to


have commercial value may utilise


such Excess Associated Natural


Gas, at its own cost and expense


and without impeding the


Production of Crude Oil and


without affecting the shares of


Crude Oil and Natural Gas


otherwise to be allocated under


the other provisions of this


Agreement, but if such Excess


Associated Natural Gas is not so


utilised at any time or from time to


time, then such Excess Associated


Natural Gas shall be disposed of by








46


 the Operator in accordance with


Article 15.1b.i.





c) The price of Associated Natural Gas


produced from the Agreement Area shall


be determined by the Parties based on


generally accepted pricing principles


taking into consideration such factors as


sales prices of internationally


transported gas delivered in Western


Europe, quality and quantity of the


Associated Natural Gas (including the


equivalent substitute energy value) and


the economics of Development. Unless


otherwlso agreed, the Parties shall


participate in all gas sales agreements


entered Into for the sale of Associated


Natural Gas produced from the


Agreement Area in proportion to their


allocation rights under Article 10. Gas


sales prices shall be denominated in


U.S.S.


d) Investments made in conjunction with


the joint utilisation of both Associated


Natural Gas and Excess Associated


Natural Gas, together with investments


incurred after approval of a Development


Plan in carrying out feasibility studies on


the joint utilisation of Excess Associated


Natural Gas, shall be charged to


Operating Expenditures.


15.2 Non-associated Natural Gas





When any Non-associated Natural Gas is


discovered within the Agreement Area, the


Parties shall implement, within six (6) months,


a new agreement regarding the Appraisal and


possible development and marketing of the


Non-associated Natural Gas in the domestic


and international markets.











47


 ARTICLE 16


TAXES





16.1 Hawler Energy, Lid. and AST Petroleum


Company, Ltd., aa tha initial Contractor


Partiaa, together with any Contractor Party


holding rights under an assignment made and


approved in compliance with the terms hereof


as well as the Operator and Subcontractors


and Foreign Employees shall be exempt from


Taxes that may arise under this Agreement in


accordance with the Current Legislation.


Each Contractor Party, Operator and their


Subcontractors and Foreign Employees shall


further be entitlod to full and complete


oxomptlon from all Taxes promulgated after


the signing date of this Agreement except as


otherwise provided for in this Agreement.








16.2 It Is acknowledged that Double Tax Treaties


will have effect to give relief from Taxes to











of such Double Tax Treaties, but not


otherwise.





16.3 Each Contractor Party shall maintain its Tax


books and records both in local currency and


in U.S.S.


16.4 By 30 April following each Calendar Year, OOE


shall furnish to each Contractor Party a proper


official letter that evidence such Contractor


Party's grossed up Tax liability for such


Calendar Year and that such liability is fully


satisfied.








16.5 Contractor shall be subject to withholding tax


on the work and services of its Foreign


Subcontractors performed within the KftO, at


a rate of 5% of tho total cost of such work and


services. Contractor shall withhold such tax


from the payments and shall pay such


withheld tax to the KRG within the Month


following the Month in which tho payment to


the Foreign Subcontractor is made.


16.6 The Parties ngroo thnt Contractor's Cost


Recovery Petroleum and the allocation of


Profit Petroleum have been negotiated so as


to be not of tho local Taxes owing by


Contractor in the host country. Tho share of


oil allocated to the KRG includes these Taxes.








ARTICLi 17


ACCOUNTING,FINANCIAL REPORTING AND AUDIT


17.1 Contractor shall maintain books and accounts


of Petroleum Operations in accordance with


the Accounting Procedure attached hereto as


Annex B. These shall be maintained in local


currency of Iraq and in U.S.S in accordance


with generally accepted international


Petroleum industry accounting principles. All


books and accounts, which are made


available to the Authorities in accordance


with the provisions of the Accounting


Procedure, shall be prepared in English


language.


17.2 The Accounting Procedure specifies the


procedure to be used to verify and establish


promptly and finally Contractor’s Costs and


Expenses under Article 10 of this Agreement.


17.3 Sales revenues, expenditures, financial


results, tax liabilities, and loss carry-forwards


of each Contractor Party shall be determined


in accordance with the rules, rights, and


obligations set forth in this Agreement in so


far as such sales revenues, expenditures,











49


financial results, tax liabilities, and loss carry¬


forwards are related to Petroleum Operations


under this Agreement.


17.4 On an annual basis, Contractor shall submit to





the OGE an internationally recognised


auditor's report on Costs and Expenses


incurred that are under Article 10 should be


compensated by Available Petroleum. The


report shall also include profit calculation


pursuant to provisions of Article 16 of this


Agreement.








ARTICLE 11








18.1 Contractor and each Contractor Party, and


their Affiliates, Subcontractors and Operator


shall have the right to open, maintain, and


operate Foreign Exchange bank accounts


both in and outside of NRG and local currency


bank accounts Inside KRO. Such operations


performed In NRG will comply with Current


Legislation.





18.2 Contractor and each Contractor Party, their


Affiliates and Foreign Subcontractors shall


have the right to transfer all funds received in


and/or converted to Foreign Exchange in NRG


without payment of Taxes or duties, to bank


accounts outside NRG.


18.3 Contractor and each Contractor Party, and





their Affiliates and Foreign Subcontractors


shall have the right to hold, receive and retain


outside NRG and freoly use all funds received


and derived from Potroleum Operations by


them outsido NRG without any obligation to


repatriate or return the funds to NRG,


including but not limited to all payments


received from export sales of Contractor's








.---


50


share of Petroleum and any sales proceeds


from an assignment of their interest in this


Agreement.


18.4 Contractor and oach Contractor Party, and


their Affiliates, Foreign Subcontractors and


Operator shall have the right to import into


KRG funds required for Petroleum Operations


under this Agreement in Foreign Exchange.


18.5 Contractor and each Contractor Party and


their Affiliates, Operator and Foreign


Subcontractors shall have the right to pay


outside of KRG for goods, works and services


of whatever nature In connection with the


conduct of Petroleum Operations under this


Agreement without having first to transfer to


KRO the funds for such payments.


18.6 Whenever such a need arises Contractor and


each Contractor Party and thoir Affiliates,


Foreign Subcontractors and Operator shall be


entitled to purchase local currency with


Foreign Exchange and convert local currency


Into Foreign Exchange in accordance with


provisions stipulated in Current Legislation.


18.7. Contractor and each Contractor Party and


their Affiliates, and Operator shall havo the


right to pay, wages, salaries, allowances and


benefits of their foreign personnel working in


KRG in Foreign Exchange partly or wholly


outside of KRG.





18.8 Conversions of currency shall bo recordod at


the rate actually experienced in that


conversion. Expenditures and sales revenues


in currencies other than the li.S.S shall be


translated to U.S.S at the rates officially


announced by JPMorgan Chase Bank, N.A. (or


any other reputable bank agreed upon by the


Joint Steering Committee) at the close of








51


business on the first business day of the


current month.


18.9 Ail payments under this Agreement shall be


made In United States Dollars, unless


otherwise agreed, and within ten (10) days


after the end of the month in which the


obligation to make the payment is incurred to


a bank specified by the Party to whom the


payment is due.


18.10 Any amount not paid in full when due shall





bear Intorost, compounded on a monthly


basis, at a rate per annum equal to one (1)


month term, London Interbank Offer Rate


(LIBOR) for United States Dollar deposits, ns


published in London by the Financial Timos or,


if not so published, then as published in New


York by The Wall Street Journal, current from


day to day, plus five (5) percentage points, on


and from the due date for payment until the


amount, together with interest thereon, is


paid in full.








ARTICLE 19


IMPORT AND EXPORT





19.1 Contractor, each Contractor Party, their


Affiliates and Operator shall havo tho right to


freely and without being subject to Taxes,


duties, levies or other fees, import Into, export


and re-export from Iraq all equipment,


materials, accessories, spare parts and other


goods directly or indirectly related to


Petroleum Operations.





19.2 Contractor, each Contractor Party, tholr


customers and their carriers shall have the


right to freely export Contractor's share of


Potroleum. No Taxes, dutlos, levios or other


fees shall be imposed on Contractor for such








52 )


export of Petroleum produced and saved from


the Agreement Area.


19.3 Foreign Employees and family members of


Contractor and its Affiliates, its agents and


Foreign Subcontractors shall have the right to


import into and re-export from Iraq household


goods and personal property at any time free


of Taxes, duties, levies or other fees.








ARTICLE 20


EXPORT OF HYDROCARBONS


AND TRANSFER OF TITLE


20.1 The Contractor, Contractor Parties, any


purchaser from such parties and their


respective carriers shall, for the duration of


this Agreement, have the right to export from


any export point selected by the Contractor


for such purpose, the share of Petroleum to


which the Contractor is entitled under this


Agreement provided that access to such


export point is not restricted generally on the


grounds of safety or national security and/or


Current Legislation. Access to export points


shall be given to the above parties on a non


discriminatory basis and at rates no less


favourable than those available in the country,


or granted to others by the Republic of Iraq or


KRG.


20.2. The transfer of title to each Party of its share


of Petroleum shall be effective upon the lifting


of that share by such Party at the


Measurement Point or, at the Parties’ option,


at some other point, approved by Joint


Steering Committee.

















53


20.3 The Parlies shall aach be entitled to


designate (at their own cost) an employee,


independent company or consultant who shall


check the lifting of Petroleum from the


Measurement Point or at such other point as


may be designated in accordance with Article


20.2.








ARTICLE 21








21.1 Ownership of any asset, whether fixed or


moveable, acquired by or on behalf of


Contractor in connection with Petroleum


Operations hereunder shall vest in the OOE


without consideration if both (i) the costs of


such asset havo been recovered by


Contractor under this Agreement, and (ii)


either the Agreemont has come to an end or,


if earlier, when the asset is no longer required


for Petroleum Operations by the Contractor.


Contractor shall enjoy continued free,


exclusive and unrestricted use of all assets at


no cost or loss of benefit to the Contractor


until the termination of this Agreement or if


Petroleum Operations. Contractor shall bear


the custody and maintenance of such assets


and all risks of accidental loss or damage


thereto while they are required for Petroleum


Operations, provided however that all costs


necessary to operate, maintain and repair


such assets and to replace or repair any


damage or loss shall be recoverable ns


Operating Expenditures from Available


Petroleum in accordance with the provisions


of Article 10.


21.2 The provisions of Article 21.1 shall not apply


to materials or other property that are rented


or leased to Contractor, Its Affiliates or


 Operator or which belong to employees of


Contractor, its Affiliates or Operator.








ARTICLE 22


INSURANCE, ENVIRONMENT, HEALTH,


SAFETY AND LIABILITY


22.1 Contractor shall obtain and maintain such


types and amounts of insurance for the


Petroleum Operations as are reasonable and


available and such that they comply with the


Current Legislation and accepted


international Petroleum industry practice and


standards.


22.2 The insurance, which may be obtained, may


cover:





a) destruction and damage to any property


held for use during Petroleum Operations


and classified as fixed capital and/or


leased or rented property and/or


interests in pipelines operatod by the


Contractor;


b) destruction of Crudo Oil in storage;


c) liability to third Parties;


d) liability for pollution and expenses for


cleaning up in the course of Petroleum


Operations;


o) expenses for wild well control;


f) liability incurred by the Contractor in


hiring land drilling rigs, vessels and


aircraft serving the Petroleum


Operations; and


g) losses and expenses incurred during the


transportation and storage in transit of


goods shipped from areas outside the


Agreement Area.


22.3 The premiums of any insurance agreements


regarding Petroleum Operations, for which


 the Contractor itself is liable, shall in the


event of any Insurance claim be considered as


Operating Expenditures recoverable from





Available Petroleum.








22.4 It is understood that, in order to meet their


Insurance obligations, Insurance providers


used by Contractor may conclude reinsurance


and co-insurance agrooments with any other


insurance enterprises and organisations.


22.5 Notwithstanding the other provisions of this


Agreement, the Contractor shall indemnify


and hold harmless the KRO and the OOE


against all losses, damagos and liability


arising under any claim, demand, action or


proceeding brought or instituted against the


KRO or the OGE by any employee of the


Contractor or any Subcontractor or dependent


thereof, for personal injuries, industrial


illness, death or damage to personal property


sustained in connection with, related to or


arising out of the performance or non¬


performance of this Agreement regardless of


the fault or negligence in whole or in part of


any entity or individual] provided, however,


that such losses, damages and liabilities are


not caused by or do not arise out of the


performance or non-performance of this


Agreement by the KRG or the OGE and the


KRG or the OGE, as tho case may be, shall


indomnify and hold the Contractor (including


for this purpose any Affiliate, the Operator and


all Subcontractors) harmless against all such


damage, losses and liabilitlos.





22.6 Contractor (Including for this purpose any


Affiliate, the Operator and all Subcontractors)


shall indemnify the KRG for any loss or


damage to the environment or any cultural or


national monument arising out of conduct of


the Petroleum Operations; provided, however,


 that the Contractor (including for this purposo


any Affiliate, the Oparator and all


Subcontractors) shall have no liability





hereunder if and to the extent any loss and


damage is caused by or arises out of any


broach of this Agreement (and any other


agreements that may be entorod into by and


between the Contractor and the OGE in


rospect of the Petroleum Operations) or


breach of duty by the KRG or the OGE.


Notwithstanding the foregoing, the Contractor


(including for this purpose any Affiliate, the


Operator and all Subcontractors) shall not be


liable to the KRG or the OGE for any punitive


or exemplary damages or any other Indirect or


consequential damages.








22.7 Contractor shall not be responsible to the


KRG or the OGE for, and shall bear no cost,


expense or liability of the KRG or tho OGE for


any claim, damage or loss to the extent such


claim, damage or loss does not arise out of a


failure to conduct Petroleum Operations. In


amplification of the foregoing, Contractor


shall not be responsible for any environmental


condition or damage existing in the


Agreement Area prior to the commencement


of Petroleum Operations or caused by a Force


Majeure event during the term of this


Agreement. Existing environmental


conditions will be evidenced by an





independent Third Party through


environmental baseline study of existing


environmental conditions, at Contractor's own


cost and expense (which shall be included as


Costs and Expenses for the purposes of


determining Cost Recovery Potroleum) and


shall be completed prior to tho


commencement of tho relevant Potroloum


Operations in accordance with good oilfield


practices and Current Legislation related to


the environmental issues. Such baseline study











57


shall be submitted to the OGE and shall be


incorporated in the Environmental Impact


Assessment to be prepared by the Contractor


in accordance with the environmental


legislation which are or may be applicable


under the Current Legislation. If in the course


of the Petroleum Operations, the OGE


provides other areas for Contractor's


activities, then new environmental baseline


studies shall be included in the Development


Plan that includes these areas. The OGE shall


indemnify the Contractor against any claim,


damage or loss arising from such pre-existing


environmental condition or damage.


22.8 In conducting Petroleum Operations,


Contractor shall operate according to good


oilfield practices and use best endeavours to


minimise potential disturbances to the


environment, including the surface,


subsurface, sea, air, flora, fauna, other natural


resources and property. The order of priority


for actions shall be protection of life,


environment and property.


22.9 Contractor shall take all necossary steps to


respond to, and shall promptly notify the OGE


of, all emergency and other events (including


explosions, leaks and spills), occurring in


relation to the Petroleum Operations which


are causing or likely to cause material


environmental damage or material risk to


health and safety. Such notice shall include a


summary description of the circumstances


and steps taken and planned by the


Contractor to control and remedy the


situation. Contractor shall provide such


additional reports to the OGE as are


necessary in respect of the effects of such


events and the course of all actions taken to


prevent further loss and to mitigate


deleterious effects.





58


22.10 In the event of emergency situations as set


forth in 22.9, above, at the request of the


Contractor, the NRG and the OGE, without


prejudice and in addition to any


indemnification obligations the NRG or the


OGE may have hereunder, shall assist the


Contractor, to the extent possible, in any


emergency response, remedial or repair effort


by making available any labour, materials and


equipment in reasonable quantities requested


by the Contractor which are not otherwise


readily available to the Contractor and by


facilitating the measures taken by Contractor


to bring into NRG area personnel, materials


and equipment to be used in any such


emergency response or remedial or repair


effort. Contractor shall reimburse the KRO'a


reasonable and necessary costs Incurred In


such efforts, which reimbursed amounts shall


be considered as Costs and Expenses.


22.11 The Contractor shall not be liable to the NRG


or the OGE or Third Parties for any damages


caused by contamination entering the


Agreement Area as a result of NRG or Third


Party activities beyond or within the


boundaries off the Agreement Area. The NRG


shall be legally and financially responsible for


any loss, damage and liability, including


remediation of environmental conditions


which may be required for safe conduct of the


Petroleum Operations, caused by the KRG's


activities beyond or within the Agreement


Area.





22.12 Tho Contractor shall not be liable for any loss


or damage, including but not limited to


spillage, explosion, contamination or similar


environmental damage, in respect of any


storage facilities, pipelines or means off


transportation which are not under the direct


possession and control of the Contractor or


its Affiliatos or its Subcontractors or the


Operator. In addition to the foregoing, the


Contractor shall not be liable for any damage


whatsoever in respect of the OGPs share of


Petroleum, storage or transportation thereof


once OGE has taken custody of such


Petroleum.


22.13 The KRG shall use best efforts to ensure tho


safety and security of tho Contractor’s


property and personnel in Iraq and to protect


them from loss, injury and damage resulting


from war (declared or undeclared), civil


conflict, sabotage, blockade, riot, terrorism,


unlawful commercial extortion, or organised


crime. Contractor agrees that it shall have no


claim for legal or equitable relief for failure of


the KRG to comply with the provisions of this


Article 22.13, if such failure is due to reasons


beyond KRG's control.


22.14 Except as set forth in Article 28 hereof, it is


understood and agreed that the KRG shall not


sock or declare any cancellation or


termination of this Agreement as a result of


the occurrence of any emergency event


described in this Article 22.











ARTICLE??


PERSONNEL


23.1 Contractor shall be entitled to bring Foreign


Employees into Iraq in connection with the


performance of Petroleum Operations. The


entry into KRG and Iraq of such personnel is


hereby authorised, and the relevant KRG


Authority shall issue at the Contractor’s


request tho required documents, such as


entry and exit visas, work permits and


residence cards. At Contractor’s request, the








so


KRG shall facilitate all immigration formalities


at the points of exit and entry into Iraq for the


employees and family members of the


Contractor, its Affiliates, Subcontractors and


Operator. The Contractor (or Operator on its


behalf) shall contact the appropriate offices of


the KRG to secure the necessary documents,


and to satisfy the required formalities.


23.2 The employees working within the scope of


Petroleum Operations shall be placed under


the authority of the Contractor, its Affiliates,


its Subcontractors or the Operator, each of


which shall act individually in their capacity


as employers. The work hours, wages, and all


other conditions relating to their employment


shall be determined by the relevant employer


of such employees. In relation to employees


who are citizens of KRG or Iraq their


employment shall be in accordance with the


Current Legislation. To the extent that any


expatriate personnel are engaged under an


agreement subject to the Current Legislation,


that agreement shall comply with the


provisions of the Current Legislation. The


Contractor, its Affiliates and its


Subcontractors however shall, with respect to


Petroleum Operations carried out within the


KRG, consult OGE in the selection and


assignment of their employees and shall give


preference to KRG citizens as long as they are


capable in terms of knowledge, technical


qualities and experience.








ARTICLE .24


FORCE MAJEURE


24.1 If as a result of Force Majeure, Contractor is


rendered unable, wholly or in part, to carry out


its obligations under this Agreement, other


than the obligation to pay any amounts due,








61


 then the obligations of Contractor, so far as


and to the extent that the obligations are


affected by such Force Majeure, shall be


suspended during the continuance of any


inability so caused, but for no longer period.


Contractor shall notify the OOE of the Force


Majeure situation within seven (7) days of


becoming aware of the circumstances relied


upon and shall keep the OGE Informed of all


significant developments. Such notice shall


give reasonably full particulars of the said


Force Majeure, and also estimate the period


of time, which Contractor will probably


require to remedy the Force Majeure.


Contractor shall use all reasonable diligence


to remove or overcome the Force Majeure


situation as quickly as possible in an


economic mannor. The period of any such


non-performance or dolay, together with such


period as may be necessary for the


restoration of any damago done during such


dolay, shall be added to the time given in this


Agreement for the performance of any


obligation dependent thereon (and the


continuation of any right granted) and to the


term of this Agreement.








24.2 For the purposes of this Agreement, -Force


Majeure" shall mean a circumstance, which is


irresistible or beyond the reasonable control


of Contractor and which substantially hinders


the Contractor or the Operator to perform, or


any other hindrance of Contractor's


performance not due to its fault or negligence.


28.1 No assignment, mortgage or charge or other


encumbrance shall be made by a Party of its


rights obligations and interests arising under


this Agreement other than In accordance with


the provisions of this Article 25. Any


purported assignment made in breach of the


provisions of this Article 25 shall be null and


void.





25.2 A Contractor Party may assign all or part of its


rights, obligations and interests arising from


this Agreement to a Third Party, an Affiliate or


to another Contractor Party provided that


Contractor has consulted OGE prior to


entering into negotiations with such party and


further provided that such party:


a) has tho technical and financial ability to


perform the obligations to be assumed


by it under the Agreement; and


b) as to the interest assigned to it, accepts


and assumes all of the terms and


conditions of the Agreement.


Any such assignment shall be subject to the


prior written consent of the OGE which


consent shall not be unreasonably withheld or


delayed.





The notification of an intended assignment


shall be accompanied by a copy of the


proposed deed of assignment and related


documentation with respect to the proposed


assignee, including certified financial


statements and other evidence to the OGE's


reasonable satisfaction. In the event of the


transfer of rights and obligations under the


Agreement to a Third Party, Contractor shall


pay all costs associated with such transfer








S3


and any tax or charge due on such transfer


undorthe Current Legislation.


25.3 Each reference In this Agreement to the


Contractor shall be treated as including each


assignee to which an assignment has been


made pursuant to this Article 25. Each


reference in this Agreement to OCE shall be


treated as including oach assignee to which


an assignment has been made by OGE


pursuant to this Article 25.


25.4 OGE may assign all of its rights, obligations


and interests arising from this Agroemont to


another KRG authority legally capable of


exercising OGE’s powers, fulfilling its


obligations and liabilities hereunder and


having full Jurisdiction over the Agreement


Area, with the prior consent of the Contractor.


OGE may assign all or part of its rights


pertaining to OGE's share of Profit Petroleum


to a Third Party without the consent of the


Contractor.


25.5 Subject to the approval of the OGE in the


event of there being any proposed assignment


in accordance with the terms of this Article


25 then to the extent of the interest assigned


the assignor shall be released from all further


obligations and liabilities arising under the


Agreement after the effective date of the


assignment. The assignee shall thereafter be


liable for the obligations arising from such


interest in the Agreement except to the


extent provided in the Agreement.


























64


 ARTICLE 26


AGREEMENT ENFORCEMENT AND STABILISATION,


REPRESENTATIONS ANP WARRANTIES


26.1 In the course of performing the Petroleum


Operations, the Operator and the Parties shall


be subject to all applicable laws, decrees and


regulations.


26.2 The KRO agrees and commits to Contractor,


for the duration of this Agreement, to maintain


the stability of the legal, tax, financial,


customs and import and export conditions of


this Agreement.


26.3 The Parties agree to co-oporata In every


possible way in order to achieve the


objectives of this Agreement. The KRO and its


subdivisions shall facilitate the exercise of


Contractor's activities by granting It all


decrees, permits, resolutions, licenses and


access rights and making available to it all


appropriate existing facilities and services


under the control of the KRG so that the


Parties may derive the greatest benefit from


Petroleum Operations for their own benefit


and for the benefit of the KRG.





26.4 If at any time after this Agreement has been


signed there is a change in the applicable


laws, regulations or other provisions effecting


Current Legislation which to a material


degree positively or negatively affect the


economic position of the Contractor or any


Contractor Party under this Agreement, the


terms and conditions of this Agreement shall


be altered so as to restore the Contractor to


the same overall economic position as that


which the Contractor would have been in had


this Agreement been given full force and


effect without amendment








65


26.5 If a Party believes that its economic position


has been positively or negatively affected


under Article 26.4 it may give notice to the


Joint Steering Committee and to the other


Part^ describing how Contractor's position


has been so affected and the Parties shall


thereafter promptly meet with a view to


reaching agreement on the remedial action to


be taken.


26.6 The KRG within the Current Legislation and


its capacities warrants to the Contractor as


follows:


a) The KRG has taken the appropriate


steps necessary to authorise the OGE to


execute this Agreement on behalf of the


KRG and has the power to do so;


b) The signatory to this Agreement on


behalf of the OGE (in each of its


capacities hereunder) is duly authorised


to bind the KRG and the OGE;


c) OGE has been legally vested by the KRG


with the necessary power to authorise


Petroleum Operations in the Agreement


Area and to compensate the Contractor


by allocating to it a share of the


Petroleum produced In accordance with


the terms of this Agreement.


d) Upon completion of the matters and


procedures set out in Article 32 there is


no other entity or authority whose


approval or authorisation is required to


permit the Contractor to enjoy and


enforce its rights hereunder.


26.7 Contractor represents and warrants that:


a) It possesses the technical expertise,


financial resources and management


capabilities to fulfil the obligations of


Contractor under this Agreement;








66


 b) The execution, delivery and performance


by Contractor of this Agreement are


within the corporate powers of


Contractor,


c) Contractor has obtained all corporate


consents, approvals, authorizations and


resolutions in accordance with its


corporate statutes and the applicable


laws to empower Contractor to execute


this Agreement and to undertake all of


the obligations of Contractor hereunder.








ARTICLE 27


NOTICES^ CONFIDENTIALITY, A NO PUBLIC


ANNOUNCEMENTS


27.1 Except as otherwise specifically provided, all


notices authorised or required between the


Parties by any of the provisions of this


Agreement, shall be in writing in English and


delivered in person or by registered mall or by


courier service or by any electronic means of


transmitting written communications which


provides confirmation of complete


transmission, and addressed to such Parties


as designated below. The originating notice


given under any provision of this Agreement


shall be deemed delivered only when received


by the Party to whom such notice is directed,


and the time for such Party to deliver any


notice in response to such originating notice


shall run from the date the originating notice


is received. The second or any responsive


notice shall be deemed delivered when


received. “Received” for purposes of this


Article with respect to written notice


delivered pursuant to this Agreement shall be


actual delivery of the notice to the address of


the Party to bo notified specified in


accordance with this Article. Each Party shall


have the right to change its address at








B7


 any time and/or designate that copies of all


such notices be directed to another person at


another address, by giving written notice


thereof to all other Parties. The addresses for


service of notices on each of the parties are


as follows:











Hawler Energy, Ltd.


Address: 2500 City West Blvd.


Suite 1750


Houston, TX 77042, USA


Phone: ♦1-713-953 3210


Facsimile: ^1-713-953 3200


E-mail: randerson@primenri.com


Contact person: W. Richard Anderson


and











AST Petroleum Company, Ltd.


Address: Koza Sokak No:43, GOP


06700 Ankara, Turkey


Phone: ♦90 312 4408482


Facsimile: ^90 312 441 6026 / 441 6027


E-mail: ak@petoil.com.tr


Contact person: M. All Ak, Director


OGE:


Address: Office of the Prime Minister


Phone: 00 32 247 30016


Facsimile: 00 87 3762 4850970


E-mail: krgpm@aol.com


Contact person: Sarbaz Hawrami


27.2 Subject to the provisions of the Agreement,


the Parties agree that all information and data


acquired or obtained by any Party in respect


of Petroleum Operations shall be considered


confidential and shall bo kept confidential and


 not bo disclosed during tho term of the


Agreement to any person or entity not a Party


to this Agreement, except:





a) To an Affiliate, provided such Affiliate


maintains confidentiality as providod


herein;


b) To an Authority or other entity when


required by the Agreement;


c) To the oxtent such data and information


is required to be furnished in compliance


with any applicable laws or regulations,


or pursuant to any legal proceedings or


because of any order of any court


binding upon a Party;


d) To prospective or actual Subcontractors,


consultants and attorneys employed by


any Party where disclosure of such data


or information is essential to such


Subcontractor’s, consultant's or


attorney's work;


e) To a prospective transferee of a Party’s


participating interest (including an entity


with whom a Party or its Affiliates are


conducting bona fide negotiations


directed toward a merger, consolidation


or the sale of a majority of its or an


Affiliate’s shares);


f) To a bank or other financial institution to


the extent appropriate to a Party


arranging for funding;


g) To the extent that any data or


information which, through no fault of a


Party, becomes a part of the public


domain.





27.3 Disclosure pursuant to Article 27.2 (d), (e),


and (f) shall not be made unless prior to such


disclosure the disclosing Party has informed


the other Party with respect to such


disclosure and has obtained a written


undertaking from the recipient party to keep








69


the data and information strictly confidential


for at least five (5) years and not to use or


disclose the data and information except for


the express purpose for which disclosure is


to be made.


27.4 Except with the consent of the KRG, or as


required by law or the rules of a recognised


stock exchange, an Operator or Contractor


shall not make any public statement about


this agreement or the Petroleum Operations.


In no event shall such a public statement


state or imply that the KRG approves or


agrees with its contents.














TERMINATION AND BREACH





28.1 At any time, If in the opinion of Contractor,


circumstances, including technical or


economic circumstances, do not warrant


continuation of the Petroleum Operations,


Contractor may, by giving written notice to


that effect to the OGE relinquish its rights and


be relieved of its obligations pursuant to this


Agreement, except such rights and


obligations as related to the period prior to


such relinquishment. Neither this Agreement


nor any of the rights granted hereunder may


be terminated as a result of any act or


omission of Operator save in the case where


Operator has carried out an act or omitted to


do something at the specific request of the


Contractor and Operator has previously


advised the Contractor prior to carrying out


the act or omitting to do something that to


carry out that act or to omit to do the relevant


thing may result In this Agreement being


terminated.











70


28.2 The OGE and/or the KRG is entitled to


terminate this Agreement by giving ninety (90)


days advance written notice thereof to all


Parties, when Contractor commits a material


breach in relation with its obligations


indicated in the Agreement or if Contractor


has not accomplished its warranties


according to Article 26.7. The termination


notice will be effective at the end of the


arbitration procedure in case the claim of


material breach is applied to arbitration as


stipulated in Article 29.








ARTICLE?*


DISPUTE RESOLUTION


29.1 Any dispute in relation to or arising out of this


Agreement, including a dispute as to


Contractor’s declaration of a Force Majcure


event, shall be first referred to the Joint


Steering Committee for an amicable solution.


With respect to a dispute that cannot be


resolved amicably by the Joint Steering


Committee, the Parties hereby consent to


submit their dispute to arbitration as provided


in this Article 29.





29.2 Unless otherwise agreed by the Parties to the


dispute, the arbitration shall be held in


London, England and conducted in the English


language in accordance with the Rules of


Conciliation and Arbitration of the


International Chamber of Commerce (the


“Rules"). In the event of no specific


provisions being provided under the Rules, the


arbitration tribunal shall establish their own


procedure.























71


29.3 The arbitration shall be initiated by either


Party to the dispute ("First Party") giving


written notice to the other Party to the


dispute (“Second Party") that it elects to refer


the dispute to arbitration and has appointed


an arbitrator who shall be identified in said


notice. The Second Party shall notify First


Party in writing within forty-five (45) Days


identifying the arbitrator that has been


selected and appointed by such Party.


29.4 If the Second Party does not so appoint Its


arbitrator, the First Party shall have the right


to apply to the Court of Arbitration of the


International Chamber of Commerce to


appoint a second arbitrator. The two (2)


arbitrators shall, within thirty (30) Days,


select a third arbitrator failing which the third


arbitrator shall be appointed by the Court of


Arbitration of the International Chamber of


Commerce at the request off either the First


Party or the Second Party.


29.5 The third arbitrator shall not be a citizen of


Iraq or of a country in which any of the


Contractor Parties is incorporated, but shall


be a citizen of a country which has diplomatic


relations with the aforesaid countries, and


shall not have any economic interest in the oil


business of Iraq or of any party to the dispute.





29.6 The Parties horeto shall oxtend to the


arbitration tribunal all facilities (including


access to the Petroleum Operations) for


obtaining any information required for the


proper determination of the dispute. The


absence or default of any Party to the


arbitration shall not be permitted to prevent


or hinder the arbitration proceeding in any or


all of its stages.


arbitration tribunal, the Petroleum Operations


or activities which have given rise to the


arbitration need not be discontinued. In the


event the decision or award recognizes that


the complaint was justified, provisions may be


made therein for such reparation as may be


appropriately made in favor of the


complainant.


29.8 Judgment on the award rendered may be


entered in any court having jurisdiction or


application may be made to such court for a


judicial acceptance of the award and an order


of enforcement, as the case may be.


29.9 The provisions of this Agreement relating to


arbitration shall continue in force notwith¬


standing the termination of this Agreement.


ARTICUM


TEXT


30.1 This Agreement shall be executed in six (6)


originals in the English language.


ARTICLE 31


COORDINATION COMMITTEE


31.1 OGE, Contractor, and representatives of the


Ministry of Oil (Baghdad) shall establish a


Coordination Committee. The purpose of the


Coordination Committee shall be to


coordinate with the competent department of


the Ministry of Oil concerning the project and


status of the Work Program.





31.2 The Coordination Committee shall comprise


six (6) members. The OGE shall appoint two


(2) representatives, Contractor shall appoint


two (2) representatives, and the Ministry of








73


shall appoint two (2) representatives. All the


aforesaid representatives shall have the right


to attend and present their views at meetings


of the Coordination Committee.


31.3 The Coordination Committee shall, by rules


jointly adopted, determine the manner in


which meetings shall be conducted.


31.4 A regular meeting of the Coordination


Committee shall be held at least twice every


year In Erbil or in such other place as the


Coordination Committee may decide. The


secretary shall be responsible for calling such


regular meetings of the Coordination


Committee. Other meetings shall be held at


any time at the request of the Operator or at


least three (3) of the members of the


Coordination Committee. In each case the


secretary shall give the Parties at least fifteen


(15) days notice (or such shorter period as the


Parties may agree) off the proposed meeting


date, the time and location of the meeting.


31.5 The Parties hereby empower the Coordination


Committee to





a) review and examine any Work Program


and Budget proposed by the Contractor


and progress off implementation thereof;


b) review reports on all material aspects of


the project; and


c) review and discuss the development


work and technological regimes


proposed by the Contractor;


31.6 The Coordination Committee shall nominate a


secretary to record minutes of the meetings


of the Coordination Committee. The secretary


shall take a record off each meeting.


31.7 Matters which are within the exclusive








74


purview of the Joint Steering Committee shall


not be matters to be considered by the


Coordination Committee.


ARTICLE 32


EJLFECnVEDAIE


32.1 This Agreement shall enter into force and


effect in its entirety on the date the later of


the following occurs:


a) execution of this Agreement by the duly


authorized representatives of the


Parties;


b) approval and certification of this


Agreement by the Kurdistan Regional


Government;


c) the constitution for the Republic of Iraq


approved by plebiscite in 2005 becomes


effective.








By execution hereof, the OGE, acting in its capacity


as the sovereign representative off the KRG


pursuant to the Current Legislation and the


Contractor Join as Parties to the foregoing


Production Sharing Agreement and consent to the


provisions thereof.


Signed and sealed this2fi.th day of 0///CC.U , 2006


in six (6) copies in English language.


For OGE

















Chief Executive


Officer and


Chairman of OGE











75


 For Contractor





HAWLER ENERGY, LTD.,


a Cayman Islands


company wholly owned


by Prime Natural


Resources, Inc., an


American company


Witnesses


MJk.





M. All Ak By: W. Richard Anderson


Director,


President of Prime


Erdal Ahiska Natural Resources,


Inc.








and


For Contractor





A&T PETROLEUM


COMPANY, LTD., a


Cayman Islands company


wholly owned by


PETOIL, a Turkish





Witnesses


JAaJ'L.





M. All Ak





Erdal Ahiska





Approved and certified on behalf of the


Kurdistan Regional Government





























Prime Minister


Kurdistan Regional Government





 ANNEX A





AGREEMENT AREA











As of the date of execution of this Agreement, the Agreement


Area is the area inside the perimeter constituted by the


straight lines connecting the geographical coordinates set


forth below and as separately identified on the map attached


hereto.











Geographic





Point Latitude Longitude


(North) (East)








A 36° 16’ 15” 44® 18’ 50"


B 36° 16’ 42" 44® 19* 54”


C 36° 19’ 22" 44® 20’ 33”


D 36° 13’ 11" 44° 29’ 22”


E 36® 07* 18" 44® 35’ 48”





F 36° 05’ 53" 44® 31* 06”


G 36° 08' 09" 44" 25* 46"


H 36° 10’ 38" 44® 23’ 24”




































































1


MAP OF AGREEMENT AREA


2


 ANNEX B





ACCOUNTING PROCEDURE


Attached to and made part of the Exploration and


Production Sharing Agreement by and between Oil &


Gas and Petrochemical Establishment of the Kurdistan


Regional Government - Iraq and Hawler Energy, Ltd.


and A&T Petroleum Company, Ltd.








SECTION I


GENERAL PROVISIONS








The purpose of this Accounting Procedure is to


establish equitable methods for determining


charges and credits applicable to operations


under the Agreement which reflect the costs of


Petroleum Operations to the end that no Party


shall gain or lose in relation to other Parties.


It is intended that approval of the Worfc Program


and Budget as provided in the Agreement shall


constitute approval of the rates and allocation


methods used therein to currently charge the


Petroleum Operations Account, but subject to


verification by audit at a later date as provided in


this Accounting Procedure.


1.2 Conflict with Agreement. In the event of a


conflict between the provisions of this


Accounting Procedure and the provisions of the


Agreement to which this Accounting Procedure


is attached, the provisions of the Agreement


shall prevail.


1.3 Definitions. The definitions contained in


Article 1 of the Agreement to which this


Accounting Proceduro is attached shall apply to


this Accounting Procedure and have the same


meanings when used herein. Certain terms used


herein are defined as follows:


"Country of Operations" shall mean KRG


and Iraq.


 "Joint Property" shall mean, at any point of


time, all wells, facilities, equipment,


material, supplies, information, funds and


property held for the Petroleum Operations


Account.





"Material" shall mean personal property


including, but not limited to, all facilities


together with equipment and supplies


acquired and held for use in Petroleum


Operations.





1.4 Patroleum Operations Account








1-4.1 Operator shall at all times maintain and


keep true and correct records of the


production and disposition of all


Petroleum, and of all costs and


expenditures under the Agreement, as


well as other data necessary or proper


for the settlement of accounts between


the Parties hereto in connection with


their rights and obligations under the


Agreement and to enable Contractor to


comply with its applicable income tax


and other laws.





1.4.2 Operator shall maintain accounting


records pertaining to Petroleum


Operations in accordance with


generally accepted accounting


practices used in tho international


petroleum industry and any applicable


statutory obligations of the Country of


Operations as well as tho provisions of


the Agreement.


Petroleum Operations Account records


1.4.3


shall be maintained by Operator in tho


English language and in United States


of America ("U.S.") currency and in


such other language and currency as


may be required by the laws of the


Country of Operations. Conversions of


currency shall be recorded at the rate


actually experienced in that


conversion. Currency translations for


expenditures and receipts shall be ¥


recorded at the rates officially








2


 published by the KRG at the close of


business on the first business day of


the current month.





1.4.4 Any currency exchange gain or losses


shall be credited or charged to the


Petroleum Operations Account, except


as otherwise specified in this Account*


ing Procedure.


1.4.5 The accrual basis for accounting shall


be used in preparing accounts concern¬


ing the Petroleum Operations. If a


"cash” basis for accounting is used,


Operator shall show accruals as


memorandum items.


1.5 Statements and Billings.


1.5.1 Unless otherwise agreed by the Parties,


Operator shall submit monthly to each


Party, on or before the 10" Day of each


month, statements of the costs and


expenditures incurred during the prior


month, Indicating by appropriate


classification the naturo thereof and


the corresponding budget category.


These statements, as a minimum, shall


contain the following information:


- advances of funds setting forth the


currencies received from the


Contractor


- the current account balance of the


Contractor


- summary of costs, credits, and


expenditures on a current month,


year-to-date, and inception-to-date or


other periodic basis, as agreed by


Parties


- details of unusual charges and


credits in excess of U.S. dollars


$10,000 (U.S.S ten thousand).











3


 1


description of the accounting


classifications used by It.





1*5*3 Amounts included In the statements


and billings shall be expressed in U.S.


currency and reconciled to the


currencies advanced.





1.5.4 Contractor shall be responsible for


preparing Its own accounting and tax


reports to meet the requirements of the


Country of Operations and of all other


countries to which It may be subject.


Operator, to tho oxtent that the Infor*


matlon is reasonably nvailablo from the


Petroleum Operations Account records,


shall provide Contractor in a timely


manner with the necessary statements


to facilitate the dlschargo of such


responsibility.


1.5 Payments and Advances. Upon approval of any


Work Program and Budget, Operator shall


provide Contractor with required estimated cash














1.7.1 The Parties, upon at least sixty (60)


Days advance notice in writing to


Operator, shall have the right to audit


the Petroleum Operations Accounts


and records of Operator relating to the


accounting hereundor for any Calendar


Year within the twenty-four (24) month


period following the end of such


Calendar Year. The cost of each such


audit shall be borne by the Party


carrying out the audit. It is provided,


however, that any Party must take


written exception to and make claim


upon the Operator for all discrepancies


disclosed by said audit within said


twenty-four (24) month period. Operator


and the Parties shall make every effort


to rosolve any claim rosulting from an


audit within a rcasonnblo poriod of


time.





4


 1.7.2 Any Information obtained by the


auditing Parties under the provisions of


this Section 1.7 which does not relate


directly to the Petroleum Operations


shall be Kept confidential and shall not


be disclosed to any party, except as


would otherwise be permitted by


Article 27.2 of the Agreement.





1.74 In the event that the Operator is


required by law to employ a public


accounting firm to audit the Petroleum


Operations Account and records of


Operator relating to the accounting


hereunder, the cost thereof shall bo a


charge against the Petroleum


Operations Account, and a copy of tho


audit shall bo furnished to each Party.
































MOTION II


eUUCT CHARGES


Operator shall charge the Petroleum Operations


Account with all costs and expenditures incurred in


connection with Potroloum Operations. It is also


understood that chargos for services normally provided


by an operator such as those contemplated in Section


2.7.2 which are provided by Operator's Affiliates shall


reflect the cost to the Affiliate, excluding profit, for


performing such services, except as otherwise


provided in Section 2.6, Section 2.7.1 and Section 2.5.1


if selected.


The costs and expenditures shall be recorded as


required for the settlement of accounts between the


Parties hereto in connection with the rights and obliga¬


tions under this Agreement and for purposes of comply¬


ing with the tax laws of the Country of Operations and


of such other countries to which any of the Parties may


be subject. Without in any way limiting the generality


of the foregoing, chargeable coats and expenditures


shall Include:





2.1 Licenses. Permits, Etc.





All costs, if any, attributable to the acquisition,


maintenance, renewal or relinquishment of


licenses, permits, contractual and/or surface


rights acquired for Petroleum Operations when


paid by Operator In accordance with the


provisions of the Agreement.





2.2 Salaries, Wages and Related Costs.





2.2.1 Salaries and wages of the employees off





Operator and Its Affiliates in the


Country of Operations directly engaged


in Petroloum Operations whether





temporarily or permanently assigned.





2.2.2 Salaries and wagos of the employees of


Operator and its Affiliates outside the


Country off Operations directly engaged


in Petroloum Operations whether


temporarily or permanently assigned,


and not otherwise covered in Section


2.7.2.





2.2.3 To the extent not included in salaries


and wages, the Petroleum Operations


Account shall also be charged with the


cost to Operator of holiday, vacation,


sickness, disability benefits, living and


housing allowances, travel time,


bonuses, and other customary


allowances applicable to the salaries


and wages chargeable hereunder, as


well as costs to Operator for employee


benefits, including but not limited to


employee group life insurance, group


medical insurance, hospitalization,


retirement, and other benefit plans of a


like nature applicable to labor costs of


Operator. Operator's employees partici¬


pating in Country of Operations benefit


plans may be charged at a percentage


rate to reflect payments or accruals u


mado by Operator applicable to such


employees.











6


 2.2.4 Expenditures or contributions made


pursuant to assessments imposed by


Authority for payments with respect


thereto or on account of such


employoes.





2.2.5 Salaries and wages charged in


accordance with Operator's usual


practice, when and as paid or accrued,


or on a basis of the Operator's avorage


cost per employee for each Job


category; and the rates to be charged


shall be reviewed at least annually. In


determining the average cost per


employee for each Job category,


expatriate and national employee


salaries and wages shall be calculated


separately. During a given period of


time it is understood that some costs


for salaries and wages may be charged


on an actual basis while the remaining


costs for salaries and wages are


charged at a rate based upon the above


described average cost.


2.2.6 Reasonable expenses (including related





travel costs) of those employees whose


salaries and wages are chargeable to


the Petroleum Operations Account


under Sections 2.2.1 and 2.2.2 of this


Section II and for which expenses the


employees are reimbursed undor the


usual practice of Operator.





22.7 If employees are engaged in other


activities in addition to the Petroleum


Operations, the cost of such employees


shall be allocated on an equitable


basis.





2.3 Employ--- Relocation Costs.





2.3.1 Except as provided in Section 2.3.3,


Operator's cost of employees*


relocation to or from the Agreement


Area vicinity or location whore the


employees will reside or work, whother


permanently or temporarily assigned to


the Petroleum Operations. If such


employee works on other activities in








7


addition to Petroleum Operations, such


relocation costs shall be allocated on


an equitable basis.


2.3.2 Such relocation costs shall include


transportation of employees and


families, personal and household


effects of the employee and family,


transit expenses, and all other related


costs in accordance with Operator's


usual practice.


2.3.3 Relocation costs from the vicinity of the


Agreement Area to another location


classified as a foreign location by


Operator shall not be chargeable to the


Potroloum Operations Account unless


such foreign location is the point of


origin of the employee.


Offices, Camps, and Miscellaneous Facilities.


Cost of maintaining any offices, sub-offices,


camps, warehouses, housing, and other facilities


of the Operator and or AfWttM directly serving


the Petroleum Operations. If such facilities


serve operations in addition to the Petroleum


Operations the costs shall be allocated to the


properties served on an equitable basis.











Cost, net of discounts taken by Operator, of


Material purchased or furnished by Operator.


Such costs shall include, but are not limited to,


export brokers' fees, transportation charges,


loading, unloading fees, export and import duties


and liconse fees associated with the


procurement of Material and in-transit losses, W


any, not covered by insurance. So far is H b


reasonably practical and consistent with


efficient and economical operation, only such


Material shall be purchased for, and the cost


thereof charged to, the Petroleum Operations


Account as may be required for immediate use.


2.6.1 Purchasing Fee. When economical to


do so, and required for the benefit of


the Petroleum Operations, Operator


 may request its Affiliates to provide


purchasing, expediting and traffic


coordination services. Charges to the


Petroleum Operations Account for the


provision of these purchasing services





shall be based on a rate agreed to by


the Joint Steering Committee.





2.6 Exclusively Owned Facilities of








Chargos for exclusively owned equipment,


facilities, and utilities of Operator and its


Affiliates at rates not to exceed the average


commercial rates of non-affiliated third parties


then prevailing for like equipment, facilities, and


utilities for use in the area where the same are


used hereunder. On request. Operator shall


furnish the Parties a list of rates and the basis of


application. Such rates shall be revised from


time to timo if found to be either excessive or


insufficient, but not more than once every six


months.


Drilling tools and other equipment lost in the





hole or damaged beyond ropair may be charged


at replacement cost leas depreciation, computed


in accordance with generally accepted


accounting principles practiced in the


International petroleum industry, plus


transportation costs to deliver like equipment to


the location where used.





2.7 Services.








2.7.1 The cost of services provided by third


parties including Affiliates of Oporator


other than those services coverod by


Section 2.7.2. Such charges for


services by Operator's Affiliates shall


not exceed those currently prevailing if


performed by non-affiliated third par¬


ties, considering quality and availability


of services.








2.7.2 The cost off services performed by


Operator’s Affiliates technical and


professional staffs not located within


the Country of Operation. The charges








9


for such services shall not exceed


those currently prevailing if performed


by non-affiliated third parties, consid¬


ering the quality and availability of


such services.


Examples of such services includo, but


are not limited to, the following:


Geologic Studies and


Interpretation


Seismic Data Processing


Well Log Analysis, Correlation and


Interpretation


Laboratory Services


Well Site Geology


Project Engineering


Source Rock Analysis


Petrophysical Analysis


Geochemical Analysis


Drilling Supervision


Development Evaluation


Accounting and


Professional Services


Other Data Processing


Costs shall include salaries and wages


of such technical and professional


personnel, lost time, payroll taxes,


employee benefits, and reasonable


expenses. Costs shall also include all


support costs necessary for such


technical and professional personnel to


perform such services, such as, but not


limited to, rent, utilities, support staff,


drafting, telephone and other


communications expenses, computer


support, supplies, and depreciation.


2.8 Insurance. Premiums paid for insurance


required by law or the Agreement to be carried


for the benefit of the Petroleum Operations.


2.9 Damages and Losses to Property.


2.9.1 All costs or expenditures necessary to


replace or repair damages or losses


incurred by fire, flood, storm, theft


(documented as required under the


laws of Iraq), accident, or any other








10


cause. Operator shall furnish the


Parties written notice of damages or


losses incurred in excess of Twenty


Five thousand U.S. dollars (U.S. $


25.000) as soon as practical after report


of the same has been received by


Operator. All losses in excess of ten


thousand U.S. dollars (U.S. $ 10.000)


shall be listed separately in the monthly


statement of costs and expenditures.


2.9.2 Credits for settlements received from


insurance carried for the benefit of


Petroleum Operations and from others


for losses or damages to Joint Property


or Materials.


2.9.3 Expenditures Incurred in tho settlement


of all losses, claims, damages,


judgments pursuant to a court decision,


and other expenses for the account of


Petroleum Operations.


2.10 Lesa! Expenses.


The costs and expenses of legal services


necessary for the protection of tho Petroleum


Operations under this Agreement as follows:


2.10.1 Legal services necessary or expedient


for the protection of the Petroleum


Operations, and all costs and expenses


of court proceedings, arbitration or


other alternative dispute resolution


procedure, including reasonable


attorneys' fees and expenses, together


with all judgments obtained against the


Parties or any of them arising from the


Petroleum Operations.


2.10.2 If the Parties hereunder shall so agree,


actions or claims affecting the


Petroleum Operations hereunder may


be handled by the legal staff of one or


any of the Parties hereto; and a charge


commensurate with the reasonable


costs of providing and furnishing such


services rendered may bo made by the


Party providing such service to








11 3





 Operator for the Petroleum Operations


Account, but no such charges shall be


made until approved by the Parties.





2.10 Taxes and Duties.


charges, of every kind and nature, assessed or


levied upon or in connection with the Petroleum


Operations, other than any that are measured by


or based upon the revenues, Income and net


worth of tho Contractor. If Operator or an


Affiliate Is subject to incomo or withholding tax


as a result of services porlormod at cost for the


operations under the Agreement, Ms charges for


such services may be increased by the amount


of ouch taxes incurred (grossed up).


2.12 Other ExpendKures. Any other costs and


expenditures incurred by Operator for the


necessary and proper conduct of the Petroleum


Operations In accordanco with approved Work


Programs and Budgets and not covered in this


Section II or in Section III.





SECTION III


OVERHEAD CHARGES





2.1 To the on the Budget


by the Joint





monthly for the cost of


sets of Operator and Ms Affili-


provided In this Accounting


Procedure. Indirect costs chargeable under this


Section III represent the cost of general


counseling and support services provided to


Operator by its Affiliates. These costs are such


that H is not practical to Identify or associate


them with specific projects but are for


which provide Operator W


which Operator requires


il benefit to Petroleum


Operations. No cost or expenditure included


Section II shall be included or duplicated


this Section III.


annual expenditures, calculated on the following


scale (U.S. Dollars):


Annual Expenditures


SO to $1,000,000 of expenditures = 4 %


Next $5,000,000 of expenditures = 3 %


Excess above $6,000,000 of expenditures = 2 %


3.3 Exclusions. The expenditures used to calculate


tho monthly overhead charge shall not include


the overhead charge, rentals on surfaco rights


acquired and maintained for the Petroloum


Operations Account, guarantee deposits,


pipeline tariffs, Taxes paid under the Agreement,


payments to third parties in settlement of


claims, and other similar items.





Credits arising from any government subsidy


payments, disposition of Material, and receipts


from third parties for settlement of claims shall


not be deducted from total expenditures in


determining such overhead charge.





3-4 Overhead Charge for Projects. As to major


construction projects (such as, but not limited


to, pipelines, gas reprocessing and processing


plants, and final loading and terminal facilities)


when the estimated cost of each project


amounts to more than U.S. $ 15.000.000, a


separate overhead charge for such project shall


be set by the Joint Steering Committee at the


time of approval of the project.


SECTION IV


ACQUISITION OP MATERIAL


4.1 Acquisitions. Materials purchased for the


Petroleum Operations Account shall be charged


at net cost paid by the Operator. The price of


Materials purchased shall include, but shall not


be limited to export broker's fees, insurance,


transportation charges, loading and unloading


fees, import duties, license fees, and demurrage


(retention charges) associated with the


procurement of Materials, and applicable taxes,


less all discounts taken.








13


 to the Petroleum


Account whenever practicable, except the


Operator, with the approval of the Joint Stocring


Committee, may furnish such Materials from its


stock under the following conditions:





4-2.1 New Material* (Condition "1"). New


Materials transferred from the


warehouse or other properties of


Operator shall be priced at net cost


determined in accordance with Section


4.1 above, as if Operator had purchased


such new Material just prior to its


transfer.








Such net costs shall in no event exceed


the then current market price.





4.23. V§9* Materials jCondltlo--- _T end


-3").





4.2.2.1 Material which is in sound


and serviceable condition


and suitable for use without


repair or reconditioning shall


be classed as Condition “2“


and priced at seventy-five





percent (75%) of such new


purchase net cost at the time


of transfer in accordance


with the 1982 Onshore


COPAS Accounting


Procedure.





4JI.2.2 Materials not meeting the


requirements of Section


4.2.2.1 above, but which can


be made suitable for use


after being repaired or


reconditioned, shall be


classed as Condition "3" and


priced at fifty percent (80%)


of such new purchase net


coat at the time of transfer in


accordance with the 1982


Onshore COPAS Accounting $





Procedure. The cost of


reconditioning shall also be








14


 charged to the Petroleum


Operations Account provided


the Condition "3" price, plus


cost of reconditioning, does


not exceed the Condition "2"


price; and provided that


Material so classified meet


the requirements for


Condition "2" Material upon


being repaired or recondi¬


tioned.


4.2.2.3 Material which cannot bo





classified as Condition "2** or


Condition "3", shall be priced


at a value commensurate


with its use.





4.2.2.4 Tanks, derricks, buildings,


and other items of Material


involving erection costs, if


transferred in knocked-down


condition, shall be graded as


to condition as provided in


this Section 4.2.2 of Section


IV, and priced on the basis of


knocked-down price of like


new Material.


4.2.2.5 Material including drill pipe,


casing and tubing, which is


no longer useable for its


original purpose but is


useable for some other


purpose, shall be graded as


to condition as provided in


this Section 4.2.2 of Section


IV. Such Material shall be


priced on the basis of the


current price off items


normally used for such other


purpose iff sold to third


parties.


4.3 Premium Prices. Whenever Material is not


readily obtainable at prices specified in Sections


4.1 and 4.2 off this Section IV because off national


emergencies, strikes or other unusual causes


over which Operator has no control, Operator


may charge the Petroleum Operations Account








15


for the required Material at Operator’s actual


cost incurred procuring such Material, in making


It suitable for use, and moving it to the


Agreoment Area, provided that notice in writing,


including a detailed description of the Material


required and the required delivery date, is


furnished to the Parties at least 15 Days (or such


shorter period as may be specified by Operator)


before the Material is projected to be needed for


operations and prior to charging the Petroleum


Operations Account for such Material the cost of


which exceeds One Hundred thousand U.S.


dollars (U.S. $ 100.000).


4.4 Warranty of Material Furnished by Operator.


Operator does not warrant the Material


furnished. In case of defective Material, credit


shall not be passed to the Petroleum Operations


Account until adjustment has been received by


Operator from the manufacturers or their agents.


SECTION V


DISPOSAL OF MATERIALS


B.1 Disposal. Operator shall have the right to


dispose of Materials but shall advise and secure


prior agreement of the Joint Steering Committee


of any proposed disposition of Materials having


an original cost to the Petroleum Operations


Account either individually or in the aggregate of


One Hundred Thousand U.S. Dollars (U.S. $


100.000) or more. When Petroloum Operations


are relieved of Material charged to the Petroleum


Operations Account, Operator shall advise


Contractor of tho original cost off such Material


to the Petroleum Operations Account so that the


Contractor may eliminate such costs from their


asset records. Credits for Material sold by


Operator shall be made to the Petroleum


Operations Account In the month in which


payment is received for the Material. Any


Material sold or disposed of under this Section


shall be on an “as is, where is" basis without


guarantees or warranties of any kind or nature.


Costs and expenditures Incurred by Operator in


the disposition of Materials shall be charged to


the Petroleum Operations Account.


5.2 Material Purchased _by a Parly or Affiliate.


Material purchased from the Joint Property by a








16 cfr


Party or an Affiliate thereof shall be credited by


Operator to the Petroleum Operations Account,


with new Matorlal valued In tho same manner as


new Material undor Soction 4.2.1 and used


Material valued in the samo manner as used


Material under Soction 4.2.2, unloss othorwlso


agreed by the Joint Steering Committee.





5.3 Division In Kind. Division of Matorial in kind, if


mado between the Contractor Parties, shall be in


proportion to their respective interests in such


Material. Each Contractor Party will thereupon


bo chargod individually with the valuo


(determined in accordance with the procoduro


set forth In Soction 5.2) of the Material received


or receivable by It.


B.4 Sales to Third Part)** Matorial purchased from





the Joint Property by third parties shall be


credited by Operator to tho Petroleum


Operations Account at tho net amount collected


by Operator from the buyer. If the sales price is


less than that determined in accordance with


the procedure set forth In Soction 5.2, then


approval by tho Joint Steering Committee shall





be required prior to the sale. Any claims by the


buyor for defective materials or otherwise shall


bo chargod back to the Petroleum Operations


Account If and when paid by Operator.





SECTION VI


INVENTORIES





6.1 Portodlc Inventories - Notice and Represen¬


tation. At reasonable intervals, but at least


annually, inventories shall be taken by Operator


of all Material on which detailed accounting


records are normally maintained. The expense


of conducting periodic inventories shall be


chargod to the Petroleum Operations Account.


Operator shall give the Parties written notice at


least thirty Days (30) in advance of its intention


to take inventory, and the Parties, at their sole


cost and expense, shall each bo ontitled to have


a representative present. Tho failure of any


Party to bo roprosented at such Inventory shall


bind such Party to accept tho inventory taken by


Operator, who shall in that event furnish each


Party with a reconciliation of overages and


shortages. Inventory adjustments to the





•is





17


Petroleum Operations Account shall be made for


equivalent to Fifty Thousand U.6. Dollars (U.S.S


50.000) or more shall be brought to the attention


of the Joint Steering Committee.


6.2 Special Inventories. Whonever there is a sale





or change of interest In the Agreement, a special


invontory may bo taken by the Operator provided


that, the seller and/or purchaser of such Interest


ngjroon to hear all of the expense theroof. In


such cases, both the seller and tho purchaser


shall be entitled to be represented and shall be


governed by the inventory so taken.




























































































f


K


18





 MEMORANDUM OF AGREEMENT








This Memorandum of Agreement is made and


entered into by and between:


(1) Oil & Gas and Petrochemical Establishment


(hereinafter referred to as “OGE") representing


the Kurdistan Regional Government of Iraq


(hereinafter referrod to as “KRG") as the party


of the first part;


(2) Hawler Energy, Ltd., a company incorporated


in the Cayman Islands which Is a wholly owned


subsidiary of Prime Natural Resources, Inc., an


American corporation organized under the


laws of Texas, and A&T Petroleum Company,


Ltd., a company incorporated in Cayman


Islands which is a wholly owned subsidiary of


PETOIL Petroleum and Potroleum Products


International Exploration and Production


Incorporated (“PETOIL"), a Turkish corporation


(hereinafter Hawler Energy, Ltd. and AS.T


Petroleum Company, Ltd. are collectively


referred to as “Contractor") as the parties of


the second part.








The OGE and the Contractor may sometimes be


referred to as -Party" individually or as “Parties"


collectively.





WITNESSETH:








WHEREAS, the Parties have executed an


Exploration and Production Sharing Agreement


Contract covering the Bina Bawl geological


structure within the area of the Kurdistan


Regional Government of the State of Iraq (the


“PSA"); and


WHEREAS, the Partes hava certain


understandings they wish to memorialize;





NOW, THEREFORE, the Parties agree as


follows:


1. Scholarship


The KRG has advised the Contractor that In


appreciation of the sacrifices made by the Unitod


States Armed Forces In Iraq, at Its discretion it


will use a portion of monies it recoives under this


Agreement to fund college scholarships for tho


children of American military and government


personnel killed or permanently disabled whllo


serving in Iraq.


2. Substitute Field


If the Contractor timely and properly


completes the minimum obligatory work program


required under Article 5 of the PSA and no


Commercial Discovery is made, the KRG and the


OOE will offer Contractor a production sharing


agreemant on substantially the same terms as the


PSA covering an area considered to be


prospective of oil.












































2


Signed and sealed this2. 1 th day of $j£ZxJi » 2006








For OGE For Contractor





HAWLER ENERGY, LTD.




















and Chairman of OGE





AMD


A&T PETROLEUM COMPANY,





LTD.


























Approved and certified on


Kurdistan Regional Government




















Nechirvan Barzani


Prime Minister


Kurdistan Regional Government