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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
7«
«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